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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 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 000-17962
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Applebee's International, Inc.
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(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
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(Address of principal executive offices and zip code)
(913) 967-4000
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(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 21, 2002 was $1,313,008,921 based upon the closing sale
price on March 21, 2002.
The number of shares of the registrant's common stock outstanding as of March
21, 2002 was 37,174,658.
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 30, 2001
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............................................. 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............................................ 27
PART III
Item 10. Directors and Executive Officers of the Registrant...................................... 28
Item 11. Executive Compensation.................................................................. 28
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 28
Item 13. Certain Relationships and Related Transactions.......................................... 28
PART IV
Item 14. Exhibits and Reports on Form 8-K........................................................ 29
Signatures.............................................................................................. 30
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 1,400 restaurants and $2.93 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 30, 2001, there were 1,392 Applebee's restaurants. Franchisees
operated 1,082 of these restaurants and 310 restaurants were company operated.
The restaurants were located in 49 states and eight international countries.
During 2001, 109 new restaurants were opened, including 84 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 current strategy is to focus on the Applebee's concept. We divested the Rio
Bravo Cantina concept as a part of that strategy. We expect that 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 30, December 31, December 26,
2001 2000 1999
----------------- ---------------- -----------------
Number of restaurants:
Applebee's:
Company:
Beginning of year............................ 285 262 247
Restaurant openings.......................... 25 25 27
Restaurant closings.......................... -- (2) --
Restaurants acquired from (by) franchisees... -- -- (12)
----------------- ---------------- -----------------
End of year.................................. 310 285 262
----------------- ---------------- -----------------
Franchise:
Beginning of year............................ 1,001 906 817
Restaurant openings.......................... 84 100 80
Restaurant closings.......................... (3) (5) (3)
Restaurants acquired by (from) franchisees... -- -- 12
----------------- ---------------- -----------------
End of year.................................. 1,082 1,001 906
----------------- ---------------- -----------------
Total Applebee's:
Beginning of year............................ 1,286 1,168 1,064
Restaurant openings.......................... 109 125 107
Restaurant closings.......................... (3) (7) (3)
----------------- ---------------- -----------------
End of year.................................. 1,392 1,286 1,168
================= ================ =================
Rio Bravo Cantinas:
Company:
Beginning of year............................ -- -- 40
Restaurants divested......................... -- -- (40)
----------------- ---------------- -----------------
End of year.................................. -- -- --
----------------- ---------------- -----------------
Franchise:
Beginning of year............................ -- -- 26
Restaurant closings.......................... -- -- (1)
Restaurants divested......................... -- -- (25)
----------------- ---------------- -----------------
End of year.................................. -- -- --
----------------- ---------------- -----------------
Total Rio Bravo Cantinas:
Beginning of year............................ -- -- 66
Restaurant closings.......................... -- -- (1)
Restaurants divested......................... -- -- (65)
----------------- ---------------- -----------------
End of year.................................. -- -- --
================= ================ =================
Total number of restaurants:
Beginning of year............................ 1,286 1,168 1,134
Restaurant openings.......................... 109 125 107
Restaurant closings.......................... (3) (7) (4)
Restaurants divested......................... -- -- (69)
----------------- ---------------- -----------------
End of year.................................. 1,392 1,286 1,168
================= ================ =================
4
Fiscal Year Ended
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December 30, December 31, December 26,
2001 2000 1999
----------------- ---------------- -----------------
Weighted average weekly sales per restaurant:
Applebee's:
Company..................................... $ 42,660 $ 42,183 $ 41,674
Franchise................................... $ 42,241 $ 41,137 $ 40,297
Total Applebee's............................ $ 42,334 $ 41,370 $ 40,619
Change in comparable restaurant sales(1):
Applebee's:
Company..................................... 2.5% 1.8% 4.4%
Franchise................................... 3.0% 1.6% 2.9%
Total Applebee's............................ 2.9% 1.7% 3.2%
Total system sales (in thousands):
Applebee's...................................... $ 2,926,288 $ 2,668,539 $ 2,347,388
Rio Bravo Cantinas.............................. -- -- 42,661
Specialty restaurants........................... -- -- 4,806
----------------- ---------------- -----------------
Total system sales.......................... $ 2,926,288 $ 2,668,539 $ 2,394,855
================= ================ =================
- --------
(1) 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 initiated a strategy to enter into counties with a population of
less than 50,000. We have been successful at market penetration of the
Applebee's concept, and we recognize that small towns represent a market with
significant potential. As of December 30, 2001, there were a total of 92
restaurants open in these smaller markets, and we anticipate at least 150
restaurants to be opened long-term in small towns. Because of these factors, we
expect that 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. 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 signature
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 2001,
alcoholic beverages accounted for 14.1% of company owned restaurant sales.
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
financial training. 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, generally through in-restaurant seminars and
video presentations.
Advertising. We have historically concentrated our advertising and marketing
efforts primarily on food-specific promotions. We advertise on a national,
regional and local basis, utilizing primarily television, radio and print media.
In 2001, approximately 4.3% 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.
6
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. In 2001, we began a new multi-year
supply chain management initiative designed to leverage our size, improve
sourcing of products and optimize distribution.
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 310
as of December 30, 2001. We accomplished this expansion by opening 234 new
restaurants and acquiring 81 franchise restaurants over the last nine years. In
addition, as part of our portfolio management strategy, we have sold 26
restaurants to franchisees during this nine-year period.
We opened 25 new Applebee's restaurants in 2001 and anticipate opening
approximately 25 new Applebee's restaurants in 2002. We may open more or fewer
restaurants depending upon the availability of appropriate new sites. The
following table shows the areas where our company restaurants were located as of
December 30, 2001:
7
Area
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Detroit/Southern Michigan................................... 55
New England (includes Massachusetts, Vermont,
New Hampshire, Rhode Island and Maine).................... 52
Minneapolis/St. Paul, Minnesota............................. 44
Virginia.................................................... 38
North/Central Texas......................................... 36
St. Louis, Missouri/Illinois................................ 25
Kansas City, Missouri/Kansas................................ 24
Las Vegas/Reno, Nevada...................................... 12
Atlanta, Georgia............................................ 9
Albuquerque, New Mexico..................................... 8
San Diego/Southern California............................... 7
-------------------
310
===================
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 30, 2001, we employed ten Regional
Vice Presidents of Operations/Directors of Operations and 50 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, including testing of new menu items and training of franchise
restaurant managers and operating personnel.
The Applebee's Franchise System
Franchise Territory and Restaurant Openings. We currently have exclusive
franchise arrangements with 66 franchise groups, including 15 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 assigned the vast majority of all territories
in the contiguous 48 states or have designated them for company development.
As of December 30, 2001, there were 1,082 franchise restaurants. Franchisees
opened 80 restaurants in 1999, 100 restaurants in 2000 and 84 restaurants in
2001. We anticipate between 80 to 90 franchise restaurant openings in 2002.
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. We have
executed agreements with a majority of our franchisees which maintain the
existing royalty fees of 4% and extend the current franchise and development
agreements until January 1, 2020. The revised agreements 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. We currently require domestic franchisees to contribute 2.25% 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. 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. Under our franchise agreements, 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. We also assist franchisees with business planning, development,
technology and human resource efforts.
Quality Control. We continuously monitor franchisee operations and inspect
restaurants, principally through our full-time franchise consultants (22 as of
December 30, 2001). 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
franchise system. As of December 30, 2001, the Franchise Business Council
consisted of seven 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.
9
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 15 international franchisees. Franchisees operated 38
international restaurants as of December 30, 2001. 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 30, 2001, we employed approximately 20,900 full and part-time
employees. Of those, approximately 450 were corporate personnel, 1,350 were
restaurant managers or managers in training and 19,100 were employed in
non-management full and part-time restaurant positions. Of the 450 corporate
employees, approximately 160 were in management positions and 290 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 30, 2001 are shown below.
Name Age Position
Lloyd L. Hill.................... 57 Chairman of the Board of Directors, Chief Executive Officer and
President
George D. Shadid................. 47 Executive Vice President and Chief Financial Officer (Chief Operating
Officer effective March 1, 2002), Treasurer and Member of the
Board of Directors
Steven K. Lumpkin................ 47 Executive Vice President and Chief Development Officer (Chief
Financial Officer and Treasurer effective March 1, 2002)
Larry A. Cates................... 53 President of International Division
John C. Cywinski................. 39 Senior Vice President and Chief Marketing Officer
David L. Goebel.................. 51 Senior Vice President of Franchise Operations
Louis A. Kaucic.................. 50 Senior Vice President and Chief People Officer
David R. Parsley................. 55 Senior Vice President of Purchasing and Distribution
Carin L. Stutz................... 45 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. Prior to joining Applebee's, he served as President of Kimberly
Quality Care, a home health care and nurse personnel staffing company from
December 1989 to December 1993, where he also served as a director from 1988 to
1993, having joined that organization in 1980.
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. In
March 2002, he assumed the position of Chief Operating Officer. Prior to joining
Applebee's, he served as Corporate Controller of Gilbert/Robinson, Inc. from
1985 to 1987, 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 August 1992. From 1976 until 1985, Mr. Shadid was employed by
Deloitte & Touche LLP.
