Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2011

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                 

 

Commission File Number 001-15283

 


 

DineEquity, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware
(State or other jurisdiction of incorporation or
organization)

 

95-3038279
(I.R.S. Employer Identification No.)

 

 

 

450 North Brand Boulevard,
Glendale, California

 

91203-1903

(Address of principal executive offices)

 

(Zip Code)

 

(818) 240-6055
(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was Required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding as of July 29, 2011

Common Stock, $.01 par value

 

18,553,779

 

 

 



Table of Contents

 

DINEEQUITY, INC. AND SUBSIDIARIES

 

INDEX

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

 

Item 1—Financial Statements

2

 

Consolidated Balance Sheets—June 30, 2011 (unaudited) and December 31, 2010

2

 

Consolidated Statements of Income (unaudited)—Three and Six Months Ended June 30, 2011 and 2010

3

 

Consolidated Statements of Cash Flows (unaudited)—Six Months Ended June 30, 2011 and 2010

4

 

Notes to Consolidated Financial Statements

5

 

Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

 

Item 3—Quantitative and Qualitative Disclosures about Market Risk

41

 

Item 4—Controls and Procedures

41

PART II.

OTHER INFORMATION

42

 

Item 1—Legal Proceedings

42

 

Item 1A—Risk Factors

42

 

Item 2—Unregistered Sales of Equity Securities and Use of Proceeds

42

 

Item 3—Defaults Upon Senior Securities

43

 

Item 4—(Removed and Reserved)

43

 

Item 5—Other Information

43

 

Item 6—Exhibits

43

 

Signatures

44

 

1



Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

DINEEQUITY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

 

June 30, 2011

 

December 31, 2010

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

34,522

 

$

102,309

 

Restricted cash

 

91

 

854

 

Receivables, net

 

71,866

 

98,776

 

Inventories

 

10,570

 

10,757

 

Prepaid income taxes

 

13,118

 

34,094

 

Prepaid gift cards

 

24,094

 

27,465

 

Prepaid expenses

 

13,776

 

14,602

 

Deferred income taxes

 

39,255

 

24,301

 

Assets held for sale

 

42,678

 

37,944

 

Total current assets

 

249,970

 

351,102

 

Non-current restricted cash

 

49

 

778

 

Restricted assets related to captive insurance subsidiary

 

3,839

 

3,562

 

Long-term receivables

 

234,323

 

239,945

 

Property and equipment, net

 

531,805

 

612,175

 

Goodwill

 

697,470

 

697,470

 

Other intangible assets, net

 

828,167

 

835,879

 

Other assets, net

 

114,773

 

115,730

 

Total assets

 

$

2,660,396

 

$

2,856,641

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

$

7,420

 

$

9,000

 

Accounts payable

 

26,668

 

32,724

 

Accrued employee compensation and benefits

 

21,892

 

32,846

 

Gift card liability

 

75,789

 

124,972

 

Accrued interest payable

 

13,455

 

17,482

 

Current maturities of capital lease and financing obligations

 

15,017

 

16,556

 

Facility closure liability

 

20,560

 

 

Other accrued expenses

 

27,411

 

31,502

 

Total current liabilities

 

208,212

 

265,082

 

Long-term debt, less current maturities

 

1,479,489

 

1,631,469

 

Financing obligations, less current maturities

 

204,327

 

237,826

 

Capital lease obligations, less current maturities

 

139,363

 

144,016

 

Deferred income taxes

 

388,058

 

375,697

 

Other liabilities

 

114,719

 

118,972

 

Total liabilities

 

2,534,168

 

2,773,062

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Convertible preferred stock, Series B, at accreted value, 10,000,000 shares authorized; 35,000 shares issued; June 30, 2011: 34,900 shares outstanding; December 31, 2010: 35,000 shares outstanding

 

43,203

 

42,055

 

Common stock, $.01 par value, 40,000,000 shares authorized; June 30, 2011: 24,691,051 shares issued and 18,556,873 shares outstanding; December 31, 2010: 24,382,991 shares issued and 18,183,083 shares outstanding

 

247

 

243

 

Additional paid-in-capital

 

203,495

 

192,214

 

Retained earnings

 

153,029

 

124,250

 

Accumulated other comprehensive loss

 

(262

)

(282

)

Treasury stock, at cost (June 30, 2011: 6,134,178 shares; December 31, 2010: 6,199,908 shares)

 

(273,484

)

(274,901

)

Total stockholders’ equity

 

126,228

 

83,579

 

Total liabilities and stockholders’ equity

 

$

2,660,396

 

$

2,856,641

 

 

See the accompanying Notes to Consolidated Financial Statements.

 

2



Table of Contents

 

DINEEQUITY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Segment Revenues:

 

 

 

 

 

 

 

 

 

Franchise revenues

 

$

98,551

 

$

93,327

 

$

203,103

 

$

188,694

 

Company restaurant sales

 

134,634

 

210,694

 

289,337

 

435,309

 

Rental revenues

 

31,624

 

32,187

 

63,840

 

66,119

 

Financing revenues

 

3,529

 

3,928

 

12,258

 

8,078

 

Total segment revenues

 

268,338

 

340,136

 

568,538

 

698,200

 

Segment Expenses:

 

 

 

 

 

 

 

 

 

Franchise expenses

 

26,207

 

26,027

 

53,650

 

50,865

 

Company restaurant expenses

 

117,279

 

182,064

 

249,045

 

374,621

 

Rental expenses

 

24,566

 

24,645

 

49,213

 

49,709

 

Financing expenses

 

1

 

2

 

5,576

 

471

 

Total segment expenses

 

168,053

 

232,738

 

357,484

 

475,666

 

Gross segment profit

 

100,285

 

107,398

 

211,054

 

222,534

 

General and administrative expenses

 

38,450

 

37,034

 

76,419

 

77,400

 

Interest expense

 

32,867

 

43,668

 

69,173

 

88,716

 

Impairment and closure charges

 

21,816

 

1,871

 

26,754

 

2,582

 

Debt modification costs

 

10

 

 

4,124

 

 

Amortization of intangible assets

 

3,075

 

3,076

 

6,150

 

6,153

 

Loss (gain) on extinguishment of debt

 

939

 

(1,055

)

7,885

 

(4,640

)

Loss (gain) on disposition of assets

 

1,291

 

431

 

(22,463

)

178

 

Income before income taxes

 

1,837

 

22,373

 

43,012

 

52,145

 

