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32
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
-----------------------------------------
OR
[ ] 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: 000-17962
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Applebee's International, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1461763
--------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4551 W. 107th Street, Suite 100, Overland Park, Kansas 66207
-------------------------------------------------------------------------------
(Address of principal executive offices and zip code)
(913) 967-4000
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 16, 2001 was $803,114,206 based upon the closing sale
price on March 16, 2001.
The number of shares of the registrant's common stock outstanding as of March
16, 2001 was 24,382,974.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy statement to be filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934 is incorporated into Part III hereof.
1
APPLEBEE'S INTERNATIONAL, INC.
FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 2000
INDEX
Page
PART I
Item 1. Business................................................................................ 3
Item 2. Properties.............................................................................. 14
Item 3. Legal Proceedings....................................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders..................................... 16
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters....................................................... 17
Item 6. Selected Financial Data................................................................. 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................... 19
Item 8. Financial Statements and Supplementary Data............................................. 25
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................................ 25
PART III
Item 10. Directors and Executive Officers of the Registrant...................................... 26
Item 11. Executive Compensation.................................................................. 26
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 26
Item 13. Certain Relationships and Related Transactions.......................................... 26
PART IV
Item 14. Exhibits and Reports on Form 8-K........................................................ 27
Signatures.............................................................................................. 28
2
PART I
Item 1. Business
General
References to "Applebee's", "we", "us", and "our" in this document are
references to Applebee's International, Inc. and its subsidiaries and any
predecessor companies of Applebee's International, Inc. We develop, franchise
and operate casual dining restaurants under the name "Applebee's Neighborhood
Grill & Bar." With nearly 1,300 restaurants and $2.67 billion in annual system
sales, Applebee's Neighborhood Grill and Bar is the largest casual dining
concept in America, both in terms of number of restaurants and market share.
We opened our first restaurant in 1986. We initially developed and operated six
restaurants as a franchisee of the Applebee's Neighborhood Grill & Bar Division
(the "Applebee's Division") of an indirect subsidiary of W.R. Grace & Co. In
March 1988, we acquired substantially all the assets of our franchisor. When we
acquired the Applebee's Division, it operated 14 restaurants and had ten
franchisees, including us, operating 41 franchise restaurants.
As of December 31, 2000, there were 1,286 Applebee's restaurants. Franchisees
operated 1,001 of these restaurants and 285 restaurants were company operated.
The restaurants were located in 49 states and eight international countries.
During 2000, 125 new restaurants were opened, including 100 franchise
restaurants and 25 company restaurants.
We acquired the Rio Bravo Cantina chain of Mexican casual dining restaurants in
March 1995. On April 12, 1999, we completed the sale of the Rio Bravo Cantina
concept, which was comprised of 65 restaurants. We operated 40 of these
restaurants and franchisees operated the remaining 25 restaurants. On April 26,
1999, we completed the sale of our four specialty restaurants, which we had also
acquired in 1995.
Our strategy is to focus singularly on the Applebee's concept. We divested the
Rio Bravo Cantina concept as a part of that strategy. During 1998, we introduced
a new "small-town" restaurant prototype developed for communities with a
population of less than 25,000. We expect at least 150 restaurants to be opened
long-term using the small-town prototype. We have been successful at market
penetration of the Applebee's concept, and we recognize that small towns
represent a market with new potential. Because of these factors, we expect that
ultimately the Applebee's system will encompass at least 1,800 restaurants in
the United States.
3
The following table sets forth certain unaudited financial information and other
restaurant data relating to company and franchise restaurants, as reported to us
by franchisees:
Fiscal Year Ended
------------------------------------------------------
December 31, December 26, December 27,
2000 1999 1998
----------------- ---------------- -----------------
Number of restaurants:
Applebee's:
Company(1):
Beginning of year............................ 262 247 190
Restaurant openings.......................... 25 27 32
Restaurant closings.......................... (2) -- (2)
Restaurants acquired from (by) franchisees... -- (12) 27
----------------- ---------------- -----------------
End of year.................................. 285 262 247
----------------- ---------------- -----------------
Franchise:
Beginning of year............................ 906 817 770
Restaurant openings.......................... 100 80 84
Restaurant closings.......................... (5) (3) (10)
Restaurants acquired by (from) franchisees... -- 12 (27)
----------------- ---------------- -----------------
End of year.................................. 1,001 906 817
----------------- ---------------- -----------------
Total Applebee's:
Beginning of year............................ 1,168 1,064 960
Restaurant openings.......................... 125 107 116
Restaurant closings.......................... (7) (3) (12)
----------------- ---------------- -----------------
End of year.................................. 1,286 1,168 1,064
================= ================ =================
Rio Bravo Cantinas:
Company:
Beginning of year............................ -- 40 31
Restaurant openings.......................... -- -- 9
Restaurants divested......................... -- (40) --
----------------- ---------------- -----------------
End of year.................................. -- -- 40
----------------- ---------------- -----------------
Franchise:
Beginning of year............................ -- 26 24
Restaurant openings.......................... -- -- 4
Restaurant closings.......................... -- (1) (2)
Restaurants divested......................... -- (25) --
----------------- ---------------- -----------------
End of year.................................. -- -- 26
----------------- ---------------- -----------------
Total Rio Bravo Cantinas:
Beginning of year............................ -- 66 55
Restaurant openings.......................... -- -- 13
Restaurant closings.......................... -- (1) (2)
Restaurants divested......................... -- (65) --
----------------- ---------------- -----------------
End of year.................................. -- -- 66
================= ================ =================
Specialty Restaurants................................. -- -- 4
================= ================ =================
Total number of restaurants:
Beginning of year............................ 1,168 1,134 1,019
Restaurant openings.......................... 125 107 129
Restaurant closings.......................... (7) (4) (14)
Restaurants divested......................... -- (69) --
----------------- ---------------- -----------------
End of year.................................. 1,286 1,168 1,134
================= ================ =================
4
Fiscal Year Ended
------------------------------------------------------
December 31, December 26, December 27,
2000 1999 1998
----------------- ---------------- -----------------
Weighted average weekly sales per restaurant:
Applebee's:
Company(1).................................. $ 42,183 $ 41,674 $ 40,664
Franchise................................... $ 41,137 $ 40,297 $ 39,077
Total Applebee's............................ $ 41,370 $ 40,619 $ 39,428
Rio Bravo Cantinas:
Company(2).................................. -- -- $ 52,789
Franchise................................... -- -- $ 41,675
Total Rio Bravo Cantinas.................... -- -- $ 47,966
Change in comparable restaurant sales:(3)
Applebee's:
Company(1).................................. 1.8% 4.4% (0.4)%
Franchise................................... 1.6% 2.9% (0.1)%
Total Applebee's............................ 1.7% 3.2% (0.2)%
Rio Bravo Cantinas (company).................... -- -- (6.8)%
Total system sales (in thousands):
Applebee's...................................... $ 2,668,539 $ 2,347,388 $ 2,066,273
Rio Bravo Cantinas.............................. -- 42,661 150,899
Specialty restaurants........................... -- 4,806 14,373
----------------- ---------------- -----------------
Total system sales.......................... $ 2,668,539 $ 2,394,855 $ 2,231,545
================= ================ =================
- --------
(1) Includes one Texas restaurant we have operated under a management agreement
since July 1990.
(2) Excludes one restaurant which was open for dinner only.
(3) When computing comparable restaurant sales, restaurants open for at least 18
months are compared from period to period.
5
The Applebee's System
Concept. Each Applebee's restaurant is designed as an attractive, friendly,
neighborhood establishment featuring moderately priced, high quality food and
beverage items, table service and a comfortable atmosphere. Our restaurants
appeal to a wide range of customers including young adults, senior citizens and
families with young children.
During 1998, we introduced a new "small-town" restaurant prototype for
communities with a population of less than 25,000. There were 34 test units of
the small-town designs open as of December 31, 2000. We operated 20 of these
restaurants, and franchisees operated the remaining 14 restaurants. Additional
units are in the development process for both ourselves and selected
franchisees. We expect at least 150 restaurants to be opened long-term using the
small-town prototype. We have been successful at market penetration of the
Applebee's concept, and we recognize that small towns represent a market with
new potential. Because of these factors, we expect that ultimately the
Applebee's system will encompass at least 1,800 restaurants in the United
States.
We have set certain specifications for the design of our restaurants. Our
restaurants are located in free-standing buildings, end caps of strip shopping
centers, and shopping malls. We have four free-standing restaurant prototypes.
The two larger prototypes are approximately 4,700 and 5,000 square feet and seat
approximately 165 and 200 patrons. We also have two "small-town" prototypes
which are approximately 3,800 and 4,300 square feet and seat approximately 135
and 145 patrons.
Each restaurant has a bar, and many restaurants offer patio seating. The decor
of each restaurant incorporates artifacts and memorabilia such as old movie
posters, musical instruments and sports equipment. Restaurants also frequently
display photographs, magazine articles and newspaper articles highlighting local
history and personalities. These items give each restaurant an individual,
neighborhood identity. We require that each restaurant be remodeled every six
years to embody the design elements of the current prototype.
Menu. Each restaurant offers a diverse menu of high quality, moderately priced
food and beverage items consisting of traditional favorites and innovative
dishes. The restaurants feature a broad selection of entrees, including beef,
chicken, seafood and pasta items prepared in a variety of cuisines, as well as
appetizers, salads, sandwiches, specialty drinks and desserts. Substantially all
restaurants offer beer, wine, liquor and premium specialty drinks. During 2000,
alcoholic beverages accounted for 14.0% of company owned restaurant sales. We
continuously develop and test new menu items through regional consumer tastings
and additional tests in selected company and franchise restaurants. In
conjunction with our intensified food and menu strategy, we introduced a new
core menu in our company restaurants in October 2000. Approximately 20 percent
of the items on this menu are either new or significantly improved. We require
franchisees to present a menu consisting of approximately 65% of selections from
our list of national core items and approximately 35% of additional items
selected from our approved list of optional items. Franchisees will implement
the new core menu in the second quarter of 2001.
Restaurant Operations. We and our franchisees operate all restaurants in
accordance with uniform operating standards and specifications. These standards
pertain to the quality and preparation of menu items, selection of menu items,
maintenance and cleanliness of premises, and employee conduct. We develop all
standards and specifications with input from franchisees, and they are applied
on a system-wide basis.
Training. We have an operations training course for general managers, kitchen
managers and other restaurant managers. The course consists of in-store
task-oriented training and formal administrative, customer service, and
6
financial training. The course typically lasts from six to ten weeks. We ensure
that new restaurants comply with our standards by providing them with a team of
trainers to conduct hands-on training for all restaurant employees. We also
provide periodic training for our restaurant employees regarding various topics.
This training is generally done through in-restaurant seminars and video
presentations.
Advertising. We have historically concentrated our advertising and marketing
efforts primarily on food-specific promotions. Each of these promotions features
a specific theme or ethnic cuisine. We advertise on a national, regional and
local basis, utilizing primarily television, radio and print media. In 2000,
approximately 4.5% of sales for company restaurants was spent on advertising.
This amount includes contributions to the national advertising pool which
develops and funds the specific national promotions. We focus the remainder of
our advertising expenditures on local advertising in areas with company owned
restaurants.
Purchasing. Maintaining high food quality and system-wide consistency is a
central focus of our purchasing program. We mandate quality standards for all
products used in the restaurants, and we maintain a limited list of approved
suppliers from which we and our franchisees must select. We have negotiated
purchasing agreements with most of our approved suppliers which result in volume
discounts for us and our franchisees. Additionally, when necessary we purchase
and maintain inventories of Riblets, a specialty item on the Applebee's menu, to
assure sufficient supplies for the system.
Company Restaurants
Company Restaurant Openings and Acquisitions. Our expansion strategy is to
cluster restaurants in targeted markets, thereby increasing consumer awareness.
Our strategy enables us to take advantage of operational, distribution and
advertising efficiencies. Our development experience indicates that when we open
multiple restaurants within a particular market, our market share increases.
In order to maximize overall system growth, our expansion strategy through 1992
emphasized franchise arrangements with experienced, successful and financially
capable restaurant operators. We continue to expand the Applebee's system across
the United States through franchise operations, but beginning in 1992, our
growth strategy also included increasing the number of company owned
restaurants. We have tried to achieve this goal in two ways. First, we have
developed strategic territories. Second, when franchises are available for
purchase under acceptable financial terms, we have selectively acquired existing
franchise restaurants and terminated the selling franchisee's related
development rights. Using this strategy, we have expanded from a total of 31
company owned or operated restaurants as of December 27, 1992 to a total of 285
as of December 31, 2000. We accomplished this expansion by opening 209 new
restaurants and acquiring 81 franchise restaurants over the last eight years. In
addition, as part of our portfolio management strategy, we have sold 26
restaurants to franchisees during this eight-year period.
We opened 25 new Applebee's restaurants in 2000 and anticipate opening
approximately 25 new Applebee's restaurants in 2001. We may open more or fewer
restaurants depending upon the availability of appropriate new sites. The
following table shows the areas where our restaurants were located as of
December 31, 2000:
7
Area
------------------------------------------------------------
Detroit/Southern Michigan................................... 48
New England (includes Massachusetts, Vermont,
New Hampshire, Rhode Island and Maine).................... 47
Minneapolis/St. Paul, Minnesota............................. 40
Virginia.................................................... 37
North/Central Texas......................................... 32
Kansas City, Missouri/Kansas................................ 24
St. Louis, Missouri/Illinois................................ 24
Las Vegas/Reno, Nevada...................................... 11
Atlanta, Georgia............................................ 9
San Diego/Southern California............................... 7
Albuquerque, New Mexico..................................... 6
-------------------
285
===================
Restaurant Operations. The staff for a typical restaurant consists of one
general manager, one kitchen manager, two or three assistant managers and
approximately 60 hourly employees. All managers of company owned restaurants
receive a salary and performance bonus based on restaurant sales, profits and
adherence to our standards. As of December 31, 2000, we employed eight Regional
Vice Presidents of Operations/Directors of Operations and 45 Area Directors. The
Area Directors' duties include regular restaurant visits and inspections which
ensure the ongoing maintenance of our standards of quality, service,
cleanliness, value, and courtesy. In addition to providing a significant
contribution to revenues and operating earnings, we use company owned
restaurants for many purposes which are integral to the development of the
entire system. These include testing of new menu items and training of franchise
restaurant managers and operating personnel. The operation of company
restaurants also enables us to further develop and refine our operating
standards and specifications and to understand and better respond to the
day-to-day management and operating concerns of franchisees.
The Applebee's Franchise System
Franchise Territory and Restaurant Openings. We currently have exclusive
franchise arrangements with approximately 67 franchise groups, including 12
international franchisees. We have generally selected franchisees that are
experienced multi-unit restaurant operators who have been involved with other
restaurant concepts. Our franchisees operate Applebee's restaurants in 43 states
and eight international countries. We have granted virtually all territories in
the contiguous 48 states or have designated them for company development.
