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EX-32.1 - EX-32.1 - DineEquity, Inca11-9434_1ex32d1.htm
EX-31.2 - EX-31.2 - DineEquity, Inca11-9434_1ex31d2.htm

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q

 

(Mark One)

 

x

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

 

For the quarterly period ended March 31, 2011

 

OR

 

o

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

 

For the transition period from                   to                   

 

Commission File Number 001-15283

 


 

DineEquity, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

95-3038279

(State or other jurisdiction of incorporation or

 

(I.R.S. Employer Identification No.)

organization)

 

 

 

 

 

450 North Brand Boulevard,

 

 

Glendale, California

 

91203-1903

(Address of principal executive offices)

 

(Zip Code)

 

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

 


 

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

 

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

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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

 

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

 

Class

 

Outstanding as of April 29, 2011

Common Stock, $.01 par value

 

18,524,781

 

 

 



Table of Contents

 

DINEEQUITY, INC. AND SUBSIDIARIES

 

INDEX

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

Item 1—Financial Statements

 

2

 

 

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

 

2

 

 

Consolidated Statements of Income (unaudited)—Three Months Ended March 31, 2011 and 2010

 

3

 

 

Consolidated Statements of Cash Flows (unaudited)—Three Months Ended March 31, 2011 and 2010

 

4

 

 

Notes to Consolidated Financial Statements

 

5

 

 

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

 

20

 

 

Item 3—Quantitative and Qualitative Disclosures about Market Risk

 

34

 

 

Item 4—Controls and Procedures

 

34

PART II.

 

OTHER INFORMATION

 

35

 

 

Item 1—Legal Proceedings

 

35

 

 

Item 1A—Risk Factors

 

35

 

 

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

 

35

 

 

Item 3—Defaults Upon Senior Securities

 

35

 

 

Item 4—(Removed and Reserved)

 

36

 

 

Item 5—Other Information

 

36

 

 

Item 6—Exhibits

 

36

 

 

Signatures

 

37

 

1



Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

DINEEQUITY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

 

 

 

March 31, 2011

 

December 31, 2010

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

50,360

 

$

102,309

 

Restricted cash

 

3,975

 

854

 

Receivables, net

 

73,929

 

98,776

 

Inventories

 

9,895

 

10,757

 

Prepaid income taxes

 

1,924

 

34,094

 

Prepaid gift cards

 

22,360

 

27,465

 

Prepaid expenses

 

13,958

 

14,602

 

Deferred income taxes

 

27,128

 

24,301

 

Assets held for sale

 

7,025

 

37,944

 

Total current assets

 

210,554

 

351,102

 

Non-current restricted cash

 

49

 

778

 

Restricted assets related to captive insurance subsidiary

 

3,970

 

3,562

 

Long-term receivables

 

238,002

 

239,945

 

Property and equipment, net

 

568,913

 

612,175

 

Goodwill

 

697,470

 

697,470

 

Other intangible assets, net

 

832,476

 

835,879

 

Other assets, net

 

114,665

 

115,730

 

Total assets

 

$

2,666,099

 

$

2,856,641

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

$

7,420

 

$

9,000

 

Accounts payable

 

35,894

 

32,724

 

Accrued employee compensation and benefits

 

20,598

 

32,846

 

Gift card liability

 

77,974

 

124,972

 

Accrued interest payable

 

34,711

 

17,482

 

Current maturities of capital lease and financing obligations

 

15,794

 

16,556

 

Other accrued expenses

 

30,070

 

31,502

 

Total current liabilities

 

222,461

 

265,082

 

Long-term debt, less current maturities

 

1,485,929

 

1,631,469

 

Financing obligations, less current maturities

 

204,561

 

237,826

 

Capital lease obligations, less current maturities

 

141,703

 

144,016

 

Deferred income taxes

 

374,621

 

375,697

 

Other liabilities

 

114,435

 

118,972

 

Total liabilities

 

2,543,710

 

2,773,062

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

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

 

42,564

 

42,055

 

Common stock, $.01 par value, 40,000,000 shares authorized; March 31, 2011: 24,736,019 shares issued and 18,536,111 shares outstanding; December 31, 2010: 24,382,991 shares issued and 18,183,083 shares outstanding

 

247

 

243

 

Additional paid-in-capital

 

201,420

 

192,214

 

Retained earnings

 

153,320

 

124,250

 

Accumulated other comprehensive loss

 

(261

)

(282

)

Treasury stock, at cost (March 31, 2011 and December 31, 2010: 6,199,908 shares)

 

(274,901

)

(274,901

)

Total stockholders’ equity

 

122,389

 

83,579

 

Total liabilities and stockholders’ equity

 

$

2,666,099

 

$

2,856,641

 

 

See the accompanying Notes to Consolidated Financial Statements.

