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, ~~2018~~2019

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

Dine Brands Global, Inc.

(Exact name of registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)		95-3038279 (I.R.S. Employer Identification No.)

450 North Brand Boulevard, Glendale, California (Address of principal executive offices)		91203-1903 (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 x No o

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



Large accelerated filer x		Accelerated filer o

Non-accelerated filer o~~(Do not check if a smaller reporting company)~~
		Smaller reporting company o
		Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

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~~Securities registered pursuant to Section 12(b) of the ~~issuer’s classes of common stock, as of the latest practicable date.~~Act:



~~Class~~ Title of each class	~~Outstanding as~~ Trading symbol(s)	Name of ~~April 27, 2018~~each exchange on which registered
Common Stock, $0.01 par value	~~17,831,460~~DIN	New York Stock Exchange

As of April 25, 2019, the Registrant had 17,535,046 shares of Common Stock outstanding.

Dine Brands Global, Inc. and Subsidiaries

Index



		Page
PART I.	FINANCIAL INFORMATION	3
	Item 1—Financial Statements	3
	Consolidated Balance Sheets— March 31, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018	3
	Consolidated Statements of Comprehensive Income (unaudited)—Three Months Ended March 31, ~~2018~~2019 and ~~2017~~2018	4
	Consolidated Statements of Stockholders' Deficit (unaudited) - Three Months ended March 31, 2019 and 2018	5
	Consolidated Statements of Cash Flows (unaudited)—Three Months Ended March 31, ~~2018~~2019 and ~~2017~~2018	56
	Notes to Consolidated Financial Statements (unaudited)	67
	Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations	1720
	Item 3—Quantitative and Qualitative Disclosures about Market Risk	3134
	Item 4—Controls and Procedures	3134
PART II.	OTHER INFORMATION	3134
	Item 1—Legal Proceedings	3134
	Item 1A—Risk Factors	3234
	Item 2—Unregistered Sales of Equity Securities and Use of Proceeds	3235
	Item 3—Defaults Upon Senior Securities	3235
	Item 4—Mine Safety Disclosures	3235
	Item 5—Other Information	3235
	Item 6—Exhibits	3336
	Signatures	3537

Cautionary Statement Regarding Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. You can identify these forward-looking statements by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “goal” and other similar expressions. You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors,” as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the United States Securities and Exchange Commission. The forward-looking statements contained in this report are made as of the date hereof and ~~the Company~~Dine Brands Global, Inc. does not intend to, nor does it assume any obligation to, update or supplement any forward-looking statements after the date of this report to reflect actual results or future events or circumstances.

Factors that could cause actual results to differ materially from the projections, forecasts, estimates and expectations discussed in this Quarterly Report on Form 10-Q include, among other things: general economic conditions; our level of indebtedness; compliance with the terms of our securitized debt; our ability to refinance our current indebtedness or obtain additional financing; our dependence on information technology; potential cyber incidents; the implementation of restaurant development plans; our dependence on our franchisees; the concentration of our Applebee’s franchised restaurants in a limited number of franchisees; the financial health of our ~~franchisees;~~franchisees, including any insolvency or bankruptcy; credit risks from our IHOP franchisees operating under our Previous IHOP Business Model; insufficient insurance coverage to cover potential risks associated with the ownership and operation of restaurants; our franchisees’ and other licensees’ compliance with our quality standards and trademark usage; general risks associated with the restaurant industry; potential harm to our brands’ reputation; risks of food-borne illness or food tampering; possible future impairment charges; ~~the effects of tax reform;~~ trading volatility and fluctuations in the price of our stock; our ability to achieve the financial guidance we provide to investors; successful implementation of our business strategy; the availability of suitable locations for new restaurants; shortages or interruptions in the supply or delivery of products from third parties or availability of utilities; the management and forecasting of appropriate inventory levels; development and implementation of innovative marketing and use of social media; changing health or dietary preference of consumers; risks associated with doing business in international markets; the results of litigation and other legal proceedings; third-party claims with respect to intellectual property assets; delivery initiatives and use of third-party delivery vendors; our

allocation of human capital and our ability to attract and retain management and other key employees; compliance with federal, state and local governmental regulations; risks associated with our self-insurance; natural disasters or other ~~series~~serious incidents; our success with development initiatives outside of our core business; the adequacy of our internal controls over financial reporting and future changes in accounting standards.