Provision for income taxes

 

(1,489

)

(8,332

)

(12,965

)

(18,433

)

Net income

 

$

348

 

$

14,041

 

$

30,047

 

$

33,712

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income available to common stockholders

 

 

 

 

 

 

 

 

 

Net income

 

$

348

 

$

14,041

 

$

30,047

 

$

33,712

 

Less: Series A preferred stock dividends

 

 

(5,700

)

 

(11,460

)

Less: Accretion of Series B preferred stock

 

(639

)

(603

)

(1,268

)

(1,198

)

Less: Net loss (income) allocated to unvested participating restricted stock

 

7

 

(296

)

(846

)

(801

)

Net (loss) income available to common stockholders

 

$

(284

)

$

7,442

 

$

27,933

 

$

20,253

 

Net (loss) income available to common stockholders per share

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.02

)

$

0.43

 

$

1.56

 

$

1.18

 

Diluted

 

$

(0.02

)

$

0.42

 

$

1.53

 

$

1.16

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

18,072

 

17,226

 

17,884

 

17,119

 

Diluted

 

18,072

 

17,560

 

18,280

 

17,476

 

 

See the accompanying Notes to Consolidated Financial Statements.

 

3



Table of Contents

 

DINEEQUITY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2011

 

2010

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

30,047

 

$

33,712

 

Adjustments to reconcile net income to cash flows provided by operating activities

 

 

 

 

 

Depreciation and amortization

 

26,339

 

32,164

 

Non-cash interest expense

 

2,988

 

20,621

 

Loss (gain) on extinguishment of debt

 

7,885

 

(4,640

)

Impairment and closure charges

 

26,540

 

2,196

 

Debt modification costs

 

4,124

 

 

Deferred income taxes

 

(2,592

)

(13,299

)

Non-cash stock-based compensation expense

 

5,063

 

7,300

 

Tax benefit from stock-based compensation

 

6,021

 

1,249

 

Excess tax benefit from stock options exercised

 

(5,687

)

(1,968

)

(Gain) loss on disposition of assets

 

(22,463

)

178

 

Other

 

(4,008

)

(276

)

Changes in operating assets and liabilities

 

 

 

 

 

Receivables

 

26,337

 

27,693

 

Inventories

 

(1,053

)

246

 

Prepaid expenses

 

4,067

 

1,649

 

Current income tax receivables and payables

 

22,052

 

10,310

 

Accounts payable

 

(8,042

)

(7,196

)

Accrued employee compensation and benefits

 

(10,955

)

(7,073

)

Gift card liability

 

(49,183

)

(44,523

)

Other accrued expenses

 

(9,292

)

(8,068

)

Cash flows provided by operating activities

 

48,188

 

50,275

 

Cash flows from investing activities

 

 

 

 

 

Additions to property and equipment

 

(13,510

)

(6,859

)

Proceeds from sale of property and equipment and assets held for sale

 

55,494

 

2,583

 

Principal receipts from notes, equipment contracts and other long-term receivables

 

7,055

 

10,818

 

Other

 

(574

)

1,121

 

Cash flows provided by investing activities

 

48,465

 

7,663

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from issuance of long-term debt

 

25,000

 

 

Repayment of long-term debt

 

(178,437

)

(74,359

)

Principal payments on capital lease and financing obligations

 

(6,764

)

(7,946

)

Dividends paid

 

 

(11,400

)

Payment of debt modification and issuance costs

 

(12,316

)

 

Repurchase of restricted stock

 

(4,742

)

(832

)

Proceeds from stock options exercised

 

6,240

 

1,953

 

Excess tax benefit from stock options exercised

 

5,687

 

1,968

 

Change in restricted cash

 

1,492

 

14,778

 

Other

 

(600

)

(294

)

Cash flows used in financing activities

 

(164,440

)

(76,132

)

Net change in cash and cash equivalents

 

(67,787

)

(18,194

)

Cash and cash equivalents at beginning of period

 

102,309

 

82,314

 

Cash and cash equivalents at end of period

 

$

34,522

 

$

64,120

 

Supplemental disclosures

 

 

 

 

 

Interest paid

 

$

79,482

 

$

76,503

 

Income taxes paid

 

$

11,071

 

$

21,097

 

 

See the accompanying Notes to Consolidated Financial Statements.

 

4



Table of Contents

 

DINEEQUITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. General

 

The accompanying unaudited consolidated financial statements of DineEquity, Inc. (the “Company”) have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

 

The consolidated balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

 

These consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

2. Basis of Presentation

 

The Company’s fiscal quarters end on the Sunday closest to the last day of each quarter. For convenience, the fiscal quarters are reported as ending on March 31, June 30, September 30 and December 31. The first and second fiscal quarters of 2011 ended April 3, 2011 and July 3, 2011, respectively; the first and second fiscal quarters of 2010 ended April 4, 2010 and July 4, 2010, respectively.

 

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries that are consolidated in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated in consolidation.

 

The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to provisions for doubtful accounts, legal contingencies, income taxes, long-lived assets, goodwill and intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

 

Reclassifications

 

Certain reclassifications have been made to prior year information to conform to the current year presentation. These reclassifications had no effect on the net income or financial position previously reported. The following items previously reported as “other expense (income), net” for the three months and six months ended June 30, 2010 have been reclassified as follows:

 

 

 

Three Months
Ended

 

Six Months
Ended

 

 

 

June 30, 2010

 

 

 

(In thousands)

 

Total other expense, as reported

 

$

956

 

$

1,945

 

Reclassified to:

 

 

 

 

 

Rental expenses

 

$

762

 

$

1,460

 

Impairment and closure charges

 

191

 

386

 

General and administrative expenses

 

98

 

234

 

Interest expense

 

47

 

146

 

Franchise revenues

 

(121

)

(215

)

Other line items

 

(21

)

(66

)

Total reclassified

 

$

956

 

$

1,945

 

 

5



Table of Contents

 

3. Accounting Policies

 

Newly Issued Accounting Standards

 

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement — Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. 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 to ensure that U.S. GAAP and IFRS fair value measurement and disclosure requirements are described in the same way. ASU 2011-04 also provides for certain changes in current GAAP disclosure requirements. The amendments in ASU 2011-04 are to be applied prospectively, and will be effective for the Company’s fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU 2011-04 is not anticipated to have a material impact on the Company’s consolidated balance sheets, statements of income or statements of cash flows.