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. In March 2002, Mr. Lumpkin assumed the position of Chief
Financial Officer and Treasurer. Prior to joining Applebee's, Mr. Lumpkin was a
Senior Vice President with a division of the Olsten Corporation, Olsten Kimberly
Quality Care from July 1993 until January 1995. 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.
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.
John C. Cywinski was employed by Applebee's in July 2001 as Senior Vice
President and Chief Marketing Officer. Prior to joining Applebee's, Mr. Cywinski
was employed as Vice President of Brand Strategy for McDonald's Corporation from
April 1999 to July 2001. From October 1996 to April 1999, he was President of
Buena Vista Pictures Marketing, the motion picture division of The Walt Disney
Company. Prior to 1996, Mr. Cywinski held various positions with Burger King
Corporation.
David L. Goebel was employed by Applebee's in February 2001 as Senior Vice
President of Franchise Operations. Prior to joining Applebee's, Mr. Goebel
headed a management company that provided consulting and strategic planning
services to various businesses from April 1998 to February 2001. Prior to 1998,
he held several executive positions with various restaurant companies.
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.
Prior to joining Applebee's, Mr. Kaucic was Vice President of Human Resources
and later promoted to Senior Vice President of Human Resources with Unique
Casual Restaurants, Inc., which operated several restaurant concepts, from July
1992 until October 1997. 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.
David R. Parsley was employed by Applebee's in April 2000 as Senior Vice
President of Purchasing and Distribution. Prior to joining Applebee's, Mr.
Parsley held several positions with Prandium, Inc., operator of El Torito,
Chi-Chi's and Koo Koo Roo, from November 1996 to April 2000, 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 Company Operations. Prior to joining Applebee's, Ms. Stutz was
Division Vice President with Wendy's International from July 1994 to November
1999. 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 30, 2001, we owned or operated 310 restaurants. Of these, we
leased the land and building for 60 sites, owned the building and leased the
land for 116 sites, and owned the land and building for 134 sites. In addition,
as of December 30, 2001, we owned 4 sites for future development of restaurants
and had entered into 12 lease agreements for restaurant sites we plan to open
during 2002. 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 30, 2001:
14
Number of Restaurants
-----------------------------------------------------
State or Country Company Franchise Total System
---------------------------------- -------------- -------------- --------------
Domestic:
--------
Alabama........................ -- 27 27
Alaska......................... -- 1 1
Arizona........................ -- 22 22
Arkansas....................... -- 7 7
California..................... 7 70 77
Colorado....................... -- 28 28
Connecticut.................... -- 9 9
Delaware....................... -- 5 5
Florida........................ -- 82 82
Georgia........................ 9 53 62
Idaho.......................... -- 9 9
Illinois....................... 6 43 49
Indiana........................ -- 51 51
Iowa........................... -- 22 22
Kansas......................... 10 15 25
Kentucky....................... -- 31 31
Louisiana...................... -- 17 17
Maine.......................... 6 -- 6
Maryland....................... -- 19 19
Massachusetts.................. 26 -- 26
Michigan....................... 55 12 67
Minnesota...................... 41 1 42
Mississippi.................... -- 14 14
Missouri....................... 33 10 43
Montana........................ -- 7 7
Nebraska....................... -- 14 14
Nevada......................... 12 -- 12
New Hampshire.................. 12 -- 12
New Jersey..................... -- 26 26
New Mexico..................... 8 5 13
New York....................... -- 63 63
North Carolina................. 1 43 44
North Dakota................... -- 7 7
Ohio........................... -- 69 69
Oklahoma....................... -- 13 13
Oregon......................... -- 12 12
Pennsylvania................... -- 43 43
Rhode Island................... 6 -- 6
South Carolina................. -- 40 40
South Dakota................... -- 4 4
Tennessee...................... -- 44 44
Texas.......................... 36 25 61
Utah........................... -- 10 10
Vermont........................ 2 -- 2
Virginia....................... 37 9 46
Washington..................... -- 16 16
West Virginia.................. -- 13 13
Wisconsin...................... 3 29 32
Wyoming........................ -- 4 4
-------------- -------------- --------------
Total Domestic................. 310 1,044 1,354
-------------- -------------- --------------
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......................... -- 2 2
Mexico......................... -- 11 11
Netherlands.................... -- 5 5
Sweden......................... -- 1 1
-------------- -------------- --------------
Total International............ -- 38 38
-------------- -------------- --------------
310 1,082 1,392
============== ============== ==============
Item 3. Legal Proceedings
We are involved in various legal actions arising in the normal course of
business. These matters include, without limitation, such matters as employment
law related claims and disputes with certain international franchisees regarding
disclosures we allegedly made or omitted. In each instance, we believe that we
have meritorious defenses to the allegations made and we are vigorously
defending 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, individually or 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.
2001 2000
------------------------------- -------------------------------
High Low High Low
--------------- --------------- --------------- ---------------
First Quarter $ 24.29 $ 18.67 $ 19.92 $ 16.00
Second Quarter $ 32.00 $ 23.81 $ 25.04 $ 17.04
Third Quarter $ 33.08 $ 25.98 $ 21.42 $ 13.63
Fourth Quarter $ 36.89 $ 26.40 $ 23.08 $ 15.00
2. Number of stockholders of record at December 30, 2001: 941
3. We declared an annual dividend of $0.08 per common share on
December 13, 2001 for stockholders of record on December 26, 2001, and
the dividend was payable on January 29, 2002. We declared an annual
dividend of $0.07 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 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 2002 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. All per share and
weighted average share information has been restated to reflect a three-for-two
stock split in 2001.
Fiscal Year Ended
--------------------------------------------------------------------------------
December 30, December 31, December 26, December 27, December 28,
2001 2000 1999 1998 1997
--------------- --------------- --------------- --------------- ----------------
(in thousands, except per share amounts)
STATEMENT OF EARNINGS DATA:
Company restaurant sales................. $ 651,119 $ 605,414 $ 596,754 $ 580,840 $ 452,173
Franchise income......................... 93,225 84,738 72,830 66,722 63,647
--------------- --------------- --------------- --------------- ----------------
Total operating revenues............ $ 744,344 $ 690,152 $ 669,584 $ 647,562 $ 515,820
=============== =============== =============== =============== ================
Operating earnings....................... $ 112,427 $ 107,207 $ 94,910 $ 88,562 $ 71,283
Earnings before extraordinary item....... $ 65,650 $ 63,161 $ 54,198 $ 50,656 $ 45,091
Basic earnings per share before
extraordinary item.................... $ 1.77 $ 1.61 $ 1.27 $ 1.12 $ 0.96
Diluted earnings per share before
extraordinary item.................... $ 1.73 $ 1.60 $ 1.26 $ 1.11 $ 0.95
Net earnings............................. $ 64,401 $ 63,161 $ 54,198 $ 50,015 $ 45,091
Basic net earnings per share............. $ 1.74 $ 1.61 $ 1.27 $ 1.10 $ 0.96
Diluted net earnings per share........... $ 1.70 $ 1.60 $ 1.26 $ 1.10 $ 0.95
Dividends per share...................... $ 0.08 $ 0.07 $ 0.07 $ 0.06 $ 0.05
Basic weighted average shares
outstanding........................... 37,008 39,228 42,605 45,408 47,102
Diluted weighted average shares
outstanding........................... 37,918 39,447 42,902 45,578 47,460
BALANCE SHEET DATA
(AT END OF FISCAL YEAR):
Total assets............................. $ 500,411 $ 471,707 $ 442,216 $ 510,904 $ 377,474
Long-term obligations, including
current portion........................ $ 74,568 $ 91,355 $ 108,100 $ 147,188 $ 29,105
Stockholders' equity..................... $ 325,183 $ 281,718 $ 253,873 $ 296,053 $ 290,443
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 years ended December 30, 2001, December 31, 2000 and December 26,
1999 contained 52, 53 and 52 weeks, respectively, and are referred to hereafter
as 2001, 2000 and 1999, respectively.
Critical Accounting Policies
Management's Discussion and Analysis of Financial Condition and Results of
Operations are based upon our consolidated financial statements, which were
prepared in accordance with accounting principles generally accepted in the
United States of America. These principles require us to make estimates and
assumptions that affect the reported amounts in the consolidated financial
statements and notes thereto. Actual results may differ from these estimates,
and such differences may be material to the consolidated financial statements.
We believe that the following significant accounting policies involve a higher
degree of judgement or complexity (see Note 2 of our Consolidated Financial
Statements for a complete discussion of our significant accounting policies).
Property and equipment: Property and equipment are depreciated on a
straight-line basis over the estimated useful lives of the assets. The useful
lives of the assets are based upon management's expectations for the period of
time that the asset will be used for the generation of revenue. We periodically
review the assets for changes in circumstances which may impact their useful
lives.
Impairment of long-lived assets: We periodically review property and equipment
for impairment using historical cash flows as well as current estimates of
future cash flows. This assessment process requires the use of estimates and
assumptions which are subject to a high degree of judgement. In addition, we
periodically assess the recoverability of goodwill and other intangible assets
which requires us to make assumptions regarding the future cash flows and other
factors to determine the fair value of the assets. If these assumptions change
in the future, we may be required to record impairment charges for these assets.