Fiscal Quarter End

The Company’s fiscal quarters end on the Sunday closest to the last day of each calendar quarter. For convenience, the fiscal quarters of each year are referred to as ending on March 31, June 30, September 30 and December 31. The first fiscal quarter of ~~2018~~2019 began on December 31, 2018 and ended on March 31, 2019. The first fiscal quarter of 2018 began on January 1, 2018 and ended on April 1, 2018. ~~The first fiscal quarter of 2017 began on January 2, 2017 and ended on April 2, 2017.~~

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Dine Brands Global, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share and per share amounts)


Assets	March 31, 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(Unaudited)			(as adjusted)			(Unaudited)
Current assets:
Cash and cash equivalents	$	96,399		$	117,010		$	132,932		$	137,164
Receivables, net	105,834			140,188			97,786			137,504
Restricted cash	32,391			31,436			36,654			48,515
Prepaid gift card costs	31,174			40,725			30,045			38,195
Prepaid income taxes	36,078			45,981			19,370			17,402
Other current assets	6,906			12,615			5,980			3,410
Total current assets	308,782			387,955			322,767			382,190
Long-term receivables, net	122,362			126,570
Other intangible assets, net	581,639			582,787			583,040			585,889
Operating lease right-of-use assets							383,962			—
Goodwill	339,236			339,236			343,862			345,314
Property and equipment, net	198,624			199,585			225,396			240,264
Long-term receivables, net							99,582			103,102
Deferred rent receivable	81,720			82,971			75,569			77,069
Non-current restricted cash	14,700			14,700			14,700			14,700
Other non-current assets, net	3,983			4,135			27,239			26,152
Total assets	$	1,651,046		$	1,737,939		$	2,076,117		$	1,774,680
Liabilities and Stockholders’ Deficit
Current liabilities:
Current maturities of long-term debt	$	12,965		$	12,965		$	—		$	25,000
Accounts payable	45,236			55,028			37,726			43,468
Gift card liability	117,266			164,441			115,974			160,438
Current maturities of operating lease obligations							67,340			—
Current maturities of finance lease and financing obligations							13,708			14,031
Accrued employee compensation and benefits							15,338			27,479
Dividends payable	11,520			17,748			12,461			11,389
Current maturities of capital lease and financing obligations	12,986			14,193
Accrued employee compensation and benefits	10,098			13,547
Deferred franchise revenue, short-term	10,851			11,001			10,376			10,138
Other accrued expenses	15,047			16,001			30,167			24,243
Total current liabilities	235,969			304,924			303,090			316,186
Long-term debt, less current maturities	1,267,468			1,269,849			1,274,916			1,274,087
Capital lease obligations, less current maturities	60,268			61,895
Operating lease obligations, less current maturities							386,364			—
Finance lease obligations, less current maturities							87,624			87,762
Financing obligations, less current maturities	38,981			39,200			38,306			38,482
Deferred income taxes, net	114,522			119,996			102,074			105,816
Deferred franchise revenue, long-term	68,581			70,432			62,472			64,557
Deferred rent payable	62,371			69,112
Other non-current liabilities	19,772			18,071			12,092			90,063
Total liabilities	1,867,932			1,953,479			2,266,938			1,976,953
Commitments and contingencies
Stockholders’ deficit:
Common stock, $0.01 par value, shares: 40,000,000 authorized; March 31, 2018 - 25,013,067 issued, 17,922,137 outstanding; December 31, 2017 - 25,022,312 issued, 17,993,124 outstanding	250			250
Common stock, $0.01 par value; shares: 40,000,000 authorized; March 31, 2019 - 24,974,665 issued, 17,650,765 outstanding; December 31, 2018 - 24,984,898 issued, 17,644,267 outstanding							250			250
Additional paid-in-capital	264,994			276,408			239,585			237,726
Accumulated deficit	(52,867		)	(69,940		)
Retained earnings							24,588			10,414
Accumulated other comprehensive loss	(58		)	(105		)	(61		)	(60		)
Treasury stock, at cost; shares: March 31, 2018 - 7,090,930; December 31, 2017 - 7,029,188	(429,205		)	(422,153		)
Treasury stock, at cost; shares: March 31, 2019 - 7,323,900; December 31, 2018 - 7,340,631							(455,183		)	(450,603		)
Total stockholders’ deficit	(216,886		)	(215,540		)	(190,821		)	(202,273		)
Total liabilities and stockholders’ deficit	$	1,651,046		$	1,737,939		$	2,076,117		$	1,774,680

See the accompanying Notes to Consolidated Financial Statements.

Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2018			2017			2019			2018
Revenues:				(as adjusted)
Franchise revenues	$	155,313		$	154,725
Franchise revenues:
Royalties, franchise fees and other							$	96,296		$	91,477
Advertising revenue							72,630			63,836
Total franchise revenues							168,926			155,313
Company restaurant sales							35,735			—
Rental revenues	30,841			30,465			30,711			30,841
Financing revenues	2,009			2,131			1,810			2,009
Company restaurant sales	—			4,140
Total revenues	188,163			191,461			237,182			188,163
Cost of revenues:
Franchise expenses	81,872			70,167
Rental expenses	22,641			22,666
Franchise expenses:
Advertising expenses							72,630			63,836
Other franchise expenses							7,673			18,036
Total franchise expenses							80,303			81,872
Company restaurant expenses							31,538			—
Rental expenses:
Interest expense from finance leases							1,529			1,877
Other rental expenses							21,095			20,764
Total rental expenses							22,624			22,641
Financing expenses	150			—			146			150
Company restaurant expenses	—			4,343
Total cost of revenues	104,663			97,176			134,611			104,663
Gross profit	83,500			94,285			102,571			83,500
General and administrative expenses	41,911			50,305			42,819			41,911
Interest expense	15,199			15,363
Interest expense, net							15,393			15,199
Amortization of intangible assets							2,924			2,502
Closure and impairment charges	2,604			217			194			2,604
Amortization of intangible assets	2,502			2,500
Gain on disposition of assets	(1,427		)	(109		)
Loss (gain) on disposition of assets							109			(1,427		)
Income before income tax provision	22,711			26,009			41,132			22,711
Income tax provision	(5,638		)	(10,414		)	(9,489		)	(5,638		)
Net income	17,073			15,595			31,643			17,073
Other comprehensive (loss) income, net of tax:
Other comprehensive income (loss) net of tax:
Adjustment to unrealized loss on available-for-sale investments	50			—			—			50
Foreign currency translation adjustment	(3		)	—			(1		)	(3		)
Net income and total comprehensive income	$	17,120		$	15,595
Total comprehensive income							$	31,642		$	17,120
Net income available to common stockholders:
Net income	$	17,073		$	15,595		$	31,643		$	17,073
Less: Net income allocated to unvested participating restricted stock	(568		)	(283		)	(1,111		)	(568		)
Net income available to common stockholders	$	16,505		$	15,312		$	30,532		$	16,505
Net income available to common stockholders per share:
Basic	$	0.93		$	0.87		$	1.76		$	0.93
Diluted	$	0.92		$	0.86		$	1.73		$	0.92
Weighted average shares outstanding:
Basic	17,703			17,694			17,343			17,703
Diluted	17,845			17,737			17,690			17,845

Dividends declared per common share	$	0.63		$	0.97
Dividends paid per common share	$	0.97		$	0.97

See the accompanying Notes to Consolidated Financial Statements.

11. Facility Exit Costs (Continued)

Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Deficit

(In thousands)

(Unaudited)




	Common Stock										Accumulated Other Comprehensive Loss			Treasury Stock
	Shares Outstanding		Amount		Additional Paid-in Capital			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Loss			Shares		Cost			Total
Balance at December 31, 2017	17,993		$	250	$	276,408		$	(69,940	)	$	(105	)	7,029		$	(422,153	)	$	(215,540	)
Net income	—		—		—			17,073			—			—		—			17,073
Other comprehensive gain	—		—		—			—			47			—		—			47
Purchase of Company common stock	(139	)	—		—			—			—			139		(10,003		)	(10,003		)
Reissuance of treasury stock	77		—		(2,495		)	—			—			(77	)	2,951			456
Net issuance of shares for stock plans	6		—		—			—			—			—		—			—
Repurchase of restricted shares for taxes	(15	)	—		(1,083		)	—			—			—		—			(1,083		)
Stock-based compensation	—		—		3,368			—			—			—		—			3,368
Dividends on common stock in excess of retained earnings	—		—		(11,204		)	—			—			—		—			(11,204		)
Balance at March 31, 2018	17,922		$	250	$	264,994		$	(52,867	)	$	(58	)	7,091		$	(429,205	)	$	(216,886	)