 

In May 2011, the FASB issued ASU No. 2011-05, Comprehensive Income — Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 will require the presentation of the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, nor does it affect how earnings per share is calculated or presented. Current U.S. GAAP allows reporting entities three alternatives for presenting other comprehensive income and its components in financial statements. One of those presentation options is to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity, which is the presentation format the Company currently uses. This update eliminates that option. ASU 2011-05 is required to be applied retrospectively, and will be effective for the Company’s fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of ASU 2011-05 is not anticipated to have a material impact on the Company’s consolidated balance sheets, statements of income or statements of cash flows.

 

The Company reviewed all other significant newly issued accounting pronouncements and concluded that they either are not applicable to the Company’s operations or that no material effect is expected on the financial statements as a result of future adoption.

 

4. Assets Held for Sale

 

The Company classifies assets as held for sale and ceases the depreciation and amortization of the assets when there is a plan for disposal of the assets and those assets meet the held for sale criteria, as defined in applicable U.S. GAAP. The balance of assets held for sale at December 31, 2010 of $37.9 million was comprised of assets of 36 Applebee’s company-operated restaurants in the St. Louis market area, 30 Applebee’s company-operated restaurants in the Washington, D.C. market, three parcels of land on which Applebee’s franchised restaurants are situated, three parcels of land previously intended for future restaurant development and one IHOP restaurant held for refranchising.

 

During the six months ended June 30, 2011, 36 Applebee’s company-operated restaurants in the St. Louis market area, 29 Applebee’s company-operated restaurants in the Washington, D.C. market and one parcel of land on which an Applebee’s franchised restaurant is situated were sold and the IHOP restaurant held for sale as of December 31, 2010 was refranchised. In May 2011, the Company entered into an agreement for the refranchising and sale of related restaurant assets of 66 Applebee’s company-operated restaurants located in Massachusetts, New Hampshire, Maine, Rhode Island, Vermont and parts of New York. Accordingly, $35.4 million, representing the net book value of the assets related to these restaurants, was transferred to assets held for sale. During the six months ended June 30, 2011, assets related to an additional IHOP franchise restaurant held for refranchising were also transferred to assets held for sale. The balance of assets held for sale at June 30, 2011 of $42.7 million was comprised of 66 Applebee’s company-operated restaurants located in Massachusetts, New Hampshire, Maine, Rhode Island, Vermont and parts of New York, two parcels of land on which Applebee’s franchised restaurants are situated, three parcels of land previously acquired and held for future development, assets of one Applebee’s company-operated restaurant in the Washington, D.C. area and one IHOP restaurant held for refranchising.

 

The following table summarizes the changes in the balance of assets held for sale during 2011:

 

 

 

(In millions)

 

Balance December 31, 2010

 

$

37.9

 

Assets transferred to held for sale

 

36.3

 

Assets sold

 

(31.0

)

Other

 

(0.5

)

Balance June 30, 2011

 

$

42.7

 

 

6



Table of Contents

 

5. Long-Term Debt

 

Long-term debt consists of the following components:

 

 

 

June 30,
2011

 

December 31,
2010

 

 

 

(In millions)

 

Senior Secured Credit Facility, due October 2017, at a variable interest rate of 4.25% and 6.0% as of June 30, 2011 and December 31, 2010, respectively

 

$

734.0

 

$

844.0

 

Senior Notes due October 2018, at a fixed rate of 9.5%

 

785.3

 

825.0

 

Discount

 

(32.4

)

(28.5

)

Total debt

 

1,486.9

 

1,640.5

 

Less current maturities

 

(7.4

)

(9.0

)

Long-term debt

 

$

1,479.5

 

$

1,631.5

 

 

For a description of the respective instruments, refer to Note 8 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

Amendment of Credit Agreement

 

On February 25, 2011, the Company entered into Amendment No. 1 (the ‘‘Amendment’’) to the Credit Agreement dated as of October 8, 2010 (the “Credit Agreement”) under which a senior secured credit facility (“Credit Facility”) was established among the Company, lenders and the agents named therein. Pursuant to the Amendment, the interest rate margin applicable to LIBOR-based term loans made under the Credit Facility (“Term Loans”) was reduced from 4.50% to 3.00%, and the interest rate floors used to determine the LIBOR and Base Rate reference rates for Term Loans was reduced from 1.50% to 1.25% for LIBOR-based Term Loans and from 2.50% to 2.25% for Base Rate-denominated Term Loans. In addition, the Amendment increased the lender commitments under the Company’s revolving credit facility (the “Revolving Credit Facility”) available under the Credit Facility from $50 million to $75 million. The Amendment also modified certain restrictive covenants of the Credit Agreement, including those relating to repurchases of other debt securities, permitted acquisitions and payments on equity.

 

The Company paid $12.3 million in fees and costs related to the Amendment, of which $7.4 million in fees paid to lenders was recorded as additional discount on debt and $0.8 million of costs related to the increase in the Revolving Credit Facility was recorded as deferred financing costs. Fees paid to third parties of $4.1 million were recorded as “Debt modification costs” in the Consolidated Statements of Income for the six months ended June 30, 2011.

 

Loss (Gain) on Extinguishment of Debt

 

During the six months ended June 30, 2011, the Company repurchased $39.8 million of its 9.5% Senior Notes due October 2018 (the “Senior Notes”) for a cash payment of $43.5 million, inclusive of a premium of $3.7 million. The Company also repaid $110.0 million of Term Loans at face value. Including write-off of the discount and deferred financing costs related to the debt extinguished, the Company recognized a loss on the extinguishment of debt of $7.9 million.

 

During the six months ended June 30, 2010, the Company retired $68.2 million of its Class A-2-II-X Fixed Rate Senior Term Notes then outstanding for a cash payment of $61.8 million. The Company recognized a gain on the early retirement of debt of $4.6 million, including write-off of the discount and deferred financing costs related to the retired debt.

 

Quarter
Ended

 

Instrument

 

Face Amount
Retired/Repaid

 

Cash Paid

 

Loss (Gain)(1)

 

 

 

 

 

(In millions)

 

March 2011

 

Term Loans

 

$

110.0

 

$

110.0

 

$

2.7

 

March 2011

 

Senior Notes

 

32.3

 

35.3

 

4.2

 

June 2011

 

Senior Notes

 

7.5

 

8.2

 

1.0

 

 

 

Total 2011

 

$

149.8

 

$

153.5

 

$

7.9

 

 

 

 

 

 

 

 

 

 

 

March 2010

 

Class A-2-II-X Notes

 

$

48.7

 

$

43.8

 

$

(3.5

)

June 2010

 

Class A-2-II-X Notes

 

19.5

 

18.0

 

(1.1

)

 

 

Total 2010

 

$

68.2

 

$

61.8

 

$

(4.6

)

 


(1) Including write-off of the discount and deferred financing costs related to the debt retired.

