IHOP 2012 Annual Report Download

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Delivering
what
we
promised.
2012 annual report

Table of contents

  • Page 1
    Delivering what we promised. 2012 annual report

  • Page 2
    ... to what's next. So will you. Five years ago, we set a series of goals after acquiring Applebee's. Today, we've accomplished them all - and we're a stronger, more aligned, better performing company as a result. We've improved operations, built strong relationships with franchisees, and demonstrated...

  • Page 3
    ...and re-pricing our senior secured credit facility. We reengineered the Applebee's menu for profitability. We've also completed a sale-leaseback agreement for 181 Company-owned properties and improved performance at the Company-owned restaurants. We formed Centralized Supply Chain Services, LLC (CSCS...

  • Page 4
    ... to our guests. In 2012 alone, CSCS calculated that it has generated a Net Positive Financial Impact of $21.2 million for Applebee's franchisees and $15.4 million for IHOP franchisees.1 We've also continued to evolve our DineEquity Shared Services model, in order to leverage expertise across the...

  • Page 5
    ... the development cycle on new restaurant offerings. Like Shared Services, Centers of Excellence bring together talent from across the organization in key areas. Located both in Glendale, CA and Kansas City, KS, each Center of Excellence has a specific focus. The Operations Services team works to...

  • Page 6
    ... 2012, Centralized Supply Chain Services (CSCS) helped franchisees avoid significant additional costs. $21.2 million Applebee's Co-op $15.4 million IHOP Co-op Applebee's. These groups provide a forum for franchisees to share best demonstrated practices, offer counsel and review strategies, working...

  • Page 7
    ... mean? Our strategy for revitalizing brands works. How do we drive restaurant performance at IHOP and Applebee's? By maintaining a relentless focus on the fundamental elements of our brand management approach. Our ingredients include: operations excellence, menu innovation, enhanced marketing...

  • Page 8

  • Page 9
    Delivering what our guests really want.

  • Page 10
    Championing breakfast at IHOP. In 2012, we focused on ways to raise the bar at this iconic brand in order to build an insurmountable lead in the breakfast category. 8

  • Page 11
    9

  • Page 12
    ... American/IHOP-style breakfast can be appreciated anywhere in the world. Revitalizing the IHOP menu We're also focusing on ways to fine-tune every aspect of the brand, in order to build guest interest and deliver maximum value. It all starts with the menu. In 2012, we initiated a menu redesign with...

  • Page 13
    ... year, National Pancake Day brings us together as a company to create a brighter future for children and families across the nation. On IHOP's seventh annual National Pancake Day in 2012, we achieved a new fundraising record, raising more than $3 million in donations for Children's Miracle Network...

  • Page 14
    12

  • Page 15
    ... the way at Applebee's. In 2012, Applebee's retained the number one position in casual dining for the fifth consecutive year. Here's how we intend to keep it. 1 1 Nation's Restaurant News, "Special Report: Top 100," June 25, 2012 (Applebee's rank based on U.S. system-wide sales in the casual...

  • Page 16
    ...too. On December 10, 2012, Applebee's franchisee Apple Metro opened the first Leadership in Energy and Environmental Design (LEED)-certified Gold restaurant in New York City, located on 117th Street in Harlem. This Applebee's boasts at least 45 environmentally friendly features - including a rooftop...

  • Page 17
    ... menu innovation, new product launches, core menu improvements and by identifying ways to reduce cost and complexity at the back-ofthe-house. We're looking at ways to adapt our food, menu, service model and pricing to meet guests' needs during every daypart, whether it's lunch, dinner or late night...

  • Page 18
    ... Chief Executive Officer and Managing Member, BSG Technologies, LLC Caroline W. Nahas Managing Director, Southern California, Korn/Ferry International Douglas M. Pasquale Former Chairman, President and Chief Executive Officer, Nationwide Health Properties, Inc. Gilbert T. Ray Independent Consultant...

  • Page 19
    ... 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 June 30, 2012: $680.9 million. Indicate the number of shares outstanding of each of the...