As of December 31, 2000, there were 1,001 franchise restaurants. Franchisees
opened 84 restaurants in 1998, 80 restaurants in 1999 and 100 restaurants in
2000. We anticipate between 80 to 90 franchise restaurant openings in 2001.
Development of Restaurants. We make available to franchisees the physical
specifications for a typical restaurant, and we retain the right to prohibit or
modify the use of any plan. Each franchisee is responsible for selecting the
site for each restaurant within their territory. We assist franchisees in
selecting appropriate sites, and any selection made by a franchisee is subject
to our approval. We also conduct a physical inspection, review any proposed
lease or purchase agreement, and make available demographic studies.
8
Domestic Franchise Arrangements. Each franchise arrangement consists of a
development agreement and separate franchise agreements. Development agreements
grant the exclusive right to develop a number of restaurants in a designated
geographical area. The term of a domestic development agreement is generally 20
years. The franchisee enters into a separate franchise agreement for the
operation of each restaurant. Each agreement has a term of 20 years and permits
renewal for up to an additional 20 years in accordance with the terms contained
in the then current franchise agreement (including the then current royalty
rates and advertising fees) and upon payment of an additional franchise fee.
For each restaurant developed, a franchisee is currently obligated to pay an
initial franchisee fee (which typically ranges from $30,000 to $35,000) and a
royalty fee equal to 4% of the restaurant's monthly gross sales. The current
franchise agreements for a majority of our franchisees allow us to increase
royalty fees to a maximum of 5% of gross sales on or after January 1, 2003.
However, we anticipate executing agreements in the near future with a majority
of our franchisees which will maintain the existing royalty fees of 4% and
extend the current franchise and development agreements until January 1, 2020.
The revised agreements will establish new restaurant development obligations
over the next several years which support our long-term expectation of at least
1,800 restaurants in the United States. The terms, royalties and advertising
fees under a limited number of franchise agreements and the franchise fees under
older development agreements vary from the currently offered arrangements.
Advertising. Through 1999, we required domestic franchisees to contribute 1.5%
of gross sales to the national advertising pool. This amount is in addition to
their required spending of at least 1.5% of gross sales on local advertising and
promotional activities. To fund our brand-building strategy, we increased the
required contribution to the national advertising fund to 2.1% of gross sales in
2000 and 2.25% of gross sales in 2001. Franchisees also promote the opening of
each restaurant and we reimburse the franchisee for 50% of the out-of-pocket
opening advertising expenditures, subject to certain conditions. The maximum
amount we will reimburse for these expenditures is $2,500. We can increase the
combined amount of the advertising fee and the amount required to be spent on
local advertising and promotional activities to a maximum of 5% of gross sales.
Training and Support. We provide ongoing advice and assistance to franchisees in
connection with the operation and management of each restaurant through training
sessions, meetings, seminars, on-premises visits, and by written or other
material. Through this process, we make franchisees aware of revisions to our
operating manual policies and procedures, and we inform them about new
developments, techniques, and improvements in a number of areas, including
restaurant management, food and beverage preparation, sales promotion, and
service concepts. We also have franchise business managers (11 as of December
31, 2000) who are responsible for assisting each franchisee with business
planning, development, technology and human resources efforts.
Quality Control. We continuously monitor franchisee operations and inspect
restaurants, principally through our full-time franchise territory managers (15
as of December 31, 2000). We make both scheduled and unannounced inspections of
restaurants to ensure that only approved products are in use and that our
prescribed operations practices and procedures are being followed. A minimum of
three planned visits are made each year, during which one of our representatives
conducts an inspection and consultation at each restaurant. We have the right to
terminate a franchise if a franchisee does not operate and maintain a restaurant
in accordance with our requirements.
Franchise Business Council. We maintain a Franchise Business Council which
provides us with advice about operations, marketing, product development and
other aspects of restaurant operations for the purpose of improving the
9
franchise system. As of December 31, 2000, the Franchise Business Council
consisted of eight franchisee representatives and two members of our senior
management. Two franchisee representatives are permanent members, one franchisee
representative must be a franchisee with five or less restaurants, and any
franchisee who operates 10% or more of the total number of system restaurants
(currently none) is reserved a seat. Franchisees elect the remaining franchisee
representatives annually.
International Franchise Agreements. We continue to pursue international
franchising of the Applebee's concept under a long-term strategy of controlled
expansion. This strategy includes seeking qualified franchisees with the
resources to open multiple restaurants in each territory and those with
familiarity with the specific local business environment. We are currently
focusing on international franchising in Canada, Latin America and the
Mediterranean/Middle East. In this regard, we currently have development
agreements with 12 international franchisees. Franchisees operated 35
international restaurants as of December 31, 2000. The success of further
international expansion will depend on, among other things, local acceptance of
the Applebee's concept and our ability to attract qualified franchisees and
operating personnel. We must also comply with the regulatory requirements of the
local jurisdictions, and supervise international franchisee operations
effectively.
Franchise Financing. Although financing is the sole responsibility of the
franchisee, we make available to franchisees information about financial
institutions interested in financing the costs of restaurant development for
qualified franchisees. None of these financial institutions is our affiliate or
agent, and we have no control over the terms or conditions of any financing
arrangement offered by these financial institutions. Under a previous franchise
financing program, we provided a limited guaranty of loans made to certain
franchisees.
Competition
We expect competition in the casual dining segment of the restaurant industry to
remain intense with respect to price, service, location, concept, and the type
and quality of food. There is also intense competition for real estate sites,
qualified management personnel, and hourly restaurant staff. Our competitors
include national, regional and local chains, as well as local owner-operated
restaurants. We have a number of well-established competitors. Some of these
companies have been in existence longer than we have, and therefore they may be
better established in the markets where our restaurants are or may be located.
Service Marks
We own the rights to the "Applebee's Neighborhood Grill & Bar(R)" service mark
and certain variations thereof in the United States and in various foreign
countries. We are aware of names and marks similar to our service marks used by
third parties in certain limited geographical areas. We intend to protect our
service marks by appropriate legal action where and when necessary.
Government Regulation
Our restaurants are subject to numerous federal, state, and local laws affecting
health, sanitation and safety standards. Our restaurants are also subject to
state and local licensing regulation of the sale of alcoholic beverages. Each
restaurant is required to obtain appropriate licenses from regulatory
authorities allowing it to sell liquor, beer, and wine. We also require that
each restaurant obtain food service licenses from local health authorities. Our
licenses to sell alcoholic beverages must be renewed annually and may be
suspended or revoked at any time for cause. This would include violation of any
law or regulation pertaining to alcoholic beverage control by us or our
employees. Among such laws are those regulating the minimum age of patrons or
employees, advertising, wholesale purchasing, and inventory control. If one of
our restaurants failed to maintain its license to sell alcohol or serve food, it
would significantly harm the success of that restaurant. In order to reduce this
risk, we operate each restaurant in accordance with standardized procedures
designed to facilitate compliance with all applicable codes and regulations.
10
Our employment practices are governed by various governmental employment
regulations. These include minimum wage, overtime, immigration, family leave and
working condition regulations.
We are subject to a variety of federal and state laws governing franchise sales
and the franchise relationship. In general, these laws and regulations impose
certain disclosure and registration requirements prior to the sale and marketing
of franchises. Recent decisions of several state and federal courts and recently
enacted or proposed federal and state laws demonstrate a trend toward increased
protection of the rights and interests of franchisees against franchisors. Such
decisions and laws may limit the ability of franchisors to enforce certain
provisions of franchise agreements or to alter or terminate franchise
agreements. Due to the scope of our business and the complexity of franchise
regulations, we may encounter minor compliance issues from time to time. We do
not believe, however, that any of these issues will have a material adverse
effect on our business.
Under certain court decisions and statutes, owners of restaurants and bars in
some states in which we own or operate restaurants may be held liable for
serving alcohol to intoxicated customers whose subsequent conduct results in
injury or death to a third party. We cannot guarantee that we will not be
subject to such liability. We do believe, however, that our insurance presently
provides adequate coverage for such liability.
Employees
As of December 31, 2000, we employed approximately 17,900 full and part-time
employees. Of those, approximately 400 were corporate personnel, 1,300 were
restaurant managers or managers in training and 16,200 were employed in
non-management full and part-time restaurant positions. Of the 400 corporate
employees, approximately 150 were in management positions and 250 were general
office employees, including part-time employees.
We consider our employee relations to be good. Most employees, other than
restaurant management and corporate personnel, are paid on an hourly basis. We
believe that we provide working conditions and wages that compare favorably with
those of our competition. We have never experienced a work stoppage due to labor
difficulty, and our employees are not covered by a collective bargaining
agreement.
11
Executive Officers of the Registrant
Our executive officers as of December 31, 2000 are shown below.
Name Age Position
Lloyd L. Hill.................... 56 Chairman of the Board of Directors, Chief Executive Officer and
President
Steven K. Lumpkin................ 46 Executive Vice President and Chief Development Officer
George D. Shadid................. 46 Executive Vice President and Chief Financial Officer, Treasurer and
Member of the Board of Directors
Julia A. Stewart................. 45 President of Applebee's Division
Larry A. Cates................... 52 President of International Division
Louis A. Kaucic.................. 49 Senior Vice President and Chief People Officer
John F. Koch..................... 41 Senior Vice President of Research and Development
David R. Parsley................. 54 Senior Vice President of Purchasing and Distribution
Carin L. Stutz................... 44 Senior Vice President of Company Operations
Lloyd L. Hill was elected a director in August 1989. Mr. Hill was appointed
Executive Vice President and Chief Operating Officer in January 1994. In
December 1994, he assumed the role of President in addition to his role as Chief
Operating Officer. Effective January 1, 1997, Mr. Hill assumed the role of
Co-Chief Executive Officer. In January 1998, he assumed the full duties of Chief
Executive Officer. In May 2000, Mr. Hill was elected Chairman of the Board of
Directors. From December 1989 to December 1993, he served as President of
Kimberly Quality Care, a home health care and nurse personnel staffing company,
where he also served as a director from 1988 to 1993, having joined that
organization in 1980.
Steven K. Lumpkin was employed by Applebee's in May 1995 as Vice President of
Administration. In January 1996, he was promoted to Senior Vice President of
Administration. In November 1997, he assumed the position of Senior Vice
President of Strategic Development and in January 1998 was promoted to Executive
Vice President of Strategic Development. He was named Chief Development Officer
in March 2001. From July 1993 until January 1995, Mr. Lumpkin was a Senior Vice
President with a division of the Olsten Corporation, Olsten Kimberly Quality
Care. From June 1990 until July 1993, Mr. Lumpkin was an Executive Vice
President and a member of the board of directors of Kimberly Quality Care. From
January 1978 until June 1990, Mr. Lumpkin was employed by Price Waterhouse LLP,
where he served as a management consulting partner and certified public
accountant.
George D. Shadid was employed by Applebee's in August 1992, and served as Senior
Vice President and Chief Financial Officer until January 1994 when he was
promoted to Executive Vice President and Chief Financial Officer. He also became
Treasurer in March 1995. In March 1999, Mr. Shadid was elected a director. From
1985 to 1987, he served as Corporate Controller of Gilbert/Robinson, Inc., at
which time he was promoted to Vice President, and in 1988 assumed the position
of Vice President and Chief Financial Officer, which he held until joining
Applebee's. From 1976 until 1985, Mr. Shadid was employed by Deloitte & Touche
LLP.
Julia A. Stewart was employed by Applebee's in October 1998 as President of the
Applebee's Division. From July 1991 until September 1998, Ms. Stewart held
several key executive positions with Taco Bell Corporation, a division of Tricon
Global Restaurants, Inc. Most recently, she served as National Vice President of
Franchise and License for over 5,200 Taco Bell units, and was previously Taco
Bell's Western Region Vice President of Operations with responsibility for over
1,200 company-owned restaurants. Prior to joining Taco Bell, she held key
marketing positions over a 15-year period, including Vice President of
Marketing, Research and Development with Stuart Anderson's Black Angus/Cattle
Company Restaurants.
12
Larry A. Cates was employed by Applebee's in May 1997 as President of the
International Division. Prior to joining Applebee's, Mr. Cates spent 17 years
with PepsiCo Restaurants developing international markets for that company's
Pizza Hut, Taco Bell and KFC brands. From 1994 to 1997, Mr. Cates was Vice
President of Franchising and Development - Europe/Middle East, and from 1990 to
1994, he was Chief Executive Officer of Pizza Hut UK, Ltd., a joint venture
between PepsiCo Restaurants and Whitbread.
Louis A. Kaucic was employed by Applebee's in October 1997 as Senior Vice
President of Human Resources. He was named Chief People Officer in March 2001.
From July 1992 until October 1997, Mr. Kaucic was Vice President of Human
Resources and later promoted to Senior Vice President of Human Resources with
Unique Casual Restaurants, Inc., which operates several restaurant concepts.
From 1982 to 1992, he was employed by Pizza Hut in a variety of positions,
including Director of Employee Relations. From 1978 to 1982, Mr. Kaucic was
employed by Kellogg's as an Industrial Relations Manager.
John F. Koch was employed by Applebee's in February 1999 as Senior Vice
President of Research and Development. From January 1990 to February 1999, Mr.
Koch held various positions with The Olive Garden, most recently as the Senior
Vice President of Food and Beverage. Mr. Koch has over 20 years experience in
the restaurant industry.
David R. Parsley was employed by Applebee's in April 2000 as Senior Vice
President of Purchasing and Distribution. From November 1996 to April 2000, Mr.
Parsley held several positions with Prandium, Inc., operator of El Torito,
Chi-Chi's and Koo Koo Roo, most recently as Senior Vice President of Quality and
Supply Chain Management. He has also held purchasing positions with The Panda
Management Company, Carl Karcher Enterprises, Proficient Food Company, Inc., and
Baxter Healthcare Corporation.
Carin L. Stutz was employed by Applebee's in November 1999 as Senior Vice
President of Operations. From July 1994 to November 1999, Ms. Stutz was Division
Vice President with Wendy's International. From 1993 to 1994, she was Regional
Operations Vice President for Sodexho, USA. From 1990 to 1993, Ms. Stutz was
employed by Nutri/System, Inc. as a Vice President of Corporate Operations.
Prior to 1990, Ms. Stutz was employed for 12 years with Wendy's International.
13
Item 2. Properties
As of December 31, 2000, we owned or operated 285 restaurants. Of these, we
leased the land and building for 58 sites, owned the building and leased the
land for 94 sites, and owned the land and building for 133 sites. In addition,
as of December 31, 2000, we owned three sites for future development of
restaurants and had entered into eight lease agreements for restaurant sites we
plan to open during 2001. Our leases generally have an initial term of 15 to 20
years, with renewal terms of 5 to 20 years, and provide for a fixed rental plus,
in certain instances, percentage rentals based on gross sales.
We own an 80,000 square foot office building in Overland Park, Kansas, located
in the Kansas City metropolitan area, in which our corporate offices are
headquartered. We also lease office space in certain regions in which we operate
restaurants.
Under our franchise agreements, we have certain rights to gain control of a
restaurant site in the event of default under the lease or the franchise
agreement.