 

2



Table of Contents

 

DINEEQUITY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2011

 

2010

 

Segment Revenues:

 

 

 

 

 

Franchise revenues

 

$

104,552

 

$

95,367

 

Company restaurant sales

 

154,703

 

224,615

 

Rental revenues

 

32,216

 

33,932

 

Financing revenues

 

8,729

 

4,150

 

Total segment revenues

 

300,200

 

358,064

 

Segment Expenses:

 

 

 

 

 

Franchise expenses

 

27,443

 

24,838

 

Company restaurant expenses

 

131,766

 

192,557

 

Rental expenses

 

24,647

 

25,064

 

Financing expenses

 

5,575

 

469

 

Total segment expenses

 

189,431

 

242,928

 

Gross segment profit

 

110,769

 

115,136

 

General and administrative expenses

 

37,969

 

40,366

 

Interest expense

 

36,306

 

45,048

 

Impairment and closure costs

 

4,938

 

711

 

Debt modification costs

 

4,114

 

 

Amortization of intangible assets

 

3,075

 

3,077

 

Loss (gain) on extinguishment of debt

 

6,946

 

(3,585

)

Gain on disposition of assets

 

(23,754

)

(253

)

Income before income taxes

 

41,175

 

29,772

 

Provision for income taxes

 

(11,476

)

(10,101

)

Net income

 

$

29,699

 

$

19,671

 

 

 

 

 

 

 

Net income available to common stockholders

 

 

 

 

 

Net income

 

$

29,699

 

$

19,671

 

Less: Series A preferred stock dividends

 

 

(5,760

)

Less: Accretion of Series B preferred stock

 

(629

)

(595

)

Less: Net income allocated to unvested participating restricted stock

 

(1,014

)

(509

)

Net income available to common stockholders

 

$

28,056

 

$

12,807

 

Net income available to common stockholders per share

 

 

 

 

 

Basic

 

$

1.59

 

$

0.75

 

Diluted

 

$

1.53

 

$

0.75

 

Weighted average shares outstanding

 

 

 

 

 

Basic

 

17,697

 

17,011

 

Diluted

 

18,763

 

17,972

 

 

See the accompanying Notes to Consolidated Financial Statements.

 

3



Table of Contents

 

DINEEQUITY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2011

 

2010

 

Cash flows from operating activities

 

 

 

 

 

Net income

 

$

29,699

 

$

19,671

 

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

 

 

 

 

 

Depreciation and amortization

 

13,290

 

16,156

 

Non-cash interest expense

 

1,417

 

10,371

 

Loss (gain) on extinguishment of debt

 

6,946

 

(3,585

)

Impairment and closure charges

 

4,717

 

509

 

Debt modification costs

 

4,114

 

 

Deferred income taxes

 

(3,903

)

(7,009

)

Non-cash stock-based compensation expense

 

1,863

 

3,956

 

Tax benefit from stock-based compensation

 

5,121

 

1,035

 

Excess tax benefit from stock options exercised

 

(4,866

)

(1,792

)

Gain on disposition of assets

 

(23,754

)

(253

)

Other

 

(3,753

)

(287

)

Changes in operating assets and liabilities

 

 

 

 

 

Receivables

 

24,636

 

26,008

 

Inventories

 

(378

)

3

 

Prepaid expenses

 

5,567

 

1,500

 

Current income tax receivables and payables

 

32,194

 

14,525

 

Accounts payable

 

1,358

 

(1,147

)

Accrued employee compensation and benefits

 

(12,249

)

(9,031

)

Gift card liability

 

(46,998

)

(40,171

)

Other accrued expenses

 

15,455

 

(189

)

Cash flows provided by operating activities

 

50,476

 

30,270

 

Cash flows from investing activities

 

 

 

 

 

Additions to property and equipment

 

(3,835

)

(2,649

)

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

 

54,597

 

2,784

 

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

 

3,395

 

6,753

 

Other

 

(128

)

655

 

Cash flows provided by investing activities

 

54,029

 

7,543

 

Cash flows from financing activities

 

 

 

 

 

Repayment of long-term debt

 

(145,273

)

(50,100

)

Principal payments on capital lease and financing obligations

 

(3,553

)

(3,791

)

Dividends paid

 

 

(5,700

)

Payment of debt modification and issuance costs

 

(12,208

)

 

Repurchase of restricted stock

 

(3,272

)

(577

)

Proceeds from stock options exercised

 

5,378

 

1,275

 

Excess tax benefit from stock options exercised

 

4,866

 

1,792

 

Change in restricted cash

 

(2,392

)

5,479

 

Other

 

 

(46

)

Cash flows used in financing activities

 

(156,454

)

(51,668

)

Net change in cash and cash equivalents

 

(51,949

)

(13,855

)

Cash and cash equivalents at beginning of period

 

102,309

 

82,314

 

Cash and cash equivalents at end of period

 

$

50,360

 

$

68,459

 

Supplemental disclosures

 

 

 

 

 

Interest paid

 

$

22,292

 

$

38,942

 

Income taxes paid

 

$

1,276

 

$

2,726

 

 

See the accompanying Notes to Consolidated Financial Statements.

 

4



Table of Contents

 

DINEEQUITY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. General

 

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

 

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

 

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

 

2. Basis of Presentation

 

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

 

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

 

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

 

Subsequent events

 

The Company has evaluated the period after the balance sheet date through the date the consolidated financial statements were issued and determined there were no subsequent events or transactions that required recognition or disclosure in the consolidated financial statements other than the items described in Note 16, Subsequent Events.

 

Reclassifications

 

Certain reclassifications have been made to prior year information to conform to the current year presentation. These reclassifications had no effect on the net income or financial position previously reported.

