IHOP 2011 Annual Report Download

Download and view the complete annual report

Please find the complete 2011 IHOP annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 142

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142

2011 Annual Report
Winning
Together.

Table of contents

  • Page 1
    Winning Together. 2011 Annual Report

  • Page 2
    A proven business model A highly efficient bhared bervices infrastructure DineEquity 2011 Annual Report

  • Page 3
    At DineEquity®, our ability to work together not only defines us, it's the key to how we win. A shared commitment A brand building methodology 01

  • Page 4
    ... restaurant sales. With this in mind, we set out several years ago to become a more highly franchised organization. We have made excellent progress toward achieving this goal. With the refranchising of 66 Applebee's company-operated restaurants in the New England area in 2011 and 17 company-operated...

  • Page 5
    ... of increased commodity costs over time. The added value provided by Shared Services is already garnering an encouraging response from franchisees, as several of our key business partners choose to purchase franchise-operated restaurants from DineEquity regardless of brand affiliations. These types...

  • Page 6
    ... increased the distribution outlets selling IHOP gift cards to more than 70,000. Franchise development at IHOP remains on track, with 58 new restaurants opened worldwide in 2011. We are taking measures to improve operations and energize the IHOP brand with more effective marketing, stronger value...

  • Page 7
    ... place to work. I am extremely proud of the progress that we've made in 2011, and look forward to sharing what comes next with you. Lastly, I wish to express my sincere thanks to my Executive Team and our team members, our franchisees, purchasing cooperative, vendor partners, Board of Directors...

  • Page 8
    We are 95% franchised. And 110% committed to our franchisees. 06 DineEquity 2011 Annual Report

  • Page 9
    ... business model is a primary driver of our growth and success. Several years ago, we transitioned our IHOP system to one that is 99% franchised, and today we have nearly achieved that goal with Applebee's. The benefit of having a highly franchised Applebee's system extends far beyond the numbers...

  • Page 10
    ..., Centralized Supply Chain Services, LLC (CSCS) has made tremendous progress in its ability to add value for our organization, brands, guests and franchise community. In 2011, DineEquity realized increased efficiency by consolidating our network of distribution centers from 56 at the time of the...

  • Page 11

  • Page 12
    It's more than what we serve. 10 DineEquity 2011 Annual Report

  • Page 13
    ...-restaurant sales in 2012 and xeyond. It starts with a program of service and value initiatives designed to reinforce our commitment to operational excellence, and extends to taking a comprehensive look at the menu. We are supporting these measures with more effective marketing and stronger value...

  • Page 14
    ... for stronger value propositions and craveable choices. As we develop new menu items, we are guided by a culinary focus of retaining the equity of this iconic brand. For IHOP, this means incorporating some of our guests' favorite breakfast-inspired ï¬,avors - like bacon, hash browns or wafï¬,es...

  • Page 15
    ... our service, speed and value, to ultimately boost IHOP samerestaurant sales. In September 2011, we shared the results of a comprehensive traffic study with our franchisees, and together developed a plan to improve the guest experiences in these key areas. The service and value initiatives that...

  • Page 16
    Doing right. Winning together. 14 DineEquity 2011 Annual Report

  • Page 17
    ... included all DineEquity team members - from management at the restaurant support centers to management working at company-operated restaurants. From these findings, we created plans to address key issues and ensure that every voice counts. Today, we're working to enhance internal communication and...

  • Page 18
    ...our team members and franchisees raise millions of dollars and donate thousands of hours of volunteer service to a spectrum of worthy causes. total of $2.5 million in donations for Children's Miracle Network Hospitals® and other local charities. Since its inception in 2006, National Pancake Day has...

  • Page 19
    ...reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of July 3, 2011: $833.4 million. Indicate the number...

  • Page 20
    ... SUBSIDIARIES Annual Report on Form 10-K For the Fiscal Year Ended December 31, 2011 Table of Contents Page PART I. Item 1-Business Item 1A-Risk Factors Item 1B-Unresolved Staff Comments Item 2-Properties Item 3-Legal Proceedings Item 4-(Removed and Reserved) PART II. Item 5-Market for Registrant...

  • Page 21
    ...IHOP") restaurant opened in 1958 in Toluca Lake, California. Since that time, the Company or its predecessors have engaged in the development, franchising and operation of IHOP restaurants. In November 2007, we completed the acquisition of Applebee's International, Inc. ("Applebee's"). We currently...