19
Other estimates: We are required to make judgements and or estimates in the
determination of several of the accruals that are reflected in our consolidated
financial statements. We believe that the following accruals are subject to a
higher degree of judgement.
We are periodically involved in various legal actions arising in the normal
course of business. We are required to assess the probability of any adverse
judgements as well as the potential ranges of any losses. We determine the
required accruals after a careful review of the facts of each legal action. Our
accruals may change in the future due to new developments in these matters.
We use estimates in the determination of the required accruals for general
liability, workers' compensation and health insurance. These estimates are based
upon a detailed examination of historical and industry claims experience. This
claims information may change in the future and may require us to revise these
accruals.
We continually assess the collectibility of our receivables based on several
factors. This assessment requires us to use estimates and make determinations
regarding collectibility based upon specific information available to us at the
time. The allowance for bad debts may change in the future due to new
developments.
We continually reassess our assumptions and judgements and make adjustments when
significant facts and circumstances dictate. Historically, actual results have
not been materially different than the estimates that are described above.
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:
o Company restaurant sales $33,444,000
o Franchise income $26,000
o Cost of company restaurant sales $30,331,000
20
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 30, December 31, December 26,
2001 2000 1999
-------------- --------------- ---------------
Revenues:
Company restaurant sales......................... 87.5% 87.7% 89.1%
Franchise income................................. 12.5 12.3 10.9
-------------- --------------- ---------------
Total operating revenues...................... 100.0% 100.0% 100.0%
============== =============== ===============
Cost of sales (as a percentage of company restaurant sales):
Food and beverage................................ 27.0% 27.4% 27.5%
Labor............................................ 32.1 31.6 31.6
Direct and occupancy............................. 25.3 25.0 24.4
Pre-opening expense.............................. 0.3 0.3 0.3
-------------- --------------- ---------------
Total cost of sales........................... 84.7% 84.4% 83.7%
============== =============== ===============
General and administrative expenses................... 9.8% 9.4% 9.5%
Amortization of intangible assets..................... 0.8 0.9 0.9
Loss on disposition of restaurants and equipment...... 0.2 0.2 0.8
-------------- --------------- ---------------
Operating earnings.................................... 15.1 15.5 14.2
-------------- --------------- ---------------
Other income (expense):
Investment income................................ 0.2 0.2 0.2
Interest expense................................. (1.0) (1.3) (1.6)
Other income (expense)........................... (0.4) 0.1 0.1
-------------- --------------- ---------------
Total other expense........................... (1.1) (1.1) (1.4)
-------------- --------------- ---------------
Earnings before income taxes and extraordinary item... 14.0 14.5 12.8
Income taxes.......................................... 5.1 5.3 4.7
-------------- --------------- ---------------
Earnings before extraordinary item.................... 8.8 9.2 8.1
Extraordinary loss from early extinguishment
of debt, net of income taxes..................... (0.2) -- --
-------------- --------------- ---------------
Net earnings.......................................... 8.7% 9.2% 8.1%
============== =============== ===============
21
Fiscal Year Ended December 30, 2001 Compared With Fiscal Year Ended
December 31, 2000
- --------------------------------------------------------------------------------
Company Restaurant Sales. Total company restaurant sales increased $45,705,000
(7.5%) from $605,414,000 in 2000 to $651,119,000 in 2001 due primarily to
company restaurant openings and increases in comparable restaurant sales which
were partially offset by the fifty-third week in 2000.
Comparable restaurant sales at company restaurants increased by 2.5% in 2001.
Weighted average weekly sales at company restaurants increased 1.1% from $42,183
in 2000 to $42,660 in 2001. These increases were due primarily to an increase in
the average guest check resulting from the company's food promotions and menu
price increases of approximately 2.0%.
Franchise Income. Overall franchise income increased $8,487,000 (10.0%) from
$84,738,000 in 2000 to $93,225,000 in 2001 due primarily to the increased number
of franchise restaurants operating during 2001 as compared to 2000 and increases
in comparable restaurant sales. This increase was partially offset by the
fifty-third week in 2000. Comparable restaurant sales and weighted average
weekly sales for franchise restaurants increased 3.0% and 2.7%, respectively, in
2001.
Cost of Company Restaurant Sales. Food and beverage costs decreased from 27.4%
in 2000 to 27.0% in 2001. This decrease was due primarily to the impact of the
menu price increases in 2001, a supply chain management initiative in 2001, and
higher costs relating to the implementation of a new menu in the fourth quarter
of 2000.
Labor costs increased from 31.6% in 2000 to 32.1% in 2001. This increase was due
to higher costs related to management staffing levels and higher management
incentive compensation.
Direct and occupancy costs increased from 25.0% in 2000 to 25.3% in 2001 due
primarily to higher utility costs and repairs and maintenance expense. This
increase was partially offset by a decrease in advertising costs, as a
percentage of sales, due to increased advertising in 2000 relating to the
implementation of our new menu in company restaurants.
General and Administrative Expenses. General and administrative expenses
increased from 9.4% in 2000 to 9.8% in 2001 due primarily to costs associated
with our supply chain management initiative and strategic brand assessment
project as well as higher incentive compensation expense. These costs were
partially offset by the absorption of general and administrative expenses over a
larger revenue base.
Interest Expense. Interest expense decreased in 2001 compared to 2000 due
primarily to a reduction in our debt levels, the termination of our interest
rate swap agreements in November 2001 and lower interest rates in 2001 as
compared to 2000.
Other Expense. Other expense increased in 2001 compared to 2000 due primarily to
a payment of $4,470,000 to terminate our interest rate swap agreements.
Income Taxes. The effective income tax rate, as a percentage of earnings before
income taxes, was 36.8% in both 2000 and 2001. Beginning in fiscal 2002, we
anticipate the effective income tax rate will decrease to approximately 36.5%,
as a percentage of earnings before income taxes.
Extraordinary Item. In connection with the early extinguishment of debt, we
wrote-off the remaining unamortized portion of the related deferred financing
costs which is reflected as an extraordinary loss of $1,249,000, net of income
taxes, in the accompanying consolidated statement of earnings for 2001.
22
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
(1.5%) from $596,754,000 in 1999 to $605,414,000 in 2000. Sales for company
restaurants increased $42,104,000 (7.5%) 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 (16.4%) 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.
23
Income Taxes. The effective income tax rate, as a percentage of earnings before
income taxes, was 36.8% in both 1999 and 2000.
Liquidity and Capital Resources
Our need for capital historically has resulted from the construction and
acquisition of restaurants and the repurchase of our common shares. 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 $46,220,000 in 2000 and $50,086,000 in 2001. We
currently expect to open approximately 25 Applebee's restaurants, and capital
expenditures are expected to be between $60,000,000 and $65,000,000, in 2002.
These expenditures will primarily be for the development of new restaurants,
refurbishment and capital replacement for existing restaurants, and the
enhancement of information systems including a new accounting and human resource
information system. 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.
In November 2001, we completed the refinancing of our senior term loan and
working capital facilities. The new bank credit agreement provides for a
$150,000,000 three-year unsecured revolving credit facility, of which
$25,000,000 may be used for the issuance of letters of credit. The proceeds were
used to repay indebtedness related to our prior credit facilities. The new
facility is subject to various covenants and restrictions which, among other
things, require the maintenance of stipulated fixed charge, leverage and
indebtedness to capitalization ratios, as defined, and limit additional
indebtedness and capital expenditures in excess of specified amounts. Cash
dividends are limited to $10,000,000 annually. The facility is subject to
standard other terms, conditions, covenants, and fees. We are currently in
compliance with the covenants contained in our new credit agreement.
In February 2001, our Board of Directors authorized the repurchase of up to
$55,000,000 of our common stock through 2001, subject to market conditions and
applicable restrictions imposed by our then-current credit agreement. Including
this authorization, our Board of Directors has approved a total of five plans to
repurchase up to $262,500,000 of our common stock, subject to market conditions,
since 1997. We repurchased 1,909,000 shares of our common stock at an aggregate
cost of $44,987,000 in 2001. Since 1997, we have repurchased 13,214,000 shares
of our common stock at an aggregate cost of $240,470,000 under these
authorizations. In February 2002, our Board of Directors extended the remaining
$20,600,000 of the 2001 authorization through 2002.
As of December 30, 2001, our liquid assets totaled $22,747,000. These
assets consisted of cash and cash equivalents in the amount of $22,048,000 and
short-term investments in the amount of $699,000. The working capital deficit
decreased from $42,995,000 as of December 31, 2000 to $29,747,000 as of December
30, 2001. This decrease was due primarily to increases in cash and cash
equivalents. As of December 30, 2001, we had borrowings of $70,000,000 and
standby letters of credit of $5,486,000 outstanding under our $150,000,000
revolving credit facility. We also had a standby letter of credit for $827,000
outstanding with another financial institution.
24
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.
The following table shows our bank debt amortization schedule, our future
capital lease commitments and our future operating lease commitments as of
December 30, 2001:
Financial Commitments (in thousands)
- ----------------------------------------------------------------------------------------------------------
2002 2003 2004 Beyond
--------------- --------------- --------------- ---------------
Bank Debt................................ $ -- $ -- $ 70,000 $ --
Capital Lease Obligations................ $ 691 $ 715 $ 741 $ 9,097
Operating Leases......................... $ 14,206 $ 14,105 $ 13,173 $ 129,303
In addition, we have lease guarantees of approximately $27,800,000 and franchise
guarantees of approximately $400,000 as of December 30, 2001 (see Note 10 to our
Consolidated Financial Statements).
