DineEquity, Inc. Reports Significant Progress in Fourth Quarter and Fiscal 2013 Results

2014-02-27
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  • Applebee’s domestic system-wide same-restaurant sales decreased 0.7% for the fourth quarter of 2013 compared to the same quarter of 2012.

    DineEquity, Inc. (NYSE: 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 2013.

    “For DineEquity, 2013 marked the first full year as a 99% franchised company and a year of significant progress. IHOP achieved three consecutive quarters of increasingly positive same-restaurant sales and the highest annual increase since 2006. We are extremely proud of the results that the IHOP team and franchisees have achieved and hope to build on this success going forward. Applebee’s continued to outperform its category, but we know that we can do better,” said Julia A. Stewart, Chairman and Chief Executive Officer of DineEquity, Inc. “We continued to demonstrate our commitment to create value for our shareholders by returning approximately $87 million in cash dividends and share repurchases. We have set the bar high in 2013 and look to carry this momentum into 2014.”

    Fourth Quarter 2013 Financial Highlights

    • Adjusted net income available to common stockholders was $18.6 million, or adjusted earnings per diluted share of $0.98 for the fourth quarter of 2013, which includes approximately $1.7 million in Applebee’s termination, transfer, and extension fees, primarily in connection with a sale between two existing Applebee’s franchisees. This compares to $15.5 million, or adjusted earnings per diluted share of $0.83 for the same period in 2012. The increase in adjusted net income was due to higher segment profit, a decline in cash interest expense, and lower income taxes resulting from the impact of the Company’s restructuring initiative and refranchising. The increase was partially offset by higher general and administrative expenses. (See “Non-GAAP Financial Measures” below.)
    • GAAP net income available to common stockholders was $17.9 million, or earnings per diluted share of $0.94 for the fourth quarter of 2013, compared to $18.0 million, or earnings per diluted share of $0.97, for the fourth quarter of 2012. The slight decline in net income was primarily due to a modest loss on the disposition of assets compared to a gain in the fourth quarter of 2012 and slightly higher general and administrative expenses. These items were partially offset by lower income tax expense and higher segment profit.
    • General and administrative expenses were $38.6 million for the fourth quarter of 2013 compared to $37.6 million for the same period of 2012.

    Fiscal 2013 Financial Highlights

    • Adjusted net income available to common stockholders was $81.2 million for fiscal 2013, or adjusted earnings per diluted share of $4.24, which includes a total of approximately $7.8 million in Applebee’s termination, transfer, and extension fees received in 2013. The Company believes these transactions strengthened the Applebee’s franchisee base. The Company expects that the value of any such transactions will be minimal in 2014.
    • Adjusted net income available to common stockholders was $78.1 million for fiscal 2012, or adjusted earnings per diluted share of $4.28. The decrease year-over-year was primarily due to the expected lower segment profit resulting from the refranchise and sale of 154 Applebee’s company-operated restaurants in 2012. These items were partially offset by lower cash interest expense and a decline in general and administrative expenses. (See “Non-GAAP Financial Measures” below.)
    • GAAP net income available to common stockholders was $70.8 million for fiscal 2013, or earnings per diluted share of $3.70, compared to $122.5 million, or earnings per diluted share of $6.63 for the same period in 2012. The decrease in net income was primarily due to asset disposition gains from refranchising that occurred in 2012 that did not recur in 2013 and the expected lower segment profit resulting from refranchising. These items were partially offset by lower income tax expense, a decline in general and administrative expenses, and lower interest expense.
    • General and administrative expenses were $143.6 million for fiscal 2013 compared to $163.2 million for the same period of 2012. The decrease was due to lower personnel costs as a result of refranchising and the Company’s restructuring initiative. Additionally, there was a non-recurring charge of $9.1 million recorded in fiscal 2012 related to a settlement of litigation.
    • EBITDA was $277.1 million for fiscal 2013. (See “Non-GAAP Financial Measures” below.)
    • For fiscal 2013, cash flows from operating activities were $127.8 million, principal receipts from long-term receivables were $14.0 million, capital expenditures were $7.0 million, principal payments on capital lease and financing obligations were $10.0 million, the mandatory 1% repayment on the Term Loan principal balance was $4.7 million, and free cash flow was $120.1 million. (See “Non-GAAP Financial Measures” below.)