  • Page 22
    ... years is set forth in Note 22, Segment Reporting, of the Notes to the Consolidated Financial Statements included in this report. Revenue derived from all foreign countries, in the aggregate, comprises 1% of total consolidated revenue. Restaurant Concepts Applebee's We develop, franchise and operate...

  • Page 23
    ... remaining company-operated Applebee's restaurants while retaining 23 restaurants in one company market in the Kansas City area. This highly franchised business model is expected to require less capital investment, improve margins, and reduce the volatility of cash flow performance over time, while...

  • Page 24
    ... 39 177 In 2011, we completed the refranchising and sale of related restaurant assets of 132 Applebee's company-operated restaurants, 66 of which were located in Massachusetts, New Hampshire, Maine, Rhode Island, Vermont and parts of New York state (collectively, the New England market area), 36 of...

  • Page 25
    ... to enter into development agreements with the new franchisees setting forth requirements for additional development in each market. In 2012, we expect franchisees to open a total of between 25 to 30 new Applebee's franchise restaurants. We do not plan to open any company-operated restaurants. The...

  • Page 26
    ... the franchise fee. Of the 1,535 IHOP restaurants subject to franchise and area license agreements as of December 31, 2011, a total of 453 operate under the Current Business Model. _____ (2) Source: Nation's Restaurant News, "Special Report: Top 100," June 27, 2011 (based on U.S. system-wide sales...

  • Page 27
    ... received by the Company from a typical franchise development arrangement under the Current Business Model include (a) (i) a location fee equal to $15,000 upon execution of a single-store development agreement or (ii) a development fee equal to $20,000 for each IHOP restaurant that the franchisee...

  • Page 28
    ... multi-store development agreements and 64 restaurants under international development agreements. The signed agreements include options to build an additional 84 restaurants over the next 16 years. In 2012, we expect to open a total of 45 to 55 new IHOP restaurants, primarily in the domestic market...

  • Page 29
    ...moderately priced products designed to appeal to a broad base of customers. These include a wide variety of pancakes, waffles, omelets and breakfast specialties, chicken, steak, sandwiches, salads and lunch and dinner specialties. Most IHOP restaurants offer special items for children and seniors at...

  • Page 30
    ... of number of restaurants and market share. IHOP competes in the family dining segment against national and multi-state operators such as Denny's, Cracker Barrel Old Country Store and Bob Evans Restaurants. IHOP also faces a growing level of competition from fast food chains that serve breakfast. In...

  • Page 31
    ... leaves of absence, mandated health benefits or increased tax reporting and tax payment requirements with respect to employees who receive gratuities could be detrimental to the economic viability of our restaurants. In March 2010, President Obama signed the Patient Protection and Affordable Care...

  • Page 32
    .... Restaurants operating in the quick-service and fast-casual segments have been a particular focus. The State of California, New York City and a growing number of other jurisdictions around the United States have adopted regulations requiring that chain restaurants include calorie information on...

  • Page 33
    ... competitive with respect to price, service, location, personnel and the type and quality of food. Each Applebee's and IHOP restaurant competes directly and indirectly with a large number of national and regional restaurant chains, as well as independent businesses. The trend toward convergence...

  • Page 34
    ... expenses and credit card processing fees; the inability to open new restaurants that achieve and sustain acceptable sales volumes; the inability to increase menu pricing to offset increased operating expenses; failure to effectively manage further penetration into mature markets; negative trends...

  • Page 35
    ... and distributors may reduce the profits generated by company-operated restaurants or the payments we receive from franchisees. Changing health or dietary preferences may cause consumers to avoid Applebee's and IHOP's products in favor of alternative foods. The food service industry as a whole rests...

  • Page 36
    ... customers) at a single Applebee's or IHOP location can have a substantial negative impact on the operations of all restaurants within the Applebee's or IHOP system. Multi-unit food service businesses such as ours can be materially and adversely affected by widespread negative publicity of any type...

  • Page 37
    ..., for restaurant development; delays in obtaining construction permits and in completion of construction; developed properties not achieving desired revenue or cash flow levels once opened; competition for suitable development sites; changes in governmental rules, regulations, and interpretations...

  • Page 38
    ...-year period. Therefore, in addition to franchise fees and royalties, the revenues received from an IHOP franchisee operating under the Previous Business Model include, among other things, lease or sublease rents for the restaurant property building, rent under an equipment lease and interest income...

  • Page 39
    ... them subject to business, credit, financial and other risks which may be unrelated to the operations of Applebee's or IHOP restaurants. These unrelated risks could materially and adversely affect a franchisee and its ability to make its franchise payments in full or on a timely basis. Any such...