  • Page 20
    ...SUBSIDIARIES Annual Report on Form 10-K For the Fiscal Year Ended December 31, 2012 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-Mine Safety Disclosures ...PART II. Item 5-Market...

  • Page 21
    ...franchised business model requires less capital investment and general and administrative overhead, generates higher gross profit margins and reduces the volatility of free cash flow performance, as compared to a model based on operating a significant number of company-owned restaurants. This report...

  • Page 22
    ... pay Weight Watchers a royalty equal to 2.5% of the proceeds from the sale of Weight Watchers-endorsed items on the Applebee's menu. The agreement has been extended through at least November 2014. _____ (1) Source: Nation's Restaurant News, "Special Report: Top 100," June 25, 2012 (market share...

  • Page 23
    ... for up to an additional 20 years, upon payment of an additional franchise fee. Our current standard domestic Applebee's franchise arrangement calls for an initial franchisee fee of $35,000 and a royalty fee equal to 4% of the restaurant's monthly net sales. We have agreements with a majority of our...

  • Page 24
    ... 2012, the remaining 23 Applebee's company-operated restaurants were located in the Kansas City market area. We intend to operate these restaurants primarily to test new remodel programs, operating procedures, products, technology, cooking platforms and service models. Restaurant Development We make...

  • Page 25
    ... restaurants opened outside of the United States. IHOP We develop, franchise and operate restaurants in the family dining category of the restaurant industry under the names IHOP and International House of Pancakes. IHOP is the largest family dining brand in the world in terms of system-wide sales...

  • Page 26
    ... 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. IHOP restaurants offer special Under 600 Calories items for children...

  • Page 27
    The revenues we receive 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-restaurant development agreement or (ii) a development fee equal to $20,000 for each IHOP restaurant that the ...

  • Page 28
    ... to open a total of 50 to 60 new IHOP restaurants, primarily in the domestic market. The following table represents our IHOP restaurant development commitments, including options, as of December 31, 2012: Number of Signed Agreements at 12/31/12 Contractual Openings of Restaurants by Year 2013 2014...

  • Page 29
    ... 63.6% 29.5% 100.0% Marketing and Advertising IHOP franchisees and company-operated restaurants contribute a percentage of their sales to local advertising cooperatives and a national advertising fund. The franchise agreements provide for local and national advertising fees. The local advertising...

  • Page 30
    ...wine and beer. Applebee's is the largest casual dining brand in the world, in terms of number of restaurants and market share. IHOP competes in the family dining segment and the breakfast sub-segment against national and multi-state operators such as Denny's, Cracker Barrel Old Country Store and Bob...

  • Page 31
    ... 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 their menus or make other...

  • Page 32
    ... impact the financial performance of Applebee's or IHOP company-operated restaurants, as reduced gross sales result in downward pressure on margins and profitability. These factors could also: • • reduce gross sales at franchise restaurants, resulting in lower royalty payments from franchisees...

  • 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
    ... the gross sales or profitability at Applebee's or IHOP restaurants, which would reduce the revenues generated by company-owned restaurants and the franchise payments received from franchisees. Our business strategy may not achieve the anticipated results. We expect to continue to apply a business...

  • Page 35
    ... by Applebee's or IHOP restaurants. We may not be able to adequately adapt Applebee's or IHOP restaurants' menu offerings to keep pace with developments in consumer preferences, which may result in reductions to the revenues generated by our company-operated restaurants and the franchise payments we...

  • Page 36
    ... terms of their franchise agreements, including underreporting of sales , failure to operate restaurants according to standard operating procedures and payment defaults. Such claims may reduce the profits generated by company-operated restaurants and the ability of franchisees to make payments to us...

  • Page 37
    ... or across the United States. Other labor shortages or increased team member turnover could also increase labor costs. In addition, our vendors may be affected by higher minimum wage standards or availability of labor, which may increase the price of goods and services they supply to us. We continue...