 

The following items previously reported as “other expense (income), net” for the three months ended March 31, 2010 have been reclassified as follows:

 

 

 

(In thousands)

 

Total other expense, as reported

 

$

1,498

 

Reclassified to:

 

 

 

Rental expenses

 

$

664

 

Impairment and closure costs

 

711

 

General and administrative expenses

 

181

 

Interest expense

 

170

 

Franchise revenue

 

(91

)

Gain on disposition of assets

 

(67

)

Other line items

 

(70

)

Total reclassified

 

$

1,498

 

 

5



Table of Contents

 

3. Accounting Policies

 

Recently Adopted Accounting Standards

 

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, ‘‘Improving Disclosures About Fair Value Measurement’’ (‘‘ASU 2010-06’’). On January 1, 2011, the Company adopted the provisions of ASU 2010-06 that required disclosures about purchases, sales, issuances, and settlements to be presented on a gross basis in the reconciliation of Level 3 fair value measurements. As these provisions amended only the disclosure requirements for fair value measurements, the adoption did not have any impact on the Company’s balance sheets, statements of operations or statements of cash flows.

 

In July 2010, the FASB issued ASU 2010-20, ‘‘Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses’’ (“ASU 2010-20”). On January 1, 2011, the Company adopted the provisions of ASU 2010-20 that amend disclosure requirements about activity that occurs during a reporting period with respect to the credit quality of financing receivables and the related allowance for credit losses. As these provisions only amended disclosure requirements, not current accounting practice, adoption of this ASU did not have any impact on the Company’s balance sheets, statements of operations or statements of cash flows.

 

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

 

4. Assets Held for Sale

 

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

 

During the three months ended March 31, 2011, 36 Applebee’s company-operated restaurants in the St. Louis market area of Missouri, 29 Applebee’s company-operated restaurants in the Washington, D.C. area and one parcel of land on which an Applebee’s franchised restaurant is situated were sold and the IHOP restaurant was refranchised. The balance of assets held for sale at March 31, 2011 of $7.0 million was comprised of two parcels of land on which Applebee’s franchised restaurants are situated, three parcels of land previously acquired and held for future development and assets of one Applebee’s company-operated restaurant in the Washington, D.C. area.

 

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

 

 

 

(In millions)

 

Balance December 31, 2010

 

$

37.9

 

Assets sold

 

(30.6

)

Assets refranchised

 

(0.3

)

Balance March 31, 2011

 

$

7.0

 

 

6



Table of Contents

 

5. Long-Term Debt

 

Long-term debt consists of the following components:

 

 

 

March 31,
2011

 

December 31,
2010

 

 

 

(In millions)

 

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

 

$

734.0

 

$

844.0

 

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

 

792.7

 

825.0

 

Discount

 

(33.4

)

(28.5

)

Total debt

 

1,493.3

 

1,640.5

 

Less current maturities

 

(7.4

)

(9.0

)

Long-term debt

 

$

1,485.9

 

$

1,631.5

 

 

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

 

Amendment of Credit Agreement

 

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

 

The Company paid $12.3 million in fees and costs related to the Amendment, of which $7.4 million in fees paid to lenders was recorded as additional discount on debt and $0.8 million of costs related to the increase in the Revolving Credit Facility was recorded as deferred financing costs. Fees paid to third parties of $4.1 million were recorded as “Debt modification costs” in the Consolidated Statements of Income for the three months ended March 31, 2011.

 

Loss (Gain) on Extinguishment of Debt

 

During the quarter ended March 31, 2011, the Company repurchased $32.3 million of its 9.5% Senior Notes due October 2018 (the “Senior Notes”) for a cash payment of $35.3 million, inclusive of a premium of $3.0 million. The Company also repaid $110.0 million of Term Loans at face value. Including write-off of the discount and deferred financing costs related to the debt extinguished, the Company recognized a loss on the extinguishment of debt of $6.9 million.

 

During the quarter ended March 31, 2010, the Company retired $48.7 million of its Class A-2-II-X Fixed Rate Senior Term Notes then outstanding for a cash payment of $43.8 million. The Company recognized a gain on the early retirement of debt of $3.6 million, including write-off of the discount and deferred financing costs related to the retired debt.

 

Quarter 
Ended

 

Instrument

 

Face Amount
Retired/Repaid

 

Cash Paid

 

Loss (Gain)(1)

 

 

 

 

 

(In millions)

 

March 2011

 

Term Loans

 

$

110.0

 

$

110.0

 

$

2.7

 

March 2011

 

Senior Notes

 

32.3

 

35.3

 

4.2

 

Total

 

 

 

$

142.3

 

$

145.3

 

$

6.9

 

 

 

 

 

 

 

 

 

 

 

March 2010

 

Class A-2-II-X Notes

 

$

48.7

 

$

43.8

 

$

(3.6

)

 


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

 

7



Table of Contents

 

Compliance with Covenants and Restrictions

 

The Company was in compliance with all the covenants and restrictions related to its Credit Facility and Senior Notes as of March 31, 2011.

 

6. Financing Obligations

 

As of March 31, 2011, future minimum lease payments under financing obligations during the initial terms of the leases related to sale-leaseback transactions are as follows:

 

Fiscal Years

 

(In millions)

 

Remainder of 2011

 

$

16.6

 

2012(1)

 

20.7

 

2013

 

22.9

 

2014

 

23.1

 

2015

 

23.1

 

Thereafter

 

273.9

 

Total minimum lease payments

 

380.3

 

Less interest

 

(168.8

)

Total financing obligations

 

211.5

 

Less current portion(2)

 

(6.9

)

Long-term financing obligations

 

$

204.6

 

 


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

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

 

During the quarter ended March 31, 2011, the Company’s continuing involvement with 20 properties subject to financing obligations was ended by assignment of the lease obligations to a qualified franchisee. As a result, the Company’s financing obligations were reduced by $32.7 million.