  • Page 40
    ... planning and execution. Retail brand development initiatives could negatively impact our IHOP brand. Our business expansion into retail product licensing could create new risks to our IHOP brand and reputation. During 2011, IHOP launched a line of premium frozen breakfast entrées and pancake...

  • Page 41
    ... significantly change our reported or expected financial performance. Item 1B. Unresolved Staff Comments. None. Item 2. Properties. The table below shows the location and status of Applebee's and IHOP restaurants as of December 31, 2011: Franchise Applebee's CompanyOperated Total Franchise IHOP...

  • Page 42
    Franchise Applebee's CompanyOperated Total Franchise IHOP CompanyOperated Area License Total Nevada New Hampshire New Jersey New Mexico New York... Wyoming Total Domestic International Brazil Canada Chile Costa Rica Greece Guatemala Honduras Jordan Kuwait Lebanon Mexico Puerto Rico Qatar ...

  • Page 43
    ... or other terms of the sublease. We currently occupy our principal corporate offices and IHOP restaurant support center in Glendale, California, under a lease expiring in June 2020. The Applebee's restaurant support center is located in Kansas City, Missouri under a lease expiring in October 2021...

  • Page 44
    ... of the Board of Directors after consideration of the Company's earnings, financial condition, cash requirements, future prospects and other factors. Securities Authorized for Issuance Under Equity Compensation Plans The following table provides information as of December 31, 2011, regarding shares...

  • Page 45
    ..., based on business, market, applicable legal requirements and other considerations. The program does not require the repurchase of a specific number of shares and may be terminated at any time. As of December 31, 2011, we have repurchased 534,101 shares under this program at an average price of $39...

  • Page 46
    ... of operations and the consolidated balance sheet data for the years ended and as of December 31, 2011, 2010, 2009, 2008 and 2007 are derived from our audited consolidated financial statements. 2011 Segment Revenues Franchise revenues Company restaurant sales Rental income Financing revenues Total...

  • Page 47
    ... 160 Applebee's company-operated restaurants over the next several years while retaining part of the Kansas City area as a Company market. We believe our highly franchised business model requires less capital investment, generates higher gross profit margins and reduces the volatility of free cash...

  • Page 48
    ... change in domestic same-restaurant sales for Applebee's and IHOP; (ii) Applebee's company-operated restaurant operating margin; (iii) net franchise restaurant development for Applebee's and IHOP; (iv) consolidated cash from operations; and (v) consolidated free cash flow. An overview of our 2011...

  • Page 49
    ... 17 company-operated restaurants in January 2012. We anticipate that reaching our goal of a 99% franchisee-operated system may take several years to complete. This highly franchised business model is expected to require less capital investment, improve overall segment profit margins and reduce...

  • Page 50
    ...to capture and report a broad range of sales and product mix data. This information is used by management to, among other things, gauge guest acceptance of menu items and the success of promotions and limited time offers. Optimize Franchise Development Under the Current Business Model, IHOP seeks to...

  • Page 51
    ... customers to change historic purchasing behavior and choose lower-cost dining options or alternatives to dining out. These factors could have an adverse effect on our business, results of operations and financial condition. Sales Trends Domestic System-wide Same Restaurant Sales Increase (Decrease...

  • Page 52
    ... debt. Refranchising of additional Applebee's company-operated restaurants also will result in a reduction of both general and administrative expenses and required capital investment in restaurant assets. Stock Repurchase Program On August 15, 2011, the Board of Directors approved the repurchase of...

  • Page 53
    ...Company Area license Total System-wide(b) Sales percentage change(c) Domestic same-restaurant sales percentage change(d) Franchise(e) Sales percentage change(c) Same-restaurant sales percentage change(d) Average weekly unit sales (in thousands) Company(f) Area License(e) IHOP sales percentage change...

  • Page 54
    ...change does not include data on IHOP restaurants located in Florida. (e) Applebee's domestic franchise restaurant sales, IHOP franchise restaurant sales and IHOP area license restaurant sales for the years ended December 31, 2011, 2010 and 2009 were as follows: Year Ended December 31, Reported sales...

  • Page 55
    ...and IHOP restaurant development and franchising activity. Year Ended December 31, 2011 2010 2009 Applebee's Restaurant Development Activity Total restaurants, beginning of year New openings Franchise Total new openings Closings Company Franchise Total closings Total restaurants, end of year Summary...