  • Page 38
    ... revenue from company restaurant sales and any increase in general and administrative expenses may have a greater impact on our financial condition and business results. While our franchise agreements are designed to maintain brand consistency, this increase in the franchised-operated restaurants...

  • Page 39
    ...-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 40
    ..., fraudulent manipulation of sales reporting from our restaurants resulting in loss of sales and royalty payments, or a breach in security of these systems could be harmful and cause delays in customer service and reduce efficiency in our operations. Significant capital investments might be required...

  • Page 41
    ... 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 42
    Item 2. Properties. The table below shows the location and ownership type of Applebee's and IHOP restaurants as of December 31, 2012: Franchise Applebee's Company Total Franchise IHOP Company Area License Total United States Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware...

  • Page 43
    ... defaults in the payment of rent 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...

  • Page 44
    ... and forecast earnings, financial condition, cash requirements, the limitations referenced above and other factors. On February 26, 2013, our Board of Directors approved payment of a cash dividend of $0.75 per share of our common stock, payable at the close of business on March 29, 2013 to the...

  • Page 45
    ... number of shares and may be terminated at any time. We did not repurchase any shares of our common stock during 2012. As of December 31, 2012, we have repurchased 534,101 shares of common stock under this program at an average price of $39.64 per share. On February 26, 2013, our Board of Directors...

  • Page 46
    ...Composite Index and the Value-Line Restaurants Index ("Restaurant Index") over the five-year period ended December 31, 2012. The graph and table assume $100 invested at the close of trading on the last day of trading in 2007 in our common stock and in each of the market indices, with reinvestment of...

  • Page 47
    ...'s Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Annual Report on Form 10-K. The consolidated statement of operations information and the consolidated balance sheet data for the years ended and as of December 31, 2012, 2011, 2010, 2009 and...

  • Page 48
    ... majority of the company-owned restaurants operated by Applebee's when we closed the acquisition five years ago. We believe a highly franchised business model requires less capital investment and general and administrative overhead, generates higher gross profit margins and reduces the volatility...

  • Page 49
    ...domestic system-wide same-restaurant sales ...Net franchise restaurant development(1)...and refranchised IHOP restaurants IHOP (1.6)% 31 1.2% 15 (1) Franchise and area license openings, net of closings and the refranchising of 154 Applebee's company-operated restaurants and two rehabilitated For...

  • Page 50
    ... public relations and marketing plan to re-connect with the neighborhood. Our franchisees have embraced this initiative and by year-end 2012, over 50% of the restaurants in the domestic system have been revitalized. The Company achieved its strategy to transition to a 99% franchise-operated Applebee...

  • Page 51
    ...this work. Substantially all IHOP restaurants are using pollable point-of-sale systems 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...

  • Page 52
    ... of the Current Business Model and our franchisees have a pipeline of 285 additional new restaurants committed, optioned or pending. In 2012, an IHOP franchisee opened the first IHOP restaurants in the Middle East demonstrating the interest in the IHOP brand outside of North America. In 2013, a new...

  • Page 53
    ...since the Applebee's acquisition, the amounts reported in future periods for company-operated restaurant revenues and expenses will be considerably smaller, while franchise royalty revenues and expenses should increase. Our segment profit margin percentage will increase but total segment profit will...

  • Page 54
    ...in debt each year subsequent to ... discount and deferred issuance costs ...current debt. Gains on disposition of assets relate primarily to the refranchising and sale of related restaurant assets of Applebee's companyoperated restaurants. Since we have achieved our goal of becoming 99% franchised...

  • Page 55
    ... sales. Management also uses this information to make decisions about future plans for the development of additional restaurants as well as evaluation of current operations. Year Ended December 31, 2012 2011 2010 Applebee's Restaurant Data Effective restaurants:(a) Franchise ...Company ...Total...

  • Page 56
    ... of 10 restaurants in a single test market, along with a variable, small number of restaurants that are reacquired from franchisees from time-to-time and temporarily operated by the Company. (g) The sales percentage change for Applebee's franchise and company-operated restaurants is impacted...