 

7. Impairment and Closure Charges

 

The Company assesses tangible long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The following table summarizes the components of impairment and closure charges for the three-month periods ended March 31, 2011 and 2010:

 

 

 

Three Months Ended
March 31,

 

 

 

2011

 

2010

 

 

 

(In millions)

 

Impairment and closure charges:

 

 

 

 

 

Impairment

 

$

4.5

 

$

0.3

 

Closure

 

0.4

 

0.4

 

Total impairment and closure charges

 

$

4.9

 

$

0.7

 

 

Impairment charges for the three months ended March 31, 2011, related to furniture, fixtures and leasehold improvements at the Applebee’s Restaurant Support Center in Lenexa, Kansas, whose book value is not realizable as the result of the termination of the Company’s sublease of the premises (See Note 17, Subsequent Events).

 

Impairment and closure charges for the three months ended March 31, 2010 primarily related to closure of the Applebee’s company-operated restaurant in China and the write-off of costs related to a prior remodeling program, partially offset by the downward revision of estimates of closure costs previously recorded.

 

8. Income Taxes

 

The effective tax rate was 27.9% for the three-month period ended March 31, 2011. The effective tax rate is lower than the federal statutory rate of 35% due to tax credits and the release of liabilities for unrecognized tax benefits, which were partially offset by state income taxes. The tax credits are primarily FICA tip and other compensation-related tax credits associated with Applebee’s company-owned restaurant operations.

 

8



Table of Contents

 

8. Income Taxes, continued

 

At March 31, 2011, the Company had a liability for unrecognized tax benefits, including potential interest and penalties net of related tax benefit, totaling $10.8 million, of which approximately $1.7 million is expected to be paid within one year. For the remaining liability, due to the uncertainties related to these tax matters, the Company is unable to make a reasonably reliable estimate when cash settlements with taxing authorities will occur.

 

As of March 31, 2011, accrued interest and penalties were $4.1 million and $0.5 million, respectively, excluding any related income tax benefits. As of December 31, 2010, accrued interest and penalties were $8.9 million and $0.5 million, respectively, excluding any related income tax benefits. The decrease of $4.8 million of accrued interest is primarily related to the release of liabilities for unrecognized tax benefits surrounding gift card income deferral as a result of the issuance of new guidance by the U.S. Internal Revenue Service, partially offset by the accrual of interest on the remaining liability for unrecognized tax benefits during the three months ended March 31, 2011. The Company recognizes interest accrued related to unrecognized tax benefits and penalties as a component of income tax expense which is recognized in the Consolidated Statements of Income.

 

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

 

9. Stock-Based Compensation

 

From time to time, the Company grants stock options and restricted stock to officers and employees of the Company under the IHOP Corp. 2001 Stock Incentive Plan, as amended and restated (the “2001 Plan”) and restricted stock or restricted stock units to non-employee directors of the Company under the DineEquity, Inc. Amended and Restated 2005 Stock Incentive Plan for Non-Employee Directors (the “2005 Plan”). The stock options generally vest over a three-year period and have a term of ten years from the issuance date. Option exercise prices equal the closing price of the Company’s common stock on the New York Stock Exchange on the date of grant. Restricted stock and restricted stock units are issued at no cost to the holder and vest over terms determined by the Compensation Committee of the Company’s Board of Directors, generally three years. Restricted stock granted to officers and employees generally vests only if the officer or employee is actively employed by the Company on the vesting date, and unvested restricted stock is forfeited upon either termination, retirement before age 65, death or disability, unless the Compensation Committee of the Company’s Board of Directors determines otherwise. When vested options are exercised and restricted stock is issued, the Company generally issues shares of common stock from its authorized but unissued share pool or utilizes treasury stock. The Company currently intends to utilize treasury stock for future issuances of shares pursuant to equity compensation plans.

 

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

 

 

 

Three Months Ended
March 31,

 

 

 

2011

 

2010

 

 

 

(In millions)

 

Pre-tax compensation expense

 

$

3.1

 

$

4.9

 

Tax provision

 

(1.2

)

(2.0

)

Total stock-based compensation expense, net of tax

 

$

1.9

 

$

2.9

 

 

As of March 31, 2011, $8.6 million and $10.3 million (including estimated forfeitures) of total unrecognized compensation cost related to restricted stock and stock options, respectively, is expected to be recognized over a weighted average period of 1.65 years for restricted stock and 1.78 years for stock options.

 

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

 

Risk-free interest rate

 

2.12

%

Weighted average historical volatility

 

82.5

%

Dividend yield

 

 

Expected years until exercise

 

4.85

 

Forfeitures

 

11.0

%

Weighted average fair value of options granted

 

$

37.16

 

 

9



Table of Contents

 

9. Stock-Based Compensation, continued

 

Option balances as of March 31, 2011 and activity related to the Company’s stock options during the three-month period then ended were as follows:

 

 

 

Shares

 

Weighted
Average
Exercise
Price

 

Weighted Average
Remaining
Contractual Term
(in Years)

 

Aggregate
Intrinsic
Value

 

Outstanding at December 31, 2010

 

1,523,710

 

$

24.90

 

 

 

 

 

Granted

 

166,949

 

$

56.76

 

 

 

 

 

Exercised

 

(321,103

)

$

16.75

 

 

 

 

 

Forfeited

 

(6,581

)

$

18.26

 

 

 

 

 

Outstanding at March 31, 2011

 

1,362,975

 

$

30.75

 

7.41

 

$

32,969,000

 

Vested at March 31, 2011 and Expected to Vest

 

1,170,111

 

$

31.56

 

7.21

 

$

27,338,000

 

Exercisable at March 31, 2011

 

591,350

 

$

33.72

 

5.63

 

$

12,404,000

 

 

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price of the Company’s common stock on the last trading day of the first quarter of 2011 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2011. The amount of aggregate intrinsic value will change based on the fair market value of the Company’s common stock and the number of in-the-money options.