The following table sets forth the 49 states and the eight international
countries in which Applebee's are located and the number of restaurants
operating in each state or country as of December 31, 2000:
14
Number of Restaurants
-----------------------------------------------------
State or Country Company Franchise Total System
---------------------------------- -------------- -------------- --------------
Domestic:
--------
Alabama........................ -- 26 26
Alaska......................... -- 1 1
Arizona........................ -- 20 20
Arkansas....................... -- 7 7
California..................... 7 61 68
Colorado....................... -- 25 25
Connecticut.................... -- 6 6
Delaware....................... -- 4 4
Florida........................ -- 75 75
Georgia........................ 9 51 60
Idaho.......................... -- 9 9
Illinois....................... 6 41 47
Indiana........................ -- 48 48
Iowa........................... -- 21 21
Kansas......................... 10 15 25
Kentucky....................... -- 28 28
Louisiana...................... -- 16 16
Maine.......................... 5 -- 5
Maryland....................... -- 18 18
Massachusetts.................. 23 -- 23
Michigan....................... 48 11 59
Minnesota...................... 37 1 38
Mississippi.................... -- 13 13
Missouri....................... 32 10 42
Montana........................ -- 7 7
Nebraska....................... -- 11 11
Nevada......................... 11 -- 11
New Hampshire.................. 11 -- 11
New Jersey..................... -- 22 22
New Mexico..................... 6 4 10
New York....................... -- 57 57
North Carolina................. 1 43 44
North Dakota................... -- 6 6
Ohio........................... -- 64 64
Oklahoma....................... -- 13 13
Oregon......................... -- 11 11
Pennsylvania................... -- 38 38
Rhode Island................... 6 -- 6
South Carolina................. -- 39 39
South Dakota................... -- 3 3
Tennessee...................... -- 44 44
Texas.......................... 32 24 56
Utah........................... -- 9 9
Vermont........................ 2 -- 2
Virginia....................... 36 9 45
Washington..................... -- 13 13
West Virginia.................. -- 11 11
Wisconsin...................... 3 28 31
Wyoming........................ -- 3 3
-------------- -------------- --------------
Total Domestic................. 285 966 1,251
-------------- -------------- --------------
15
Number of Restaurants
-----------------------------------------------------
State or Country Company Franchise Total System
---------------------------------- -------------- -------------- --------------
International:
-------------
Canada......................... -- 14 14
Egypt.......................... -- 1 1
Greece......................... -- 2 2
Honduras....................... -- 2 2
Kuwait......................... -- 1 1
Mexico......................... -- 8 8
Netherlands.................... -- 5 5
Sweden......................... -- 2 2
-------------- -------------- --------------
Total International............ -- 35 35
-------------- -------------- --------------
285 1,001 1,286
============== ============== ==============
Item 3. Legal Proceedings
As of December 31, 2000, we were using assets owned by a former franchisee in
the operation of one restaurant. That restaurant remains under a purchase rights
agreement that required us to make certain payments to the franchisee's lender.
In 1991, a dispute arose between the lender and us over the amount of the
payments due the lender under that agreement and over whether we had agreed to
guarantee the franchisee's debt. Based upon a then-current independent
appraisal, we offered to settle the dispute and purchase the assets of the three
then-existing restaurants for $1,000,000 in 1991. In November 1992, the FDIC
declared the lender insolvent, and the lender has since been liquidated. We
closed one of the three restaurants in 1994 and one of the two remaining
restaurants in February 1996. In the fourth quarter of 1996, we received
information indicating that a third party had acquired the franchisee's
indebtedness to the FDIC. In June 1997, the third party filed a lawsuit against
us seeking approximately $3,800,000. In April 1999, the district court awarded a
summary judgment of $3,833,000 to the third party. In June 2000, the court of
appeals reversed the summary judgment and remanded the case to the district
court for further action. The third party has appealed the court's decision. As
of December 31, 2000, we believe we have recorded adequate reserves for this
matter.
In addition, we are involved in various legal actions arising in the normal
course of business. These matters include disputes with certain international
franchisees regarding disclosures we allegedly made or omitted. We have also
filed claims against these franchisees for amounts due. These matters are in the
early stages of assessment; however, we believe that we have meritorious
defenses to the allegations of the franchisees and will vigorously defend these
claims.
While the resolution of the matters described above may have an impact on the
financial results for the period in which they are resolved, we believe that the
ultimate disposition of these matters will not, in the aggregate, have a
material adverse effect upon our business or consolidated financial position.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
1. Our common stock trades on The Nasdaq Stock Market(R)under the symbol
APPB.
The table below sets forth for the fiscal quarters indicated the
reported high and low sale prices of our common stock, as reported on
The Nasdaq Stock Market.
2000 1999
------------------------------- -------------------------------
High Low High Low
--------------- --------------- --------------- ---------------
First Quarter $ 29.88 $ 24.00 $ 28.69 $ 20.00
Second Quarter $ 37.56 $ 25.56 $ 32.75 $ 22.50
Third Quarter $ 32.13 $ 20.44 $ 34.94 $ 29.88
Fourth Quarter $ 34.63 $ 22.50 $ 35.00 $ 23.00
2. Number of stockholders of record at December 31, 2000: 1,032
3. We declared an annual dividend of $0.11 per common share on December
14, 2000 for stockholders of record on December 29, 2000, and the
dividend was payable on January 29, 2001. We declared an annual
dividend of $0.10 per common share on December 16, 1999 for
stockholders of record on December 27, 1999, and the dividend was
payable on January 28, 2000.
We presently anticipate continuing the payment of cash dividends based
upon our annual net income. The actual amount of such dividends will
depend upon future earnings, results of operations, capital
requirements, our financial condition and certain other factors. There
can be no assurance as to the amount of net income that we will
generate in 2001 or future years and, accordingly, there can be no
assurance as to the amount that will be available for the declaration
of dividends, if any.
17
Item 6. Selected Financial Data
The following table sets forth for the periods and the dates indicated our
selected financial data. The fiscal year ended December 31, 2000 contained 53
weeks, and all other periods presented contained 52 weeks. The following should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this Form 10-K.
Fiscal Year Ended
--------------------------------------------------------------------------------
December 31, December 26, December 27, December 28, December 29,
2000 1999 1998 1997 1996
--------------- --------------- --------------- --------------- ----------------
(in thousands, except per share amounts)
STATEMENT OF
EARNINGS DATA:
Company restaurant sales................. $ 605,414 $ 596,754 $ 580,840 $ 452,173 $ 358,990
Franchise income......................... 84,738 72,830 66,722 63,647 54,141
--------------- --------------- --------------- --------------- ----------------
Total operating revenues............ $ 690,152 $ 669,584 $ 647,562 $ 515,820 $ 413,131
=============== =============== =============== =============== ================
Operating earnings....................... $ 107,207 $ 94,910 $ 88,562 $ 71,283 $ 58,833
Earnings before extraordinary item....... $ 63,161 $ 54,198 $ 50,656 $ 45,091 $ 38,014
Basic earnings per share before
extraordinary item.................... $ 2.42 $ 1.91 $ 1.67 $ 1.44 $ 1.22
Diluted earnings per share before
extraordinary item.................... $ 2.40 $ 1.89 $ 1.67 $ 1.43 $ 1.21
Net earnings............................. $ 63,161 $ 54,198 $ 50,015 $ 45,091 $ 38,014
Basic net earnings per share............. $ 2.42 $ 1.91 $ 1.65 $ 1.44 $ 1.22
Diluted net earnings per share........... $ 2.40 $ 1.89 $ 1.65 $ 1.43 $ 1.21
Dividends per share...................... $ 0.11 $ 0.10 $ 0.09 $ 0.08 $ 0.07
Basic weighted average shares
outstanding........................... 26,152 28,403 30,272 31,401 31,188
Diluted weighted average shares
outstanding........................... 26,298 28,601 30,385 31,640 31,533
BALANCE SHEET DATA
(AT END OF FISCAL YEAR):
Total assets............................. $ 471,707 $ 442,216 $ 510,904 $ 377,474 $ 314,111
Long-term obligations, including
current portion........................ $ 91,355 $ 108,100 $ 147,188 $ 29,105 $ 25,843
Stockholders' equity..................... $ 281,718 $ 253,873 $ 296,053 $ 290,443 $ 244,764
18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Our revenues are generated from two primary sources:
o Company restaurant sales (food and beverage sales)
o Franchise income
Franchise income consists of franchise restaurant royalties (generally 4% of
each franchise restaurant's monthly gross sales) and franchise fees (which
typically range from $30,000 to $35,000 for each Applebee's restaurant opened).
Beverage sales include sales of alcoholic beverages, while non-alcoholic
beverages are included in food sales.
Certain expenses relate only to company operated restaurants. These include:
o food and beverage costs
o labor costs
o direct and occupancy costs
o pre-opening expenses
Other expenses, such as general and administrative and amortization expenses,
relate to both company operated restaurants and franchise operations.
We operate on a 52 or 53 week fiscal year ending on the last Sunday in December.
Our fiscal year ended December 31, 2000 contained 53 weeks and our fiscal years
ended December 26, 1999 and December 27, 1998 contained 52 weeks and are
referred to hereafter as 2000, 1999 and 1998.
Acquisitions
On March 30, 1998, we acquired the operations and assets of 33 restaurants in
the Virginia markets of Norfolk, Richmond, Roanoke and Charlottesville. This
purchase is referred to as the "Virginia Acquisition." We accounted for the
Virginia Acquisition as a purchase in the second quarter of 1998, and the
consolidated financial statements after that date reflect the results of
operations of these restaurants.
Divestitures
On April 12, 1999, we completed the sale of our Rio Bravo Cantina concept, which
was comprised of 65 restaurants. We operated 40 of these restaurants and
franchisees operated the remaining 25 restaurants. We received $47 million in
cash at closing and a $6 million subordinated note for a total of $53 million in
consideration. The $6 million subordinated note bears interest at 8% and is due
in 2009. On April 26, 1999, we also completed the sale of our four specialty
restaurants for $12 million in cash. In connection with these two transactions,
we recognized a loss in the first quarter of 1999 of $9,000,000 ($5,670,000 net
of income taxes). The following amounts were attributable to both the Rio Bravo
Cantina and specialty restaurants during the 1999 period prior to their sale:
19
o Company restaurant sales $33,444,000
o Franchise income $26,000
o Cost of company restaurant sales $30,331,000
On December 13, 1999, we completed the sale of 12 Applebee's restaurants in the
Philadelphia market for $23,465,000. An existing Applebee's franchisee assumed
the operations of the restaurants and future restaurant development in the
market. In connection with this transaction, we recognized a gain in the fourth
quarter of 1999 of $4,193,000 ($2,650,000 net of income taxes). The following
amounts were attributable to the 12 Philadelphia restaurants for the 1999 period
prior to their sale:
o Company restaurant sales $22,759,000
o Cost of company restaurant sales $18,568,000
Results of Operations
The following table contains information derived from our consolidated
statements of earnings expressed as a percentage of total operating revenues,
except where otherwise noted. Percentages may not add due to rounding.
Fiscal Year Ended
--------------------------------------------------
December 31, December 26, December 27,
2000 1999 1998
---------------- ---------------- ----------------
Revenues:
Company restaurant sales......................... 87.7% 89.1% 89.7%
Franchise income................................. 12.3 10.9 10.3
---------------- ---------------- ----------------
Total operating revenues...................... 100.0% 100.0% 100.0%
================ ================ ================
Cost of sales (as a percentage of
company restaurant sales):
Food and beverage................................ 27.4% 27.5% 27.4%
Labor............................................ 31.6 31.6 31.9
Direct and occupancy............................. 25.0 24.4 25.3
Pre-opening expense.............................. 0.3 0.3 0.5
---------------- ---------------- ----------------
Total cost of sales........................... 84.4% 83.7% 85.1%
================ ================ ================
General and administrative expenses................... 9.4% 9.5% 9.0%
Amortization of intangible assets..................... 0.9 0.9 0.9
Loss on disposition of restaurants and equipment...... 0.2 0.8 0.1
---------------- ---------------- ----------------
Operating earnings.................................... 15.5 14.2 13.7
---------------- ---------------- ----------------
Other income (expense):
Investment income................................ 0.2 0.2 0.2
Interest expense................................. (1.3) (1.6) (1.5)
Other income..................................... 0.1 0.1 0.1
---------------- ---------------- ----------------
Total other expense........................... (1.1) (1.4) (1.3)
---------------- ---------------- ----------------
Earnings before income taxes and extraordinary item... 14.5 12.8 12.4
Income taxes.......................................... 5.3 4.7 4.6
---------------- ---------------- ----------------
Earnings before extraordinary item.................... 9.2 8.1 7.8
Extraordinary loss from early extinguishment
of debt, net of income taxes..................... -- -- (0.1)
---------------- ---------------- ----------------
Net earnings.......................................... 9.2% 8.1% 7.7%
================ ================ ================
20
Fiscal Year Ended December 31, 2000 Compared With Fiscal Year Ended December 26,
1999
Company Restaurant Sales. Total company restaurant sales increased $8,660,000
(1%) from $596,754,000 in 1999 to $605,414,000 in 2000. Sales for company
Applebee's restaurants increased $42,104,000 (7%) from $563,310,000 in 1999 to
$605,414,000 in 2000 due primarily to company restaurant openings, the
fifty-third week in 2000 and increases in comparable restaurant sales. These
increases were partially offset by the sale of the Philadelphia restaurants in
December 1999. The remaining change in total company restaurant sales resulted
from the sale of the Rio Bravo Cantina and specialty restaurants in April 1999.
Comparable restaurant sales at company Applebee's restaurants increased by 1.8%
in 2000. Weighted average weekly sales at company Applebee's restaurants
increased 1.2% from $41,674 in 1999 to $42,183 in 2000. These increases were due
primarily to an increase in the average guest check resulting from the company's
food promotions and increased sales of appetizers, drinks and desserts.
Franchise Income. Overall franchise income increased $11,908,000 (16%) from
$72,830,000 in 1999 to $84,738,000 in 2000 due primarily to the increased number
of franchise Applebee's restaurants operating during 2000 as compared to 1999,
the fifty-third week in 2000 and an increase in franchise fees due to an
increase in franchise openings from 80 in 1999 to 100 in 2000. Comparable
restaurant sales and weighted average weekly sales for franchise Applebee's
restaurants increased 1.6% and 2.1%, respectively, in 2000.
Cost of Company Restaurant Sales. Food and beverage costs decreased from 27.5%
in 1999 to 27.4% in 2000. This decrease was due primarily to operational
improvements including the implementation of a new theoretical food cost system
in 2000. In addition, the sale of the Rio Bravo restaurants in April 1999
positively impacted food and beverage costs. These decreases were partially
offset by higher costs relating to the implementation of a new menu in the
fourth quarter of 2000.
Labor costs were 31.6% in both 1999 and 2000. The sale of the Rio Bravo
restaurants in April 1999 and lower management incentive compensation in 2000
positively impacted labor costs. These decreases were partially offset by
continued pressure on both hourly labor and management costs due to low
unemployment as well as the highly competitive nature of the restaurant
industry.