  • Page 57
    ...'s and IHOP restaurant development and franchising activity. 2012 Year Ended December 31, 2011 2010 Applebee's Restaurant Development Activity Total restaurants, beginning of year...New openings: Franchise ...Total new openings...Closings: Company ...Franchise ...Total closings...Total restaurants...

  • Page 58
    ... profit was primarily due to the net effect of refranchising 286 Applebee's company-operated restaurants in 2012 and 2011, the decrease in IHOP domestic system-wide same-restaurant sales and a write-off of deferred lease rental income associated with franchised restaurants whose lease agreements...

  • Page 59
    ... in IHOP domestic franchise same-restaurant sales. IHOP added a net total of 33 franchise and area license restaurants during 2012 due to development. Applebee's franchise expenses increased primarily due to insurance costs associated with restaurants that were previously company-operated. Applebee...

  • Page 60
    ...) Components of Total Variance Total Current Variance Refranchised Restaurants Applebee's Company-Operated Expenses As Percentage of Restaurant Sales Year Ended December 31, 2012 2011 Revenue ...Food and beverage...Labor...Direct and occupancy ...Restaurant operating profit margin(1) ..._____...

  • Page 61
    ... franchise restaurants that were developed under the Previous Business Model described under "Item 1. - Business - Restaurant Concepts - IHOP - Franchising." Financing operations revenue primarily consists of interest income from the financing of franchise fees and equipment leases, as well as sales...

  • Page 62
    ... of Applebee's company-operated restaurants and payroll credits related to the relocation of the Applebee's Restaurant Support Center in the fourth quarter of 2011. In total, employee compensation costs were essentially unchanged from 2011. Recruiting and relocation expenses were lower in 2012...

  • Page 63
    .... The 2012 effective tax rate of 34.5% applied to pretax book income was lower than the statutory Federal tax rate of 35% primarily related to a reduction in state deferred taxes as a result of the refranchising and sale of Applebee's company-operated restaurants and compensation-related tax credits...

  • Page 64
    ... Restaurant Support Center in Lenexa, Kansas. • • Franchise Operations Year ended December 31, 2011 2010 (In millions) Favorable (Unfavorable) Variance % Change(1) Franchise revenues Applebee's...$ IHOP ...IHOP advertising ...Total franchise revenues...Franchise expenses Applebee's...IHOP...

  • Page 65
    ...to increased royalty revenue resulting from a 9.2% increase in the number of effective franchise restaurants and a 2.0% increase in domestic same-restaurant sales. Applebee's effective franchise restaurant count increased by 149 due to the refranchising of 132 Applebee's company-operated restaurants...

  • Page 66
    ... on restaurant operating profit margin, primarily because the markets refranchised had higher-than-average labor costs. In terms of specific cost categories at currently operating company restaurants: • Food and beverage costs as a percentage of company restaurant sales increased 0.2%, primarily...

  • Page 67
    ...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 68
    ...flows based on our cost of capital. Impairment and closure charges for the year ended December 31, 2011 were primarily comprised of $23.0 million related to termination of our sublease of the commercial space occupied by Applebee's Restaurant Support Center in Lenexa, Kansas through October 31, 2011...

  • Page 69
    ... Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010. (3) Including write-off of the discount and deferred financing costs related to the debt retired. In 2011, at the dates of repurchase, our Senior Notes were selling...

  • Page 70
    ...to 4.25%, the rate in effect for all of 2012. Taking into account fees and expenses associated with the Credit Agreement and Amendment No. 1 that are amortized as additional non-cash interest expense over a seven-year period, the weighted average effective interest rate for the Credit Facility as of...

  • Page 71
    ... exercise of options to purchase our common stock, less any amounts paid as dividends or to repurchase our common stock. February 2013 Amendment On February 4, 2013, we entered into Amendment No. 2 ("Amendment No. 2") to the Credit Agreement. Pursuant to Amendment No. 2, the interest rate margin for...