    Potential Refinancing of Indebtedness

    The Company continually reviews all available options to efficiently manage its debt portfolio in light of, among other things, prevailing interest rates, the economic environment and its overall business strategy. The Company may seek to refinance some or all of its long-term debt prior to expiration or repayment dates.

    Same-Restaurant Sales Performance

    Fourth Quarter 2013

    • Applebee’s domestic system-wide same-restaurant sales decreased 0.7% for the fourth quarter of 2013 compared to the same quarter of 2012.
    • IHOP’s domestic system-wide same restaurant sales increased 4.5% for the fourth quarter of 2013 compared to the same quarter of 2012.

    Fiscal 2013

    • Applebee’s domestic system-wide same-restaurant sales decreased 0.3% for fiscal 2013 compared to the same period in 2012.
    • IHOP’s domestic system-wide same restaurant sales increased 2.4% for fiscal 2013 compared to the same period in 2012.

    Financial Performance Guidance for Fiscal 2014

    • Applebee’s domestic system-wide same-restaurant sales performance is expected to range between negative 2.0% and positive 1.0%.
    • IHOP’s domestic system-wide same-restaurant sales performance is expected to range between positive 0.5% and positive 2.0%.
    • Applebee’s franchisees are projected to develop between 40 and 50 new restaurants, the majority of which are expected to be opened in the U.S.
    • IHOP franchisees and its area licensee are projected to develop between 40 and 50 new restaurants, the majority of which are expected to be domestic openings.
    • Franchise segment profit is expected to be between $323 million and $332 million. Franchisee termination, transfer, and extension fees are expected to be minimal compared to 2013.
    • Rental and Financing segments are expected to generate approximately $37 million in combined profit.
    • Expectations for general and administrative expenses to between $144 million and $147 million, including non-cash stock-based compensation expense and depreciation of approximately $18 million.
    • Expectations for interest expense to be approximately $101 million. Approximately $7 million is expected to be non-cash interest expense. No estimate is made in this number for a potential refinancing of the Company’s debt.
    • The income tax rate expected to be approximately 38%.
    • Cash from operations is expected to range between $98 million and $116 million.
    • The structural run-off of the Company’s long-term receivables is expected to be approximately $15 million.
    • Capital expenditures are expected to be approximately $10 million.
    • Principal payments on capital leases and financing obligations are expected to be approximately $12 million.
    • A mandatory annual repayment of 1% on the current outstanding Term Loan principal balance is expected to be approximately $5 million.
    • Free cash flow (See “Non-GAAP Financial Measures” below.) is expected to range between $86 million and $104 million. Free cash flow is defined as cash from operations, plus principal receipts from long-term receivables, less principal payments on capital leases and financing obligations, capital expenditures, and the mandatory annual repayment of 1% on our Term Loan principal balance.
    • Net income allocated to unvested participating restricted stock is expected to total approximately $1.5 million.
    • Weighted average diluted shares outstanding are expected to be approximately 19.0 million.

    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 19 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. 