 

7



Table of Contents

 

Compliance with Covenants and Restrictions

 

The Company was in compliance with all the covenants and restrictions related to its Credit Facility and Senior Notes as of June 30, 2011.

 

6. Financing Obligations

 

As of June 30, 2011, future minimum lease payments under financing obligations during the initial terms of the leases related to sale-leaseback transactions are as follows:

 

Fiscal Years

 

(In millions)

 

Remainder of 2011

 

$

11.2

 

2012(1)

 

20.7

 

2013

 

23.0

 

2014

 

23.2

 

2015

 

23.3

 

Thereafter

 

278.9

 

Total minimum lease payments

 

380.3

 

Less interest

 

(170.1

)

Total financing obligations

 

210.2

 

Less current portion(2)

 

(5.9

)

Long-term financing obligations

 

$

204.3

 

 


(1)               Due to the varying closing dates of the Company’s fiscal years, 11 monthly payments will be made in fiscal 2012.

(2)               Included in “current maturities of capital lease and financing obligations” on the consolidated balance sheet.

 

During the six months ended June 30, 2011, the Company’s continuing involvement with 17 properties subject to financing obligations was ended by assignment of the lease obligations to a qualified franchisee. As a result, the Company’s financing obligations were reduced by $32.7 million.

 

7. Impairment and Closure Charges

 

The Company assesses tangible long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The following table summarizes the components of impairment and closure charges for the three-month and six-month periods ended June 30, 2011 and 2010:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(In millions)

 

Impairment and closure charges:

 

 

 

 

 

 

 

 

 

Impairment

 

$

0.3

 

$

0.0

 

$

4.8

 

$

0.3

 

Lenexa lease termination

 

21.2

 

 

21.2

 

 

Other closure charges

 

0.3

 

1.9

 

0.8

 

2.3

 

Total impairment and closure charges

 

$

21.8

 

$

1.9

 

$

26.8

 

$

2.6

 

 

Impairment and closure charges for the six months ended June 30, 2011 totaled $26.8 million and primarily related to termination of the Company’s sublease of the commercial space currently occupied by Applebee’s Restaurant Support Center in Lenexa, Kansas. The Company recognized approximately $21.2 million for the termination fee and other closing costs in the second quarter of 2011. The Company recognized a $4.5 million impairment charge in the quarter ended March 31, 2011 related to furniture, fixtures and leasehold improvements at the facility whose book value was not realizable as the result of the termination of the sublease.

 

Impairment and closure charges for the six months ended June 30, 2010 totaled $2.6 million and related to closure charges of $1.7 million recognized in the second quarter of 2010 that related primarily to two company-operated IHOP Cafe restaurants, a non-traditional restaurant format, development of which was ended after initial evaluation, and the closure of a company-operated Applebee’s restaurant in China recognized in the first quarter of 2010.

 

8



Table of Contents

 

7. Impairment and Closure Charges, continued

 

The following table summarizes changes in the closure liability for the Applebee’s Restaurant Support Center in Lenexa, Kansas:

 

 

 

(In millions)

 

Balance December 31, 2010

 

$

 

Closure cost accrual

 

21.2

 

Payments

 

(0.6

)

Balance June 30, 2011

 

$

20.6

 

 

8. Income Taxes

 

The effective tax rate was 81.1% and 30.1% for the three-month and six-month periods ended June 30, 2011, respectively. The effective tax rate of 81.1% is higher than the federal statutory rate of 35% for the three-month period ended June 30, 2011 primarily due to an increase in unrecognized tax benefits and certain adjustments related to state deferred taxes.  For the six-month period, the effective tax rate is lower than the federal statutory rate of 35% due to tax credits and the release of liabilities for unrecognized tax benefits. The tax credits are primarily FICA tip and other compensation-related tax credits associated with Applebee’s company-owned restaurant operations.

 

At June 30, 2011, the Company had a liability for unrecognized tax benefits, including potential interest and penalties net of related tax benefit, totaling $11.7 million, of which approximately $2.7 million is expected to be paid within one year. For the remaining liability, due to the uncertainties related to these tax matters, the Company is unable to make a reasonably reliable estimate when cash settlements with taxing authorities will occur.

 

As of June 30, 2011, accrued interest and penalties were $4.5 million and $0.7 million, respectively, excluding any related income tax benefits. As of December 31, 2010, accrued interest and penalties were $8.9 million and $0.5 million, respectively, excluding any related income tax benefits. The decrease of $4.4 million of accrued interest is primarily related to the release of liabilities for unrecognized tax benefits surrounding gift card income deferral as a result of the issuance of new guidance by the U.S. Internal Revenue Service, partially offset by the accrual of interest on the remaining liability for unrecognized tax benefits during the six months ended June 30, 2011. The Company recognizes interest accrued related to unrecognized tax benefits and penalties as a component of income tax expense which is recognized in the Consolidated Statements of Income.

 

The Company or one of its subsidiaries files federal income tax returns and income tax returns in various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state or non-U.S. tax examinations by tax authorities for years before 2006 for federal returns and other jurisdictions. Applebee’s is currently under audit by the U.S. Internal Revenue Service for the period ended November 29, 2007.  The Company is currently under audit by the U.S. Internal Revenue Service for the period ended December 31, 2007.

 

9. Stock-Based Compensation

 

From time to time, the Company has granted nonqualified stock options, restricted stock awards, cash-settled and stock-settled restricted stock units and performance units to officers, other employees and  non-employee directors of the Company. Currently, the Company is authorized to grant nonqualified stock options, stock appreciation rights, restricted stock awards, cash-settled and stock-settled restricted stock units and performance units to officers, other employees and nonemployee directors under the DineEquity, Inc. 2011 Stock Incentive Plan (the “2011 Plan”). The 2011 Plan was approved by stockholders on May 17, 2011 and permits the issuance of up to 1,500,000 shares of the Company’s common stock for incentive stock awards.