Direct and occupancy costs increased from 24.4% in 1999 to 25.0% in 2000. This
increase resulted primarily from an increase in advertising costs, as a
percentage of sales, relating in part to the implementation of our new menu, and
higher utility costs. These increases were partially offset by lower rent
expense, as a percentage of sales.
General and Administrative Expenses. General and administrative expenses
decreased from 9.5% in 1999 to 9.4% in 2000 due primarily to lower incentive
compensation expense. This decrease was partially offset by the absorption of
general and administrative expenses over a lower revenue base in 2000 due to the
divestiture of the Rio Bravo and Philadelphia restaurants.
Loss on Disposition of Restaurants and Equipment. Loss on disposition of
restaurants and equipment decreased from $5,607,000 in 1999 to $1,265,000 in
2000 due primarily to the loss on the disposition of the Rio Bravo Cantina and
specialty restaurants of $9,000,000 which was partially offset by the gain on
the sale of the Philadelphia restaurants of $4,193,000 in 1999.
Interest Expense. Interest expense decreased in 2000 compared to 1999 due
primarily to the reduction in debt resulting from the sale of the Rio Bravo
Cantina, specialty and Philadelphia restaurants in 1999.
21
Income Taxes. The effective income tax rate, as a percentage of earnings before
income taxes, was 36.8% in both 1999 and 2000.
Fiscal Year Ended December 26, 1999 Compared With Fiscal Year Ended December 27,
1998
Company Restaurant Sales. Total company restaurant sales increased $15,914,000
(3%) from $580,840,000 in 1998 to $596,754,000 in 1999. Sales for company
Applebee's restaurants increased $91,730,000 (19%) from $471,580,000 in 1998 to
$563,310,000 in 1999 due primarily to company restaurant openings, increases in
comparable restaurant sales and incremental sales from the 33 Virginia
restaurants acquired in March 1998. Sales for company Rio Bravo Cantina
restaurants decreased from $94,887,000 in 1998 to $28,638,000 in 1999, and sales
for the specialty restaurants decreased from $14,373,000 in 1998 to $4,806,000
in 1999 as a result of their divestiture in April 1999.
Comparable restaurant sales at company Applebee's restaurants increased by 4.4%
in 1999. Weighted average weekly sales at company Applebee's restaurants
increased 2.5% from $40,664 in 1998 to $41,674 in 1999. These increases were due
to increased customer traffic as a result of the success of our food promotions,
an increase in network television advertising in 1999 and increased sales of
appetizers, drinks and desserts.
Franchise Income. Overall franchise income increased $6,108,000 (9%) from
$66,722,000 in 1998 to $72,830,000 in 1999 due primarily to the increased number
of franchise Applebee's restaurants operating during 1999 as compared to 1998.
Successful system-wide food promotions also contributed to increases of 2.9% and
3.1%, respectively, in comparable restaurant sales and weighted average weekly
sales for franchise Applebee's restaurants in 1999. These increases were
partially offset by a reduction in franchise royalties as a result of the sale
of the Rio Bravo Cantina concept during the second quarter of 1999 and the
waiver of royalties related to these restaurants, as well as the acquisition of
the Virginia restaurants in the second quarter of 1998.
Cost of Company Restaurant Sales. Food and beverage costs increased from 27.4%
in 1998 to 27.5% in 1999. This increase resulted from the our strategy of
investing in higher cost food promotional items, which was partially offset by
the impact of the sale of the Rio Bravo restaurants. In addition, beverage
sales, as a percentage of total company restaurant sales, declined from 16.6% in
1998 to 14.4% in 1999 which had a negative impact on overall food and beverage
costs, as a percentage of company restaurant sales. This decrease was due, in
part, to the sale of the Rio Bravo restaurants, which had a higher proportion of
beverage sales. Management also believes that the reduction in beverage sales
was due, in part, to the continuation of the overall trend toward increased
awareness of responsible alcohol consumption as well as a higher rate of growth
in food sales resulting from successful food promotions.
Labor costs decreased from 31.9% in 1998 to 31.6% in 1999. The decrease was due
primarily to lower labor costs in the acquired Virginia restaurants and the
impact of the sale of the Rio Bravo restaurants. These decreases were partially
offset by continued pressure on both hourly labor and management costs due to
low unemployment as well as the highly competitive nature of the restaurant
industry.
Direct and occupancy costs decreased from 25.3% in 1998 to 24.4% in 1999. This
decrease was due primarily to the sale of the Rio Bravo restaurants, a decrease
in advertising costs, as a percentage of sales, and leverage resulting from the
sales increases at Applebee's restaurants in 1999.
General and Administrative Expenses. General and administrative expenses
increased from 9.0% in 1998 to 9.5% in 1999 due to the absorption of general and
22
administrative expenses over a lower revenue base as a result of the divestiture
of the Rio Bravo and specialty restaurants. General and administrative expenses
increased by $5,294,000 during 1999 compared to 1998 due primarily to increased
incentive compensation expense as a result of our performance.
Loss on Disposition of Restaurants and Equipment. Loss on disposition of
restaurants and equipment increased from $952,000 in 1998 to $5,607,000 in 1999
due primarily to the loss on the disposition of the Rio Bravo Cantina and
specialty restaurants of $9,000,000 which was partially offset by the gain on
the sale of the Philadelphia restaurants of $4,193,000.
Interest Expense. Interest expense increased in 1999 compared to 1998 primarily
as a result of interest associated with borrowings under our credit facilities
for stock repurchases.
Income Taxes. The effective income tax rate, as a percentage of earnings before
income taxes, was 36.8% in 1999 compared to 37.0% in 1998. The decrease in our
overall effective tax rate in 1999 was due primarily to an increase in credits
resulting from FICA taxes on tips and Work Opportunity Tax Credits.
Liquidity and Capital Resources
Our need for capital resources historically has resulted from the construction
and acquisition of restaurants. For the foreseeable future, this should continue
to be the case. In the past, we have obtained capital through public stock
offerings, debt financing, and our ongoing operations. Income from our ongoing
operations includes cash generated from company and franchise operations, credit
from trade suppliers, real estate lease financing, and landlord contributions to
leasehold improvements. We have also used our common stock as consideration in
the acquisition of restaurants. In addition, we have assumed debt or issued new
debt in connection with certain mergers and acquisitions.
Capital expenditures were $53,945,000 in fiscal year 1999 and $46,220,000 in
2000. We currently expect to open approximately 25 Applebee's restaurants in
2001. Capital expenditures are expected to be between $50,000,000 and
$55,000,000 in fiscal 2001. These expenditures will primarily be for the
development of new restaurants, refurbishment and capital replacement for
existing restaurants, and the enhancement of information systems. Because we
expect to continue to purchase a portion of our sites, the amount of actual
capital expenditures will be dependent upon, among other things, the proportion
of leased versus owned properties. In addition, if we open more restaurants than
we currently anticipate or acquire additional restaurants, our capital
requirements will increase accordingly.
Our senior term loan and working capital facilities are subject to various
covenants and restrictions which, among other things, require the maintenance of
stipulated fixed charge, interest coverage and leverage ratios, as defined, and
limit additional indebtedness and capital expenditures in excess of specified
amounts. The credit agreement permits annual cash dividends of the greater of
$5,000,000 or 50% of consolidated net income. In addition, in April 2000, the
credit agreement was amended to permit additional repurchases of common stock of
up to $50,000,000 through December 31, 2001. We are currently in compliance with
the covenants contained in our credit agreement.
During 1998, 1999 and 2000, our Board of Directors approved four plans to
repurchase up to $207,500,000 of our common stock, subject to market conditions.
We repurchased 2,431,000 shares of our common stock at an aggregate cost of
$49,332,000 in 1998, 3,332,000 shares of our common stock at an aggregate cost
of $102,959,000 in 1999, and 1,773,000 shares of our common stock at an
aggregate cost of $43,192,000 in 2000 for a total of 7,536,000 shares of our
common stock at an aggregate cost of $195,483,000 under these authorizations.
Subsequent to December 31, 2000, we completed all previously authorized stock
23
repurchase programs. In February 2001, our Board of Directors authorized an
additional repurchase of up to $55,000,000 of our common stock through 2001,
subject to market conditions and applicable restrictions imposed by our credit
agreement.
As of December 31, 2000, our liquid assets totaled $12,075,000. These assets
consisted of cash and cash equivalents in the amount of $10,763,000 and
short-term investments in the amount of $1,312,000. The working capital deficit
decreased from $43,451,000 as of December 26, 1999 to $40,654,000 as of December
31, 2000. This decrease was due primarily to increases in cash and cash
equivalents and receivables as a result of the timing of our fiscal year-end. As
of December 31, 2000, $3,000,000 was outstanding under our working capital and
line of credit facilities, and standby letters of credit totaling $4,511,000
were outstanding under our letter of credit facilities.
We believe that our liquid assets and cash generated from operations, combined
with borrowings available under our credit facilities, will provide sufficient
funds for our operating, capital and other requirements for the foreseeable
future.
Inflation
Substantial increases in costs and expenses could impact our operating results
to the extent such increases cannot be passed along to customers. In particular,
increases in food, supplies, labor and operating expenses could have a
significant impact on our operating results. We do not believe that inflation
has materially affected our operating results during the past three years.
A majority of our employees are paid hourly rates related to federal and state
minimum wage laws and various laws that allow for credits to that wage. The
Federal government continues to consider an increase in the minimum wage.
Several state governments have increased the minimum wage and other state
governments are also discussing an increased minimum wage. In the past, we have
been able to pass along cost increases to customers through food and beverage
price increases, and we will attempt to do so in the future. We cannot
guarantee, however, that all future cost increases can be reflected in our
prices or that increased prices will be absorbed by customers without at least
somewhat diminishing customer spending in our restaurants.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended by SFAS Nos. 137 and 138, establishes accounting and reporting standards
for derivative instruments and hedging activities. It requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and to measure those instruments at fair value. This
statement is effective for us beginning in the first quarter of fiscal year
2001. Adoption of these new accounting standards will result in cumulative
after-tax reductions in other comprehensive income of approximately $250,000 in
the first quarter of 2001.
Forward-Looking Statements
The statements contained in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section regarding restaurant
development and capital expenditures are forward-looking and based on current
expectations. There are several risks and uncertainties that could cause actual
results to differ materially from those described. These risks include but are
24
not limited to the impact of intense competition in the casual dining segment of
the restaurant industry and our ability to control restaurant operating costs
which are impacted by market changes, minimum wage and other employment laws,
food costs and inflation. If you would like to read a more detailed discussion
of the principal factors that could cause actual results to be materially
different, you should read our current report on Form 8-K which we filed with
the Securities and Exchange Commission on February 13, 2001. We disclaim any
obligation to update forward-looking statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our senior term loan bears interest at either the bank's prime rate plus 1.25%
or LIBOR plus 2.25%, at our option. Our working capital facility bears interest
at either the bank's prime rate plus 0.125% or LIBOR plus 1.125%, at our option.
The interest rate on the working capital facility is subject to change based
upon our leverage ratio.
We have interest rate swap agreements in place to manage our exposure to
interest rate fluctuations. The swap agreements effectively fix the underlying
three-month LIBOR interest rate on $75,000,000 of the senior credit facilities
to rates ranging from 5.91% to 6.05%.
As of December 31, 2000, the total amount of debt subject to interest rate
fluctuations was $11,802,000. This amount was comprised of $8,802,000 under the
term loan and $3,000,000 under the working capital facility. A 1% change in
interest rates would result in an increase or decrease in interest expense of
$118,000 per year.
Item 8. Financial Statements and Supplementary Data
See the Index to Consolidated Financial Statements on Page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
25
PART III
Item 10. Directors and Executive Officers of the Registrant
If you would like information about our executive officers, you should read the
section entitled "Executive Officers of the Registrant" in Part I of this
report. If you would like information about our Directors, you should read the
Proxy Statement for the Annual Meeting of Stockholders to be held on or about
May 10, 2001. We incorporate that Proxy Statement in this document by reference.
Item 11. Executive Compensation
If you would like information about our executive compensation, you should read
the information under the caption "Executive Compensation" in the Proxy
Statement for the Annual Meeting of Stockholders to be held on or about May 10,
2001. We incorporate that information in this document by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
If you would like information about the stock owned by our management and
certain large stockholders, you should read the information under the caption
"Security Ownership of Officers, Directors and Certain Beneficial Owners" in the
Proxy Statement for the Annual Meeting of Stockholders to be held on or about
May 10, 2001. We incorporate that information in this document by reference.
Item 13. Certain Relationships and Related Transactions
If you would like information about certain transactions which we have completed
or certain relationships which we have entered into, you should read the
information under the caption "Certain Transactions" in the Proxy Statement for
the Annual Meeting of Stockholders to be held on or about May 10, 2001. We
incorporate that information in this document by reference.
26
PART IV
Item 14. Exhibits and Reports on Form 8-K
(a) List of documents filed as part of this report:
1. Financial Statements:
The financial statements are listed in the accompanying "Index
to Financial Statements" on Page F-1.
2. Exhibits:
The exhibits filed with or incorporated by reference in this
report are listed on the Exhibit Index beginning on page E-1.
(b) Reports on Form 8-K:
We filed a report on Form 8-K on October 23, 2000, announcing the
broadcast of our third quarter 2000 earnings conference call over the
Internet.
We filed a report on Form 8-K on October 25, 2000, announcing third
quarter 2000 diluted earnings per share of 60 cents.
We filed a report on Form 8-K on December 15, 2000, announcing an
increased annual dividend.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
APPLEBEE'S INTERNATIONAL, INC.