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 Pronouncements
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that all business combinations be accounted for
using the purchase method of accounting and requires separate recognition of
intangible assets that meet certain criteria. This Statement applies to all
business combinations after June 30, 2001.
SFAS No. 142 requires that an intangible asset that is acquired shall be
initially recognized and measured based on its fair value. This Statement also
provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. SFAS No.
142 is effective for us beginning in fiscal 2002. Beginning in fiscal 2002, we
will cease amortization of our goodwill and will perform the required
transitional goodwill impairment test within six months of adoption of SFAS No.
142.
25
At the adoption date, we will have unamortized goodwill of approximately
$77,965,000, which will be subject to the transitional provisions of SFAS No.
142. The termination of goodwill amortization is expected to eliminate
approximately $5,300,000 of expense in fiscal 2002, subject to identification of
other intangible assets which would continue to be amortized. We are currently
performing the initial transitional goodwill impairment test which includes
determining whether we have an impairment charge to be recognized. Such a
transitional impairment charge would be recognized as the cumulative effect of a
change in accounting principle in our consolidated financial statements.
During the first quarter of 2002, we are required to assess the useful lives and
residual values of our other intangible assets acquired in purchase business
combinations and make any necessary adjustments. Any intangible assets with
indefinite useful lives will be tested for impairment in accordance with SFAS
No. 142. The adoption of SFAS No. 142 is not expected to have a material impact
on our consolidated financial statements.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment of Long-Lived Assets" which supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and the accounting and reporting provisions of APB No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS No. 144 retains many of the provisions of SFAS
No. 121, but addresses certain implementation issues associated with that
Statement. We will adopt SFAS No. 144 beginning in fiscal 2002. The adoption of
SFAS No. 144 will not have a material impact on our consolidated financial
statements.
Forward-Looking Statements
The statements contained in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section regarding restaurant
development, capital expenditures and financial commitments 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 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. For 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, 2002. We
disclaim any obligation to update forward-looking statements.
26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from fluctuations in interest rates and changes in
commodity prices. Our revolving credit facility bears interest at either the
bank's prime rate or LIBOR plus 1.0%, at our option. As of December 30, 2001,
the total amount of debt subject to interest rate fluctuations was $70,000,000
which was outstanding on our revolving credit facility. A 1% change in interest
rates would result in an increase or decrease in interest expense of $700,000
per year. We may from time to time enter into interest rate swap agreements to
manage the impact of interest rate changes on our earnings.
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.
27
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 9, 2002. 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 9,
2002. 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
"Stock Ownership of Officers, Directors and Major Stockholders" in the Proxy
Statement for the Annual Meeting of Stockholders to be held on or about May 9,
2002. 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 9, 2002. We
incorporate that information in this document by reference.
28
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 Consolidated 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 3, 2001, announcing the
webcast of our presentations at the RBC Dain Rauscher Wessels
Restaurant and Specialty Foods Conference and the Robertson Stephens
Consumer Conference.
We filed a report on Form 8-K on October 3, 2001, reporting September
2001 comparable sales and updating our outlook for the remainder of
2001.
We filed a report on Form 8-K on October 25, 2001, announcing the
broadcast of our third quarter 2001 earnings conference call over the
Internet.
We filed a report on Form 8-K on October 31, 2001, announcing third
quarter 2001 diluted earnings per share of 44 cents and providing
guidance for fiscal year 2002.
We filed a report on Form 8-K on November 7, 2001, announcing the
completion of a new credit agreement.
We filed a report on Form 8-K on November 29, 2001, reporting November
2001 comparable sales.
We filed a report on Form 8-K on December 14, 2001, announcing an
increased annual dividend.
29
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 26, 2002 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 26, 2002
------------------------------------- ------------------
Lloyd L. Hill
Director, Chairman of the Board and Chief
Executive Officer
(principal executive officer)
By: /s/ Steven K. Lumpkin Date: March 26, 2002
------------------------------------- ------------------
Steven K. Lumpkin
Executive Vice President and Chief
Financial Officer
(principal financial and accounting officer)
By: /s/ George D. Shadid Date: March 26, 2002
------------------------------------- ------------------
George D. Shadid
Director, Executive Vice President and
Chief Operating Officer
30
By: /s/ Erline Belton Date: March 26, 2002
------------------------------------- ------------------
Erline Belton
Director
By: /s/ Douglas R. Conant Date: March 26, 2002
------------------------------------- ------------------
Douglas R. Conant
Director
By: /s/ D. Patrick Curran Date: March 26, 2002
------------------------------------- ------------------
D. Patrick Curran
Director
By: /s/ Eric L. Hansen Date: March 26, 2002
------------------------------------- ------------------
Eric L. Hansen
Director
By: /s/ Mark S. Hansen Date: March 26, 2002
------------------------------------- ------------------
Mark S. Hansen
Director
By: /s/ Jack P. Helms Date: March 26, 2002
------------------------------------- ------------------
Jack P. Helms
Director
By: /s/ Burton M. Sack Date: March 26, 2002
------------------------------------ ------------------
Burton M. Sack
Director
31
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets as of December 30, 2001 and
December 31, 2000 .................................................................................. F-3
Consolidated Statements of Earnings for the Fiscal Years Ended
December 30, 2001, December 31, 2000 and December 26, 1999........................................... F-4
Consolidated Statements of Stockholders' Equity for the Fiscal Years
Ended December 30, 2001, December 31, 2000 and December 26, 1999..................................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended
December 30, 2001, December 31, 2000 and December 26, 1999........................................... 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 30, 2001 and
December 31, 2000, and the related consolidated statements of earnings,
stockholders' equity and cash flows for each of the three fiscal years in the
period ended December 30, 2001. 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 30, 2001 and December 31, 2000, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended December 30, 2001, in conformity with accounting principles
generally accepted in the United States of America.
Deloitte & Touche LLP
Kansas City, Missouri
February 13, 2002
F-2
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 30, December 31,
2001 2000
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 22,048 $ 10,763
Short-term investments, at market value........................................ 699 1,312
Receivables, net of allowance.................................................. 22,827 19,760
Inventories.................................................................... 10,165 12,616
Prepaid and other current assets............................................... 12,260 6,389
-------------- -------------
Total current assets........................................................ 67,999 50,840
Property and equipment, net......................................................... 330,924 314,216
Goodwill, net....................................................................... 77,965 83,265
Franchise interest and rights, net.................................................. 2,449 2,949
Other assets........................................................................ 21,074 20,437
-------------- -------------
$ 500,411 $ 471,707
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.............................................. $ 43 $ 894
Accounts payable............................................................... 22,196 26,556
Accrued expenses and other current liabilities................................. 71,551 62,511
Accrued dividends.............................................................. 2,977 2,774
Accrued income taxes........................................................... 979 1,100
-------------- -------------
Total current liabilities................................................... 97,746 93,835
-------------- -------------
Non-current liabilities:
Long-term debt - less current portion.......................................... 74,525 90,461
Franchise deposits............................................................. 1,515 1,596
Deferred income taxes.......................................................... 1,442 4,097
-------------- -------------
Total non-current liabilities............................................... 77,482 96,154
-------------- -------------
Total liabilities........................................................... 175,228 189,989
-------------- -------------
Commitments and contingencies (Notes 6, 7 and 10)
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 - 48,225,358 shares in 2001 and 2000................................. 482 482
Additional paid-in capital..................................................... 180,802 172,037
Retained earnings.............................................................. 355,191 293,772
Accumulated other comprehensive income, net of income taxes.................... 14 39
-------------- -------------
536,489 466,330
Treasury stock - 11,014,733 shares in 2001 and 10,395,795 shares in 2000, at
cost........................................................................ (211,306) (184,612)
-------------- -------------
Total stockholders' equity.................................................. 325,183 281,718
-------------- -------------
$ 500,411 $ 471,707
============== =============
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 30, December 31, December 26,
2001 2000 1999
-------------- ------------- -------------
Revenues:
Company restaurant sales................................ $ 651,119 $ 605,414 $ 596,754
Franchise income........................................ 93,225 84,738 72,830
-------------- ------------- -------------
Total operating revenues............................. 744,344 690,152 669,584
-------------- ------------- -------------
Cost of company restaurant sales:
Food and beverage....................................... 175,977 166,014 163,865
Labor................................................... 208,996 191,402 188,538
Direct and occupancy.................................... 164,965 151,611 145,747
Pre-opening expense..................................... 1,701 1,659 1,582
-------------- ------------- -------------
Total cost of company restaurant sales............... 551,639 510,686 499,732
-------------- ------------- -------------
General and administrative expenses.......................... 72,935 65,060 63,338
Amortization of intangible assets............................ 5,851 5,934 5,997
Loss on disposition of restaurants and equipment............. 1,492 1,265 5,607
-------------- ------------- -------------
Operating earnings........................................... 112,427 107,207 94,910
-------------- ------------- -------------
Other income (expense):
Investment income....................................... 1,650 1,484 1,195
Interest expense........................................ (7,456) (9,304) (10,814)
Other income (expense) (Note 7)......................... (2,744) 551 444
-------------- ------------- -------------
Total other expense.................................. (8,550) (7,269) (9,175)
-------------- ------------- -------------
Earnings before income taxes and extraordinary item.......... 103,877 99,938 85,735
Income taxes................................................. 38,227 36,777 31,537
-------------- ------------- -------------
Earnings before extraordinary item........................... 65,650 63,161 54,198
Extraordinary loss from early extinguishment
of debt, net of income taxes (Note 7)................... (1,249) -- --
-------------- ------------- -------------
Net earnings................................................. $ 64,401 $ 63,161 $ 54,198
============== ============= =============
Basic earnings per common share:
Basic earnings before extraordinary item................ $ 1.77 $ 1.61 $ 1.27
Extraordinary item...................................... (0.03) -- --
-------------- ------------- -------------
Basic net earnings per common share.......................... $ 1.74 $ 1.61 $ 1.27
============== ============= =============
Diluted earnings per common share:
Diluted earnings before extraordinary item.............. $ 1.73 $ 1.60 $ 1.26
Extraordinary item...................................... (0.03) -- --
-------------- ------------- -------------
Diluted net earnings per common share........................ $ 1.70 $ 1.60 $ 1.26
============== ============= =============
Basic weighted average shares outstanding.................... 37,008 39,228 42,605
============== ============= =============
Diluted weighted average shares outstanding.................. 37,918 39,447 42,902
============== ============= =============
See notes to consolidated financial statements.