 

The nonqualified stock options generally vest over a three-year period and have a term of ten years from the effective issuance date. Option exercise prices equal the closing price of the Company’s common stock on the New York Stock Exchange on the date of grant. Restricted stock awards and restricted stock units are issued at no cost to the holder and vest over terms determined by the Compensation Committee of the Company’s Board of Directors, generally three years.

 

9


 


Table of Contents

 

9. Stock-Based Compensation, continued

 

The following table summarizes the components of the Company’s stock-based compensation expense included in general and administrative expenses in the consolidated financial statements:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(In millions)

 

Pre-tax compensation expense

 

$

3.3

 

$

3.3

 

$

6.4

 

$

8.2

 

Tax provision

 

(1.3

)

(1.3

)

(2.5

)

(3.3

)

Total stock-based compensation expense, net of tax

 

$

2.0

 

$

2.0

 

$

3.9

 

$

4.9

 

 

As of June 30, 2011, $7.9 million and $9.0 million (including estimated forfeitures) of total unrecognized compensation cost related to restricted stock and stock options, respectively, is expected to be recognized over a weighted average period of 1.66 years for restricted stock and 1.57 years for stock options.

 

The estimated fair values of the options granted during 2011 were calculated using a Black-Scholes option pricing model. The following summarizes the assumptions used in the Black-Scholes model:

 

Risk-free interest rate

 

2.11

%

Weighted average historical volatility

 

82.5

%

Dividend yield

 

 

Expected years until exercise

 

4.85

 

Forfeitures

 

11.0

%

Weighted average fair value of options granted

 

$

37.03

 

 

Option balances as of June 30, 2011 and activity related to the Company’s stock options during the six-month period then ended were as follows:

 

 

 

Shares

 

Weighted
Average
Exercise
Price

 

Weighted Average
Remaining
Contractual Term
(in Years)

 

Aggregate
Intrinsic
Value

 

Outstanding at December 31, 2010

 

1,523,710

 

$

24.90

 

 

 

 

 

Granted

 

170,949

 

$

56.58

 

 

 

 

 

Exercised

 

(376,083

)

$

16.59

 

 

 

 

 

Forfeited

 

(10,355

)

$

16.85

 

 

 

 

 

Outstanding at June 30, 2011

 

1,308,221

 

$

31.49

 

7.28

 

$

29,553,000

 

Vested at June 30, 2011 and Expected to Vest

 

1,121,962

 

$

32.44

 

7.09

 

$

24,252,000

 

Exercisable at June 30, 2011

 

565,602

 

$

35.36

 

5.59

 

$

10,374,000

 

 

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price of the Company’s common stock on the last trading day of the second quarter of 2011 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2011. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock and the number of in-the-money options.

 

A summary of restricted stock activity for the six months ended June 30, 2011 is presented below:

 

 

 

Restricted
Stock

 

Weighted
Average
Grant Date
Fair Value

 

Restricted
Stock Units

 

Weighted
Average
Grant Date
Fair Value

 

Outstanding at December 31, 2010

 

666,244

 

$

28.62

 

18,000

 

$

29.32

 

Granted

 

112,124

 

$

56.45

 

 

 

Released

 

(244,465

)

$

42.77

 

 

 

Forfeited

 

(32,019

)

$

25.98

 

 

 

Outstanding at June 30, 2011

 

501,884

 

$

28.12

 

18,000

 

$

29.32

 

 

10



Table of Contents

 

9. Stock-Based Compensation, continued

 

The Company has issued 44,957 shares of cash-settled restricted stock units to members of the Board of Directors, of which 41,957 are outstanding at June 30, 2011. As these instruments only can be settled in cash, they are recorded as liabilities based on the closing price of the Company’s common stock as of June 30, 2011. For the six months ended June 30, 2011 and 2010, $0.8 million and $0.7 million, respectively, were included as pre-tax stock-based compensation expense for the cash-settled restricted stock units.

 

10. Segments

 

The Company’s revenues and expenses are recorded in four segments: franchise operations, company restaurant operations, rental operations and financing operations.

 

As of June 30, 2011, the franchise operations segment consisted of (i) 1,768 restaurants operated by Applebee’s franchisees in the United States, one U.S. territory and 15 countries outside the United States; and (ii) 1,511 restaurants operated by IHOP franchisees and area licensees in the United States, two U.S. territories and three countries outside the United States. Franchise operations revenue consists primarily of franchise royalty revenues, sales of proprietary products, certain franchise advertising fees and the portion of the franchise fees allocated to intellectual property.  Franchise operations expenses include advertising expense, the cost of proprietary products, pre-opening training expenses and costs related to intellectual property provided to certain franchisees.

 

As of June 30, 2011, the company restaurant operations segment consisted of 244 company-operated Applebee’s restaurants and 11 company-operated IHOP restaurants, all in the United States. Company restaurant sales are retail sales at company-operated restaurants. Company restaurant expenses are operating expenses at company-operated restaurants and include food, labor, benefits, utilities, rent and other restaurant operating costs.

 

Rental operations revenue includes revenue from operating leases and interest income from direct financing leases. Rental operations expenses are costs of operating leases and interest expense on capital leases on franchisee-operated restaurants.

 

Financing operations revenue consists of the portion of franchise fees not allocated to intellectual property, sales of equipment and interest income from the financing of franchise fees and equipment leases. Financing expenses are primarily the costs of restaurant equipment.

 

Information on segments is as follows:

 

 

 

For the Three Months Ended
June 30,

 

For the Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(In millions)

 

Revenues from External Customers

 

 

 

 

 

 

 

 

 

Franchise operations

 

$

98.6

 

$

93.3

 

$

203.1

 

$

188.7

 

Company restaurants

 

134.6

 

210.7

 

289.3

 

435.3

 

Rental operations

 

31.6

 

32.2

 

63.8

 

66.1

 

Financing operations

 

3.5

 

3.9

 

12.3

 

8.1

 

Total

 

$

268.3

 

$

340.1

 

$

568.5

 

$

698.2

 

Interest Expense

 

 

 

 

 

 

 

 

 

Company restaurants

 

$

0.1

 

$

0.2

 

$

0.3

 

$

0.4

 

Rental operations

 

4.6

 

4.8

 

9.2

 

9.6

 

Corporate

 

32.9

 

43.7

 

69.2

 

88.7

 

Total

 

$

37.6

 

$

48.7

 

$

78.7

 

$

98.7

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

Franchise operations

 

$

2.6

 

$

2.5

 

$

5.1

 

$

5.0

 

Company restaurants

 

4.6

 

7.5

 

9.5

 