 

A summary of restricted stock activity for the three months ended March 31, 2011 is presented below:

 

 

 

Restricted
Stock

 

Weighted
Average
Grant Date
Fair Value

 

Restricted
Stock Units

 

Weighted
Average
Grant Date
Fair Value

 

Outstanding at December 31, 2010

 

666,244

 

$

28.62

 

18,000

 

$

29.32

 

Granted

 

99,874

 

$

57.13

 

 

 

Released

 

(178,420

)

$

41.14

 

 

 

Forfeited

 

(12,834

)

$

24.83

 

 

 

Outstanding at March 31, 2011

 

574,864

 

$

29.79

 

18,000

 

$

29.32

 

 

The Company has issued 44,957 shares of cash-settled restricted stock units to members of the Board of Directors, of which 41,957 are outstanding at March 31, 2011. As these instruments can only be settled in cash, they are recorded as liabilities based on the closing price of the Company’s common stock as of March 31, 2011. For the three months ended March 31, 2011 and 2010, $0.8 million and $0.9 million, respectively, were included as pre-tax stock-based compensation expense for the cash-settled restricted stock units.

 

10. Segments

 

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

 

As of March 31, 2011, the franchise operations segment consisted of (i) 1,767 restaurants operated by Applebee’s franchisees in the United States, one U.S. territory and 16 countries outside the United States; and (ii) 1,503 restaurants operated by IHOP franchisees and area licensees in the United States, two U.S. territories and three countries outside the United States. Franchise operations revenue consists primarily of franchise royalty revenues, sales of proprietary products, certain franchise advertising fees and the portion of the franchise fees allocated to intellectual property.  Franchise operations expenses include advertising expense, the cost of proprietary products, pre-opening training expenses and costs related to intellectual property provided to certain franchisees.

 

As of March 31, 2011, the company restaurant operations segment consisted of 244 company-operated Applebee’s restaurants and ten company-operated IHOP restaurants, all in the United States. Company restaurant sales are retail sales at company-operated restaurants. Company restaurant expenses are operating expenses at company-operated restaurants and include food, labor, benefits, utilities, rent and other restaurant operating costs.

 

10



Table of Contents

 

10. Segments, continued

 

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

 

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

 

Information on segments is as follows:

 

 

 

For the Three Months Ended
March 31,

 

 

 

2011

 

2010

 

 

 

(In millions)

 

Revenues from External Customers

 

 

 

 

 

Franchise operations

 

$

104.6

 

$

95.4

 

Company restaurants

 

154.7

 

224.6

 

Rental operations

 

32.2

 

33.9

 

Financing operations

 

8.7

 

4.2

 

Total

 

$

300.2

 

$

358.1

 

Interest Expense

 

 

 

 

 

Company restaurants

 

$

0.2

 

$

0.2

 

Rental operations

 

4.6

 

4.8

 

Financing operations

 

 

 

Corporate

 

36.3

 

45.0

 

Total

 

$

41.1

 

$

50.0

 

Depreciation and amortization

 

 

 

 

 

Franchise operations

 

$

2.5

 

$

2.5

 

Company restaurants

 

4.9

 

7.5

 

Rental operations

 

3.5

 

3.5

 

Corporate

 

2.4

 

2.7

 

Total

 

$

13.3

 

$

16.2

 

Income (loss) before income taxes

 

 

 

 

 

Franchise operations

 

$

77.1

 

$

70.5

 

Company restaurants

 

22.9

 

32.0

 

Rental operations

 

7.6

 

8.9

 

Financing operations

 

3.1

 

3.7

 

Corporate

 

(69.5

)

(85.3

)

Total

 

$

41.2

 

$

29.8

 

 

11. Other Comprehensive Income

 

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

 

 

 

Three Months Ended
March 31,

 

 

 

2011

 

2010

 

 

 

(In millions)

 

Net income

 

$

29.7

 

$

19.7

 

Other comprehensive income, net of tax:

 

 

 

 

 

Interest rate swap

 

 

2.2

 

Total comprehensive income

 

$

29.7

 

$

21.9

 

 

The amount of income tax benefit allocated to the interest rate swap was $1.5 million for the three months ended March 31, 2010. The loss related to an interest rate swap designated as a cash flow hedge that was being reclassified into earnings as interest expense over the expected life of the related debt, which was estimated to be approximately five years. The entire amount of loss remaining at the time of retirement of the related designated debt was reclassified into earnings in October 2010.