  • Page 56
    ...in IHOP effective franchise units and a 2.0% increase in Applebee's domestic system-wide same-restaurant sales. Segment profit for 2011 decreased by $22.2 million, comprised as follows: Year ended December 31 2011 2010 (in millions) Favorable (Unfavorable) Variance • Franchise operations Company...

  • Page 57
    ... Operations 2011 2010 (In millions) Favorable (Unfavorable) Variance % Change(1) Franchise revenues Applebee's IHOP IHOP advertising Total franchise revenues Franchise expenses Applebee's IHOP IHOP advertising Total franchise expenses Franchise segment profit Applebee's IHOP Total franchise segment...

  • Page 58
    ...) Components of Total Variance Total Refranchising Current Variance and Closures Restaurants Applebee's Company-operated Expenses As Percentage of Restaurant Sales Year Ended December 31, 2011 2010 Revenue Food and beverage Labor Direct and occupancy Restaurant Operating Profit Margin (a) _____...

  • Page 59
    ...all of our financing operations relate to IHOP franchise restaurants developed under our business model in effect prior to 2003. Financing operations revenue primarily consists of interest income from the financing of franchise fees and equipment leases, as well as sales of equipment associated with...

  • Page 60
    ..., primarily due to lower stock-based compensation costs, savings due to the refranchising of Applebee's company-operated restaurants and lower expenses for legal and other professional services, partially offset by increases in expenses for salaries and benefits, recruiting and relocation, and...

  • Page 61
    ... in 2011, primarily related to the refranchising and sale of related restaurant assets of 132 Applebee's company-operated restaurants, of which 66 were located in Massachusetts, New Hampshire, Maine, Rhode Island, Vermont and parts of New York state (collectively, the New England market area), 36...

  • Page 62
    ...restaurant sales of (1.3%) at Applebee's company-operated restaurants and the closure of seven Applebee's restaurants in 2010, partially offset by an increase in IHOP and Applebee's effective franchise units. Segment profit for 2010 decreased $15.7 million, comprised as follows: Reported 2010 change...

  • Page 63
    ... segment profit in 2009. The increase in IHOP franchise expenses was due to the costs of sales associated with the increased revenues from franchise advertising fees and higher bad debt expense, partially offset by lower costs of pancake and waffle dry mix sales. Applebee's franchise expenses...

  • Page 64
    ...to increases in facility expenses for property and liability insurance and repair and maintenance, higher national gift card program cost and credit card fees, and the 53rd week in 2009. The 53rd week contributed additional company restaurant segment profit of approximately $4.6 million for Applebee...

  • Page 65
    ... primarily to IHOP restaurants. Rental income includes revenue from operating leases and interest income from direct financing leases. Rental expenses are costs of prime operating leases and interest expense on prime capital leases on franchisee-operated restaurants. Rental segment profit decreased...

  • Page 66
    ... the impact of a higher stock price on equity grants accounted for as liabilities. The increase in salaries and benefits is primarily due to an increase in managers and related training costs and the filling of open positions at Applebee's. The increase in recruiting costs was primarily due to the...

  • Page 67
    ... assets comprised three IHOP company-operated restaurants, various assets related to one IHOP franchise restaurant, one Applebee's company-operated restaurant, a write-down to the estimated sales value based on a current letter of intent of one Applebee's restaurant that had been closed in a prior...

  • Page 68
    ..., changes in unrecognized tax benefits and tax credits. The tax credits are primarily FICA tip and other compensation-related tax credits associated with Applebee's company-owned restaurant operations and credits associated with the Applebee's Restaurant Support Center in Lenexa, Kansas. 50

  • Page 69
    ...Credit Agreement, including those relating to repurchases of other debt securities, permitted acquisitions and payments on equity. The Amendment was included as Exhibit 10.1 of our Current Report on Form 8-K filed on February 28, 2011. Concurrent with the Amendment, on February 25, 2011, the Company...

  • Page 70
    ... to mitigate the effect of changes in LIBOR on variable interest rates. Mandatory Repayments Loans under the Credit Agreement are subject to the following repayment requirements 1% per year of principal balance (the mandatory repayment is based upon the $742.0 million New Term Loan); 50% of excess...

  • Page 71
    ... majority of the remaining Applebee's companyoperated restaurants over the next several years while retaining 23 restaurants in the Kansas City area as a Company market. This highly franchised business model is expected to require less capital investment, improve margins and reduce the volatility...