15.0

 

Rental operations

 

3.5

 

2.7

 

7.1

 

5.5

 

Corporate

 

2.4

 

3.3

 

4.6

 

6.7

 

Total

 

$

13.1

 

$

16.0

 

$

26.3

 

$

32.2

 

Income (loss) before income taxes

 

 

 

 

 

 

 

 

 

Franchise operations

 

$

72.4

 

$

67.4

 

$

149.4

 

$

137.8

 

Company restaurants

 

17.3

 

28.6

 

40.3

 

60.7

 

Rental operations

 

7.0

 

7.5

 

14.6

 

16.4

 

Financing operations

 

3.6

 

3.9

 

6.7

 

7.6

 

Corporate

 

(98.5

)

(85.0

)

(168.0

)

(170.4

)

Total

 

$

1.8

 

$

22.4

 

$

43.0

 

$

52.1

 

 

11



Table of Contents

 

11. Other Comprehensive Income

 

The components of comprehensive income, net of taxes, are as follows:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(In millions)

 

Net income

 

$

0.3

 

$

14.0

 

$

30.0

 

$

33.7

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

Interest rate swap

 

 

2.3

 

 

4.5

 

Total comprehensive income

 

$

0.3

 

$

16.3

 

$

30.0

 

$

38.2

 

 

The amount of income tax benefit allocated to the interest rate swap was $1.5 million and $3.0 million for the three months and six months ended June 30, 2010, respectively. The loss related to an interest rate swap designated as a cash flow hedge that was being reclassified into earnings as interest expense over the expected life of the related debt, which was estimated to be approximately five years. The entire amount of loss remaining at the time of retirement of the related designated debt was reclassified into earnings in October 2010.

 

The accumulated comprehensive loss of $0.3 million (net of tax) as of June 30, 2011 and December 31, 2010 is comprised of a temporary decline in available-for-sale securities.

 

12. Net (Loss) Income per Share

 

The computation of the Company’s basic and diluted net (loss) income per share is as follows:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

(In thousands, except per share data)

 

Numerator for basic and dilutive income—per common share:

 

 

 

 

 

 

 

 

 

Net income

 

$

348

 

$

14,041

 

$

30,047

 

$

33,712

 

Less: Series A Preferred Stock dividends

 

 

(5,700

)

 

(11,460

)

Less: Accretion of Series B Preferred Stock

 

(639

)

(603

)

(1,268

)

(1,198

)

Less: Net (loss) income allocated to unvested participating restricted stock

 

7

 

(296

)

(846

)

(801

)

Net (loss) income available to common stockholders— basic

 

(284

)

7,442

 

27,933

 

20,253

 

Effect of unvested participating restricted stock in two-class calculation

 

 

5

 

17

 

16

 

Net (loss) income available to common stockholders— diluted

 

$

(284

)

$

7,447

 

$

27,950

 

$

20,269

 

Denominator:

 

 

 

 

 

 

 

 

 

Weighted average outstanding shares of common stock

 

18,072

 

17,226

 

17,884

 

17,119

 

Dilutive effect of:

 

 

 

 

 

 

 

 

 

Stock options

 

 

334

 

396

 

357

 

Common stock and common stock equivalents

 

18,072

 

17,560

 

18,280

 

17,476

 

Net (loss) income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.02

)

$

0.43

 

$

1.56

 

$

1.18

 

Diluted

 

$

(0.02

)

$

0.42

 

$

1.53

 

$

1.16

 

 

The effect of adding 624,000 and 590,000 shares from the assumed conversion of Series B Convertible Preferred stock to the denominator and the related add-back of the dividends on Series B Convertible Preferred stock to the numerator is anti-dilutive for the three months and six months ended June 30, 2011 and 2010, respectively.

 

12



Table of Contents

 

13. Fair Value Measurements

 

The Company has two types of financial instruments which are required under U.S. GAAP to be measured on a recurring basis at fair value—restricted assets related to Applebee’s captive insurance subsidiary and certain loan guarantees. None of the Company’s non-financial assets or non-financial liabilities is required to be measured at fair value on a recurring basis. The Company has not elected to use fair value measurement, as provided under U.S. GAAP, for any assets or liabilities for which fair value measurement is not presently required.

 

Financial instruments measured at fair value on a recurring basis at June 30, 2011 and December 31, 2010 are as follows:

 

 

 

 

 

Fair Value Measured Using

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

 

 

 

(In millions)

 

At June 30, 2011:

 

 

 

 

 

 

 

 

 

Restricted assets of captive insurance company

 

$

3.8

 

$

1.2

 

$

 

$

2.6

 

Loan guarantees

 

$

0.2

 

$

 

$

 

$

0.2

 

At December 31, 2010:

 

 

 

 

 

 

 

 

 

Restricted assets of captive insurance company

 

$

3.6

 

$

1.0

 

$

 

$

2.6

 

Loan guarantees

 

$

0.2

 

$

 

$

 

$

0.2

 

 

The level 3 inputs used for the restricted assets consist of a discounted cash flow under the income approach using primarily assumptions as to future interest payments and a discount rate. The fair value of the guarantees was determined by assessing the financial health of each of the four franchisees that have open notes and assessing the likelihood of default. There was no change in the valuation methodologies between the periods presented.

 

The Company believes the fair values of cash equivalents, accounts receivable, accounts payable and the current portion of long-term debt approximate their carrying amounts due to their short duration.

 

At June 30, 2011 and December 31, 2010, the cost and market value of our financial instruments measured at fair value (restricted assets related to Applebee’s captive insurance subsidiary) are as follows:

 

June 30, 2011

 

Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

 

 

(in millions)

 

Cash equivalents and money market funds

 

$

1.2

 

$

 

$

 

$

1.2

 

Auction-rate securities

 

$

2.9

 

$

 

$

(0.3

)

$

2.6

 

 

December 31, 2010

 

Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

 

 

(in millions)

 

Cash equivalents and money market funds

 

$

1.0

 

$

 

$

 

$

1.0

 

Auction-rate securities

 

$

2.9

 

$

 

$

(0.3

)

$

2.6

 

 

The scheduled maturity of one auction-rate security valued at $0.6 million is December 2030. The remaining balance of auction-rate securities is in mutual funds invested in auction rate securities with no scheduled maturity for the funds.