 

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

 

11



Table of Contents

 

12. Net Income per Share

 

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

 

 

 

Three Months Ended March 31,

 

 

 

2011

 

2010

 

 

 

(In thousands, except
per share data)

 

Numerator for basic and dilutive income—per common share:

 

 

 

 

 

Net income

 

$

29,699

 

$

19,671

 

Less: Series A Preferred Stock dividends

 

 

(5,760

)

Less: Accretion of Series B Preferred Stock

 

(629

)

(595

)

Less: Net income allocated to unvested participating restricted stock

 

(1,014

)

(509

)

Net income available to common stockholders— basic

 

28,056

 

12,807

 

Effect of unvested participating restricted stock in two-class calculation

 

57

 

27

 

Accretion of Series B Preferred Stock

 

629

 

595

 

Net income available to common stockholders— diluted

 

$

28,742

 

$

13,429

 

Denominator:

 

 

 

 

 

Weighted average outstanding shares of common stock

 

17,697

 

17,011

 

Dilutive effect of:

 

 

 

 

 

Stock options

 

451

 

380

 

Convertible Series B Preferred Stock

 

615

 

581

 

 

 

 

 

 

 

Common stock and common stock equivalents

 

18,763

 

17,972

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.59

 

$

0.75

 

 

 

 

 

 

 

Diluted

 

$

1.53

 

$

0.75

 

 

13. Fair Value Measurements

 

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

 

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

 

 

 

 

 

Fair Value Measured Using

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Level 3

 

 

 

(In millions)

 

At March 31, 2011:

 

 

 

 

 

 

 

 

 

Restricted assets of captive insurance company

 

$

4.0

 

$

1.4

 

$

 

$

2.6

 

Loan guarantees

 

$

0.2

 

$

 

$

 

$

0.2

 

At December 31, 2010:

 

 

 

 

 

 

 

 

 

Restricted assets of captive insurance company

 

$

3.6

 

$

1.0

 

$

 

$

2.6

 

Loan guarantees

 

$

0.2

 

$

 

$

 

$

0.2

 

 

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

 

12



Table of Contents

 

13. Fair Value Measurements, continued

 

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

 

At March 31, 2011 and December 31, 2010, the cost and market value of our financial instruments measured at fair value - restricted assets related to Applebee’s captive insurance subsidiary - is as follows:

 

March 31, 2011

 

Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

 

 

(in millions)

 

Cash equivalents and money market funds

 

$

1.4

 

$

 

$

 

$

1.4

 

Auction-rate securities

 

$

2.9

 

$

 

$

(0.3

)

$

2.6

 

 

December 31, 2010

 

Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Fair Value

 

 

 

(in millions)

 

Cash equivalents and money market funds

 

$

1.0

 

$

 

$

 

$

1.0

 

Auction-rate securities

 

$

2.9

 

$

 

$

(0.3

)

$

2.6

 

 

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

 

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

 

 

 

March 31, 2011

 

December 31, 2010

 

 

 

Carrying
Amount

 

Fair Value

 

Carrying
Amount

 

Fair Value

 

 

 

(in millions)

 

Long-term debt, less current maturities

 

$1,485.9

 

$1,586.5

 

$1,631.5

 

$1,721.0

 

 

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

 

14. Commitments and Contingencies

 

Litigation, Claims and Disputes

 

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

 

13



Table of Contents

 

14. Commitments and Contingencies, continued

 

Gerald Fast v. Applebee’s

 

The Company is currently defending a collective action in United States District Court for the Western District of Missouri, Central Division filed on July 14, 2006 under the Fair Labor Standards Act styled Gerald Fast v. Applebee’s International, Inc., in which named plaintiffs claim that tipped workers in company restaurants perform excessive amounts of non-tipped work for which they should be compensated at the minimum wage. The court has conditionally certified a nationwide class of servers and bartenders who have worked in company-operated Applebee’s restaurants since June 19, 2004. Unlike a class action, a collective action requires potential class members to “opt in” rather than “opt out.” On February 12, 2008, 5,540 opt-in forms were filed with the court.

 

In cases of this type, conditional certification of the plaintiff class is granted under a lenient standard. On January 15, 2009, the Company filed a motion seeking to have the class de-certified and the plaintiffs filed a motion for summary judgment, both of which were denied by the court.

 

The parties stipulated to a bench trial which was set to begin on September 8, 2009 in Jefferson City, Missouri. Just prior to trial, however, the court vacated the trial setting in order to submit key legal issues to the Eighth Circuit Court of Appeals for review on interlocutory appeal. On April 21, 2011, the Eighth Circuit Court of Appeals issued its decision on the interlocutory appeal, affirming the trial court’s ruling that the tip credit is subject to a 20% limit on “related duties in a tipped occupation that are not themselves tip producing” based on guidance in the Department of Labor’s Field Operations Handbook

 

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

 

Lease Guarantees

 

In connection with the sale of Applebee’s restaurants or previous brands to franchisees and other parties, the Company has, in certain cases, guaranteed or had potential continuing liability for lease payments totaling $206.4 million as of March 31, 2011. This amount represents the maximum potential liability of future payments under these leases. These leases have been assigned to the buyers and expire at the end of the respective lease terms, which range from 2010 through 2045. In the event of default, the indemnity and default clauses in our sale or assignment agreements govern our ability to pursue and recover damages incurred.  No material liabilities have been recorded as of March 31, 2011.

 

15. Involvement with Variable Interest Entities

 

In February 2009, the Company and owners of Applebee’s and IHOP franchise restaurants formed Centralized Supply Chain Services, LLC (“CSCS”), a purchasing co-operative, to manage procurement activities for the Applebee’s and IHOP restaurants choosing to join CSCS. CSCS is a variable interest entity (“VIE”) as defined under U.S. GAAP. Under the terms of the membership agreements, each member restaurant belonging to CSCS has equal and identical voting rights, ownership rights and obligations. The Company does not have voting control of CSCS. Accordingly, the Company is not considered to be the primary beneficiary of the VIE and therefore does not consolidate the results of CSCS. The Company reaffirmed this assessment as of March 31, 2011 as there have been no changes in the significant facts and circumstances related to the Company’s involvement with CSCS.