  • Page 72
    ...'s Restaurant Support Center and an increase of $7.8 million in cash interest payments. The lower segment profit was due, in large part, to the refranchising of 215 Applebee's company-operated restaurants since October 2010. Investing Activities Net cash provided by investing activities in 2011 was...

  • Page 73
    ... shares owned and tendered by employees to satisfy tax withholding obligations on the vesting of restricted stock awards. Such shares are purchased at the closing price of our common stock on the vesting date. Currently, we do not pay a dividend on our common stock. Under our current debt agreements...

  • Page 74
    ...as a significant adverse change in the business climate, unanticipated competition, a loss of key personnel, adverse legal or regulatory developments, or a significant decline in the market price of the Company's common stock. In the process of the Company's annual impairment review of goodwill, the...

  • Page 75
    ... the franchise agreement. Fees from development agreements are deferred and recorded into income when a restaurant under the development agreement is opened. Sales by company-operated restaurants are recognized when food and beverage items are sold. Company restaurant sales are reported net of sales...

  • Page 76
    ... the employee's requisite service period using the straight-line method. The fair value of each employee stock option and restricted stock award is estimated on the date of grant using an option pricing model that meets certain requirements. We currently use the Black-Scholes option pricing model to...

  • Page 77
    ...Level 3 inputs be presented on a gross basis rather than as a net number became effective for us in 2011. As this provision amended only the disclosure requirements for fair value measurements, the adoption had no impact on the our balance sheets, statements of operations or statements of cash flows...

  • Page 78
    ... changes in commodity pricing that cannot be adjusted for by changes in menu pricing or other strategies would not be material to our financial condition, results of operations or cash flows. In February 2009, the Company and owners of Applebee's and IHOP franchise restaurants formed CSCS to manage...

  • Page 79
    Item 8. Financial Statements and Supplementary Data. Index to Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 2011 and 2010 Consolidated Statements of Operations for each of the three years in the period ended December 31, 2011 ...

  • Page 80
    ...Sheets (In thousands, except share amounts) December 31, 2011 2010 Assets Current assets Cash and cash equivalents Receivables, net Inventories Prepaid income taxes Prepaid gift cards Deferred income taxes Assets held for sale Other current assets Total current assets Long-term receivables Property...

  • Page 81
    ...) Year Ended December 31, 2011 2010 2009 Segment Revenues: Franchise revenues Company restaurant sales Rental income Financing revenues Total revenues Segment Expenses: Franchise expenses Company restaurant expenses Rental expenses Financing expenses Total segment expenses Gross segment profit...

  • Page 82
    ... 31, 2008 Net income Interest rate swap, net of tax Temporary decline in available-for-sale securities Comprehensive income Repurchase of restricted shares Net issuance of shares pursuant to stock plans Reissuance of treasury stock Stock-based compensation Tax benefit from stock-based compensation...

  • Page 83
    ... Excess tax benefit from stock options exercised Gain on disposition of assets Other Changes in operating assets and liabilities: Receivables Inventories Prepaid expenses Current income tax receivables and payables Accounts payable Accrued employee compensation and benefits Gift card liability Other...

  • Page 84
    ...2011, there were a total of 2,019 Applebee's restaurants, of which 1,842 were subject to franchise agreements and 177 were company-operated restaurants. The restaurants were located in 49 states, one United States territory and 15 countries outside of the United States. References herein to Applebee...

  • Page 85
    ... maturities at the date of purchase of three months or less to be cash equivalents. These cash equivalents are stated at cost which approximates market value. Restricted Assets Restricted Cash The Company receives funds from Applebee's franchisees pursuant to franchise agreements, usage of which...

  • Page 86
    ... changes in facts and circumstances indicate the period of benefit has become finite. Goodwill has been allocated to three reporting units, the IHOP franchised restaurants unit ("IHOP franchise unit"), Applebee's company-operated restaurants unit ("Applebee's company unit") and Applebee's franchised...

  • Page 87
    ... the franchise agreement. Fees from development agreements are deferred and recorded into income when a restaurant under the development agreement is opened. Sales by company-operated restaurants are recognized when food and beverage items are sold. Company restaurant sales are reported net of sales...

  • Page 88
    ... operations includes local marketing advertising costs incurred by company-operated restaurants, contributions to the national advertising fund made by Applebee's and IHOP company-operated restaurants and certain advertising costs incurred by the Company to benefit future franchise operations. Costs...

  • Page 89
    ... Plan. The Company accounts for all stockbased payments to employees and non-employee directors, including grants of stock options, restricted stock and restricted stock units to be recognized in the financial statements, based on their respective grant date fair values. The Company also reports...

