DineEquity, Inc. Reports Fourth Quarter and Fiscal 2012 Results

DineEquity, Inc. Reports Fourth Quarter and Fiscal 2012 Results

  • Fourth quarter 2012 adjusted EPS (non-GAAP) of $0.83

    • Fourth quarter 2012 GAAP EPS of $0.97

  • Fiscal 2012 adjusted EPS (non-GAAP) of $4.28

    • Fiscal 2012 GAAP EPS of $6.63

  • Total debt reduced by $332.6 million in fiscal 2012

  • Comprehensive G&A reduction initiative implemented

  • Successfully completed Applebee's refranchising program and transitioned to a 99% franchised system

GLENDALE, Calif.--(BUSINESS WIRE)-- DineEquity, Inc. (NYS: DIN) , the parent company of Applebee's Neighborhood Grill & Bar and IHOP Restaurants, today announced financial results for the fourth quarter and full year of 2012.

"For DineEquity, 2012 was a year of milestones. The year was marked by accomplishing what we set out to do when we acquired Applebee's, completing the transition to a 99% franchised restaurant system. In addition, we reduced total debt by over $1.0 billion since the acquisition in 2007," said Julia A. Stewart, Chairman and Chief Executive Officer of DineEquity, Inc. "We remain steadfast in managing our capital structure with a long-term view to maximize shareholder value. Today's announcement of our capital allocation strategy reflects our strong free cash flow, solid fundamentals, and less capital intensive business model."


Fourth Quarter 2012 Financial Highlights

  • Total debt was reduced by $77.2 million in the fourth quarter of 2012 as a result of net cash proceeds and financing obligation reductions from the refranchise and sale of Applebee's company-operated restaurants and free cash flow. The Company reduced Term Loan balances by $30.6 million and financing and capital lease obligations by $46.5 million.

  • Adjusted net income available to common stockholders was $15.5 million, representing adjusted earnings per diluted share of $0.83 for the fourth quarter of 2012. This compares to $16.4 million, or adjusted earnings per diluted share of $0.91, for the same quarter in 2011. The decrease in adjusted earnings was mainly due to, as expected, lower segment profit caused by the refranchise and sale of Applebee's company-operated restaurants and higher income taxes. These items were partially offset by lower cash interest expense and lower general and administrative expenses. (See "Non-GAAP Financial Measures" below.)

  • GAAP net income available to common stockholders was $18.0 million, or earnings per diluted share of $0.97 for the fourth quarter of 2012, compared to $27.3 million, or earnings per diluted share of $1.51, for the same quarter in 2011. The decrease was primarily due to a lower gain on the disposition of assets, as expected, lower segment profit due to the refranchise and sale of Applebee's company-operated restaurants and higher income taxes. These items were partially offset by lower interest expense, a decline in general and administrative expenses, and the reduced impact from debt extinguishment.

  • EBITDA was $74.0 million for the fourth quarter of 2012. (See "Non-GAAP Financial Measures" below.)

  • Consolidated general and administrative expenses were $37.6 million for the fourth quarter of 2012 compared to $40.7 million in the fourth quarter of 2011. The decrease was primarily due to the net savings in employee compensation associated with the Company's previously announced restructuring initiative. The decline was partially offset by higher stock-based compensation due to stock appreciation and severance charges related to the workforce reduction announced in the third quarter of 2012.

Fiscal 2012 Highlights

  • Total debt was reduced by $332.6 million in fiscal 2012 as a result of net cash proceeds and financing obligation reductions from the refranchise and sale of Applebee's company-operated restaurants and free cash flow. The Company reduced Term Loan balances by $206.3 million, Senior Notes by $3.1 million, and financing and capital lease obligations by $123.2 million.

  • Adjusted net income available to common stockholders was $78.1 million for fiscal 2012, representing adjusted earnings per diluted share of $4.28. This compares to $78.2 million, or adjusted earnings per diluted share of $4.29, for fiscal 2011. The minimal decrease in adjusted earnings was primarily due to, as expected, lower segment profit primarily due to the refranchise and sale of Applebee's company-operated restaurants and higher income taxes. These items were offset by lower cash interest expense and lower general and administrative expenses. (See "Non-GAAP Financial Measures" below.)

  • GAAP net income available to common stockholders was $122.5 million for fiscal 2012, or earnings per diluted share of $6.63, compared to $70.7 million, or earnings per diluted share of $3.89 for fiscal 2011. The increase was due to a higher gain on the refranchise and sale of Applebee's company-operated restaurants, lower impairment and closure charges, and lower interest expense. These items were partially offset by lower segment profit due to refranchising, higher income taxes, and higher general and administrative expenses due to a non-recurring litigation settlement.

  • EBITDA was $300.3 million for fiscal 2012. (See "Non-GAAP Financial Measures" below.)

  • For fiscal 2012, cash flows from operating activities were $52.9 million, capital expenditures were $17.0 million, and free cash flow was $48.2 million. (See "Non-GAAP Financial Measures" below.) For fiscal 2011, free cash flow was $108.5 million. The decline in free cash flow in fiscal 2012 was primarily due to the increase in cash taxes paid on refranchising proceeds and, as expected, lower segment profit due to refranchising. These items were partially offset by lower cash interest paid and lower capital expenditures.