 

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

 

14



Table of Contents

 

16.  Consolidating Financial Information

 

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

 

Each guarantor subsidiary is 100% owned by the Company at the date of each balance sheet presented. The notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements.

 

Supplemental Condensed Consolidating Balance Sheet

March 31, 2011

(In millions)

 

 

 

Parent

 

Combined
Guarantor
Subsidiaries

 

Combined
Non-guarantor
Subsidiaries

 

Eliminations and
Reclassification

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

14.2

 

$

34.3

 

$

1.9

 

$

 

$

50.4

 

Restricted cash

 

 

4.0

 

 

 

4.0

 

Receivables, net

 

 

73.8

 

0.1

 

 

73.9

 

Inventories

 

 

9.9

 

 

 

9.9

 

Prepaid expenses

 

2.3

 

44.0

 

 

 

(8.1

)

38.2

 

Deferred income taxes

 

0.9

 

21.0

 

5.3

 

 

27.2

 

Assets held for sale

 

 

4.7

 

2.3

 

 

7.0

 

Intercompany

 

(151.8

)

151.3

 

0.5

 

 

 

Total current assets

 

(134.4

)

343.0

 

10.1

 

(8.1

)

210.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current restricted cash

 

 

 

 

 

 

Long-term receivables

 

 

238.0

 

 

 

238.0

 

Property and equipment, net

 

16.9

 

552.0

 

 

 

568.9

 

Goodwill

 

 

697.5

 

 

 

697.5

 

Other intangible assets, net

 

 

832.4

 

0.1

 

 

832.5

 

Other assets, net

 

26.3

 

90.7

 

0.2

 

1.4

 

118.6

 

Investment in subsidiaries

 

2,023.7

 

 

 

(2,023.7

)

 

Total assets

 

$

1,932.5

 

$

2,753.6

 

$

10.4

 

$

(2,030.4

)

$

2,666.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

7.4

 

$

 

$

 

$

 

$

7.4

 

Accounts payable

 

1.7

 

34.2

 

 

 

35.9

 

Accrued employee compensation and benefits

 

3.9

 

16.6

 

0.1

 

 

20.6

 

Gift card liability

 

 

78.0

 

 

 

78.0

 

Other accrued expenses

 

11.0

 

76.4

 

1.3

 

(8.1

)

80.6

 

Total current liabilities

 

24.0

 

205.2

 

1.4

 

(8.1

)

222.5

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

1,485.9

 

 

 

 

1,485.9

 

Financing obligations

 

 

204.5

 

0.1

 

 

204.6

 

Capital lease obligations

 

 

141.7

 

 

 

141.7

 

Deferred income taxes

 

0.9

 

372.5

 

(0.2

)

1.4

 

374.6

 

Other liabilities

 

3.5

 

109.7

 

1.2

 

 

114.4

 

Total liabilities

 

1,514.3

 

1,033.6

 

2.5

 

(6.7

)

2,543.7

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

418.2

 

1,720.0

 

7.9

 

(2,023.7

)

122.4

 

Total liabilities and stockholders’ equity

 

$

1,932.5

 

$

2,753.6

 

$

10.4

 

$

(2,030.4

)

$

2,666.1

 

 

15



Table of Contents

 

16.  Consolidating Financial Information, continued

 

Supplemental Condensed Consolidating Balance Sheet

December 31, 2010

(In millions)

 

 

 

Parent

 

Combined
Guarantor
Subsidiaries

 

Combined
Non-guarantor
Subsidiaries

 

Eliminations and
Reclassification

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23.4

 

$

77.3

 

$

1.6

 

$

 

$

102.3

 

Restricted cash

 

 

0.9

 

 

 

0.9

 

Receivables, net

 

 

98.7

 

 

 

98.7

 

Inventories

 

 

10.7

 

 

 

10.7

 

Prepaid expenses

 

2.7

 

73.8

 

 

(0.3

)

76.2

 

Deferred income taxes

 

1.1

 

17.9

 

5.3

 

 

24.3

 

Assets held for sale

 

 

35.7

 

2.3

 

 

38.0

 

Intercompany

 

 

 

 

 

 

Total current assets

 

27.2

 

315.0

 

9.2

 

(0.3

)

351.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current restricted cash

 

 

0.8

 

 

 

0.8

 

Long-term receivables

 

 

240.0

 

 

 

240.0

 

Property and equipment, net

 

16.5

 

595.7

 

 

 

612.2

 

Goodwill

 

 

697.5

 

 

 

697.5

 

Other intangible assets, net

 

 

835.8

 

0.1

 

 

835.9

 

Other assets, net

 

28.3

 

89.3

 

0.2

 

1.3

 

119.1

 

Investment in subsidiaries

 

2,023.7

 

 

 

(2,023.7

)

 

Total assets

 

$

2,095.7

 

$

2,774.1

 

$

9.5

 

$

(2,022.7

)

$

2,856.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

9.0

 

$

 

$

 

$

 

$

9.0

 

Accounts payable

 

3.7

 

29.1

 

 

 

32.8

 

Accrued employee compensation and benefits

 

9.3

 

23.4

 

0.1

 

 

32.8

 

Gift card liability

 

 

125.0

 

 

 

125.0

 

Other accrued expenses

 

(26.0

)

90.8

 