  • Page 72
    ... information contained within our financial statements. Franchising of Applebee's Company-Operated Restaurants In October 2012, we achieved our stated goal of transitioning Applebee's to a 99% franchised system, similar to IHOP's 99% franchised system. We believe a highly franchised business model...

  • Page 73
    ... financing operations. Franchise revenues consist of royalties, IHOP advertising fees and sales of proprietary products for IHOP, each of which fluctuates with increases or decreases in franchise retail sales. Franchise retail sales are impacted by the development of IHOP and Applebee's restaurants...

  • Page 74
    ... forecast earnings, financial condition, cash requirements, limitations under the Credit Agreement and other factors. On February 26, 2013, our Board of Directors approved payment of a cash dividend of $0.75 per share of the our common stock, payable at the close of business on March 29, 2013 to the...

  • Page 75
    ... in the same amount each year unless collateral requirements change. (5) In some instances, IHOP and Applebee's may be required to guarantee their purchase of any remaining inventory of certain food and other items purchased on their behalf for the purpose of supplying limited time promotions. 57

  • Page 76
    ... to determine fair value under the discounted cash flows model include future trends in sales, operating expenses, overhead expenses, depreciation, capital expenditures and changes in working capital, along with an appropriate discount rate based on our estimated cost of equity capital and after-tax...

  • Page 77
    ...initial services required by the franchise agreement. Fees from development agreements are deferred and recorded into income as restaurants under the development agreement are opened. Sales by company-operated restaurants are recognized when food and beverage items are sold. Company restaurant sales...

  • Page 78
    ... our non-current liabilities on the consolidated balance sheets. Management makes judgments regarding the probable term for each restaurant property lease, which can impact the classification and accounting for a lease as capital or operating, the rent holiday and/or escalations in payment that are...

  • Page 79
    ... Credit Agreement. Investments in instruments earning a fixed rate of interest carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates. We currently do not hold any fixed rate investments. As of December 31, 2012...

  • Page 80
    ... 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 procurement activities for the Applebee's and IHOP restaurants...

  • Page 81
    Item 8. Financial Statements and Supplementary Data. Index to Consolidated Financial Statements Page Reference Consolidated Balance Sheets as of December 31, 2012 and 2011 ...Consolidated Statements of Operations and Comprehensive Income for each of the three years in the period ended December 31,...

  • Page 82
    ... Consolidated Balance Sheets (In thousands, except share amounts) December 31, 2012 2011 Assets Current assets: Cash and cash equivalents ...Receivables, net ...Prepaid income taxes ...Prepaid gift cards ...Deferred income taxes ...Assets held for sale ...Other current assets...Total current assets...

  • Page 83
    ... Statements of Operations and Comprehensive Income (In thousands, except per share amounts) Year Ended December 31, 2012 2011 2010 Segment Revenues: Franchise revenues ...$ Company restaurant sales...Rental revenues ...Financing revenues...Total segment revenues...Segment Expenses: Franchise...

  • Page 84
    ...stock ...Balance, December 31, 2010 ...Net income ...Other comprehensive loss ...Repurchase of restricted shares ...Purchase of DineEquity common stock ...Net issuance of shares pursuant to stock plans...Reissuance of treasury stock ...Stock... notes to the consolidated financial statements. 66

  • Page 85
    ......Current income tax receivables and payables ...Other current assets ...Accounts payable...Accrued employee compensation and benefits ...Gift card liability ...Other accrued expenses ...Cash flows provided by operating activities...Cash flows from investing activities Additions to property...

  • Page 86
    ... located primarily in the United States. Financing receivables arise from the financing of restaurant equipment, leases or franchise fees by IHOP franchisees. The Company is subject to a concentration of credit risk with respect to receivables from franchisees that own a large number of Applebee...

  • Page 87
    ... 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 is...

  • Page 88
    ... value under the discounted cash flows model include future trends in sales, operating expenses, overhead expenses, depreciation, capital expenditures and changes in working capital, along with an appropriate discount rate based on the Company's estimated cost of equity capital and after-tax cost...