  • Applebee's company-operated restaurant operating margin was 16.3% for fiscal 2012 compared to 14.5% for 2011. The increase of 180 basis points was primarily due to the refranchise and sale of less profitable Applebee's company-operated restaurants. The refranchised company-operated restaurants had higher-than-average labor and occupancy costs.

Same-Restaurant Sales Performance

Fourth Quarter 2012

  • Applebee's domestic system-wide same-restaurant sales increased 0.9% for the fourth quarter of 2012 compared to the fourth quarter of 2011. The increase in same-restaurant sales reflected a higher average guest check, partially offset by a decline in traffic compared to the same quarter a year ago.

  • IHOP's domestic system-wide same restaurant sales decreased 2.6% for the fourth quarter of 2012 compared to the fourth quarter of 2011. The decline in same-restaurant sales reflected a decrease in traffic and a lower average guest check compared to the same period in 2011.

Fiscal 2012

  • Applebee's domestic system-wide same-restaurant sales increased 1.2% for fiscal 2012 compared to fiscal 2011. The increase in same-restaurant sales was mainly driven by a higher average guest check, partially offset by a decline in traffic.

  • IHOP's domestic system-wide same-restaurant sales declined 1.6% for fiscal 2012 compared to fiscal 2011. Same-restaurant sales performance reflected a decrease in traffic, partially offset by a slightly higher average guest check.

Investor Conference Call Today

The Company will host an investor conference call today (Wednesday, February 27, 2013, at 11:00 a.m. Eastern Time / 8:00 a.m. Pacific Time) to discuss its fourth quarter and full year 2012 results. To participate on the call, please dial (888) 680-0879 and reference pass code 73306646. International callers, please dial (617) 213-4856 and reference pass code 73306646. Participants may also pre-register to obtain a unique pin number to join the live call without operator assistance by visiting the following Web site:

https://www.theconferencingservice.com/prereg/key.process?key=PA7HPMFPV

A live webcast of the call will be available on DineEquity's Web site at www.dineequity.com, and may be accessed by visiting Calls & Presentations under the site's Investor Information section. Participants should allow approximately ten minutes prior to the call's start time to visit the site and download any streaming media software needed to listen to the webcast. A telephonic replay of the call may be accessed through 11:59 p.m. Pacific Time on March 6, 2013 by dialing (888) 286-8010 and referencing pass code 23676151. International callers, please dial (617) 801-6888 and reference pass code 23676151. An online archive of the webcast also will be available on the Investor Information section of DineEquity's Web site.

About DineEquity, Inc.

Based in Glendale, California, DineEquity, Inc., through its subsidiaries, franchises and operates restaurants under the Applebee's Neighborhood Grill & Bar and IHOP brands. With more than 3,600 restaurants combined in 17 countries, over 400 franchisees and approximately 200,000 team members (including franchisee- and company-operated restaurant employees), DineEquity is one of the largest full-service restaurant companies in the world. For more information on DineEquity, visit the Company's Web site located at www.dineequity.com.

Forward-Looking Statements

Statements contained in this presentation may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by words such as "may," "will," "should," "expect," "anticipate," "believe," "estimate," "intend," "plan" and other similar expressions. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. These factors include, but are not limited to: the effect of general economic conditions; the Company's indebtedness; risk of future impairment charges; trading volatility and the price of the Company's common stock; the Company's results in any given period differing from guidance provided to the public; the highly competitive nature of the restaurant business; the Company's business strategy failing to achieve anticipated results; risks associated with the restaurant industry; risks associated with locations of current and future restaurants; rising costs for food commodities and utilities; shortages or interruptions in the supply or delivery of food; ineffective marketing and guest relationship initiatives and use of social media; changing health or dietary preferences; our engagement in business in foreign markets; harm to our brands' reputation; litigation; third-party claims with respect to intellectual property assets; environmental liability; liability relating to employees; failure to comply with applicable laws and regulations; failure to effectively implement restaurant development plans; our dependence upon our franchisees; concentration of Applebee's franchised restaurants in a limited number of franchisees; credit risk from IHOP franchisees operating under our previous business model; termination or non-renewal of franchise agreements; franchisees breaching their franchise agreements; insolvency proceedings involving franchisees; changes in the number and quality of franchisees; inability of franchisees to fund capital expenditures; heavy dependence on information technology; the occurrence of cyber incidents or a deficiency in our cybersecurity; failure to execute on a business continuity plan; inability to attract and retain talented employees; risks associated with retail brand initiatives; failure of our internal controls; and other factors discussed from time to time in the Company's Annual and Quarterly Reports on Forms 10-K and 10-Q and in the Company's other filings with the Securities and Exchange Commission. The forward-looking statements contained in this release are made as of the date hereof and the Company assumes no obligation to update or supplement any forward-looking statements.