1.0

 

(0.3

)

65.5

 

Total current liabilities

 

(4.0

)

268.3

 

1.1

 

(0.3

)

265.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

1,631.5

 

 

 

 

1,631.5

 

Financing obligations

 

 

237.8

 

 

 

237.8

 

Capital lease obligations

 

 

144.0

 

 

 

144.0

 

Deferred income taxes

 

(5.6

)

380.0

 

 

1.3

 

375.7

 

Other liabilities

 

3.5

 

114.4

 

1.0

 

 

118.9

 

Total liabilities

 

1,625.4

 

1,144.5

 

2.1

 

1.0

 

2,773.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

470.3

 

1,629.6

 

7.4

 

(2,023.7

)

83.6

 

Total liabilities and stockholders’ equity

 

$

2,095.7

 

$

2,774.1

 

$

9.5

 

$

(2,022.7

)

$

2,856.6

 

 

16



Table of Contents

 

16.  Consolidating Financial Information, continued

 

Supplemental Condensed Consolidating Statement of Operations

For the Three Months Ended March 31, 2011

(In millions)

 

 

 

Parent

 

Combined
Guarantor
Subsidiaries

 

Combined
Non-guarantor
Subsidiaries

 

Eliminations and
Reclassification

 

Consolidated

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

Franchise revenues

 

$

0.7

 

$

103.6

 

$

0.3

 

$

 

$

104.6

 

Restaurant sales

 

 

154.3

 

0.4

 

 

154.7

 

Rental revenues

 

 

32.2

 

 

 

32.2

 

Financing revenues

 

 

8.7

 

 

 

8.7

 

Total revenue

 

0.7

 

298.8

 

0.7

 

 

 

300.2

 

Franchise expenses

 

0.5

 

27.0

 

 

 

27.5

 

Restaurant expenses

 

 

131.5

 

0.3

 

 

131.8

 

Rental expenses

 

 

24.6

 

 

 

24.6

 

Financing expenses

 

 

5.6

 

 

 

5.6

 

General and administrative

 

7.5

 

29.9

 

0.6

 

 

 

38.0

 

Interest expense

 

32.3

 

4.0

 

 

 

36.3

 

Impairment and closure

 

 

4.9

 

 

 

4.9

 

Amortization of intangible assets

 

 

3.1

 

 

 

3.1

 

Loss on extinguishment of debt

 

7.0

 

 

 

 

7.0

 

Loss (gain) on disposition of assets

 

 

(23.7

)

(0.1

)

 

(23.8

)

Other

 

4.2

 

(23.4

)

(0.4

)

23.7

 

4.1

 

Intercompany dividend

 

(16.1

)

 

 

16.1

 

 

Income (loss) before income taxes

 

(34.7

)

115.3

 

0.3

 

(39.8

)

41.1

 

Benefit (provision) for income taxes

 

19.7

 

(31.0

)

(0.1

)

 

(11.4

)

Net (loss) income

 

$

(15.0

)

$

84.3

 

$

0.2

 

$

(39.8

)

$

29.7

 

 

Supplemental Condensed Consolidating Statement of Operations

For the Three Months Ended March 31, 2010

(In millions)

 

 

 

Parent

 

Combined
Guarantor
Subsidiaries

 

Combined
Non-guarantor
Subsidiaries

 

Eliminations and
Reclassification

 

Consolidated

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

Franchise revenues

 

$

 

$

95.3

 

$

0.1

 

$

 

$

95.4

 

Restaurant sales

 

 

223.8

 

0.8

 

 

224.6

 

Rental revenues

 

 

33.9

 

 

 

33.9

 

Financing revenues

 

 

4.2

 

 

 

4.2

 

Total revenue

 

 

357.2

 

0.9

 

 

 

358.1

 

Franchise expenses

 

 

24.7

 

0.1

 

 

24.8

 

Restaurant expenses

 

 

191.7

 

0.9

 

 

192.6

 

Rental expenses

 

 

25.1

 

 

 

25.1

 

Financing expenses

 

 

0.5

 

 

 

0.5

 

General and administrative

 

8.2

 

31.4

 

0.7

 

 

40.3

 

Interest expense

 

 

45.1

 

 

 

45.1

 

Impairment and closure

 

 

0.2

 

0.5

 

 

0.7

 

Amortization of intangible assets

 

 

3.1

 

 

 

3.1

 

Gain on extinguishment of debt

 

 

(3.6

)

 

 

(3.6

)

Loss (gain) on disposition of assets

 

 

(0.3

)

 

 

 

(0.3

)

Other (income) expense

 

0.5

 

(19.5

)

(0.7

)

19.7

 

 

Intercompany dividend

 

(17.3

)

 

 

17.3

 

 

Income (loss) before income taxes

 

8.6

 

58.8

 

(0.6

)

(37.0

)

29.8

 

Benefit (provision) for income taxes

 

2.7

 

(12.9

)

0.1

 

 

(10.1

)

Net (loss) income

 

$

11.3

 

$

45.9

 

$

(0.5

)

$

(37.0

)

$

19.7

 

 

17



Table of Contents

 

16.  Consolidating Financial Information, continued

 

Supplemental Condensed Consolidating Statement of Cash Flows

For the Three Months Ended March 31, 2011

 (In millions)

 

 

 

Parent

 

Combined
Guarantor
Subsidiaries

 

Combined
Non-guarantor
Subsidiaries

 

Eliminations and
Reclassification

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows provided by (used in) operating activities