 

13



Table of Contents

 

13. Fair Value Measurements, continued

 

The fair values of non-current financial liabilities at June 30, 2011 and December 31, 2010 were as follows:

 

 

 

June 30, 2011

 

December 31, 2010

 

 

 

Carrying
Amount

 

Fair Value

 

Carrying
Amount

 

Fair Value

 

 

 

(in millions)

 

Long-term debt, less current maturities

 

$

1,479.5

 

$

1,578.6

 

$

1,631.5

 

$

1,721.0

 

 

At June 30, 2011 and December 31, 2010, the fair value of the non-current financial liabilities was determined based on Level 2 inputs.

 

14. Commitments and Contingencies

 

Litigation, Claims and Disputes

 

The Company is subject to various lawsuits, claims and governmental inspections or audits arising in the ordinary course of business. Some of these lawsuits purport to be class actions and/or seek substantial damages. In the opinion of management, these matters are adequately covered by insurance or, if not so covered, are without merit or are of such a nature or involve amounts that would not have a material adverse impact on the Company’s business or consolidated financial statements.

 

Gerald Fast v. Applebee’s

 

The Company is currently defending a collective action in United States District Court for the Western District of Missouri, Central Division filed on July 14, 2006 under the Fair Labor Standards Act styled Gerald Fast v. Applebee’s International, Inc., in which named plaintiffs claim that tipped workers in company restaurants perform excessive amounts of non-tipped work for which they should be compensated at the minimum wage. The court has conditionally certified a nationwide class of servers and bartenders 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 certification of the plaintiff class is granted under a lenient standard. On January 15, 2009, we filed a motion seeking to have the class de-certified and the plaintiffs filed a motion for summary judgment, both of which were denied by the court.

 

The parties stipulated to a bench trial which was set to begin on September 8, 2009 in Jefferson City, Missouri. Just prior to trial, however, the court vacated the trial setting in order to submit key legal issues to the Eighth Circuit Court of Appeals for review on interlocutory appeal.  On April 21, 2011, the Eighth Circuit Court of Appeals issued its decision on the interlocutory appeal, affirming the trial court’s ruling that the tip credit is subject to a 20% limit on “related duties in a tipped occupation that are not themselves tip producing” based on guidance in the Department of Labor’s Field Operations Handbook. On May 5, 2011, the Company filed a petition for rehearing en banc with the Eighth Circuit, which was denied on July 6, 2011 with four judges dissenting.  The Company has filed for a stay in the Eighth Circuit pending a request to the Supreme Court seeking review there.

 

The Company believes it has meritorious defenses and intends to vigorously defend this case. An estimate of the possible loss, if any, or the range of the loss cannot be made and, therefore, the Company has not accrued a loss contingency related to this matter.

 

Lease Guarantees

 

In connection with the sale of Applebee’s restaurants or previous brands to franchisees and other parties, the Company has, in certain cases, guaranteed or had potential continuing liability for lease payments totaling $213.3 million as of June 30, 2011. This amount represents the maximum potential liability of future payments under these leases. These leases have been assigned to the buyers and expire at the end of the respective lease terms, which range from 2011 through 2045. In the event of default, the indemnity and default clauses in our sale or assignment agreements govern our ability to pursue and recover damages incurred.  No material liabilities have been recorded as of June 30, 2011.

 

14



Table of Contents

 

15. Involvement with Variable Interest Entities

 

In February 2009, the Company and owners of Applebee’s and IHOP franchise restaurants formed Centralized Supply Chain Services, LLC (“CSCS”), a purchasing co-operative, to manage procurement activities for the Applebee’s and IHOP restaurants choosing to join CSCS. CSCS is a variable interest entity (“VIE”) as defined under U.S. GAAP. Under the terms of the membership agreements, each member restaurant belonging to CSCS has equal and identical voting rights, ownership rights and obligations. The Company does not have voting control of CSCS. Accordingly, the Company is not considered to be the primary beneficiary of the VIE and therefore does not consolidate the results of CSCS. The Company reaffirmed this assessment as of June 30, 2011 as there have been no changes in the significant facts and circumstances related to the Company’s involvement with CSCS.

 

Each member restaurant is responsible only for the goods and services it chooses to purchase and bears no responsibility or risk of loss for goods and services purchased by other member restaurants. Based on these facts, the Company believes its maximum estimated loss related to its membership in the CSCS is insignificant.

 

15



Table of Contents

 

16.  Consolidating Financial Information

 

Certain of our subsidiaries have guaranteed our obligations under the Credit Facility. The following presents the condensed consolidating financial information separately for: (i) the parent Company, the issuer of the guaranteed obligations; (ii) the guarantor subsidiaries, on a combined basis, as specified in the Credit Agreement; (iii) the non-guarantor subsidiaries, on a combined basis;     (iv) consolidating eliminations and reclassifications; and (v) DineEquity, Inc. and Subsidiaries, on a consolidated basis.

 

Each guarantor subsidiary is 100% owned by the Company at the date of each balance sheet presented. The notes 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 policies as described in the consolidated financial statements.

 

Supplemental Condensed Consolidating Balance Sheet

June 30, 2011

(In millions)

 

 

 

Parent

 

Combined
Guarantor
Subsidiaries

 

Combined
Non-guarantor
Subsidiaries

 

Eliminations and
Reclassification

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6.8

 

$

27.2

 

$

0.5

 

$

 

$

34.5

 

Restricted cash

 

 

0.1

 

 

 

0.1

 

Receivables, net

 

 

71.7

 

0.2

 

 

71.9

 

Inventories

 

 

10.6

 

 

 

10.6

 

Prepaid expenses

 

43.6

 

38.6

 

0.1

 

(31.3

)

51.0

 

Deferred income taxes

 

11.7

 

22.4

 

5.1

 

 

39.2

 

Assets held for sale

 

 

40.3

 

2.4

 

 

42.7

 

Intercompany

 

(238.6

)

237.9

 

0.7

 

 

 

 

Total current assets

 

(176.5

)

448.8

 

9.0

 

(31.3

)

250.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current restricted cash

 

 

 

 

 

 

Long-term receivables

 

 

234.3

 

 

 

234.3

 

Property and equipment, net

 

18.7

 

513.1

 

 

 

531.8

 

Goodwill

 

 

697.5

 

 

 

697.5

 

Other intangible assets, net

 

 

828.2

 

 

 

828.2

 

Other assets, net

 

25.5

 

92.9

 

0.2

 

 

118.6

 

Investment in subsidiaries

 

1,741.4

 

 

 

(1,741.4

)

 

Total assets

 

$

1,609.1

 