Date: March 20, 2001 By: /s/ Lloyd L. Hill
--------------------- -----------------------------
Lloyd L. Hill
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lloyd L. Hill and Robert T. Steinkamp, and each
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any amendments to this Form 10-K, and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming all
that said attorney-in-fact or his substitute or substitutes, may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ Lloyd L. Hill Date: March 20, 2001
-------------------------------------------- ----------------------
Lloyd L. Hill
Director, Chairman of the Board and Chief
Executive Officer
(principal executive officer)
By: /s/ George D. Shadid Date: March 20, 2001
-------------------------------------------- ----------------------
George D. Shadid
Director, Executive Vice President and Chief
Financial Officer
(principal financial officer)
By: /s/ Mark A. Peterson Date: March 20, 2001
-------------------------------------------- ----------------------
Mark A. Peterson
Vice President and Controller
(principal accounting officer)
28
By: /s/ Erline Belton Date: March 20, 2001
-------------------------------------------- --------------------
Erline Belton
Director
By: /s/ Douglas R. Conant Date: March 20, 2001
-------------------------------------------- --------------------
Douglas R. Conant
Director
By: /s/ D. Patrick Curran Date: March 20, 2001
-------------------------------------------- --------------------
D. Patrick Curran
Director
By: /s/ Eric L. Hansen Date: March 20, 2001
-------------------------------------------- --------------------
Eric L. Hansen
Director
By: /s/ Mark S. Hansen Date: March 20, 2001
-------------------------------------------- --------------------
Mark S. Hansen
Director
By: /s/ Jack P. Helms Date: March 20, 2001
-------------------------------------------- --------------------
Jack P. Helms
Director
By: /s/ Burton M. Sack Date: March 20, 2001
-------------------------------------------- --------------------
Burton M. Sack
Director
29
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
Index to consolidated Financial Statements
Page
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets as of December 31, 2000 and
December 26, 1999 .................................................................................. F-3
Consolidated Statements of Earnings for the fiscal years ended
December 31, 2000, December 26, 1999 and December 27, 1998........................................... F-4
Consolidated Statements of Stockholders' Equity for the fiscal Years
Ended December 31, 2000, December 26, 1999 and December 27, 1998..................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 2000, December 26, 1999 and December 27, 1998........................................... F-6
Notes to Consolidated Financial Statements............................................................... F-8
F-1
Independent Auditors' Report
Applebee's International, Inc.:
We have audited the accompanying consolidated balance sheets of Applebee's
International, Inc. and subsidiaries (the "Company") as of December 31, 2000 and
December 26, 1999, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three fiscal years in the
period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Applebee's International, Inc. and
subsidiaries at December 31, 2000 and December 26, 1999, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
February 21, 2001
F-2
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31, December 26,
2000 1999
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 10,763 $ 1,427
Short-term investments, at market value......................................... 1,312 2,555
Receivables, net of allowance................................................... 22,101 13,563
Inventories..................................................................... 12,616 11,247
Prepaid and other current assets................................................ 6,389 5,419
-------------- ---------------
Total current assets......................................................... 53,181 34,211
Property and equipment, net.......................................................... 314,216 300,140
Goodwill, net........................................................................ 83,265 88,667
Franchise interest and rights, net................................................... 2,949 3,449
Other assets......................................................................... 18,096 15,749
-------------- --------------
$ 471,707 $ 442,216
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................................... $ 894 $ 1,807
Accounts payable................................................................ 26,556 16,966
Accrued expenses and other current liabilities.................................. 62,511 54,962
Accrued dividends............................................................... 2,774 2,660
Accrued income taxes............................................................ 1,100 1,267
-------------- --------------
Total current liabilities.................................................... 93,835 77,662
-------------- --------------
Non-current liabilities:
Long-term debt - less current portion........................................... 90,461 106,293
Franchise deposits.............................................................. 1,596 1,765
Deferred income taxes........................................................... 4,097 2,623
-------------- --------------
Total non-current liabilities................................................ 96,154 110,681
-------------- --------------
Total liabilities............................................................ 189,989 188,343
-------------- --------------
Commitments and contingencies (Notes 7, 8 and 11) Stockholders' equity:
Preferred stock - par value $0.01 per share: authorized - 1,000,000 shares;
no shares issued............................................................. -- --
Common stock - par value $0.01 per share: authorized - 125,000,000 shares;
issued - 32,150,360 shares in 2000 and 1999.................................. 321 321
Additional paid-in capital...................................................... 172,037 168,584
Retained earnings............................................................... 293,933 233,548
Unrealized gain on short-term investments, net of income taxes.................. 39 50
-------------- --------------
466,330 402,503
Treasury stock - 6,930,530 shares in 2000 and 5,553,213 shares in 1999, at cost. (184,612) (148,630)
-------------- --------------
Total stockholders' equity................................................... 281,718 253,873
-------------- --------------
$ 471,707 $ 442,216
============== ==============
See notes to consolidated financial statements.
F-3
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
Fiscal Year Ended
----------------------------------------------------
December 31, December 26, December 27,
2000 1999 1998
-------------- -------------- --------------
Revenues:
Company restaurant sales................................ $ 605,414 $ 596,754 $ 580,840
Franchise income........................................ 84,738 72,830 66,722
-------------- -------------- --------------
Total operating revenues............................. 690,152 669,584 647,562
-------------- -------------- --------------
Cost of company restaurant sales:
Food and beverage....................................... 166,014 163,865 159,420
Labor................................................... 191,402 188,538 185,260
Direct and occupancy.................................... 151,611 145,747 146,693
Pre-opening expense..................................... 1,659 1,582 3,093
-------------- -------------- --------------
Total cost of company restaurant sales............... 510,686 499,732 494,466
-------------- -------------- --------------
General and administrative expenses.......................... 65,060 63,338 58,044
Amortization of intangible assets............................ 5,934 5,997 5,538
Loss on disposition of restaurants and equipment............. 1,265 5,607 952
-------------- -------------- --------------
Operating earnings........................................... 107,207 94,910 88,562
-------------- -------------- --------------
Other income (expense):
Investment income....................................... 1,484 1,195 1,131
Interest expense........................................ (9,304) (10,814) (9,922)
Other income............................................ 551 444 638
-------------- -------------- --------------
Total other expense.................................. (7,269) (9,175) (8,153)
-------------- -------------- --------------
Earnings before income taxes and extraordinary item.......... 99,938 85,735 80,409
Income taxes................................................. 36,777 31,537 29,753
-------------- -------------- --------------
Earnings before extraordinary item........................... 63,161 54,198 50,656
Extraordinary loss from early extinguishment
of debt, net of income taxes (Note 8)................... -- -- (641)
-------------- -------------- --------------
Net earnings................................................. $ 63,161 $ 54,198 $ 50,015
============== ============== ==============
Basic earnings per common share:
Basic earnings before extraordinary item................ $ 2.42 $ 1.91 $ 1.67
Extraordinary item...................................... -- -- (0.02)
-------------- -------------- --------------
Basic net earnings per common share.......................... $ 2.42 $ 1.91 $ 1.65
============== ============== ==============
Diluted earnings per common share:
Diluted earnings before extraordinary item.............. $ 2.40 $ 1.89 $ 1.67
Extraordinary item...................................... -- -- (0.02)
-------------- -------------- --------------
Diluted net earnings per common share........................ $ 2.40 $ 1.89 $ 1.65
============== ============== ==============
Basic weighted average shares outstanding.................... 26,152 28,403 30,272
============== ============== ==============
Diluted weighted average shares outstanding.................. 26,298 28,601 30,385
============== ============== ==============
See notes to consolidated financial statements.
F-4
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
Unrealized
Common Stock Additional Gain On Total
------------------------ Paid-In Retained Short-Term Treasury Stockholders'
Shares Amount Capital Earnings Investments Stock Equity
------------- ---------- ------------ ----------- ----------- ----------- ---------------
Balance, December 28, 1997............ 31,744,009 $ 317 $ 156,165 $134,654 $ 95 $ (788) $ 290,443
Purchases of treasury stock........ -- -- -- -- -- (49,332) (49,332)
Dividends on common stock,
$0.09 per share.................. -- -- -- (2,659) -- -- (2,659)
Stock options exercised and related
tax benefit...................... 336,351 3 5,741 -- -- (184) 5,560
Shares issued under employee stock
and 401(k) plans................. -- -- 1,465 -- -- 262 1,727
Restricted shares awarded under
equity incentive plan, net of 70,000 1 1,514 -- -- -- 1,515
cancellations....................
Unearned compensation relating
to restricted shares............. -- -- (1,234) -- -- -- (1,234)
Change in unrealized gain on
short-term investments, net of
income taxes..................... -- -- -- -- 18 -- 18
Net earnings....................... -- -- -- 50,015 -- -- 50,015
------------- ---------- ------------ ----------- ----------- ----------- ---------------
Balance, December 27, 1998............ 32,150,360 321 163,651 182,010 113 (50,042) 296,053
Purchases of treasury stock........ -- -- -- -- -- (102,959) (102,959)
Dividends on common stock,
$0.10 per share.................. -- -- -- (2,660) -- -- (2,660)
Stock options exercised and related
tax benefit...................... -- -- 3,773 -- -- 3,252 7,025
Shares issued under employee stock
and 401(k) plans................. -- -- 1,063 -- -- 1,113 2,176
Restricted shares awarded under
equity incentive plan, net of
cancellations.................... -- -- 121 -- -- 6 127
Unearned compensation relating
to restricted shares............. -- -- 431 -- -- -- 431
Notes receivable from officers for
stock sales...................... -- -- (455) -- -- -- (455)
Change in unrealized gain on
short-term investments, net of
income taxes.................... -- -- -- -- (63) -- (63)
Net earnings....................... -- -- -- 54,198 -- -- 54,198
------------- ---------- ------------ ----------- ----------- ----------- ---------------
Balance, December 26, 1999............ 32,150,360 321 168,584 233,548 50 (148,630) 253,873
Purchases of treasury stock........ -- -- -- -- -- (43,192) (43,192)
Dividends on common stock,
$0.11 per share.................. -- -- -- (2,776) -- -- (2,776)
Stock options exercised and related
tax benefit...................... -- -- 2,298 -- -- 4,201 6,499
Shares issued under employee stock
and 401(k) plans................. -- -- 760 -- -- 2,066 2,826
Restricted stock and performance
shares awarded under equity
incentive plan, net of
cancellations.................... -- -- 556 -- -- 943 1,499
Unearned compensation relating
to restricted shares............. -- -- 350 -- -- -- 350
Notes receivable from officers for
stock sales...................... -- -- (511) -- -- -- (511)
Change in unrealized gain on
short-term investments, net of
income taxes..................... -- -- -- -- (11) -- (11)
Net earnings....................... -- -- -- 63,161 -- -- 63,161
------------- ---------- ------------ ----------- ----------- ----------- ---------------
Balance, December 31, 2000............ 32,150,360 $ 321 $ 172,037 $293,933 $ 39 $(184,612) $ 281,718
============= ========== ============ =========== =========== =========== ===============
See notes to consolidated financial statements.
F-5
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Fiscal Year Ended
---------------------------------------------
December 31, December 26, December 27,
2000 1999 1998
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.................................................. $ 63,161 $ 54,198 $ 50,015
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization.............................. 30,208 28,930 29,135
Amortization of intangible assets.......................... 5,934 5,997 5,538
Amortization of deferred financing costs................... 734 678 477
Gain on sale of investments................................ -- -- (13)
Deferred income tax provision (benefit).................... 118 (244) (492)
Loss on disposition of restaurants and equipment........... 1,265 5,607 952
Changes in assets and liabilities (exclusive of effects of
acquisitions and divestitures):
Receivables................................................ (8,538) (108) 2,229
Inventories................................................ (1,369) (5,781) (1,432)
Prepaid and other current assets........................... 393 508 (84)
Accounts payable........................................... 9,590 (461) (2,304)
Accrued expenses and other current liabilities............. 10,353 9,937 16,317
Accrued income taxes....................................... (167) 1,182 (5,081)
Franchise deposits......................................... (169) (374) 607
Other...................................................... (1,224) 700 (3,356)
-------------- -------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 110,289 100,769 92,508
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........................... (46,220) (53,945) (77,665)
Equity investment in unaffiliated company..................... (2,000) -- --
Proceeds from sale of restaurants and equipment............... 1,038 81,884 10,216
Purchases of short-term investments........................... (100) -- (30,799)
Maturities and sales of short-term investments................ 1,325 2,200 36,842
Acquisitions of restaurants................................... -- -- (101,749)
-------------- -------------- --------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES........... (45,957) 30,139 (163,155)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock................................... (43,192) (102,959) (49,332)
Dividends paid................................................ (2,662) (2,659) (2,518)
Issuance of common stock upon exercise of stock options and
related tax benefit......................................... 6,499 7,025 5,560
Shares sold under employee stock purchase plan................ 1,136 944 820
Proceeds from issuance of long-term debt...................... -- 44,604 175,825
Deferred financing costs relating to issuance of long-term debt -- -- (4,000)
Payments on long-term debt.................................... (16,777) (78,203) (62,849)
-------------- -------------- --------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES........... (54,996) (131,248) 63,506
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... 9,336 (340) (7,141)
CASH AND CASH EQUIVALENTS, beginning of period..................... 1,427 1,767 8,908
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, end of period........................... $ 10,763 $ 1,427 $ 1,767
============== ============== ==============
See notes to consolidated financial statements.
F-6
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(in thousands)
Fiscal Year Ended
------------------------------------------------------
December 31, December 26, December 27,
2000 1999 1998
----------------- ----------------- -----------------
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Income taxes.................................... $ 36,278 $ 29,629 $ 33,935
================= ================= =================
Interest........................................ $ 8,188 $ 10,651 $ 8,809
================= ================= =================
Supplemental disclosures of noncash investing and financing activities:
We recorded capitalized leases of $5,052,000 in April 1998 when we acquired the
operations and assets of 33 franchise restaurants (see Note 3).
We received a $6,000,000 subordinated note in connection with the sale of the
Rio Bravo Cantina restaurants in April 1999 (see Note 4), which is due in April
2009.
Disclosure of Accounting Policy:
For purposes of the consolidated statements of cash flows, we consider all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
See notes to consolidated financial statements.
F-7
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Applebee's International, Inc. and our subsidiaries develop, franchise and
operate casual dining restaurants under the name "Applebee's Neighborhood Grill
& Bar". As of December 31, 2000, there were 1,286 Applebee's restaurants.
Franchisees operated 1,001 of these restaurants and 285 restaurants were company
operated. These restaurants were located in 49 states and eight international
countries.
2. Summary of Significant Accounting Policies
Principles of consolidation: The consolidated financial statements include our
accounts and the accounts of our wholly-owned subsidiaries. We have eliminated
all material intercompany profits, transactions and balances.
Fiscal year: Our fiscal year ends on the last Sunday of the calendar year. The
fiscal year ended December 31, 2000 contained 53 weeks, and the fiscal years
ended December 26, 1999 and December 27, 1998 each contained 52 weeks. These
fiscal years will be referred to as 2000, 1999 and 1998, respectively.
Short-term investments: Short-term investments are comprised of certificates of
deposit, state and municipal bonds, and preferred stocks. We determine gains and
losses from sales using the specific identification method. As of December 31,
2000, we have classified all short-term investments as available-for-sale.
Financial instruments: Our financial instruments as of December 31, 2000 and
December 26, 1999 consist of cash equivalents, short-term investments, long-term
debt, excluding capitalized lease obligations, and interest rate swaps (see Note
8). The fair value of these financial instruments, except interest rate swaps,
approximates the carrying amounts reported in the consolidated balance sheets.
Interest rate swaps are not reflected in the consolidated financial statements
at fair value. The carrying amount of cash equivalents approximates fair value
because of the short maturity of those instruments. We based the carrying amount
of short-term investments on quoted market prices. We based the fair value of
our long-term debt, excluding capitalized lease obligations, on quotations made
on similar issues.
Inventories: We state inventories at the lower of cost, using the first-in,
first-out method, or market.
Pre-opening expense: We expense direct training and other costs related to
opening new or relocated restaurants in the month of opening.
Property and equipment: We state property and equipment at cost. Depreciation is
provided primarily on a straight-line method over the estimated useful lives of
the assets. Leasehold improvements are amortized over the lesser of the lease
term, including renewal options, or the estimated useful life of the related
asset. The general ranges of original depreciable lives are as follows:
o Buildings 20 years
o Leasehold improvements 15-20 years
o Furniture and equipment 2-7 years
We record capitalized interest in connection with the development of new
restaurants and amortize it over the estimated useful life of the related asset.