  • Page 90
    ...the cost of proprietary products, pre-opening training expenses and other franchise-related costs. Company Segment As of December 31, 2011, the company restaurant operations segment consists of Applebee's company-operated restaurants, IHOP company-operated restaurants and five restaurants reacquired...

  • Page 91
    ... GAAP and IFRSs ("ASU 2011-04"). The amendments in ASU 2011-04 result in common fair value measurement and disclosure requirements in U.S. GAAP and international financial reporting standards ("IFRS"). To improve consistency in application across jurisdictions some changes in wording are necessary...

  • Page 92
    ...credit card companies used by the Company to process customer transactions. Interest is not charged on gift card receivables and credit card receivables. Financing receivables primarily relate to IHOP franchise development activity prior to 2003 when IHOP typically leased or purchased the restaurant...

  • Page 93
    ... parts of New York and the second agreement related to 17 restaurants located in a six-state market area geographically centered around Memphis, Tennessee. The Company also entered into an agreement for the sale of the land and building of a single Applebee's company-operated restaurant. Accordingly...

  • Page 94
    ... held for sale at December 31, 2011 of $9.4 million was primarily comprised of 17 Applebee's companyoperated restaurants located in a six-state market area geographically centered around Memphis, Tennessee, one parcel of land on which a refranchised Applebee's formerly company-operated restaurant is...

  • Page 95
    ... following components: 2011 (In millions) 2010 Senior Secured Credit Facility, due October 2017, at a variable interest rate of 4.25% and 6.0% as of December 31, 2011 and 2010, respectively Senior Notes due October 2018, at a fixed rate of 9.5% Discount Total debt Less current maturities Long-term...

  • Page 96
    ... general corporate purposes, including working capital, permitted acquisitions, capital expenditure, dividends and investments. The Credit Agreement also provides for an uncommitted incremental facility that permits the Company, subject to certain conditions, to increase the Credit facility by up to...

  • Page 97
    ...to third parties of $4.0 million were recorded as "Debt modification costs" in the Consolidated Statement of Operations for the year ended December 31, 2011. Effective Interest Rate Taking into account fees and expenses associated with the Credit Agreement and the Amendment that will be amortized as...

  • Page 98
    ... by the SEC no later than 270 days after October 19, 2010. The Company complied with this requirement by filing a Registration Statement on Form S-4 that was declared effective by the SEC on June 14, 2011. Deferred Financing Costs In connection with the Credit Agreement and the issuance of the Notes...

  • Page 99
    ... into a sale-leaseback transaction with respect to its support center in Lenexa, Kansas. In connection with this transaction, the Company received approximately $39 million in proceeds. The initial term of the leaseback agreement is 15 years. As the Company had continuing involvement in the form of...

  • Page 100
    ... 162.7 Due to the varying closing date of the Company's fiscal year, 11 monthly payments will be made in fiscal 2012 and 13 monthly payments will be made in fiscal 2015. Included in current maturities of capital lease and financing obligations on the consolidated balance sheet. (2) 10. Leases The...

  • Page 101
    ...on noncancelable leases as lessee at December 31, 2011: Capital Operating Leases Leases (In millions) 2012 2013 2014 2015 2016 Thereafter Total minimum lease payments Less interest Capital lease obligations Less current portion (1) Long-term capital lease obligations $ $ 24.7 $ 24.8 25.0 24.7 23...

  • Page 102
    ... who have worked in company-operated Applebee's restaurants since June 19, 2004. Unlike a class action, a collective action requires potential class members to "opt in" rather than "opt out." On February 12, 2008, 5,540 opt-in forms were filed with the court. In cases of this type, conditional...

  • Page 103
    ... franchise agreements are not VIEs. The Company also assessed whether Centralized Supply Chain Services, LLC ("CSCS"), a purchasing co-operative formed in February 2009 by the Company and owners of Applebee's and IHOP franchise restaurants to manage procurement activities for the Applebee's and IHOP...

  • Page 104
    ... to affiliates of Chilton Investment Company, LLC (collectively, "Chilton") pursuant to a purchase agreement dated as of July 15, 2007. The shares of Series B Convertible Preferred Stock rank (i) senior to the common stock, and any series of preferred stock specifically designated as junior to the...

  • Page 105
    ..., market, applicable legal requirements, and other considerations. The repurchase program does not require the repurchase of a specific number of shares and may be terminated at any time. As of December 31, 2011, the Company has repurchased 534,101 shares of stock for $21.2 million, an average price...