$

2,814.8

 

$

9.2

 

$

(1,772.7

)

$

2,660.4

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

7.4

 

$

 

$

 

$

 

$

7.4

 

Accounts payable

 

1.1

 

25.6

 

 

 

26.7

 

Accrued employee compensation and benefits

 

3.9

 

17.9

 

0.1

 

 

21.9

 

Gift card liability

 

 

75.8

 

 

 

75.8

 

Other accrued expenses

 

(20.5

)

126.9

 

1.3

 

(31.3

)

76.4

 

Total current liabilities

 

(8.1

)

246.2

 

1.4

 

(31.3

)

208.2

 

Long-term debt

 

1,479.5

 

 

 

 

1,479.5

 

Financing obligations

 

 

139.4

 

 

 

139.4

 

Capital lease obligations

 

 

204.3

 

 

 

204.3

 

Deferred income taxes

 

8.0

 

380.2

 

(0.1

)

 

388.1

 

Other liabilities

 

3.5

 

110.0

 

1.2

 

 

114.7

 

Total liabilities

 

1,482.9

 

1,080.1

 

2.5

 

(31.3

)

2,534.2

 

Total stockholders’ equity

 

126.2

 

1,734.7

 

6.7

 

(1,741.4

)

126.2

 

Total liabilities and stockholders’ equity

 

$

1,609.1

 

$

2,814.8

 

$

9.2

 

$

(1,772.7

)

$

2,660.4

 

 

16



Table of Contents

 

16.  Consolidating Financial Information, continued

 

Supplemental Condensed Consolidating Balance Sheet

December 31, 2010

(In millions)

 

 

 

Parent

 

Combined
Guarantor
Subsidiaries

 

Combined
Non-guarantor
Subsidiaries

 

Eliminations and
Reclassification

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23.4

 

$

77.3

 

$

1.6

 

$

 

$

102.3

 

Restricted cash

 

 

0.9

 

 

 

0.9

 

Receivables, net

 

 

98.7

 

 

 

98.7

 

Inventories

 

 

10.7

 

 

 

10.7

 

Prepaid expenses

 

2.7

 

73.8

 

 

(0.3

)

76.2

 

Deferred income taxes

 

1.1

 

17.9

 

5.3

 

 

24.3

 

Assets held for sale

 

 

35.7

 

2.3

 

 

38.0

 

Intercompany

 

(46.0

)

46.0

 

 

 

 

Total current assets

 

(18.8

)

361.0

 

9.2

 

(0.3

)

351.1

 

Non-current restricted cash

 

 

0.8

 

 

 

0.8

 

Long-term receivables

 

 

240.0

 

 

 

240.0

 

Property and equipment, net

 

16.5

 

595.7

 

 

 

612.2

 

Goodwill

 

 

697.5

 

 

 

697.5

 

Other intangible assets, net

 

 

835.8

 

0.1

 

 

835.9

 

Other assets, net

 

28.3

 

89.3

 

0.2

 

1.3

 

119.1

 

Investment in subsidiaries

 

1,683.3

 

 

 

(1,683.3

)

 

Total assets

 

$

1,709.3

 

$

2,820.1

 

$

9.5

 

$

(1,682.3

)

$

2,856.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

9.0

 

$

 

$

 

$

 

$

9.0

 

Accounts payable

 

3.7

 

29.1

 

 

 

32.8

 

Accrued employee compensation and benefits

 

9.3

 

23.4

 

0.1

 

 

32.8

 

Gift card liability

 

 

125.0

 

 

 

125.0

 

Other accrued expenses

 

(26.0

)

90.8

 

1.0

 

(0.3

)

65.5

 

Total current liabilities

 

(4.0

)

268.3

 

1.1

 

(0.3

)

265.1

 

Long-term debt

 

1,631.5

 

 

 

 

1,631.5

 

Financing obligations

 

 

237.8

 

 

 

237.8

 

Capital lease obligations

 

 

144.0

 

 

 

144.0

 

Deferred income taxes

 

(5.6

)

380.0

 

 

1.3

 

375.7

 

Other liabilities

 

3.5

 

114.4

 

1.0

 

 

118.9

 

Total liabilities

 

1,625.4

 

1,144.5

 

2.1

 

1.0

 

2,773.0

 

Total stockholders’ equity

 

83.9

 

1,675.6

 

7.4

 

(1,683.3

)

83.6

 

Total liabilities and stockholders’ equity

 

$

1,709.3

 

$

2,820.1

 

$

9.5

 

$

(1,682.3

)

$

2,856.6

 

 

17



Table of Contents

 

16.  Consolidating Financial Information, continued

 

Supplemental Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2011

(In millions)

 

 

 

Parent

 

Combined
Guarantor
Subsidiaries

 

Combined
Non-guarantor
Subsidiaries

 

Eliminations and
Reclassification

 

Consolidated

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

Franchise revenues

 

$

0.6

 

$

97.7

 

$

0.2

 

$

 

$

98.5

 

Restaurant sales

 

 

134.2

 

0.4

 

 

134.6

 

Rental revenues

 

 

31.6

 

0.1

 

 

31.7

 

Financing revenues

 

 

3.6

 

 

 

3.6

 

Total revenue

 

0.6

 

267.1

 

0.7

 

 

 

268.4

 

Franchise expenses

 

0.5

 

25.7

 

 

 

26.2

 

Restaurant expenses

 

 

117.1

 

0.2

 

 

117.3

 

Rental expenses

 

 

24.6

 

 

 

24.6

 

Financing expenses

 

 

 

 

 

 

General and administrative

 

6.2

 

31.7

 

0.6

 

 

 

38.5

 

Interest expense

 

28.7

 

4.2

 

 

 

32.9

 

Impairment and closure

 

 

21.7

 

0.1

 

 

21.8

 

Amortization of intangible assets

 

 

3.1

 

 

 

3.1

 

Loss on extinguishment of debt

 

0.9

 

 

 

 

0.9

 

Loss (gain) on disposition of assets

 

 

1.2

 

0.1

 

 

1.3

 

Other

 

30.3

 

43.9

 

(0.5

)

(73.7

)

 

Income (loss) before income taxes

 

(66.0

)

(6.1

)

0.2

 

73.7

 

1.8

 

Benefit (provision) for income taxes

 

13.8

 

(15.2

)

(0.1

)

 

(1.5

)

Net (loss) income

 

$

(52.2

)

$

(21.3

)

$

0.1

 

$