    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 closure and impairment 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 income tax impact of deferred taxes due to restructuring/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 extinguishment of debt, depreciation and amortization, closure and impairment 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 principal payments on capital lease and financing obligations, the mandatory 1% of Term Loan principal balance repayment, 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 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,
    2013   2012 2013   2012
    Segment Revenues:
    Franchise and restaurant revenues $ 122,967 $ 124,779 $ 502,586 $ 712,580
    Rental revenues 32,045 30,763 124,769 122,859
    Financing revenues 2,889   3,095   13,112   14,489  
    Total segment revenues 157,901   158,637   640,467   849,928  
    Segment Expenses:
    Franchise and restaurant expenses 42,357 45,772 173,232 359,196
    Rental expenses 24,345 24,090 97,298 97,165
    Financing expenses   37   245   1,623  
    Total segment expenses 66,702   69,899   270,775   457,984  
    Gross segment profit 91,199 88,738 369,692 391,944
    General and administrative expenses 38,582 37,607 143,586 163,215
    Interest expense 25,034 25,571 100,264 114,338
    Amortization of intangible assets 3,070 3,071 12,282 12,293
    Closure and impairment charges 1,042 2,954 1,812 4,218
    Loss on extinguishment of debt 22 637 58 5,554
    Debt modification costs 1,296
    Loss (gain) on disposition of assets 103   (12,955 )   (223 ) (102,597 )
    Income before income taxes 23,346 31,853 110,617 194,923
    Income tax provision (5,215 ) (13,034 ) (38,580 ) (67,249 )
    Net income $ 18,131   $ 18,819   $ 72,037   $ 127,674  
    Net income available to common stockholders:
    Net income $ 18,131 $ 18,819 $ 72,037 $ 127,674
    Less: Net income allocated to unvested participating restricted stock (274 ) (318 ) (1,200 ) (2,718 )
    Less: Accretion of Series B Convertible Preferred Stock   (464 )   (2,498 )
    Net income available to common stockholders $ 17,857   $ 18,037   $ 70,837   $ 122,458  
    Net income available to common stockholders per share:
    Basic $0.95 $0.98 $ 3.75   $ 6.81  
    Diluted $0.94 $0.97 $ 3.70   $ 6.63  
    Weighted average shares outstanding:
    Basic 18,789   18,391   18,871   17,992  
    Diluted 19,062   18,637   19,141   18,877  
     
    Dividends declared per common share $ 0.75   $   $ 3.00   $  
    Dividends paid per common share $ 0.75   $   $ 3.00   $  
     
         
    DineEquity, Inc. and Subsidiaries
    Consolidated Balance Sheets
    (In thousands, except share and per share amounts)
     
    December 31,
    2013       2012
    (Unaudited)
    Assets
    Current assets:
    Cash and cash equivalents $ 106,011 $ 64,537
    Receivables, net 144,137 128,610
    Prepaid gift cards 49,223 50,242
    Prepaid income taxes 4,708 16,080
    Deferred income taxes 23,853 21,772
    Other current assets 3,650   13,214  
    Total current assets 331,582 294,455
    Long-term receivables 197,153 212,269
    Property and equipment, net 274,295 294,375
    Goodwill 697,470 697,470
    Other intangible assets, net 794,057 806,093
    Other assets, net 110,085   110,738  
    Total assets $ 2,404,642   $ 2,415,400  
    Liabilities and Stockholders’ Equity
    Current liabilities:
    Current maturities of long-term debt $ 4,720 $ 7,420
    Accounts payable 40,050 30,751
    Gift card liability 171,955 161,689
    Accrued employee compensation and benefits 24,956 22,435
    Accrued interest payable 13,575 13,236
    Current maturities of capital lease and financing obligations 12,247 10,878
    Other accrued expenses 16,770     21,351  
    Total current liabilities 284,273 267,760
    Long-term debt, less current maturities 1,203,517 1,202,063
    Capital lease obligations, less current maturities 111,707 124,375
    Financing obligations, less current maturities 48,843 52,049
    Deferred income taxes 341,578 362,171
    Other liabilities 99,545   98,177  
    Total liabilities 2,089,463   2,106,595  
    Commitments and contingencies
    Stockholders’ equity:
    Common stock, $0.01 par value, shares: 40,000,000 authorized; December 31, 2013 - 25,299,315 issued, 19,040,890 outstanding; December 31, 2012 - 25,362,946 issued, 19,197,899 outstanding 253 254
    Additional paid-in-capital 274,202 264,342
    Retained earnings 336,578 322,045
    Accumulated other comprehensive loss (164 ) (152 )
    Treasury stock, at cost; shares: December 31, 2013 - 6,258,425; December 31, 2012 - 6,165,047 (295,690 ) (277,684 )
    Total stockholders’ equity 315,179   308,805  
    Total liabilities and stockholders’ equity $ 2,404,642   $ 2,415,400  
     