F-4
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share amounts)
Accumulated
Other
Common Stock Additional Comprehensive Total
------------------- Paid-In Retained Income Treasury Stockholders'
Shares Amount Capital Earnings (Loss) Stock Equity
----------- ------- ----------- ---------- ------------- ----------- -------------
Balance, December 27, 1998....................... 48,225,358 $ 482 $ 163,651 $181,849 $ 113 $ (50,042) $ 296,053
Comprehensive income:
Net earnings.................................. -- -- -- 54,198 -- -- 54,198
Change in unrealized gain on short-term
investments, net of income taxes............ -- -- -- -- (63) -- (63)
----------- ------- ----------- ---------- ------------- ----------- -------------
Total comprehensive income....................... -- -- -- 54,198 (63) -- 54,135
----------- ------- ----------- ---------- ------------- ----------- -------------
Purchases of treasury stock................... -- -- -- -- -- (102,959) (102,959)
Dividends on common stock, $0.07 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)
----------- ------- ----------- ---------- ------------- ----------- -------------
Balance, December 26, 1999....................... 48,225,358 482 168,584 233,387 50 (148,630) 253,873
Comprehensive income:
Net earnings.................................. -- -- -- 63,161 -- -- 63,161
Change in unrealized gain on short-term
investments, net of income taxes............ -- -- -- -- (11) -- (11)
----------- ------- ----------- ---------- ------------- ----------- -------------
Total comprehensive income....................... -- -- -- 63,161 (11) -- 63,150
----------- ------- ----------- ---------- ------------- ----------- -------------
Purchases of treasury stock................... -- -- -- -- -- (43,192) (43,192)
Dividends on common stock, $0.07 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 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,
net of repayments........................... -- -- (511) -- -- -- (511)
----------- ------- ----------- ---------- ------------- ----------- -------------
Balance, December 31, 2000....................... 48,225,358 482 172,037 293,772 39 (184,612) 281,718
Comprehensive income:
Net earnings.................................. -- -- -- 64,401 -- -- 64,401
Change in unrealized gain on short-term
investments, net of income taxes............ -- -- -- -- (25) -- (25)
Transition adjustment related to financial
instruments, net of taxes................... -- -- -- -- (250) -- (250)
Change in fair value of derivative instruments -- -- -- -- (4,220) -- (4,220)
Adjustment for termination of interest rate
swap agreements............................. -- -- -- -- 4,470 -- 4,470
----------- ------- ----------- ---------- ------------- ----------- -------------
Total comprehensive income....................... -- -- -- 64,401 (25) -- 64,376
----------- ------- ----------- ---------- ------------- ----------- -------------
Purchases of treasury stock................... -- -- -- -- -- (44,987) (44,987)
Dividends on common stock, $0.08 per share.... -- -- -- (2,982) -- -- (2,982)
Stock options exercised and related tax benefit -- -- 7,472 -- -- 16,518 23,990
Shares issued under employee stock and 401(k)
plans....................................... -- -- 870 -- -- 1,392 2,262
Restricted shares awarded under equity
incentive plan, net of cancellations........ -- -- (254) -- -- 383 129
Unearned compensation relating to restricted
shares...................................... -- -- 326 -- -- -- 326
Notes receivable from officers for stock sales,
net of repayments........................... -- -- 351 -- -- -- 351
----------- ------- ----------- ---------- ------------- ----------- -------------
Balance, December 30, 2001....................... 48,225,358 $ 482 $180,802 $355,191 $ 14 $(211,306) $ 325,183
=========== ======= =========== ========== ============= =========== =============
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 30, December 31, December 26,
2001 2000 1999
-------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings..................................................... $ 64,401 $ 63,161 $ 54,198
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization................................. 31,780 30,208 28,930
Amortization of intangible assets............................. 5,851 5,934 5,997
Write-off of deferred financing costs......................... 1,976 -- --
Amortization of deferred financing costs...................... 648 734 678
Deferred income tax provision (benefit)....................... (4,520) 118 (244)
Loss on disposition of restaurants and equipment.............. 1,492 1,265 5,607
Income tax benefit from exercise of stock options............. 4,807 554 998
Changes in assets and liabilities (exclusive of effects
of divestitures):
Receivables................................................... (3,067) (8,538) (108)
Inventories................................................... 2,451 (1,369) (5,781)
Prepaid and other current assets.............................. (3,992) 393 508
Accounts payable.............................................. (4,360) 9,590 (461)
Accrued expenses and other current liabilities................ 10,068 10,353 9,937
Accrued income taxes.......................................... (121) (167) 1,182
Franchise deposits............................................ (81) (169) (374)
Other......................................................... (2,242) (1,224) 700
-------------- -------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES..................... 105,091 110,843 101,767
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.............................. (50,086) (46,220) (53,945)
Equity investment in unaffiliated company........................ -- (2,000) --
Proceeds from sale of restaurants and equipment.................. 433 1,038 81,884
Purchases of short-term investments.............................. (200) (100) --
Maturities and sales of short-term investments................... 774 1,325 2,200
-------------- -------------- --------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES.............. (49,079) (45,957) 30,139
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock...................................... (44,987) (43,192) (102,959)
Dividends paid................................................... (2,779) (2,662) (2,659)
Issuance of common stock upon exercise of stock options.......... 19,183 5,945 6,027
Shares sold under employee stock purchase plan................... 1,234 1,136 944
Proceeds from issuance of long-term debt......................... 70,000 -- 44,604
Deferred financing costs relating to issuance of long-term debt.. (577) -- --
Payments on long-term debt....................................... (86,801) (16,777) (78,203)
-------------- -------------- --------------
NET CASH USED BY FINANCING ACTIVITIES......................... (44,727) (55,550) (132,246)
-------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 11,285 9,336 (340)
CASH AND CASH EQUIVALENTS, beginning of period........................ 10,763 1,427 1,767
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, end of period.............................. $ 22,048 $ 10,763 $ 1,427
============== ============== ==============
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 30, December 31, December 26,
2001 2000 1999
----------------- ----------------- -----------------
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Income taxes.................................... $ 40,147 $ 36,278 $ 29,629
================= ================= =================
Interest........................................ $ 7,728 $ 8,188 $ 10,651
================= ================= =================
Supplemental Disclosures of Noncash Investing and Financing Activities:
We received a $6,000,000 subordinated note in connection with the sale of the
Rio Bravo Cantina restaurants in April 1999 (see Note 3), 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 30, 2001, there were 1,392 Applebee's restaurants.
Franchisees operated 1,082 of these restaurants and 310 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 intercompany profits, transactions and balances.
Fiscal year: Our fiscal year ends on the last Sunday of the calendar year. The
fiscal years ended December 30, 2001, December 31, 2000 and December 26, 1999
contained 52, 53 and 52 weeks, respectively. These fiscal years will be referred
to as 2001, 2000 and 1999, 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 30,
2001, we have classified all short-term investments as available-for-sale.
Financial instruments: Our financial instruments as of December 30, 2001 and
December 31, 2000 consist of cash equivalents, short-term investments and
long-term debt, excluding capitalized lease obligations. We also had interest
rate swaps (see Note 7) as of December 31, 2000. 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. The fair
value of these financial instruments, except interest rate swaps, approximates
the carrying amounts reported in the consolidated balance sheets.