We capitalized $375,000 in interest costs during 2000, $407,000 during 1999 and
$859,000 during 1998.
F-8
Goodwill: Goodwill represents the excess of cost over fair market value of net
assets we have acquired. We are amortizing goodwill over periods ranging from 15
to 20 years on a straight-line basis. Accumulated amortization as of December
31, 2000 was $21,563,000, and accumulated amortization as of December 26, 1999
was $16,161,000.
Impairment of long-lived assets: We review long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. We analyze potential impairments of assets on a
restaurant-by-restaurant basis. In 2000, we adjusted the carrying value of
certain assets based on their historical cash flows and current estimates of
future cash flows. The related pre-tax charge of $263,000 is included in loss on
disposition of restaurants and equipment in the accompanying consolidated
statement of earnings. We determined the estimated fair value using market
information available to us.
Franchise interest and rights: Franchise interest and rights represent
allocations of purchase price to either restaurants we have purchased or
franchise operations we have acquired. We amortize the allocated costs over the
estimated life of the restaurants or the franchise agreements on a straight-line
basis ranging from 7 to 20 years. Accumulated amortization as of December 31,
2000 was $7,557,000, and as of December 26, 1999, it was $7,057,000.
Franchise revenues: Franchise revenues are deferred until we have performed
substantially all of our obligations as franchisor. Initial franchise fees,
included in franchise income in the consolidated statements of earnings, totaled
$3,652,000 for 2000, $2,897,000 for 1999 and $3,099,000 for 1998.
Advertising costs: We expense most advertising costs for company-owned
restaurants as we incur them, but we expense the production costs of advertising
the first time the advertising takes place. Advertising expense related to
company-owned restaurants was $31,014,000 for 2000, $28,340,000 for 1999 and
$29,097,000 for 1998.
Interest rate swap agreements: We have entered into interest rate swap
agreements to manage our exposure to interest rate fluctuations. We recognize
the differential which we pay or receive over the term of the swap agreements as
a component of interest expense. Although the swap agreements expose us to
interest rate risk, we expect fluctuations in the variable debt to offset
fluctuations in the value of the swaps.
Stock-based compensation: We have adopted the disclosure provisions of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." The Statement encourages rather than requires companies to adopt
a method that accounts for stock compensation awards based on their estimated
fair value at the date they are granted. Companies are permitted, however, to
account for stock compensation awards under Accounting Principles Board ("APB")
Opinion No. 25. Opinion No. 25 requires compensation cost to be recognized based
on the excess, if any, between the quoted market price of the stock at the date
of grant and the amount an employee must pay to acquire the stock. We have
elected to continue to apply APB Opinion No. 25, and we have disclosed the pro
forma net earnings and earnings per share, determined as if the fair value
method had been applied, in Note 13.
Earnings per share: We compute basic earnings per share by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the reporting period. Diluted earnings per share reflects the
potential dilution that could occur if holders of options or other contracts to
issue common stock exercised or converted their holdings into common stock.
Outstanding stock options and accrued performance shares represent the only
dilutive effects on weighted average shares. The chart below presents a
reconciliation between basic and diluted weighted average shares outstanding and
the related earnings per share. All amounts in the chart except per share
amounts are expressed in thousands.
F-9
2000 1999 1998
---------------- ---------------- ----------------
Net earnings....................................... $ 63,161 $ 54,198 $ 50,015
================ ================ ================
Basic weighted average shares outstanding.......... 26,152 28,403 30,272
Dilutive effect of stock options and
performance shares ............................. 146 198 113
---------------- ---------------- ----------------
Diluted weighted average shares outstanding........ 26,298 28,601 30,385
================ ================ ================
Basic net earnings per common share................ $ 2.42 $ 1.91 $ 1.65
================ ================ ===============
Diluted net earnings per common share.............. $ 2.40 $ 1.89 $ 1.65
================ ================ ===============
We excluded stock options with exercise prices greater than the average market
price of our common stock for the applicable periods from the computation of
diluted weighted average shares outstanding. There were approximately 723,000 of
these options for 2000, 8,000 options for 1999 and 1,604,000 options for 1998.
Pervasiveness of estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions. These estimates
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New accounting pronouncement: In June 1998, the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133, as amended by SFAS Nos. 137 and 138, establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position and to measure those
instruments at fair value. This statement is effective for us beginning in the
first quarter of fiscal year 2001. Adoption of these new accounting standards
will result in cumulative after-tax reductions in other comprehensive income of
approximately $250,000 in the first quarter of 2001.
3. Acquisitions
On March 30, 1998, we acquired the operations and assets of 33 restaurants in
the Virginia markets of Norfolk, Richmond, Roanoke and Charlottesville, from
Apple South, Inc. ("Apple South"), now Avado Brands, Inc. This purchase is
referred to as the "Virginia Acquisition." The total purchase price of
$94,749,000 was paid in cash on March 30, 1998. We accounted for the acquisition
as a purchase, and the consolidated financial statements after that date reflect
the results of operations of these restaurants.
The following chart summarizes our unaudited pro forma results of operations for
1998. All amounts except per share amounts are expressed in thousands. These
amounts assume the Virginia Acquisition and our financing arrangements (see Note
8) occurred as of the beginning of 1998. We have prepared the pro forma results
for comparative purposes only. We do not claim that these amounts are indicative
of the results of operations which actually would have resulted had the Virginia
Acquisition been effective as of the beginning of 1998, or which may result in
the future.
F-10
Fiscal Year Ended
December 27, 1998
----------------------------
Actual Pro Forma
------------ ---------------
Food and beverage sales............................................ $ 580,840 $ 597,507
Franchise income................................................... 66,722 65,995
------------ ---------------
Total operating revenues........................................... $ 647,562 $ 663,502
============ ===============
Earnings before extraordinary item................................. $ 50,656 $ 50,381
Net earnings....................................................... $ 50,015 $ 49,740
Basic net earnings per common share................................ $ 1.65 $ 1.64
Diluted net earnings per common share.............................. $ 1.65 $ 1.64
Basic weighted average shares outstanding.......................... 30,272 30,272
Diluted weighted average shares outstanding........................ 30,385 30,385
4. Divestitures
On April 12, 1999, we completed the sale of our Rio Bravo Cantina concept, which
was comprised of 65 restaurants. We operated 40 of these restaurants and
franchisees operated the remaining 25 restaurants. We received $47 million in
cash at closing and a $6 million subordinated note for a total of $53 million in
consideration. The $6 million subordinated note bears interest at 8% and is due
in 2009. On April 26, 1999, we also completed the sale of our four specialty
restaurants for $12 million in cash. The following amounts were attributable to
both the Rio Bravo Cantina and specialty restaurants during the 1999 period
prior to their sale:
o Company restaurant sales $33,444,000
o Franchise income $26,000
o Cost of company restaurant sales $30,331,000
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," we recorded a loss on disposition of $9,000,000 ($5,670,000 net
of income taxes) in the first quarter of 1999 to reflect the difference between
the carrying value of the net assets disposed and the estimated proceeds from
the sale transactions. We discontinued depreciation and amortization on the
long-lived assets to be disposed in February 1999 in anticipation of the sale of
these restaurants.
On December 13, 1999, we completed the sale of 12 Applebee's restaurants in the
Philadelphia market for $23,465,000. An existing Applebee's franchisee assumed
the operations of the restaurants and future restaurant development in the
market. If the franchisee achieves certain future sales levels in the
Philadelphia market, the agreement requires that he pay us additional amounts.
We discontinued depreciation and amortization on the long-lived assets to be
disposed in August 1999 in anticipation of the sale of these restaurants. In
connection with this transaction, we recognized a gain in the fourth quarter of
1999 of $4,193,000 ($2,650,000 net of income taxes). The following amounts were
attributable to the 12 Philadelphia restaurants prior to their sale:
o Company restaurant sales $22,759,000
o Cost of company restaurant sales $18,568,000
F-11
5. Receivables
Receivables are comprised of the following (in thousands):
December 31, December 26,
2000 1999
----------------- -----------------
Franchise royalty, advertising and trade receivables............. $ 19,963 $ 12,935
Credit card receivables.......................................... 3,147 2,473
Franchise fee receivables........................................ 244 431
Interest and dividends receivable................................ 27 39
Other............................................................ 1,857 120
----------------- -----------------
25,238 15,998
Less allowance for bad debts..................................... 3,137 2,435
----------------- -----------------
$ 22,101 $ 13,563
================= =================
The bad debts provision totaled $1,376,000 for 2000, $981,000 for 1999 and
$1,000,000 for 1998. We had write-offs against the allowance for bad debts of
$674,000 during 2000, $111,000 during 1999 and $272,000 during 1998.
6. Other Assets
Other assets are comprised of the following (in thousands):
December 31, December 26,
2000 1999
----------------- -----------------
Notes receivable................................................. $ 8,612 $ 8,654
Deferred financing costs, net.................................... 2,684 3,211
Liquor licenses.................................................. 3,685 2,800
Minority investment in unaffiliated company...................... 2,000 --
Other............................................................ 1,115 1,084
----------------- -----------------
$ 18,096 $ 15,749
================= =================
7. Property and Equipment
Property and equipment, net is comprised of the following (in thousands):
December 31, December 26,
2000 1999
----------------- ------------------
Land............................................................. $ 66,468 $ 63,922
Buildings and leasehold improvements............................. 231,299 205,625
Furniture and equipment.......................................... 130,584 118,795
Construction in progress......................................... 3,768 4,786
----------------- ------------------
432,119 393,128
Less accumulated depreciation and capitalized
lease amortization............................................ 117,903 92,988
----------------- ------------------
$ 314,216 $ 300,140
================= ==================
We had property under capitalized leases of $4,055,000 at December 31, 2000 and
December 26, 1999 which is included in buildings and leasehold improvements. We
had accumulated amortization of such property of $890,000 at December 31, 2000
and $647,000 at December 26, 1999. These capitalized leases relate to the
buildings on certain restaurant properties. The land portion of the restaurant
property leases is accounted for as an operating lease.
F-12
We had depreciation and capitalized lease amortization expense relating to
property and equipment of $30,208,000 for 2000, $28,930,000 for 1999 and
$29,135,000 for 1998. Of these amounts, capitalized lease amortization was
$243,000 during 2000, $300,000 during 1999 and $476,000 during 1998.
We lease certain of our restaurants. The leases generally provide for payment of
minimum annual rent, real estate taxes, insurance and maintenance and, in some
cases, contingent rent (calculated as a percentage of sales) in excess of
minimum rent. Total rental expense for all operating leases is comprised of the
following (in thousands):
2000 1999 1998
------------------ ------------------ -----------------
Minimum rent................................. $ 10,892 $ 11,780 $ 12,432
Contingent rent.............................. 1,112 1,070 1,294
------------------ ------------------ -----------------
$ 12,004 $ 12,850 $ 13,726
================== ================== =================
The present value of capitalized lease payments and the future minimum lease
payments under noncancelable operating leases (including leases executed for
sites to be developed in 2001) as of December 31, 2000 are as follows (in
thousands):
Capitalized Operating
Leases Leases
------------------ -----------------
2001............................................................. $ 667 $ 11,915
2002............................................................. 691 12,158
2003............................................................. 716 11,724
2004............................................................. 741 10,837
2005............................................................. 767 10,225
Thereafter....................................................... 8,330 89,599
------------------ ------------------
Total minimum lease payments..................................... 11,912 $ 146,458
==================
Less amounts representing interest............................... 7,683
------------------
Present value of minimum lease payments.......................... $ 4,229
==================
8. Long-Term Debt
Long-term debt, including capitalized lease obligations, is comprised of the
following (in thousands):
December 31, December 26,
2000 1999
---------------- ------------------
Unsecured senior term loan; interest at LIBOR plus 2.25%
or prime rate plus 1.25%, with semi-annual principal
payments; due March 2006...................................... $ 83,801 $ 84,661
Unsecured revolving credit facility; interest at LIBOR plus
1.125% or prime rate plus 0.125%; due March 2003.............. 3,000 18,000
Capitalized lease obligations..................................... 4,229 4,197
Other............................................................. 325 1,242
---------------- ------------------
Total long-term debt.............................................. 91,355 108,100
Less current portion of long-term debt............................ 894 1,807
---------------- ------------------
Long-term debt - less current portion............................. $ 90,461 $ 106,293
================ ==================
On March 30, 1998, we entered into a bank credit agreement that provided for
$225,000,000 in senior secured credit facilities. This credit agreement
consisted of an eight-year senior secured term loan of $125,000,000 and a
five-year secured working capital facility of $100,000,000. We also entered into
a five-year letter of credit facility of $5,000,000 with another bank. In the
F-13
third quarter of 1999, we entered into a one-year renewable $10,000,000
unsecured line of credit facility, of which $5,000,000 may only be used for
letters of credit. In October 2000, the $10,000,000 unsecured credit facility
was increased to $12,000,000, of which $7,000,000 may only be used for letters
of credit.
In connection with the sale of the Rio Bravo Cantina and specialty restaurants,
we repaid $31,000,000 of the senior term loan during the second quarter of 1999.
In the fourth quarter of 1999, we also repaid $7,600,000 of the senior term loan
and $13,500,000 of borrowings under the working capital facility in connection
with the sale of the Philadelphia market. Our working capital facility was
reduced from $100,000,000 to $86,500,000 as a result of this transaction.
In connection with the early extinguishment of debt in 1998, we paid a
prepayment penalty of $930,000. The prepayment penalty plus the remaining
unamortized portion of the related deferred financing costs of $91,000 is
reflected as an extraordinary loss of $641,000, net of income taxes of $380,000,
in the accompanying consolidated statement of earnings for 1998.
In February 1999, we purchased the buildings and related land and equipment
underlying three capital leases for a total of $4,725,000 from Apple South. As a
result, $5,052,000 of the capitalized lease obligations were retired in 1999. In
addition, as a result of the sale of the Philadelphia market in December 1999,
capitalized lease obligations decreased by $480,000.
As of December 31, 2000, $3,000,000 was outstanding under the $86,500,000
working capital facility and standby letters of credit totaling $4,511,000 were
outstanding under the letter of credit facilities.
The senior term loan bears interest at either the bank's prime rate plus 1.25%
or LIBOR plus 2.25%, at our option. Under the senior term loan, we are required
to make semi-annual principal payments aggregating $860,000 per year for each
year through March 31, 2005. The remaining balance of $79,934,000 will be due in
two equal amounts through March 31, 2006. The working capital facility bears
interest at either the bank's prime rate plus 0.125% or LIBOR plus 1.125%, at
our option. A commitment fee of 0.25% is payable on any unused portion of the
working capital facility. The interest rate on the working capital facility and
the commitment fee are subject to change based upon our leverage ratio.