Non-GAAP Financial Measures

This news release includes references to the Company's non-GAAP financial measures "adjusted net income available to common stockholders (adjusted EPS)," "EBITDA," "free cash flow," and "segment EBITDA." "Adjusted EPS" is computed for a given period by deducting from net income (loss) available to common stockholders for such period the effect of any impairment and closure charges, any gain or loss related to debt extinguishment, any intangible asset amortization, any non-cash interest expense, any debt modification costs, any one-time litigation settlement charges, any general and administrative restructuring costs, net of savings, any gain or loss related to the disposition of assets, and any state income tax impact of deferred taxes due to refranchising incurred in such period. This is presented on an aggregate basis and a per share (diluted) basis. The Company defines "EBITDA" for a given period as income before income taxes less interest expense, loss on retirement of debt, depreciation and amortization, impairment and closure charges, non-cash stock-based compensation, gain/loss on disposition of assets and other charge backs as defined by its credit agreement. "Free cash flow" for a given period is defined as cash provided by operating activities, plus receipts from notes and equipment contracts receivable ("long-term notes receivable"), less dividends paid and capital expenditures. "Segment EBITDA" for a given period is defined as gross segment profit plus depreciation and amortization as well as interest charges related to the segment. Management utilizes EBITDA for debt covenant purposes and free cash flow to determine the amount of cash remaining for general corporate and strategic purposes after the receipts from long-term receivables, and the funding of operating activities, capital expenditures and preferred dividends. Management believes this information is helpful to investors to determine the Company's adherence to debt covenants and the Company's cash available for these purposes. Adjusted EPS, EBITDA, free cash flow and segment EBITDA are supplemental non-GAAP financial measures and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with United States generally accepted accounting principles.

DineEquity, Inc. and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended

Twelve Months Ended

December 31,

December 31,

2012

2011

2012

2011

Segment Revenues:

Franchise revenues

$

107,917

$

97,757

$

421,459

$

398,539

Company restaurant sales

16,862

110,029

291,121

530,984

Rental revenues

30,763

30,957

122,859

125,960

Financing revenues

3,095

3,436

14,489

19,715

Total segment revenues

158,637

242,179

849,928

1,075,198

Segment Expenses:

Franchise expenses

28,774

26,350

109,900

105,006

Company restaurant expenses

16,998

95,422

249,296

458,443

Rental expenses

24,090

24,413

97,165

98,147

Financing expenses

37

(28

)

1,623

5,973

Total segment expenses

69,899

146,157

457,984

667,569

Gross segment profit

88,738

96,022

391,944

407,629

General and administrative expenses

37,607

40,670

163,215

155,822

Interest expense

25,571

31,364

114,338

132,707

Impairment and closure charges

2,954

2,918

4,218

29,865

Amortization of intangible assets

3,071

3,075

12,293

12,300

Loss on extinguishment of debt

637

3,274

5,554

11,159

Debt modification costs

(72

)

4,031

Gain on disposition of assets

(12,955

)

(21,966

)

(102,597

)

(43,253

)

Income before income taxes

31,853

36,759

194,923

104,998

Income tax provision

(13,034

)

(8,139

)

(67,249

)

(29,806

)

Net income

$

18,819

$

28,620

$

127,674

$

75,192

Net income available to common stockholders:

Net income

$

18,819

$

28,620

$

127,674

$

75,192

Less: Accretion of Series B preferred stock

(464

)

(658

)

(2,498

)

(2,573

)

Less: Net income allocated to unvested participating restricted stock

(318

)

(623

)

(2,718

)

(1,886

)

Net income available to common stockholders

$

18,037

$

27,339

$

122,458

$

70,733

Net income available to common stockholders per share:

Basic

$

0.98

$

1.55

$

6.81

$

3.96

Diluted

$

0.97

$

1.51

$

6.63

$

3.89

Weighted average shares outstanding:

Basic

18,391

17,646

17,992

17,846

Diluted

18,637

18,578

18,877

18,185

DineEquity, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

December 31,

2012

2011

Assets

(Unaudited)

Current assets:

Cash and cash equivalents

$

64,537

$

60,691

Receivables, net

128,610

115,667

Prepaid income taxes

16,080

13,922

Prepaid gift cards

50,242

45,412

Deferred income taxes

21,772

20,579

Assets held for sale

9,363

Other current assets

13,214

11,313

Total current assets

294,455

276,947

Long-term receivables

212,269

226,526

Property and equipment, net

294,375

474,154

Goodwill

697,470

697,470

Other intangible assets, net

806,093

822,361

Other assets, net

110,738

116,836

Total assets

$

2,415,400

$

2,614,294

Liabilities and Stockholders' Equity

Current liabilities:

Current maturities of long-term debt

$

7,420

$

7,420

Accounts payable

30,751

29,013

Accrued employee compensation and benefits

22,435

26,191

Gift card liability

161,689

146,955

Accrued interest payable

13,236

12,537

Current maturities of capital lease and financing obligations

10,878

13,480

Other accrued expenses

21,351

22,048

Total current liabilities

267,760

257,644

Long-term debt, less current maturities

1,202,063

1,411,448

Financing obligations, less current maturities

52,049

162,658

Capital lease obligations, less current maturities

124,375

134,407

Deferred income taxes

362,171

383,810

Other liabilities