Interest rate swap agreements: Interest rate swaps were not required to be
reflected in the consolidated financial statements at fair value prior to
adoption of Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Effective
January 1, 2001, we adopted the provisions of SFAS No. 133, as amended by SFAS
Nos. 137 and 138, which requires an entity to recognize all derivatives as
either assets or liabilities on the balance sheet. The Statement also requires
changes in the fair value of the derivative instruments to be recorded in either
net earnings or other comprehensive income depending on their intended use. In
1998, we entered into interest rate swap agreements to manage our exposure to
interest rate fluctuations. The swap agreements effectively fixed the underlying
three-month LIBOR interest rate on $75,000,000 of our then-existing senior
credit facilities to rates ranging from 5.91% to 6.05%. The interest rate swaps
met the criteria for hedge accounting under the Statement. We recognized the
differential which we paid or received over the term of the swap agreements as a
component of interest expense. In November 2001, we terminated our interest rate
swap agreements in connection with the refinancing of our prior credit
facilities. The costs relating to the termination of these agreements of
$4,470,000 are reflected in other expense in the consolidated statements of
income. These interest rate swap agreements were the only derivative instruments
held during fiscal year 2001 as defined under SFAS No. 133.
Inventories: We state inventories at the lower of cost, using the first-in,
first-out method, or market.
F-8
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 historical 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 $523,000 in interest costs during 2001, $375,000 during 2000 and
$407,000 during 1999.
Goodwill: Goodwill represents the excess of cost over fair market value of net
assets we have acquired. Through 2001, we amortized goodwill over periods
ranging from 15 to 20 years on a straight-line basis. Beginning in fiscal 2002,
we will cease amortization of our goodwill in accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets" (see "New accounting pronouncements"
below). Accumulated amortization as of December 30, 2001 was $26,864,000, and
accumulated amortization as of December 31, 2000 was $21,563,000.
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 tangible 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 financial
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 30,
2001 was $8,057,000, and as of December 31, 2000, it was $7,557,000.
Franchise revenues: Franchise revenues are deferred until we have performed
substantially all of our obligations as franchisor. Franchise fees, included in
franchise income in the consolidated statements of earnings, totaled $3,800,000
for 2001, $3,652,000 for 2000 and $2,897,000 for 1999.
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 $32,259,000 for 2001, $31,014,000 for 2000 and
$28,340,000 for 1999.
Stock-based compensation: We have adopted the disclosure provisions of 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 12.
F-9
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 equity-based compensation 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 references to the number of shares and per
share amounts of common stock have been restated to reflect the stock split
declared in May 2001 (Note 11). All amounts in the chart, except per share
amounts, are expressed in thousands.
2001 2000 1999
---------------- ---------------- ----------------
Net earnings....................................... $ 64,401 $ 63,161 $ 54,198
================ ================ ================
Basic weighted average shares outstanding.......... 37,008 39,228 42,605
Dilutive effect of stock options and
equity-based compensation...................... 910 219 297
---------------- ---------------- ----------------
Diluted weighted average shares outstanding........ 37,918 39,447 42,902
================ ================ ================
Basic net earnings per common share................ $ 1.74 $ 1.61 $ 1.27
================ ================ ================
Diluted net earnings per common share.............. $ 1.70 $ 1.60 $ 1.26
================ ================ ================
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 112,000 of
these options for 2001, 1,084,000 options for 2000 and 12,000 options for 1999.
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 pronouncements: In July 2001, the Financial Accounting Standards
Board issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill
and Other Intangible Assets." SFAS No. 141 requires that all business
combinations be accounted for using the purchase method of accounting and
requires separate recognition of intangible assets that meet certain criteria.
This Statement applies to all business combinations after June 30, 2001.
SFAS No. 142 requires that an intangible asset that is acquired shall be
initially recognized and measured based on its fair value. This Statement also
provides that goodwill should not be amortized, but shall be tested for
impairment annually, or more frequently if circumstances indicate potential
impairment, through a comparison of fair value to its carrying amount. SFAS No.
142 is effective for us beginning in fiscal 2002. Beginning in fiscal 2002, we
will cease amortization of our goodwill and will perform the required
transitional goodwill impairment test within six months of adoption of SFAS No.
142.
F-10
At the adoption date, we will have unamortized goodwill of approximately
$77,965,000, which will be subject to the transitional provisions of SFAS No.
142. The termination of goodwill amortization is expected to eliminate
approximately $5,300,000 of expense in fiscal 2002, subject to identification of
other intangible assets which would continue to be amortized. We are currently
performing the initial transitional goodwill impairment test which includes
determining whether we have an impairment charge to be recognized. Such a
transitional impairment charge would be recognized as the cumulative effect of a
change in accounting principle in our consolidated financial statements.
During the first quarter of 2002, we are required to assess the useful lives and
residual values of our other intangible assets acquired in purchase business
combinations and make any necessary adjustments. Any intangible assets with
indefinite useful lives will be tested for impairment in accordance with SFAS
No. 142. The adoption of SFAS No. 142 is not expected to have a material impact
on our consolidated financial statements.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment of Long-Lived Assets" which supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and the accounting and reporting provisions of APB No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." SFAS No. 144 retains many of the provisions of SFAS
No. 121, but addresses certain implementation issues associated with that
Statement. We will adopt SFAS No. 144 beginning in fiscal 2002. The adoption of
SFAS No. 144 will not have a material impact on our consolidated financial
statements.
Reclassifications: We have made certain reclassifications to the consolidated
financial statements to conform to the 2001 presentation.
3. 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 SFAS No. 121, 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
F-11
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
4. Receivables
Receivables are comprised of the following (in thousands):
December 30, December 31,
2001 2000
----------------- -----------------
Franchise royalty, advertising and trade receivables............. $ 21,828 $ 17,622
Credit card receivables.......................................... 3,769 3,147
Franchise fee receivables........................................ 183 244
Interest and dividends receivable................................ 34 27
Other............................................................ 1,356 1,857
----------------- -----------------
27,170 22,897
Less allowance for bad debts..................................... 4,343 3,137
----------------- -----------------
$ 22,827 $ 19,760
================= =================
The bad debts provision totaled $1,253,000 for 2001, $1,376,000 for 2000 and
$981,000 for 1999. We had write-offs against the allowance for bad debts of
$47,000 during 2001, $674,000 during 2000 and $111,000 during 1999.
5. Other Assets
Other assets are comprised of the following (in thousands):
December 30, December 31,
2001 2000
----------------- -----------------
Notes receivable................................................. $ 9,240 $ 8,612
Liquor licenses.................................................. 4,426 3,685
Minority investment in unaffiliated company, at cost............. 2,250 2,000
Deferred financing costs, net.................................... 547 2,684
Other............................................................ 4,611 3,456
----------------- -----------------
$ 21,074 $ 20,437
================= =================
6. Property and Equipment
Property and equipment, net is comprised of the following (in thousands):
December 30, December 31,
2001 2000
----------------- ------------------
Land............................................................. $ 67,663 $ 66,468
Buildings and leasehold improvements............................. 260,776 231,299
Furniture and equipment.......................................... 141,756 130,584
Construction in progress......................................... 3,672 3,768
----------------- ------------------
473,867 432,119
Less accumulated depreciation and capitalized
lease amortization............................................ 142,943 117,903
----------------- ------------------
$ 330,924 $ 314,216
================= ==================
F-12
We had property under capitalized leases of $4,055,000 at December 30, 2001 and
December 31, 2000 which is included in buildings and leasehold improvements. We
had accumulated amortization of such property of $1,129,000 at December 30, 2001
and $890,000 at December 31, 2000. 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.
We had depreciation and capitalized lease amortization expense relating to
property and equipment of $31,780,000 for 2001, $30,208,000 for 2000 and
$28,930,000 for 1999. Of these amounts, capitalized lease amortization was
$239,000 during 2001, $243,000 during 2000 and $300,000 during 1999.
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):
2001 2000 1999
------------------ ------------------ -----------------
Minimum rent................................. $ 12,105 $ 10,892 $ 11,780
Contingent rent.............................. 1,054 1,112 1,070
------------------ ------------------ -----------------
$ 13,159 $ 12,004 $ 12,850
================== ================== =================
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 2002) as of December 30, 2001 are as follows (in
thousands):
Capitalized Operating
Leases Leases
------------------ ------------------
2002............................................................. $ 691 $ 14,206
2003............................................................. 715 14,105
2004............................................................. 741 13,173
2005............................................................. 767 12,493
2006............................................................. 794 11,925
Thereafter....................................................... 7,536 104,885
------------------ ------------------
Total minimum lease payments..................................... 11,244 $ 170,787
==================
Less amounts representing interest............................... 7,001
------------------
Present value of minimum lease payments.......................... $ 4,243
==================
F-13
7. Long-Term Debt
Long-term debt, including capitalized lease obligations, is comprised of the
following (in thousands):
December 30, December 31,
2001 2000
---------------- ----------------
Unsecured revolving credit facility; interest at LIBOR plus 1%
or prime rate, due November 2004............................. $ 70,000 $ --
Unsecured senior term loan; interest at LIBOR plus 2.25% or prime
rate plus 1.25%, with semi-annual principal payments;
paid in 2001................................................. -- 83,801
Unsecured revolving credit facility; interest at LIBOR plus
1.125% or prime rate plus 0.125%; paid in 2001............... -- 3,000
Capitalized lease obligations (Note 6)........................... 4,243 4,229
Other............................................................ 325 325
---------------- ----------------
Total long-term debt............................................. 74,568 91,355
Less current portion of long-term debt........................... 43 894
---------------- ----------------
Long-term debt - less current portion............................ $ 74,525 $ 90,461
================ ================
In November 2001, we completed the refinancing of our senior term loan and
working capital facilities. The new bank credit agreement provides for a
$150,000,000 three-year unsecured revolving credit facility, of which
$25,000,000 may be used for the issuance of letters of credit. The proceeds were
used to repay indebtedness related to our prior credit facilities. Our prior
agreement originally provided for $225,000,000 in senior secured credit
facilities which we reduced to $161,500,000 prior to the refinancing.