  • Page 106
    ...In April 2011, the Company entered into a sublease termination agreement related to the Company' s sublease of the commercial space occupied by the Applebee's Restaurant Support Center in Lenexa, Kansas. The Company recognized a charge of $23.0 million for the termination fee and other closing costs...

  • Page 107
    ... date. Options vest immediately upon a change in control of the Company, as defined in the Plans. Option exercise prices equal the closing price on the New York Stock Exchange of the Company's common stock on the date of grant. Restricted stock and restricted stock units are issued at no cost...

  • Page 108
    ... date of grant or assumption using the Black-Scholes option pricing model. The Black-Scholes model considers, among other factors, the expected life of the option and the expected volatility of the Company's stock price. The Black-Scholes model meets the requirements of U.S. GAAP but the fair values...

  • Page 109
    ... to these cash-settled restricted stock units. 19. Employee Benefit Plans 401(k) Savings and Investment Plan Effective January 1, 2009, the Company amended the DineEquity, Inc. 401(k) Plan to (i) include salaried and hourly employees of Applebee's, and (ii) modify the Company matching formula. As...

  • Page 110
    ... related tax credits, net of deduction offsets Changes in tax rates and state tax laws Kansas High Performance Incentive Program credits Goodwill intangibles adjustment Non-deductible preferred stock issuance costs Other Effective tax rate 35.0% 3.7 (4.0) 1.7 0.2 (4.9) (3.9) 0.5 - - 0.1 28...

  • Page 111
    ... capitalization and depreciation and amortization of reacquired franchises and equipment Differences in acquisition financing costs Employee compensation Deferred gain on sale of assets Book/tax difference in revenue recognition Michigan business tax Kansas High Performance Incentive Program credits...

  • Page 112
    ... in 2011, $1.2 million is related to the Massachusetts enacted legislation requiring unitary businesses to file combined reports and $1.7 million is related to various state net operating loss carryovers for DineEquity, Inc. and International House of Pancakes, LLC and Subsidiaries. 21. Net Income...

  • Page 113
    .... Net Income (Loss) Per Share (Continued) For the years ended December 31, 2010 and 2009, diluted loss per common share is computed using the basic weighted average number of common shares outstanding during the period, as the 992,600 and 848,000 shares, respectively, from common stock equivalents...

  • Page 114
    .... Segment Reporting Information on segments and a reconciliation to income (loss) before income taxes are as follows: Year Ended December 31, 2011 2010 (In millions) 2009 Revenues Franchise operations Company restaurants Rental operations Financing operations Total Income (loss) before income taxes...

  • Page 115
    ...% owned by the Parent Company at the date of each balance sheet presented. The Term Loans under the Credit Facility are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary. Each entity in the consolidating financial information follows the same accounting...

  • Page 116
    ... receivables Property and equipment, net Goodwill Other intangible assets, net Other assets, net Investment in subsidiaries Total assets Liabilities and Stockholders' Equity Current Liabilities Current maturities of long-term debt Accounts payable Accrued employee compensation and benefits Gift card...

  • Page 117
    ... receivables Property and equipment, net Goodwill Other intangible assets, net Other assets, net Investment in subsidiaries Total assets Liabilities and Stockholders' Equity Current Liabilities Current maturities of long-term debt Accounts payable Accrued employee compensation and benefits Gift card...

  • Page 118
    ...of Operations For the Year Ended December 31, 2011 (in millions) Parent Combined Guarantor Subsidiaries Combined Non-guarantor Subsidiaries Eliminations and Reclassification Consolidated Revenues Franchise revenues Restaurant sales Rental revenues Financing revenues Total revenue Franchise expenses...

  • Page 119
    ...of Operations For the Year Ended December 31, 2010 (in millions) Parent Combined Guarantor Subsidiaries Combined Non-guarantor Subsidiaries Eliminations and Reclassification Consolidated Revenues Franchise revenues Restaurant sales Rental revenues Financing revenues Total revenue Franchise expenses...

  • Page 120
    ...of Operations For the Year Ended December 31, 2009 (in millions) Parent Combined Guarantor Subsidiaries Combined Non-guarantor Subsidiaries Eliminations and Reclassification Consolidated Revenues Franchise revenues Restaurant sales Rental revenues Financing revenues Total revenue Franchise expenses...

  • Page 121
    ... operating activities $ Investing cash flows Additions to property and equipment Principal receipts from long-term receivables Proceeds from sale of assets Other Cash flows provided by (used in) investing activities Financing cash flows Issuance of debt Payment of debt Payment of debt issuance costs...