  • Page 89
    ...initial services required by the franchise agreement. Fees from development agreements are deferred and recorded into income as restaurants under the development agreement are opened. Sales by company-operated restaurants are recognized when food and beverage items are sold. Company restaurant sales...

  • Page 90
    ... to company restaurant expenses in the consolidated statements of operations. Pre-opening Expenses Expenditures related to the opening of new or relocated restaurants are charged to expense when incurred. Advertising Franchise fees designated for IHOP's national advertising fund and local marketing...

  • Page 91
    ... the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Stock-Based Compensation Members of the Board of Directors and certain employees are eligible to receive stock options...

  • Page 92
    ... United States territories and five countries outside of the United States. Franchise operations revenue consists primarily of franchise royalty revenues, sales of proprietary products (primarily IHOP pancake and waffle dry-mixes) and the portion of the franchise fees allocated to IHOP and Applebee...

  • Page 93
    ... its fair value, the adoption of ASU 2012-02 is not anticipated to have a material impact on the Company's consolidated financial statements. The Company reviewed all other newly issued accounting pronouncements and concluded that they either are not applicable to the Company's operations or that...

  • Page 94
    ... from credit card companies used by the Company to process customer transactions. Interest is not charged on gift card and credit card receivables. Financing receivables primarily relate to IHOP franchise development activity prior to 2003 when IHOP typically leased or purchased the restaurant site...

  • Page 95
    ...'s company-operated restaurants located in a six-state market area geographically centered around Memphis, Tennessee, the 137 Applebee's company-operated restaurants transferred into assets held for sale during 2012 and two parcels of land previously intended for future restaurant development...

  • Page 96
    ...determine fair value under the discounted cash flows model include future trends in sales, operating expenses, overhead expenses, depreciation, capital expenditures, and changes in working capital, along with an appropriate discount rate. During the fiscal years ended 2012 and 2011, the Company made...

  • Page 97
    ..., at a fixed rate of 9.5% ...Discount...Total debt ...Less current maturities...Long-term debt ...$ Senior Secured Credit Facility 472.0 $ 760.8 (23.3) 1,209.5 (7.4) 1,202.1 $ 682.5 765.8 (29.4) 1,418.9 (7.4) 1,411.4 On October 8, 2010, the Company entered into a Credit Agreement, by and among...

  • Page 98
    ... Interest Rate Taking into account fees and expenses associated with the Credit Agreement and Amendment No. 1 that will be amortized as additional non-cash interest expense over a seven-year period, the weighted average effective interest rate for the Credit Facility as of December 31, 2012 was...

  • Page 99
    ... of the Company and its restricted subsidiaries to incur additional indebtedness (excluding certain indebtedness under the Credit Facility), issue certain preferred shares, pay dividends and make other equity distributions, purchase or redeem capital stock, make certain investments, create certain...

  • Page 100
    ...May 19, 2008, the Company entered into a Purchase and Sale Agreement relating to the sale and leaseback of 181 parcels of real property (the "Sale-Leaseback Transaction"), each of which is improved with a restaurant operating as an Applebee's Neighborhood Grill and Bar (the "Properties"). On June 13...

  • Page 101
    ... Company's fiscal year, 13 monthly payments will be made in fiscal 2015. Included in current maturities of capital lease and financing obligations on the consolidated balance sheet. 10. Leases The Company leases the majority of all IHOP franchise restaurants. The restaurants are subleased to IHOP...

  • Page 102
    ... Financial Statements (Continued) 10. Leases (Continued) The following is the Company's net investment in equipment leases receivable: December 31, 2012 (In millions) 2011 Total minimum leases receivable...$ Less unearned income...Net investment in equipment leases receivables ...Less current...

  • Page 103
    ... and other items. Most of these agreements are fixed price purchase commitments. At December 31, 2012, the outstanding purchase commitments were $137.5 million, the majority of which related to advertising. Lease Guarantees and Contingencies In connection with the sale of Applebee's restaurants to...