The new facility bears interest at either the bank's prime rate or LIBOR plus
1%, at our option. We are required to pay a commitment fee of 0.20% on any
unused portion of the facility. The interest rate and commitment fee are subject
to change based upon our leverage ratio.
The new facility is subject to various covenants and restrictions which, among
other things, require the maintenance of stipulated fixed charge, leverage and
indebtedness to capitalization ratios, as defined, and limit additional
indebtedness and capital expenditures in excess of specified amounts. Cash
dividends are limited to $10,000,000 annually. The facility is subject to
standard other terms, conditions, covenants, and fees. We are currently in
compliance with the covenants contained in our new credit agreement.
As a result of the refinancing, we wrote-off the remaining balance of the
deferred financing costs related to our prior agreement and terminated our
interest rate swap agreements. The interest rate swap termination costs of
$4,470,000 are reflected in other expense and the write-off of deferred
financing costs of $1,249,000, net of income taxes of $727,000, has been
recognized as an extraordinary loss in the consolidated statements of income.
As of December 30, 2001, borrowings of $70,000,000 and standby letters of credit
totaling $5,486,000 were outstanding under our $150,000,000 revolving credit
facility. We also have a standby letter of credit for $827,000 outstanding with
another financial institution.
F-14
Maturities of long-term debt, including capitalized lease obligations, for each
of the five fiscal years subsequent to December 30, 2001, ending during the
years indicated, are as follows (in thousands):
2002............................................... $ 43
2003............................................... 377
2004............................................... 70,070
2005............................................... 98
2006............................................... 137
8. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are comprised of the following
(in thousands):
December 30, December 31,
2001 2000
------------------ -----------------
Compensation and related taxes.................................... $ 22,618 $ 16,824
Gift certificates................................................. 18,421 15,488
Sales and use taxes............................................... 4,184 4,187
Insurance......................................................... 8,611 8,445
Rent.............................................................. 4,276 3,609
Other............................................................. 13,441 13,958
------------------ -----------------
$ 71,551 $ 62,511
================== =================
9. Income Taxes
We, along with our subsidiaries, file a consolidated federal income tax return.
The income tax provision consists of the following (in thousands):
2001 2000 1999
--------------- --------------- ---------------
Current provision:
Federal............................................ $ 37,204 $ 31,289 $ 27,019
State.............................................. 5,543 5,370 4,762
Deferred provision (benefit)........................... (4,520) 118 (244)
--------------- --------------- ---------------
Income taxes........................................... $ 38,227 $ 36,777 $ 31,537
=============== =============== ===============
The deferred income tax provision is comprised of the following (in thousands):
2001 2000 1999
--------------- --------------- ----------------
Depreciation........................................... $ (3,201) $ 1,311 $ 1,635
Other.................................................. (1,319) (1,193) (1,879)
--------------- --------------- ----------------
Deferred income tax provision (benefit)................ (4,520) 118 (244)
Deferred income taxes related to change in
unrealized gain on investments..................... (15) (6) (38)
--------------- --------------- ----------------
Net change in deferred income taxes.................... $ (4,535) $ 112 $ (282)
=============== =============== ================
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):
2001 2000 1999
--------------- --------------- ----------------
Federal income tax at statutory rates.................. $ 36,357 $ 34,978 $ 30,007
Increase (decrease) to income tax expense:
State income taxes, net of federal benefit......... 3,188 3,502 3,043
Employment related tax credits..................... (2,582) (2,207) (2,195)
Other.............................................. 1,264 504 682
--------------- --------------- ----------------
Income taxes........................................... $ 38,227 $ 36,777 $ 31,537
=============== =============== ================
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 30, December 31,
2001 2000
----------------- -----------------
Classified as current:
Allowance for bad debts..................................... $ 1,598 $ 1,155
Accrued expenses............................................ 3,328 1,955
Other, net.................................................. 1,776 1,712
----------------- -----------------
Net deferred income tax asset............................... $ 6,702 $ 4,822
================= =================
Classified as non-current:
Depreciation................................................ $ (2,864) $ (5,525)
Franchise deposits.......................................... 557 587
Other, net.................................................. 865 841
----------------- ------------------
Net deferred income tax liability........................... $ (1,442) $ (4,097)
================= ==================
10. Commitments and Contingencies
Litigation, claims and disputes: We are involved in various legal actions
arising in the normal course of business. These matters include, without
limitation, such matters as employment law related claims and disputes with
certain international franchisees regarding disclosures we allegedly made or
omitted. In each instance, we believe that we have meritorious defenses to the
allegations made and we are vigorously defending 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, individually or 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 $2,300,000 was outstanding as of
December 30, 2001. This agreement expired on December 31, 1994 and was not
renewed.
F-16
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 30, 2001, the aggregate amount of these
lease payments totaled approximately $27,800,000. 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 30, 2001, approximately $400,000 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 30, 2001, we would have been required to
make payments totaling approximately $7,800,000. 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 $4,300,000 if such officers had
been terminated as of December 30, 2001.
11. 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.
In February 2001, our Board of Directors authorized the repurchase of up to
$55,000,000 of our common stock through 2001, subject to market conditions and
applicable restrictions imposed by our then-current credit agreement. Including
this authorization, our Board of Directors has approved a total of five plans to
repurchase up to $262,500,000 of our common stock, subject to market conditions,
since 1997. We repurchased 1,909,000 shares of our common stock at an aggregate
cost of $44,987,000 in 2001. Since 1997, we have repurchased 13,214,000 shares
of our common stock at an aggregate cost of $240,470,000 under these
authorizations. In February 2002, our Board of Directors extended the remaining
$20,600,000 of the 2001 authorization through 2002.
On May 10, 2001, we declared a three-for-two stock split, effected in the form
of a 50% stock dividend, to shareholders of record on May 25, 2001, payable on
June 12, 2001. We issued approximately 16,100,000 shares of common stock as a
result of the stock split. All references to the number of shares and per share
amounts of common stock have been restated to reflect the stock split. We have
reclassified an amount equal to the par value of the number of shares issued to
common stock from retained earnings.
12. 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.
F-17
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 5,400,000 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
through 2001 have a term of ten years and are generally exercisable at either
one or 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 originally authorized
the committee to issue up to 499,500 shares. During 2001, our Board of Directors
authorized the committee to grant an additional 600,000 shares under this plan.
Options granted under the 1999 Plan have a term of ten years and are generally
exercisable two or 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. In 2001, the
committee granted performance shares with a three-year performance period. We
recorded compensation expense of $926,000 in 2001, $341,000 in 2000 and
$2,048,000 in 1999 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.