In connection with the bank credit agreement, we have entered into interest rate
swap agreements to manage our exposure to interest rate fluctuations. The
agreements were effective beginning May 1, 1998, and have maturity dates ranging
from four to seven years and were for an aggregate notional amount of
$100,000,000. We terminated $25,000,000 of the swap agreements in 1999. The
termination of the swap agreements did not have a material impact on our results
of operations. The swap agreements effectively fix the underlying three-month
LIBOR interest rate on $75,000,000 of the senior credit facilities to rates
ranging from 5.91% to 6.05%. As of December 31, 2000, the fair value of these
swaps was a net payable of $400,000. The fair value represents the estimated
amount that we would receive or pay to terminate the agreements taking into
account current interest rates.
The senior term loan and the working capital facility are secured by the common
stock of each of our present and future subsidiaries and all of our intercompany
debt and that of our subsidiaries. In addition, the senior term loan and the
working capital facility are subject to various covenants and restrictions. We
are required to maintain stipulated fixed charge, interest coverage and leverage
ratios, as defined. We are also limited in the amount of additional indebtedness
and capital expenditures in excess of specified amounts. Cash dividends were
limited to $5,000,000 through fiscal year 1999. The credit agreement originally
permitted up to $50,000,000 to be utilized for repurchases of our common stock.
In February 1999, the credit agreement was amended to permit additional
repurchases of common stock of up to $100,000,000 and to allow annual cash
dividends of the greater of $5,000,000 or 50% of consolidated net income
beginning in fiscal year 2000. In April 2000, the credit agreement was amended
to permit additional repurchases of common stock of up to $50,000,000 through
December 31, 2001. We are currently in compliance with the covenants contained
in our credit agreement.
F-14
Maturities of long-term debt, including capitalized lease obligations, for each
of the five fiscal years subsequent to December 31, 2000, ending during the
years indicated, are as follows (in thousands):
2001.................................... $ 894
2002.................................... 902
2003.................................... 4,237
2004.................................... 929
2005.................................... 40,494
9. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are comprised of the following
(in thousands):
December 31, December 26,
2000 1999
------------------ -----------------
Compensation and related taxes.................................... $ 16,824 $ 16,647
Gift certificates................................................. 15,488 12,714
Sales and use taxes............................................... 4,187 3,109
Insurance......................................................... 8,445 7,675
Rent.............................................................. 3,609 3,019
Other............................................................. 13,958 11,798
------------------ -----------------
$ 62,511 $ 54,962
================== =================
10. Income Taxes
We along with our subsidiaries file a consolidated federal income tax return.
The income tax provision consists of the following (in thousands):
2000 1999 1998
--------------- --------------- ----------------
Current provision:
Federal............................................ $ 31,289 $ 27,019 $ 25,803
State.............................................. 5,370 4,762 4,442
Deferred provision (benefit)........................... 118 (244) (492)
--------------- --------------- ----------------
Income taxes........................................... $ 36,777 $ 31,537 $ 29,753
=============== =============== ================
The deferred income tax provision is comprised of the following (in thousands):
2000 1999 1998
--------------- --------------- ----------------
Depreciation........................................... $ 1,311 $ 1,635 $ 793
Other.................................................. (1,193) (1,879) (1,285)
--------------- --------------- ----------------
Deferred income tax provision (benefit)................ 118 (244) (492)
Deferred income taxes related to change in
unrealized gain on investments..................... (6) (38) 10
--------------- --------------- ----------------
Net change in deferred income taxes.................... $ 112 $ (282) $ (482)
=============== =============== ================
F-15
A reconciliation between the income tax provision and the expected tax
determined by applying the statutory federal income tax rates to earnings before
income taxes follows (in thousands):
2000 1999 1998
--------------- --------------- ----------------
Federal income tax at statutory rates.................. $ 34,978 $ 30,007 $ 28,143
Increase (decrease) to income tax expense:
State income taxes, net of federal benefit......... 3,502 3,043 2,951
FICA tip tax credit................................ (2,207) (2,195) (2,124)
Other.............................................. 504 682 783
--------------- --------------- ----------------
Income taxes........................................... $ 36,777 $ 31,537 $ 29,753
=============== =============== ================
The net current deferred income tax asset amounts are included in "prepaid and
other current assets" in the accompanying consolidated balance sheets. The
significant components of deferred income tax assets and liabilities and the
related balance sheet classifications are as follows (in thousands):
December 31, December 26,
2000 1999
----------------- ------------------
Classified as current:
Allowance for bad debts..................................... $ 1,155 $ 896
Accrued expenses............................................ 1,955 1,171
Other, net.................................................. 1,712 1,393
----------------- ------------------
Net deferred income tax asset............................... $ 4,822 $ 3,460
================= ==================
Classified as non-current:
Depreciation................................................ $ (5,525) $ (4,214)
Franchise deposits.......................................... 587 649
Other, net.................................................. 841 942
----------------- ------------------
Net deferred income tax liability........................... $ (4,097) $ (2,623)
================= ==================
11. Commitments and Contingencies
Litigation, claims and disputes: As of December 31, 2000, we were using assets
owned by a former franchisee in the operation of one restaurant. That restaurant
remains under a purchase rights agreement that required us to make certain
payments to the franchisee's lender. In 1991, a dispute arose between the lender
and us over the amount of the payments due the lender under that agreement and
over whether we had agreed to guarantee the franchisee's debt. Based upon a
then-current independent appraisal, we offered to settle the dispute and
purchase the assets of the three then-existing restaurants for $1,000,000 in
1991. In November 1992, the FDIC declared the lender insolvent, and the lender
has since been liquidated. We closed one of the three restaurants in 1994 and
one of the two remaining restaurants in February 1996. In the fourth quarter of
1996, we received information indicating that a third party had acquired the
franchisee's indebtedness to the FDIC. In June 1997, the third party filed a
lawsuit against us seeking approximately $3,800,000. In April 1999, the district
court awarded a summary judgment of $3,833,000 to the third party. In June 2000,
the court of appeals reversed the summary judgment and remanded the case to the
district court for further action. The third party has appealed the court's
decision. As of December 31, 2000, we believe we have recorded adequate reserves
for this matter.
In addition, we are involved in various legal actions arising in the normal
course of business. These matters include disputes with certain international
franchisees regarding disclosures we allegedly made or omitted. We have also
filed claims against these franchisees for amounts due. These matters are in the
early stages of assessment; however, we believe that we have meritorious
defenses to the allegations of the franchisees and will vigorously defend these
claims.
F-16
While the resolution of the matters described above may have an impact on the
financial results for the period in which they are resolved, we believe that the
ultimate disposition of these matters will not, in the aggregate, have a
material adverse effect upon our business or consolidated financial position.
Franchise financing: In 1992, we entered into an agreement with a financing
source to provide up to $75,000,000 of financing to our franchisees to fund
development of new franchise restaurants. We provided a limited guaranty of
loans made under the agreement. Our maximum recourse obligation for each
long-term loan is 10% of the amount funded, and this is gradually reduced
beginning in the second year of each loan. After the seventh year of each loan,
it decreases to zero. Approximately $49,000,000 was funded through this
financing source. Of this, approximately $3,000,000 was outstanding as of
December 31, 2000. This agreement expired on December 31, 1994 and was not
renewed.
Lease guaranties: In connection with the sale of restaurants to franchisees and
other parties, we have, in certain cases, remained contingently liable for the
remaining lease payments. As of December 31, 2000, the aggregate amount of these
lease payments totaled approximately $30,400,000. The buyers have indemnified us
from any losses related to these guaranties.
Philadelphia divestiture: In connection with the sale of the Philadelphia
restaurants, we provided a guarantee to a franchise group totaling $1,250,000.
As of December 31, 2000, $841,000 remains outstanding.
Severance agreements: We have severance and employment agreements with certain
officers providing for severance payments to be made in the event the employee
resigns or is terminated related to a change in control. The agreements define
the circumstances which will constitute a change in control. If the severance
payments had been due as of December 31, 2000, we would have been required to
make payments totaling approximately $5,900,000.
In addition, we have severance and employment agreements with certain officers
which contain severance provisions not related to a change in control. Those
provisions would have required aggregate payments of approximately $4,200,000 if
such officers had been terminated as of December 31, 2000.
12. Stockholders' Equity
On September 7, 1994, our Board of Directors adopted a Shareholder Rights Plan
(the "Rights Plan") and declared a dividend, issued on September 19, 1994, of
one Right for each outstanding share of our Common Stock (the "Common Shares").
Stockholders may exercise their Rights if any person or group acquires more than
15% of the outstanding Common Shares or makes a tender offer for more than 15%
of our outstanding Common Shares unless the person or group has acquired the
shares or made the tender offer as part of a Qualifying Offer (as defined). If
such an event occurred, each Right entitles its holder to purchase for $75 the
economic equivalent of Common Shares, or in certain circumstances, stock of the
acquiring entity, worth twice as much. This is true for all stockholders except
the acquiror. The Rights will expire on September 7, 2004 unless we redeem them
earlier. If we redeem the Rights before stockholders can exercise them, we will
pay $0.01 per Right.
During 1998, 1999 and 2000, our Board of Directors approved four plans to
repurchase up to $207,500,000 of our common stock, subject to market conditions.
We repurchased 2,431,000 shares of our common stock at an aggregate cost of
$49,332,000 in 1998, 3,332,000 shares of our common stock at an aggregate cost
of $102,959,000 in 1999, and 1,773,000 shares of our common stock at an
aggregate cost of $43,192,000 in 2000 for a total of 7,536,000 shares of our
common stock at an aggregate cost of $195,483,000 under these authorizations.
Subsequent to December 31, 2000, we completed all previously authorized stock
repurchase programs. In February 2001, our Board of Directors authorized an
additional repurchase of up to $55,000,000 of our common stock through 2001,
subject to market conditions and applicable restrictions imposed by our credit
agreement.
F-17
13. Employee Benefit Plans
Employee stock option plans: During 1989, our Board of Directors approved the
1989 Employee Stock Option Plan (the "1989 Plan") which provided for the grant
of both qualified and nonqualified options as determined by a committee
appointed by the Board of Directors. At the 1995 Annual Meeting of Stockholders,
the 1989 Employee Stock Option Plan was terminated, and the 1995 Equity
Incentive Plan (the "1995 Plan") was approved. The termination of the 1989 Stock
Option Plan did not affect existing options which were outstanding when the plan
was terminated.
Options under the 1989 Plan were granted for a term of three to ten years and
were generally exercisable one year from date of grant. The 1995 Plan allows the
committee to grant stock options, stock appreciation rights, restricted stock
awards, performance unit awards and performance share awards (collectively,
"Awards") to eligible participants. The 1995 Plan authorizes the committee to
issue up to 3,600,000 shares. Options granted under the 1995 Plan during 1995
have a term of five to ten years and are generally exercisable three years from
date of grant. Options granted under the 1995 Plan during 1996 through 1998 have
a term of ten years and are generally 50% exercisable three years from date of
grant, 25% exercisable four years from date of grant, and 25% exercisable five
years from date of grant. Options granted under the 1995 Plan during 1999 and
2000 have a term of ten years and are generally exercisable three years from the
date of grant. Subject to the terms of the 1995 Plan, the committee has the sole
discretion to determine the employees to whom it grants Awards, the size and
types of the Awards, and the terms and conditions of the Awards.
During 1999, our Board of Directors approved the 1999 Employee Incentive Plan
(the "1999 Plan") which allows the committee to grant nonqualified stock
options, stock appreciation rights, restricted stock, performance units and
performance shares to eligible participants. The 1999 Plan authorizes the
committee to issue up to 333,000 shares. Options granted under the 1999 Plan
have a term of ten years and are generally exercisable three years from the date
of grant. Under all three plans, the option price for both qualified and
nonqualified options cannot be less than the fair market value of our common
stock on the date the committee grants the options.
All three plans permit the committee to grant performance shares. Performance
shares represent rights to receive our common stock based upon certain
performance criteria. In 1999 and 2000, the committee granted performance shares
which have a one-year and a three-year performance period. We recorded
compensation expense of $2,048,000 in 1999 and $915,000 in 2000 related to these
grants. These amounts were based on the market price of our common stock at the
end of each fiscal year.
We account for all three plans in accordance with APB Opinion No. 25 which
requires us to recognize compensation cost based on the excess, if any, between
the quoted market price of the stock at the date of grant and the amount an
employee must pay to acquire the stock. Under this method, we have recognized no
compensation cost for stock option awards.
If we had determined compensation cost for our stock-based compensation plans
based on the fair value as prescribed by SFAS No. 123 (see Note 2), our net
earnings and net earnings per common share would have been reduced to the pro
forma amounts indicated below. All amounts are expressed in thousands, except
per share amounts.
F-18
2000 1999 1998
--------------- --------------- --------------
Net earnings, as reported................................ $ 63,161 $ 54,198 $ 50,015
Net earnings, pro forma.................................. $ 60,422 $ 50,880 $ 48,205
Basic net earnings per common share, as reported......... $ 2.42 $ 1.91 $ 1.65
Basic net earnings per common share, pro forma........... $ 2.31 $ 1.79 $ 1.59
Diluted net earnings per common share, as reported....... $ 2.40 $ 1.89 $ 1.65
Diluted net earnings per common share, pro forma......... $ 2.30 $ 1.78 $ 1.59
The weighted average fair value at date of grant for options granted during
2000, 1999 and 1998 was $12.67, $13.69 and $10.68 per share, respectively,
which, for the purposes of this disclosure, is assumed to be amortized over the
respective vesting period of the grants. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grants in 2000, 1999 and
1998: dividend yield of 0.3% for all years; expected volatility of 46.8%, 48.4%
and 51.7%, respectively; risk-free interest rate of 5.1%, 6.4% and 4.7%,
respectively; and expected lives of 4.9, 4.9 and 5.5 years, respectively.