  • Page 104
    ... cash. Total issuance costs were approximately $0.8 million. All of the shares were sold 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 ranked (i) senior to the...

  • Page 105
    ... declared or paid on common shares in 2012, 2011 or 2010. Payment of dividends is subject to limitations under our Credit Agreement. We evaluate dividend payments on common stock within the context of our overall capital allocation strategy with our Board of Directors on an ongoing basis, giving...

  • Page 106
    ... 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. Long-lived Tangible Asset...

  • Page 107
    ... 2012. The 2005 Stock Incentive Plan for Non-Employee Directors (the "2005 Plan") was adopted in 2005 to authorize the issuance of up to 200,000 shares of common stock to non-employee members of the Company's Board of Directors. Awards may be made in common stock, in options to purchase common stock...

  • Page 108
    ... Financial Statements (Continued) 16. Stock-Based Incentive Plans (Continued) Stock Options - Equity Classified Awards Stock option activity for the years ended December 31, 2012, 2011 and 2010 is summarized as follows: Weighted Average Remaining Contractual Term (in Years) Number of Shares...

  • Page 109
    ... members of the Board of Directors.These instruments are recorded as liabilities at fair value as of the respective period end. Activity in liability classified awards of restricted stock units for the years ended December 31, 2012, 2011 and 2010 is as follows: Weighted Average Per Share Fair Value...

  • Page 110
    ... from a prior employee stock ownership plan. Substantially all of the administrative cost of the 401(k) plan is borne by the Company. The Company's contribution was $2.1 million, $2.4 million and $3.0 million for the years ended December 31, 2012, 2011 and 2010, respectively. 18. Income Taxes The...

  • Page 111
    ...authorities for years before 2008. The Internal Revenue Service commenced examination of the Company's U.S. federal income tax return for the tax years 2008 to 2010 in the first quarter of 2012. The examination is anticipated to be completed by the first quarter of 2013. The total gross unrecognized...

  • Page 112
    ... million in 2012 is related to various state net operating loss carryovers for DineEquity, Inc. and International House of Pancakes, LLC and Subsidiaries. 19. Net Income (Loss) Per Share The computation of the Company's basic and diluted net income (loss) per share is as follows: Year Ended December...

  • Page 113
    ... Financial Statements (Continued) 20. Segment Reporting Information on segments and a reconciliation to income (loss) before income taxes are as follows: Year Ended December 31, 2011 (In millions) 2012 2010 Revenues Franchise operations ...Company restaurants...Rental operations...Financing...

  • Page 114
    ...% 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 115
    ... Financial Statements (Continued) 21. Consolidating Financial Information (Continued) Supplemental Condensed Consolidating Balance Sheet December 31, 2012 (In millions(1)) Combined Guarantor Subsidiaries Combined Non-guarantor Subsidiaries Eliminations and Reclassification Parent Consolidated...

  • Page 116
    ... and Reclassification Parent Consolidated Assets Current Assets Cash and cash equivalents ...Receivables, net ...Prepaid expenses and other current assets ...Deferred income taxes ...Assets held for sale ...Intercompany ...Total current assets...Long-term receivables ...Property and equipment...

  • Page 117
    ... Statement of Operations For the Year Ended December 31, 2012 (In millions(1)) Combined Guarantor Subsidiaries Combined Non-guarantor Subsidiaries Parent Eliminations and Reclassification Consolidated Franchise revenues...$ Restaurant sales...Rental revenues...Financing revenues ...Total revenue...

  • Page 118
    ... Statement of Operations For the Year Ended December 31, 2011 (In millions(1)) Combined Guarantor Subsidiaries Combined Non-guarantor Subsidiaries Parent Eliminations and Reclassification Consolidated Franchise revenues...$ Restaurant sales...Rental revenues...Financing revenues ...Total revenue...