         
    DineEquity, Inc. and Subsidiaries
    Consolidated Statements of Cash Flows
    (In thousands)
     
    Twelve Months Ended
    December 31,
    2013       2012
    Cash flows from operating activities: (Unaudited)
    Net income $ 72,037 $ 127,674
    Adjustments to reconcile net income to cash flows provided by operating activities:
    Depreciation and amortization 35,355 39,538
    Non-cash interest expense 6,246 5,985
    Loss on extinguishment of debt 58 5,554
    Closure and impairment charges 2,195 3,931
    Deferred income taxes (22,674 ) (22,832 )
    Non-cash stock-based compensation expense 9,364 11,442
    Tax benefit from stock-based compensation 3,690 6,814
    Excess tax benefit from share-based compensation (2,858 ) (5,669 )
    Gain on disposition of assets (223 ) (102,597 )
    Other (492 ) (8,991 )
    Changes in operating assets and liabilities:
    Receivables (15,226 ) (11,629 )
    Current income tax receivables and payables 6,143 1,272
    Other current assets 9,334 (9,119 )
    Accounts payable 8,532 1,778
    Accrued employee compensation and benefits 2,521 (3,756 )
    Gift card liability 10,266 14,735
    Other accrued expenses 3,547   (1,251 )
    Cash flows provided by operating activities 127,815   52,879  
    Cash flows from investing activities:
    Additions to property and equipment (7,037 ) (16,952 )
    Proceeds from sale of property and equipment and assets held for sale 168,881
    Principal receipts from notes, equipment contracts and other long-term receivables 13,982 12,250
    Other 58   1,238  
    Cash flows provided by investing activities 7,003   165,417  
    Cash flows from financing activities:
    Borrowings under revolving credit facilities 50,000
    Repayments under revolving credit facilities (50,000 )
    Repayment of long-term debt (including premiums) (4,800 ) (216,037 )
    Payment of debt modification costs (1,296 )
    Principal payments on capital lease and financing obligations (9,968 ) (10,849 )
    Dividends paid on common stock (57,445 )
    Repurchase of DineEquity common stock (29,698 )
    Repurchase of restricted stock (3,324 ) (1,740 )
    Proceeds from stock options exercised 9,080 9,254
    Excess tax benefit from share-based compensation 2,858 5,669
    Change in restricted cash 1,249   (747 )
    Cash flows used in financing activities (93,344 ) (214,450 )
    Net change in cash and cash equivalents 41,474 3,846
    Cash and cash equivalents at beginning of period 64,537   60,691  
    Cash and cash equivalents at end of period $ 106,011   $ 64,537  
     
               
    DineEquity, Inc. and Subsidiaries
    Non-GAAP Financial Measures
    (In thousands, except per share amounts)
    (Unaudited)
     

    Reconciliation of (i) net income available to common stockholders to (ii) net income available to common stockholders excluding closure and impairment charges; loss on extinguishment of debt; amortization of intangible assets; non-cash interest expense; debt modification costs; a one-time litigation settlement; general and administrative ("G&A") restructuring costs, net of savings; gain/loss on disposition of assets; and the income tax impact of restructuring/refranchising, all items net of taxes (as appropriate), and related per share data:

     
    Three Months Ended Twelve Months Ended
    December 31, December 31,
    2013     2012 2013     2012
    Net income available to common stockholders, as reported $ 17,857 $ 18,037 $ 70,837 $ 122,458
    Closure and impairment charges 1,042 2,954 1,812 4,218
    Loss on extinguishment of debt 22 637 58 5,554
    Amortization of intangible assets 3,070 3,071 12,282 12,293
    Non-cash interest expense 1,611 1,438 6,245 5,985
    Debt modification costs 1,296
    Litigation settlement 77 9,124
    G&A restructuring costs, net of savings 495 1,764
    Loss (gain) on disposition of assets 103 (12,955 ) (223 ) (102,597 )
    Income tax provision (benefit) (2,194 ) 1,655 (8,052 ) 24,599
    Income tax impact of restructuring/refranchising (2,890 ) (2,890 ) (6,258 )
    Net income allocated to unvested participating restricted stock (14 ) 45   (190 ) 984  
    Net income available to common stockholders, as adjusted $ 18,607   $ 15,454   $ 81,175   $ 78,124  
     