Transactions relative to all three plans are as follows:
1999 Plan 1995 Plan 1989 Plan
----------------------------- ----------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Options Price Options Price Options Price
-------------- -------------- -------------- -------------- ------------- -------------
Options outstanding at
December 28, 1997............ -- -- 1,741,099 $ 27.72 640,012 $14.17
Granted.................. -- -- 466,498 $ 21.38 -- --
Exercised................. -- -- -- -- (340,351) $13.94
Canceled.................. -- -- (382,999) $ 27.45 (15,249) $20.53
-------------- -------------- -------------
Options outstanding at
December 27, 1998............ -- -- 1,824,598 $ 26.15 284,412 $14.11
Granted.................. 83,000 $28.85 379,400 $ 28.24 -- --
Exercised................. -- -- (154,639) $ 26.14 (150,685) $13.15
Canceled.................. -- -- (31,142) $ 24.71 (227) $ 7.48
------------- -------------- -------------
Options outstanding at
December 26, 1999............ 83,000 $28.85 2,018,217 $ 26.58 133,500 $15.20
Granted.................. 109,000 $27.50 357,500 $ 28.00 -- --
Exercised................. -- -- (206,796) $ 26.51 (23,900) $19.05
Canceled.................. (24,500) $28.23 (224,665) $ 25.70 -- --
-------------- -------------- -------------
Options outstanding at
December 31, 2000............ 167,500 $28.06 1,944,256 $ 26.93 109,600 $14.37
============== ============== =============
Options exercisable at
December 31, 2000............ -- -- 914,233 $ 27.85 109,600 $14.37
============== =============
Options available for grant at
December 31, 2000............ 165,500 1,151,606 --
F-19
The following table summarizes information relating to fixed-priced stock
options outstanding for all three plans at December 31, 2000:
Options Outstanding Options Exercisable
------------------------------------------------ --------------------------------
Average Weighted
Weighted Remaining Average Weighted
Number Contractual Exercise Number Average
Range of Exercise Prices Outstanding Life Price Exercisable Exercise Price
--------------------------- --------------- --------------- -------------- --------------- ---------------
1989 Plan:
$ 3.02 to $ 3.03 2,500 0.6 years $ 3.02 2,500 $ 3.02
$ 13.42 to $ 14.38 97,100 3.3 years $ 13.88 97,100 $ 13.88
$ 21.87 to $ 21.88 10,000 4.3 years $ 21.88 10,000 $ 21.88
--------------- ---------------
$ 3.02 to $ 21.88 109,600 3.3 years $ 14.37 109,600 $ 14.37
=============== ===============
1995 Plan:
$ 18.81 to $ 23.50 266,000 7.6 years $ 20.66 14,250 $ 22.97
$ 24.69 to $ 26.69 168,614 7.1 years $ 25.13 86,874 $ 25.15
$ 27.69 to $ 29.25 1,473,642 6.6 years $ 28.13 810,009 $ 28.21
$ 31.31 to $ 33.53 36,000 9.2 years $ 32.58 3,100 $ 31.31
--------------- ---------------
$ 18.81 to $ 33.53 1,944,256 6.8 years $ 26.93 914,233 $ 27.85
=============== ===============
1999 Plan:
$ 22.19 to $ 25.06 10,500 9.5 years $ 23.34 -- --
$ 27.69 to $ 33.00 157,000 8.8 years $ 28.38 -- --
--------------- ---------------
$ 22.19 to $ 33.00 167,500 8.8 years $ 28.06 -- --
=============== ===============
Restricted stock awards: During 1998 and 1999, the committee granted restricted
stock awards to certain officers and key employees. These awards vest evenly
over a three-year period. We recorded unearned compensation for the market value
of the stock at the date of grant, and we showed this as a reduction to
stockholders' equity in the accompanying consolidated balance sheet. We are
amortizing unearned compensation ratably to expense over the vesting period.
Accordingly, we recognized compensation expense of $281,000, $388,000 and
$350,000 in 1998, 1999 and 2000, respectively.
Employee retirement plans: During 1992, we established a profit sharing plan and
trust in accordance with Section 401(k) of the Internal Revenue Code. Prior to
1997, we matched 25% of employee contributions, but could not exceed 2% of the
employee's total annual compensation. Our contributions vested at the rate of
20% each year beginning after the employee's second year of service. We adopted
amendments to the 401(k) plan which were effective beginning in 1997. We
increased our matching contributions to 35% of employee contributions in 1997
and to 50% of employee contributions in subsequent years, but our contributions
could not exceed 2.8% of an employee's total annual compensation in 1997 or 4.0%
of an employee's compensation in subsequent years. Beginning in 1997, we made
our contributions in shares of our common stock. Our contributions now vest at
the rate of 60% after the employee's third year of service, 80% after four years
of service and 100% after five years of service. Our 401(k) plan authorizes the
issuance of up to 50,000 shares. During 1994, we established a non-qualified
defined contribution retirement plan for key employees. Our contributions under
both plans were $1,170,000 in 2000, $965,000 in 1999, and $945,000 in 1998.
Employee stock purchase plan: During 1996, we established an employee stock
purchase plan in accordance with Section 423 of the Internal Revenue Code. The
plan was approved at the 1997 Annual Meeting of Stockholders. The plan allows
employees to purchase shares of our common stock at a 10% discount through
payroll deductions. The number of common shares authorized pursuant to the plan
is 200,000. Employees purchased 46,487 shares under this plan during 2000,
44,299 shares during 1999, and 46,204 shares during 1998.
F-20
Employee stock ownership plan: Our Board of Directors approved an employee stock
ownership plan in January 1997. We contribute to this plan completely at our
discretion. Our contributions are made in shares of our common stock. Our
contributions to the plan were $200,000 for 2000 and $400,000 for 1999 and 1998.
14. Related Party Transactions
We lease a restaurant site from a corporation owned by certain current and
former stockholders, directors and officers of Applebee's. The lease has a term
of 20 years with two renewal options. The lease provides for rentals in an
amount equal to approximately 7% of gross sales of the restaurants. During 1995,
we entered into an agreement with this party to lease additional parking space
at the same site. Rents incurred under both leases totaled $156,000 for 2000,
$158,000 for 1999, and $148,000 for 1998. We included these costs in direct and
occupancy costs in the consolidated statements of earnings.
In March 1998, we entered into an agreement to purchase a tract of land for
$290,000 from an entity in which our former Chairman has a one-third ownership
interest. We purchased the land for future restaurant development. The price we
paid was less than the property's appraised value at the date of purchase.
In February 1999, we entered into an agreement to sell our four specialty
restaurants to an entity owned by our former Chairman and certain members of his
family (see Note 4). In addition, the same entity became one of our franchisees
by purchasing seven existing Applebee's restaurants from another franchisee.
We have a policy which allows us to loan executives money to be used to invest
in our stock. We have also established guidelines which require executives to
own certain amounts of our stock. In furtherance of these policies, we had loans
of $967,000 outstanding to four officers at December 31, 2000 and $455,000
outstanding to three officers at December 26, 1999. These loans had interest
rates ranging from 4.7% to 6.2% and are collateralized by the stock. These loans
are reflected as a reduction to additional paid-in capital in our consolidated
balance sheets.
We have pricing contracts with a publicly-held company that employed an
individual who was appointed to our Board of Directors in December 1999. During
2000, we paid approximately $576,000 to this company.
F-21
15. Quarterly Results of Operations (Unaudited)
The following presents the unaudited consolidated quarterly results of
operations for 2000 and 1999. All amounts, except per share amounts, are
expressed in thousands. During the first quarter of 1999, we recognized a loss
of $9,000,000 relating to the sale of the Rio Bravo Cantina and specialty
restaurants. During the fourth quarter of 1999, we recognized a gain of
$4,193,000 relating to the sale of the Philadelphia restaurants.
2000
---------------------------------------------------------------
Fiscal Quarter Ended
---------------------------------------------------------------
March 26, June 25, September 24, December 31,
2000 2000 2000 2000
------------- ------------- ------------- -------------
Revenues:
Company restaurant sales....................... $145,451 $147,909 $151,038 $161,016
Franchise income............................... 19,799 20,736 21,252 22,951
------------- ------------- ------------- -------------
Total operating revenues.................... 165,250 168,645 172,290 183,967
------------- ------------- ------------- -------------
Cost of company restaurant sales:
Food and beverage.............................. 40,058 39,323 41,408 45,225
Labor.......................................... 46,168 46,954 47,703 50,577
Direct and occupancy........................... 35,660 36,095 38,005 41,851
Pre-opening expense............................ 296 213 322 828
------------- ------------- ------------- -------------
Total cost of company restaurant sales...... 122,182 122,585 127,438 138,481
------------- ------------- ------------- -------------
General and administrative expenses................. 16,007 16,338 16,224 16,491
Amortization of intangible assets................... 1,451 1,455 1,460 1,568
Loss on disposition of restaurants and equipment.... 353 322 231 359
------------- ------------- ------------- -------------
Operating earnings.................................. 25,257 27,945 26,937 27,068
------------- ------------- ------------- -------------
Other income (expense):
Investment income.............................. 349 367 389 379
Interest expense............................... (2,364) (2,267) (2,225) (2,448)
Other income (expense)......................... 118 303 (79) 209
------------- ------------- ------------- -------------
Total other expense......................... (1,897) (1,597) (1,915) (1,860)
------------- ------------- ------------- -------------
Earnings before income taxes........................ 23,360 26,348 25,022 25,208
Income taxes........................................ 8,597 9,696 9,208 9,276
------------- ------------- ------------- -------------
Net earnings........................................ $ 14,763 $ 16,652 $ 15,814 $ 15,932
============= ============= ============= =============
Basic net earnings per common share................. $ 0.55 $ 0.62 $ 0.61 $ 0.63
============= ============= ============= =============
Diluted net earnings per common share............... $ 0.55 $ 0.62 $ 0.60 $ 0.63
============= ============= ============= =============
Basic weighted average shares outstanding........... 26,670 26,690 26,098 25,221
============= ============= ============= =============
Diluted weighted average shares outstanding......... 26,788 27,033 26,187 25,384
============= ============= ============= =============
F-22
1999
---------------------------------------------------------------
Fiscal Quarter Ended
---------------------------------------------------------------
March 28, June 27, September 26, December 26,
1999 1999 1999 1999
------------- ------------- ------------- -------------
Revenues:
Company restaurant sales....................... $161,760 $145,832 $145,434 $143,728
Franchise income............................... 17,540 18,151 18,259 18,880
------------- ------------- ------------- -------------
Total operating revenues.................... 179,300 163,983 163,693 162,608
------------- ------------- ------------- -------------
Cost of company restaurant sales:
Food and beverage.............................. 44,765 39,776 39,633 39,691
Labor.......................................... 51,786 45,773 45,753 45,226
Direct and occupancy........................... 41,004 36,124 34,312 34,307
Pre-opening expense............................ 378 240 645 319
------------- ------------- ------------- -------------
Total cost of company restaurant sales...... 137,933 121,913 120,343 119,543
------------- ------------- ------------- -------------
General and administrative expenses................. 16,133 14,484 15,568 17,153
Amortization of intangible assets................... 1,533 1,518 1,490 1,456
(Gain) loss on disposition of restaurants and
equipment...................................... 9,288 215 213 (4,109)
------------- ------------- ------------- -------------
Operating earnings.................................. 14,413 25,853 26,079 28,565
------------- ------------- ------------- -------------
Other income (expense):
Investment income.............................. 180 430 293 292
Interest expense............................... (3,055) (2,522) (2,444) (2,793)
Other income (expense)......................... 168 (164) 170 270
------------- ------------- ------------- -------------
Total other expense......................... (2,707) (2,256) (1,981) (2,231)
------------- ------------- ------------- -------------
Earnings before income taxes........................ 11,706 23,597 24,098 26,334
Income taxes........................................ 4,331 8,731 8,916 9,559
------------- ------------- ------------- -------------
Net earnings........................................ $ 7,375 $ 14,866 $ 15,182 $ 16,775
============= ============= ============= =============
Basic net earnings per common share................. $ 0.25 $ 0.51 $ 0.54 $ 0.62
============= ============= ============= =============
Diluted net earnings per common share............... $ 0.25 $ 0.51 $ 0.53 $ 0.62
============= ============= ============= =============
Basic weighted average shares outstanding........... 29,526 29,070 28,100 26,919
============= ============= ============= =============
Diluted weighted average shares outstanding......... 29,648 29,245 28,454 27,233
============= ============= ============= =============
F-23
APPLEBEE'S INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- --------------- ---------------------------------------------------------------
3.1 Certificate of Incorporation, as amended, of Registrant
(incorporated by reference to Exhibit 3.1 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1995).
3.2 Restated and Amended By-laws of the Registrant (incorporated by
reference to Exhibit 3.2 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 29, 1996).
4.1 Shareholder Rights Plan contained in Rights Agreement dated as
of September 7, 1994, between Applebee's International, Inc.
and Chemical Bank, as Rights Agent (incorporated by reference
to Exhibit 4.1 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 25, 1994).
4.2 Amendment dated May 13, 1999 to Shareholder Rights Plan
contained in Rights Agreement dated as of September 7, 1994,
between Applebee's International, Inc. and Chemical Bank, as
Rights Agent (incorporated by reference to Exhibit 4.1 of the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 27, 1999).
4.3 Certificate of the Voting Powers, Designations, Preferences and
Relative Participating, Optional and Other Special Rights and
Qualifications of Series A Participating Cumulative Preferred
Stock of Applebee's International, Inc. (incorporated by
reference to Exhibit 4.2 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 25, 1994).
10.1 Indemnification Agreement, dated March 16, 1988, between John
Hamra and Applebee's International, Inc. (incorporated by
reference to Exhibit 10.1 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 25, 1994).
10.2 Indemnification Agreement, dated March 16, 1988, between Abe J.
Gustin, Jr. and Applebee's International, Inc. (incorporated by
reference to Exhibit 10.2 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 25, 1994).
10.3 Indemnification Agreement, dated March 16, 1988, between Johyne
Reck and Applebee's International, Inc. (incorporated by
reference to Exhibit 10.3 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 25, 1994).
10.4 Form of Applebee's Development Agreement.
10.5 Form of Applebee's Franchise Agreement.
10.6 Schedule of Applebee's Development and Franchise Agreements as
of December 31, 2000.
E-1
Exhibit
Number Description of Exhibit
- --------------- ---------------------------------------------------------------
10.7 Purchase Rights Agreement dated January 17, 1990 by and between
Applebee's International, Inc. and Apple Star, Inc.
(incorporated by reference to Exhibit 10.7 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
25, 1994).
10.8 Credit Agreement dated as of March 30, 1998 (incorporated by
reference to Exhibit 10.4 of the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 29, 1998).
Management Contracts and Compensatory Plans or Arrangements
10.9 1995 Equity Incentive Plan, as amended (incorporated by
reference to Exhibit 10.11 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 26, 1999 and
Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 25, 2000).
10.10 Employee Stock Purchase Plan, as amended.
10.11 1999 Management and Executive Incentive Plan (incorporated by
reference to Exhibit 10.13 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 26, 1999).
10.12 Nonqualified Deferred Compensation Plan.
10.13 1999 Employee Incentive Plan (incorporated by reference to
Exhibit 10.14 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 26, 1999).
10.14 Employment Agreement, dated January 27, 1994, with Lloyd L.
Hill (incorporated by reference to Exhibit 10.4 of the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 27, 1994).
10.15 Severance and Noncompetition Agreement, dated January 27, 1994,
with Lloyd L. Hill (incorporated by reference to Exhibit 10.5
of the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 27, 1994).
10.16 Employment Agreement, dated March 1, 1995, with George D.
Shadid (incorporated by reference to Exhibit 10.3 of the
Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 26, 1995).
10.17 Form of Indemnification Agreement (incorporated by reference to
Exhibit 10.29 of the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 25, 1994).
10.18 Schedule of parties to Indemnification Agreement.
10.19 Previous Form of Change in Control Agreement (incorporated by
reference to Exhibit 10.2 of the Registrant's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 29, 1998) and
schedule of parties thereto.
E-2
Exhibit
Number Description of Exhibit
- --------------- ---------------------------------------------------------------
10.20 New Form of Change in Control Agreement (incorporated by
reference to Exhibit 10.23 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 27, 1998) and
schedule of parties thereto.
21 Subsidiaries of Applebee's International, Inc.
23.1 Consent of Deloitte & Touche LLP.
24 Power of Attorney (see page 28 of the Form 10-K).
E-3