  • Page 119
    ... Statement of Operations For the Year Ended December 31, 2010 (In millions(1)) Combined Guarantor Subsidiaries Combined Non-guarantor Subsidiaries Parent Eliminations and Reclassification Consolidated Franchise revenues...$ Restaurant sales...Rental revenues...Financing revenues ...Total revenue...

  • Page 120
    ... . Proceeds from sale of assets ...Other ...Cash flows provided by (used in) investing activities ...Financing cash flows Revolving credit borrowings...Revolving credit repayments ...Payment of debt ...Payment of debt issuance costs...Purchase of DineEquity common stock...Restricted cash ...Other...

  • Page 121
    ... . Proceeds from sale of assets ...Other ...Cash flows provided by (used in) investing activities ...Financing cash flows Revolving credit borrowings...Revolving credit repayments ...Payment of debt ...Payment of debt issuance costs...Purchase of DineEquity common stock...Restricted cash ...Other...

  • Page 122
    ... 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...Redemption of Series A preferred stock...

  • Page 123
    ... for the Applebee's Restaurant Support Center in Lenexa, Kansas in the 2nd quarter of 2011. 23. Subsequent Events On February 4, 2013, the Company entered into Amendment No. 2 ("Amendment No. 2") to the Credit Agreement. Pursuant to Amendment No. 2, the interest rate margin applicable to LIBOR...

  • Page 124
    ... of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform...

  • Page 125
    ... 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 126
    ... the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of DineEquity, Inc. and Subsidiaries as of December 31, 2012 and 2011 and the related consolidated statements of operations and comprehensive income, stockholders' equity and...

  • Page 127
    ... information required by this Item regarding our directors and executive officers is incorporated by reference to our Proxy Statement for the 2013 Annual Meeting of Shareholders ("2013 Proxy Statement") to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2012...

  • Page 128
    ...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, 2012 and 2011. Consolidated Statements of Operations for each of the three years in...

  • Page 129
    ... Corp. 2001 Stock Incentive Plan Non-qualified Stock Option Agreement (Exhibit 10.15 to Registrant's 2003 Form 10-K is incorporated herein by reference). †10.21 IHOP Corp. 2005 Stock Incentive Plan for Non-Employee Directors (Appendix "A" to Registrant's Proxy Statement for the Annual Meeting of...

  • Page 130
    ...DineEquity, Inc. *23.1 Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. *31.1 Certification of CEO pursuant to Rule 13a...2002. _____ * Filed herewith. †A contract, compensatory plan or arrangement in which directors or executive officers are eligible to participate. 112

  • Page 131
    ..., thereunto duly authorized, on this 27th day of February 2013. 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 132
    ...for the Trailing Twelve Months Ended December 31, 2012 Consolidated Leverage Ratio Calculation: Financial Covenant Debt(1) ...$ ...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 133
    ... of Canada, LTD. IHOP of Canada ULC IHOP Holdings, LLC IHOP Franchising, 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...

  • Page 134
    ... for Non-Employee Directors; Form S-8 No. 333-174847 pertaining to the DineEquity, Inc. 2011 Stock Incentive Plan; and Form S-4/A No. 333-173549 pertaining to the 9.5% Senior Notes due 2018 • • • of our reports dated February 27, 2013, with respect to the consolidated financial statements of...

  • Page 135
    ... 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: February 27, 2013

  • Page 136
    ... in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who...

  • Page 137
    ...connection with the Annual Report on Form 10-K of DineEquity, Inc. (the "Company") for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Julia A. Stewart, Chairman and Chief Executive Officer of the Company, do hereby certify...

  • Page 138
    ...of 2002 In connection with the Annual Report on Form 10-K of DineEquity, Inc. (the "Company") for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas W. Emrey, as Chief Financial Officer of the Company, do hereby certify...

  • Page 139
    ... Los Angeles, CA Investor Information DineEquity's common stock is traded on the New York Stock Exchange under the symbol "DIN." For more information on DineEquity, you may visit the Investor Information section of the Company's Web site at www.dineequity.com for current news, investor conference...

  • Page 140