    Diluted net income available to common stockholders per share:
    Net income available to common stockholders, as reported $ 0.94 $ 0.97 $ 3.70 $ 6.63
    Closure and impairment charges 0.03 0.10 0.06 0.13
    Loss on extinguishment of debt 0.00 0.02 0.00 0.18
    Amortization of intangible assets 0.10 0.10 0.40 0.40
    Noncash interest expense 0.05 0.05 0.20 0.20
    Debt modification costs 0.04
    Litigation settlement 0.00 0.30
    G&A restructuring costs, net of savings 0.02 0.06
    Loss (gain) on disposition of assets 0.01 (0.43 ) (0.01 ) (3.33 )
    Income tax impact of restructuring/refranchising (0.15 ) (0.15 ) (0.33 )
    Net income allocated to unvested participating restricted stock 0.00 0.00 (0.01 ) 0.05
    Rounding     0.01   (0.01 )
    Diluted net income available to common stockholders per share, as adjusted $ 0.98   $ 0.83   $ 4.24   $ 4.28  
     
    Numerator for basic EPS-income available to common stockholders, as adjusted $ 18,607 $ 15,454 $ 81,175 $ 78,124
    Effect of unvested participating restricted stock using the two-class method 2 4 7 81
    Effect of dilutive securities:
    Convertible Series B preferred stock       2,498  
    Numerator for diluted EPS-income available to common stockholders after assumed conversions, as adjusted $ 18,609   $ 15,458   $ 81,182   $ 80,703  
     
    Denominator for basic EPS-weighted-average shares 18,789 18,391 18,871 17,992
    Effect of dilutive securities:
    Stock options 273 246 270 264
    Convertible Series B preferred stock       621  
    Denominator for diluted EPS-weighted-average shares and assumed conversions 19,062   18,637   19,141   18,877  
     
         
    DineEquity, Inc. and Subsidiaries
    Non-GAAP Financial Measures
    (In thousands)
    (Unaudited)
     
    Reconciliation of U.S. GAAP income before income taxes to EBITDA:
     
    Twelve Months Ended
    December 31,
    2013       2012
    U.S. GAAP income before income taxes $ 110,617 $ 194,923
    Interest charges 116,453 131,869
    Loss on extinguishment of debt 58 5,554
    Depreciation and amortization 35,355 39,538
    Non-cash stock-based compensation 9,364 11,442
    Closure and impairment charges 1,812 4,218
    Other 3,652 15,304
    Gain on sale of assets (223 ) (102,597 )
    EBITDA $ 277,088   $ 300,251  
     
         

    Reconciliation of the Company's cash provided by operating activities to "free cash flow"

    (cash from operations, plus receipts from notes, equipment contracts and other long-term

    receivables, less capital expenditures, principal payments on capital leases and

    financing obligations and the mandatory annual repayment of 1% of our Term Loan principal

    balance):

     
    Twelve Months Ended
    December 31,
    2013       2012
    Cash flows provided by operating activities $ 127,815 $ 52,879
    Principal receipts from long-term receivables 13,982 12,250
    Additions to property and equipment (7,037 ) (16,952 )
    Principal payments on capital lease and financing obligations (9,968 ) (10,849 )
    Mandatory 1% of Term Loans principal balance repayment (4,720 ) (7,420 )
    Free cash flow 120,072 29,908
    Dividends paid on common stock (57,445 )
    Repurchase of DineEquity common stock (29,698 )  
    $ 32,929   $ 29,908  
     
       
    DineEquity, Inc. and Subsidiaries
    Non-GAAP Financial Measures
    (In thousands)
    (Unaudited)
     

    Reconciliation of U.S. GAAP gross segment profit to segmen



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