2001 2000 1999
-------------- -------------- -------------
Net earnings, as reported................................ $ 64,401 $ 63,161 $ 54,198
Net earnings, pro forma.................................. $ 61,275 $ 60,422 $ 50,880
Basic net earnings per common share, as reported......... $ 1.74 $ 1.61 $ 1.27
Basic net earnings per common share, pro forma........... $ 1.66 $ 1.54 $ 1.19
Diluted net earnings per common share, as reported....... $ 1.70 $ 1.60 $ 1.26
Diluted net earnings per common share, pro forma......... $ 1.62 $ 1.53 $ 1.19
F-18
The weighted average fair value at date of grant for options granted during
2001, 2000 and 1999 was $11.00, $8.45 and $9.18 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 2001, 2000 and
1999: dividend yield of 0.4%, 0.3% and 0.3%, respectively; expected volatility
of 48.7%, 46.8% and 48.4%, respectively; risk-free interest rate of 4.2%, 5.1%
and 6.4%, respectively; and expected lives of 5.0, 4.9 and 4.9 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 27, 1998............ -- -- 2,736,870 $17.42 426,618 $ 9.40
Granted.................. 124,500 $19.21 569,100 $18.81 -- --
Exercised................. -- -- (231,958) $17.41 (226,027) $ 8.76
Canceled.................. -- -- (46,713) $16.46 (341) $ 4.98
-------------- ---------------- -------------
Options outstanding at
December 26, 1999............ 124,500 $19.21 3,027,299 $17.54 200,250 $10.12
Granted.................. 163,500 $18.33 536,250 $18.66 -- --
Exercised................. -- -- (310,194) $17.66 (35,850) $12.69
Canceled.................. (36,750) $18.80 (336,998) $17.12 -- --
-------------- ---------------- -------------
Options outstanding at
December 31, 2000............ 251,250 $18.71 2,916,357 $17.95 164,400 $ 9.58
Granted.................. 538,250 $23.97 830,465 $23.63 -- --
Exercised................. -- -- (1,095,809) $17.90 (113,850) $ 9.74
Canceled.................. (55,300) $20.95 (179,816) $17.82 (750) $ 9.05
-------------- ---------------- -------------
Options outstanding at
December 30, 2001............ 734,200 $22.40 2,471,197 $19.90 49,800 $ 9.21
============== ================ =============
Options exercisable at
December 30, 2001............ -- -- 661,790 $18.47 49,800 $ 9.21
============== =============== =============
Options available for grant at
December 30, 2001............ 365,300 1,004,617 --
============== ================ =============
F-19
The following table summarizes information relating to fixed-priced stock
options outstanding for all three plans at December 30, 2001:
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:
$ 9.20 to $ 9.22 49,800 2.6 years $ 9.21 49,800 $ 9.21
=============== ===============
1995 Plan:
$ 12.53 to $ 15.67 215,796 6.6 years $ 13.81 32,051 $ 13.94
$ 16.62 to $ 17.80 153,264 6.2 years $ 16.78 80,110 $ 16.81
$ 18.45 to $ 19.50 1,213,173 6.3 years $ 18.74 517,928 $ 18.80
$ 20.16 to $ 23.96 748,964 9.1 years $ 21.94 31,701 $ 21.82
$ 30.30 to $ 31.91 140,000 9.6 years $ 31.74 -- --
--------------- ---------------
$ 12.53 to $ 31.91 2,471,197 7.4 years $ 19.90 661,790 $ 18.47
=============== ===============
1999 Plan:
$ 14.78 to $ 16.71 18,000 8.5 years $ 15.69 -- --
$ 18.45 to $ 22.75 579,675 8.7 years $ 20.89 -- --
$ 23.95 to $ 36.13 136,525 9.6 years $ 29.69 -- --
--------------- ---------------
$ 14.78 to $ 36.13 734,200 8.8 years $ 22.40 -- --
=============== ===============
Restricted stock awards: During 1999 and 2001, the committee granted restricted
stock awards to certain officers and key employees. These awards vest over
either a two-year or 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
sheets. We are amortizing unearned compensation ratably to expense over the
vesting period. Accordingly, we recognized compensation expense of $326,000,
$350,000 and $388,000 in 2001, 2000 and 1999, 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. We make
matching contributions of 50% of employee contributions not to exceed 4.0% of an
employee's compensation in any year. We make our contributions in shares of our
common stock. Our contributions vest at the rate of 20% after the employee's
second year of service, 60% after three years of service, 80% after four years
of service and 100% after five years of service. During 1994, we established a
non-qualified defined contribution retirement plan for key employees. Our
contributions under both plans were $1,441,000 in 2001, $1,170,000 in 2000 and
$965,000 in 1999.
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 allowed
employees to purchase shares of our common stock at a 10% discount through
payroll deductions through 2000. In 2001, the plan was amended to increase the
discount to 15%. The number of common shares authorized pursuant to the plan was
originally 300,000. In 2001, the Board authorized an additional 300,000 common
shares, subject to approval at the 2002 Annual Meeting of Stockholders.
Employees purchased 62,540 shares under this plan during 2001, 69,730 during
2000 and 66,449 shares during 1999.
F-20
Employee stock ownership plan: Our Board of Directors approved an employee stock
ownership plan in January 1997. We contributed to this plan completely at our
discretion. Our contributions to the plan were $200,000 for 2000 and $400,000
for 1999 and were made in shares of our common stock. During 2001, we terminated
the employee stock ownership plan and did not make any contributions to the
plan. The assets of this plan were transferred to the 401(k) plan.
13. Related Party Transactions
We have a policy which allows us to loan executives money to be used to invest
in our stock to meet guidelines which require executives to own certain amounts
of our stock. In accordance with these policies, we had loans of $615,000
outstanding to three officers at December 30, 2001 and $967,000 outstanding to
four officers at December 31, 2000. These loans had interest rates ranging from
4.7% to 6.8% and are collateralized by the stock. These loans are reflected as a
reduction to additional paid-in capital in our consolidated balance sheets.
As of December 30, 2001, we had a loan outstanding to one officer for moving
related assistance in the amount of $310,000. The loan has an interest rate of
5% and is due in August of 2002.
We had pricing agreements in the normal course of business 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
14. Quarterly Results of Operations (Unaudited)
The following presents the unaudited consolidated quarterly results of
operations for 2001 and 2000. During the fourth quarter of 2001, we incurred
costs relating to the termination of interest rate swap agreements of
$4,470,000, which are reflected in other expense, and recognized an
extraordinary loss of $1,249,000, net of income taxes of $727,000, due to the
write-off of previously deferred financing costs relating to the refinancing of
our prior credit facilities. All amounts, except per share amounts, are
expressed in thousands.
2001
---------------------------------------------------------------
Fiscal Quarter Ended
---------------------------------------------------------------
April 1, July 1, September 30, December 30,
2001 2001 2001 2001
------------- ------------- ------------- -------------
Revenues:
Company restaurant sales....................... $160,143 $162,035 $164,238 $164,703
Franchise income............................... 22,234 23,885 23,787 23,319
------------- ------------- ------------- -------------
Total operating revenues.................... 182,377 185,920 188,025 188,022
------------- ------------- ------------- -------------
Cost of company restaurant sales:
Food and beverage.............................. 43,305 43,633 44,489 44,550
Labor.......................................... 50,900 51,533 52,864 53,699
Direct and occupancy........................... 40,759 41,104 41,459 41,643
Pre-opening expense............................ 135 132 632 802
------------- ------------- ------------- -------------
Total cost of company restaurant sales...... 135,099 136,402 139,444 140,694
------------- ------------- ------------- -------------
General and administrative expenses................. 17,166 18,085 19,197 18,487
Amortization of intangible assets................... 1,463 1,462 1,463 1,463
Loss on disposition of restaurants and equipment 187 571 329 405
------------- ------------- ------------- -------------
Operating earnings.................................. 28,462 29,400 27,592 26,973
------------- ------------- ------------- -------------
Other income (expense):
Investment income.............................. 357 415 479 399
Interest expense............................... (2,357) (2,043) (1,831) (1,225)
Other income (expense)......................... 90 385 322 (3,541)
------------- ------------- ------------- -------------
Total other expense......................... (1,910) (1,243) (1,030) (4,367)
------------- ------------- ------------- -------------
Earnings before income taxes and extraordinary item. 26,552 28,157 26,562 22,606
Income taxes........................................ 9,771 10,361 9,776 8,319
------------- ------------- ------------- -------------
Earnings before extraordinary item.................. 16,781 17,796 16,786 14,287
Extraordinary loss from early extinguishment
of debt, net of income taxes................... -- -- -- (1,249)
------------- ------------- ------------- -------------
Net earnings........................................ $ 16,781 $ 17,796 $ 16,786 $ 13,038
============= ============= ============= =============
Basic earnings per common share:
Basic earnings before extraordinary item....... $ 0.45 $ 0.48 $ 0.45 $ 0.38
Extraordinary item............................. -- -- -- (0.03)
------------- ------------- ------------- -------------
Basic net earnings per common share................. $ 0.45 $ 0.48 $ 0.45 $ 0.35
============= ============= ============= =============
Diluted earnings per common share:
Diluted earnings before extraordinary item..... $ 0.45 $ 0.47 $ 0.44 $ 0.37
Extraordinary item............................. -- -- -- (0.03)
------------- ------------- ------------- -------------
Diluted net earnings per common share............... $ 0.45 $ 0.47 $ 0.44 $ 0.34
============= ============= ============= =============
Basic weighted average shares outstanding........... 37,116 36,914 36,911 37,091
============= ============= ============= =============
Diluted weighted average shares outstanding......... 37,628 37,872 37,880 38,109
============= ============= ============= =============
F-22
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................. $ 0.37 $ 0.42 $ 0.40 $ 0.42
============= ============= ============= =============
Diluted net earnings per common share............... $ 0.37 $ 0.41 $ 0.40 $ 0.42
============= ============= ============= =============
Basic weighted average shares outstanding........... 40,005 40,035 39,147 37,832
============= ============= ============= =============
Diluted weighted average shares outstanding......... 40,182 40,550 39,281 38,076
============= ============= ============= =============
-----------------------------
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 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).
10.2 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).
10.3 Form of Applebee's Development Agreement (incorporated by
reference to Exhibit 10.4 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 and
Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended July 1, 2001).
10.4 Form of Applebee's Franchise Agreement (incorporated by
reference to Exhibit 10.5 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 and
Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended July 1, 2001).
10.5 Schedule of Applebee's Development and Franchise Agreements as
of December 30, 2001.
10.6 Revolving Credit Agreement dated as of November 5, 2001.
E-1
Exhibit
Number Description of Exhibit
- --------------- ---------------------------------------------------------------
Management Contracts and Compensatory Plans or Arrangements
10.7 1995 Equity Incentive Plan, as amended.
10.8 Employee Stock Purchase Plan, as amended (incorporated by
reference to Exhibit 10.10 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 and
Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 2001).
10.9 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).
10.10 Nonqualified Deferred Compensation Plan (incorporated by
reference to Exhibit 10.12 of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000).
10.11 1999 Employee Incentive Plan, as amended.
10.12 2001 Senior Executive Bonus Plan.
10.13 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).
10.14 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).
10.15 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).
10.16 Agreement Regarding Employment (incorporated by reference to
Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 2001).
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 Previous 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.
10.21 New 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 July 1, 2001) 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 30 of the Form 10-K).
E-3