  • Page 122
    ... operating activities $ Investing cash flows Additions to property and equipment Principal receipts from long-term receivables Proceeds from sale of assets Other Cash flows provided by (used in) investing activities Financing cash flows Issuance of debt Payment of debt Payment of debt issuance costs...

  • Page 123
    ... operating activities $ Investing cash flows Additions to property and equipment Principal receipts from long-term receivables Proceeds from sale of assets Other Cash flows provided by (used in) investing activities Financing cash flows Issuance of debt Payment of debt Payment of debt issuance costs...

  • Page 124
    ... the retirement of debt and Series A Preferred Stock in the 4th quarter of 2010. 25. Subsequent Events On January 11, 2012, the Company completed the sale of 17 Applebee's company-operated restaurants located in a six-state area geographically centered around Memphis, Tennessee and recognized a gain...

  • Page 125
    ... of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the...

  • Page 126
    ... and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing...

  • Page 127
    ... respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of DineEquity...

  • Page 128
    ...over financial reporting. Item 9B. Other Information. None. PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this Item regarding our directors and executive officers is incorporated by reference to our Proxy Statement for the 2012 Annual Meeting...

  • Page 129
    ...and Financial Statement Schedules. (a)(1) Consolidated Financial Statements The following documents are contained in Part II, Item 8 of this Annual Report on Form 10-K: Consolidated Balance Sheets as of December 31, 2011 and 2010. Consolidated Statements of Operations for each of the three years in...

  • Page 130
    ... party thereto (Exhibit 10.2 to Registrant's Form 8-K, filed October 21, 2010 is incorporated herein by reference). 10.35 Asset Purchase Agreement, Applebee's Neighborhood Grill & Bar Restaurants located in the Minneapolis and Duluth Markets, dated July 23, 2010, including amendments and exhibits...

  • Page 131
    ...Independent Registered Public Accounting Firm. *31.1 Certification of CEO pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. *31.2 Certification of CFO pursuant to Rule... plan or arrangement in which directors or executive officers are eligible to participate. 113

  • Page 132
    ..., thereunto duly authorized, on this 1st day of March 2012. DINEEQUITY, INC. By: /s/ JULIA A. STEWART Julia A. Stewart Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf...

  • Page 133
    ... Trailing Twelve Months Ended September 30, 2011 Consolidated Leverage Ratio Calculation: Financial Covenant Debt(1)... used in calculating the above ratios are found in the Credit Agreement, dated October 8, 2010, filed as Exhibit 10.2 to our Current Report on Form 8-K filed on October 21, 2010.

  • Page 134
    ... LLC IHOP Property Leasing, LLC IHOP Properties, LLC IHOP Real Estate, LLC IHOP IP, LLC IHOP Franchise Company, LLC IHOP TPGC, LLC ACM Cards, Inc. Anne Arundel Apple Holding Corporation Applebee's Brazil, LLC Applebee's Canada Corp. Applebee's International, Inc. Applebee's Investments, LLC Applebee...

  • Page 135
    ...Stock Incentive Plan for Non-Employee Directors, and Form S-3/A No. 333-160836 of DineEquity, Inc., and in the related Prospectus • • of our reports dated March 1, 2012, with respect to the consolidated financial statements of DineEquity, Inc. and Subsidiaries and the effectiveness of internal...

  • Page 136
    ... financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ JULIA A. STEWART Julia A. Stewart Chairman and Chief Executive Officer (b) Date: March 1, 2012

  • Page 137
    ...; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ THOMAS W. EMREY Thomas W. Emrey Chief Financial Officer (Principal Financial Officer) b. Date: March 1, 2012

  • Page 138
    ... amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 1, 2012 /s/ JULIA A. STEWART Julia A. Stewart Chairman and Chief Executive Officer _____ This certification accompanies...

  • Page 139
    ...; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 1, 2012 /s/ THOMAS W. EMREY Thomas W. Emrey Chief Financial Officer (Principal Financial Officer) _____ This certification...

  • Page 140
    (This page has been left blank intentionally)

  • Page 141
    ... Chairman, First Q Capital LLC Stephen P. Joyce President and Chief Executive Officer, Choice Hotels International, Inc. Larry A. Kay Chief Executive Officer and Managing Member, BSG Technologies, LLC Caroline W. Nahas Managing Director, Southern California, Korn/Ferry International Gilbert T. Ray...

  • Page 142