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44
Franchise Operations
Year ended December 31,
Favorable
(Unfavorable) Variance
2013 2012 $%(2)
(In millions, except percentages and number of restaurants)
Effective Franchise Restaurants:(1)
Applebee’s............................................................................ 1,996 1,894 102 5.4 %
IHOP .................................................................................... 1,581 1,544 37 2.4 %
Franchise Revenues:
Applebee’s....................................................................... $ 199.2 $ 185.9 $ 13.3 7.2 %
IHOP................................................................................ 160.5 159.1 1.4 0.8 %
IHOP advertising............................................................. 79.5 76.4 3.1 3.9 %
Total franchise revenues ...................................................... 439.2 421.4 17.8 4.2 %
Franchise Expenses:
Applebee’s....................................................................... 5.7 5.5 (0.2) (4.1)%
IHOP................................................................................ 24.5 28.0 3.5 12.5 %
IHOP advertising............................................................. 79.5 76.4 (3.1) (3.9)%
Total franchise expenses...................................................... 109.7 109.9 0.2 0.2 %
Franchise Segment Profit:
Applebee’s....................................................................... 193.5 180.4 13.1 7.3 %
IHOP................................................................................ 136.0 131.1 4.9 3.7 %
Total franchise segment profit ............................................. $ 329.5 $ 311.5 $ 18.0 5.8 %
Segment profit as % of revenue(2) ........................................ 75.0% 73.9%
____________________________________________________________
(1) Effective Franchise Restaurants are the weighted average number of franchise restaurants open in a given fiscal period, adjusted to account for franchise
restaurants open for only a portion of the period.
(2) Percentages calculated on actual amounts, not rounded amounts presented above.
The increase in Applebee’s franchise revenue was attributable to higher royalty revenue resulting from a 5.4% increase in
the number of Effective Franchise Restaurants and to termination fees associated with the closure of certain Applebee's
franchise restaurants. These favorable changes were partially offset by a decrease in fees associated with franchisee-to-
franchisee sales of Applebee's franchise restaurants and a 0.3% decrease in Applebee's domestic same-restaurant sales.
Applebee's Effective Franchise Restaurants increased by 102 due to the full-year effect in 2013 of refranchising 154
Applebee’s company-operated restaurants during 2012 (17 in the first quarter, 98 in the third quarter and 39 in the fourth
quarter), partially offset by a net decrease of 23 restaurants during 2013. Approximately $9.2 million of the revenue increase
was attributable to the refranchised restaurants. Termination fees increased $5.4 million in 2013 compared to the prior year,
primarily due to the closure of 18 Applebee's restaurants as discussed under "Significant Known Events, Trends or
Uncertainties Impacting or Expected to Impact Comparisons of Reported or Future Results - Franchisee Matters" above.
Transfer and extension fees associated with franchisee-to-franchisee sales of Applebee's franchise restaurants decreased $2.0
million in 2013 compared to the prior year, due to a decrease in the amount of transfer activity.
In 2013, we received a total of $7.8 million in termination, transfer and extension fees related to Applebee's restaurants
compared to a total of $4.4 million in such fees in 2012. Termination, transfer and extension fees, by nature, are unpredictable
and variable in any given year; we do not consider the 2013 variances in these fees compared to the prior year to be indicative
of any trend.
The increase in IHOP franchise revenue (other than advertising) was primarily attributable to a 2.4% increase in the
number of Effective Franchise Restaurants due to development as well as to an increase of 2.4% in IHOP domestic franchise
same-restaurant sales. IHOP added a net total of 38 franchise and area license restaurants during 2013 due to development.
These favorable changes were partially offset by a $2.9 million decrease in sales of pancake and waffle dry mix.
The decrease in IHOP franchise expenses (other than advertising) was primarily due to lower purchase volumes of pancake
and waffle dry mix, partially offset by a $0.9 million increase in bad debt expense. The increase in bad debt expense in 2013
was primarily due to a $0.5 million recovery in 2012 of a receivable previously written off that reduced the comparative 2012
expense.