	Common Stock										Accumulated Other Comprehensive Loss			Treasury Stock
	Shares Outstanding		Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Shares		Cost			Total
Balance at December 31, 2018	17,644		$	250	$	237,726		$	10,414		$	(60	)	7,341		$	(450,603	)	$	(202,273	)
Adoption of ASC 842 (Note 3)	—		—		—			(5,030		)	—			—		—			(5,030		)
Net income	—		—		—			31,643			—			—		—			31,643
Other comprehensive loss	—		—		—			—			(1		)	—		—			(1		)
Purchase of Company common stock	(151	)	—		—			—			—			151		(12,015		)	(12,015		)
Reissuance of treasury stock	168		—		(667		)	—			—			(168	)	7,435			6,768
Net issuance of shares for stock plans	9		—		—			—			—			—		—			—
Repurchase of restricted shares for taxes	(19	)	—		(1,817		)	—			—			—		—			(1,817		)
Stock-based compensation	—		—		4,107			—			—			—		—			4,107
Dividends on common stock	—		—		236			(12,439		)	—			—		—			(12,203		)
Balance at March 31, 2019	17,651		$	250	$	239,585		$	24,588		$	(61	)	7,324		$	(455,183	)	$	(190,821	)

Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2018			2017			2019			2018
Cash flows from operating activities:				(as adjusted)
Net income	$	17,073		$	15,595		$	31,643		$	17,073
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization	7,940			7,706			10,179			7,940
Non-cash stock-based compensation expense							4,107			3,368
Non-cash interest expense							1,118			864
Closure and impairment charges	2,594			209			194			2,594
Non-cash interest expense	864			827
Deferred income taxes	(1,182		)	(2,714		)	(1,149		)	(1,182		)
Non-cash stock-based compensation expense	3,368			6,165
Gain on disposition of assets	(1,421		)	(109		)
Loss (gain) on disposition of assets							109			(1,421		)
Other	(6,199		)	(2,932		)	(3,976		)	(6,199		)
Changes in operating assets and liabilities:
Accounts receivable, net	(8,804		)	(818		)	(3,210		)	(8,804		)
Current income tax receivables and payables	5,529			7,176			(1,399		)	5,529
Gift card receivables and payables	(2,269		)	(7,855		)	(890		)	(2,269		)
Other current assets	5,709			(736		)	(2,570		)	5,709
Accounts payable	65			1,745			1,826			65
Accrued employee compensation and benefits	(3,448		)	(2,162		)	(12,141		)	(3,448		)
Other current liabilities	(3,351		)	(2,554		)	5,088			(3,351		)
Cash flows provided by operating activities	16,468			19,543			28,929			16,468
Cash flows from investing activities:
Principal receipts from notes, equipment contracts and other long-term receivables							5,260			4,930
Additions to property and equipment	(3,488		)	(2,997		)	(4,717		)	(3,488		)
Proceeds from sale of property and equipment	655			—			400			655
Principal receipts from notes, equipment contracts and other long-term receivables	4,930			5,002
Additions to long-term receivables	(2,325		)	—			(395		)	(2,325		)
Other	(27		)	(188		)	(100		)	(27		)
Cash flows (used in) provided by investing activities	(255		)	1,817
Cash flows provided by (used in) investing activities							448			(255		)
Cash flows from financing activities:
Repayment of Variable Funding Notes							(25,000		)	—
Repayment of long-term debt	(3,250		)	—			—			(3,250		)
Dividends paid on common stock	(17,453		)	(17,432		)	(11,153		)	(17,453		)
Repurchase of common stock	(10,003		)	(10,003		)	(10,802		)	(10,003		)
Principal payments on capital lease and financing obligations	(4,536		)	(3,608		)
Principal payments on financing lease obligations							(3,466		)	(4,536		)
Proceeds from stock options exercised							6,768			456
Tax payments for restricted stock upon vesting	(1,083		)	(2,022		)	(1,817		)	(1,083		)
Proceeds from stock options exercised	456			1,474
Cash flows used in financing activities	(35,869		)	(31,591		)	(45,470		)	(35,869		)
Net change in cash, cash equivalents and restricted cash	(19,656		)	(10,231		)	(16,093		)	(19,656		)
Cash, cash equivalents and restricted cash at beginning of period	163,146			185,491			200,379			163,146
Cash, cash equivalents and restricted cash at end of period	$	143,490		$	175,260		$	184,286		$	143,490
Supplemental disclosures:
Interest paid in cash	$	16,621		$	16,231		$	16,346		$	16,621
Income taxes paid in cash	$	934		$	6,018		$	12,014		$	934

See the accompanying Notes to Consolidated Financial Statements.

Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1. General

The accompanying unaudited consolidated financial statements of Dine Brands Global, Inc. (the “Company” or “Dine Brands Global”) 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. The operating results for the three months ended March 31, ~~2018~~2019 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, ~~2018.~~2019.

The consolidated balance sheet at December 31, ~~2017~~2018 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, ~~2017.~~2018.

2. Basis of Presentation

The Company’s fiscal quarters end on the Sunday closest to the last day of each calendar quarter. For convenience, the fiscal quarters of each year are referred to as ending on March 31, June 30, September 30 and December 31. The first fiscal quarter of 2019 began on December 31, 2018 and ended on March 31, 2019. The first fiscal quarter of 2018 began on January 1, 2018 and ended on April 1, 2018. ~~The first fiscal quarter of 2017 began on January 2, 2017 and ended on April 2, 2017.~~

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.

The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make assumptions and estimates that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, if any, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates are made in the calculation and assessment of the following: impairment of goodwill, other intangible assets and tangible assets; income taxes; allowance for doubtful accounts and notes receivables; lease accounting estimates; contingencies; and stock-based compensation. On an ongoing basis, the Company evaluates its estimates based on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

3. Accounting Standards Adopted and Newly Issued Accounting Standards Not Yet Adopted

Accounting Standards Adopted ~~Effective January 1, 2018~~

~~On January 1, 2018,~~In February 2016, the ~~Company adopted the guidance of~~Financial Accounting Standards ~~Codification 606 - Revenue from Contracts~~Board (“FASB”) issued guidance with ~~Customers~~respect to the accounting for leases, as codified in Accounting Standards Topic 842 (“ASC ~~606”~~842”). The guidance is intended to improve financial reporting of leasing transactions by requiring entities that lease assets to recognize assets and liabilities for the rights and obligations created by leases, as well as requiring additional disclosures related to an entity's leasing activities. The Company adopted this change in accounting ~~principles~~principle using the ~~full~~modified retrospective ~~method.~~method as of the first day of the first fiscal quarter of 2019. Accordingly, ~~previously reported~~ financial information for periods prior to the date of initial application has not been ~~restated to reflect the application of ASC 606 to all comparative periods presented.~~adjusted. The Company ~~utilized all~~has elected the package of ~~the~~ practical expedients for adoption ~~allowed under~~that permitted the ~~full retrospective method.~~Company not to reassess its prior conclusions regarding lease identification, lease classification and initial direct costs. The Company ~~believes utilization of the practical expedients~~ did not ~~have a significant impact on~~elect to use an allowable expedient that permitted the ~~consolidated financial statements~~use of ~~the periods presented herein.~~hindsight in performing evaluations of its leases.

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~~Dine Brands Global, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~3. Accounting Standards Adopted and Newly Issued Accounting Standards Not Yet Adopted (Continued)~~

~~Adoption of ASC 606 impacted our previously reported Consolidated Balance Sheet as follows:~~

Balance at December 31, 2017, as reported Adjustments/Reclassifications Due to ASC 606 adoption Balance at December 31, 2017, as adjusted
(In thousands)
Assets:
Receivables, net $ 150,174
$ (9,986 ) $ 140,188
Prepaid income taxes 43,654
2,327
45,981
Long-term receivables, net 131,212
(4,642 ) 126,570

Liabilities:
Deferred franchise revenue (short-term) —
11,001
11,001
Other accrued expenses 17,780
(1,779 ) 16,001
Deferred franchise revenue (long-term) —
70,432
70,432
Other non-current liabilities 23,003
(4,932 ) 18,071
Deferred income taxes, net 138,177
(18,181 ) 119,996

Equity:
Accumulated deficit $ (1,098 ) $ (68,842 ) $ (69,940 )

~~In conjunction with its~~Upon adoption of ASC ~~606,~~842, the Company ~~has separated “franchise and restaurant revenues” and “franchise and restaurant expenses,” previously combined when reported in~~recognized operating lease obligations of $453.0 million, which represents the ~~Statement of Comprehensive Income for the three months ended March 31, 2017, into “franchise revenues/expense” and “company restaurant sales/expense” as follows:~~

(in thousands)
Franchise and restaurant revenues, as reported $ 123,578

Franchise revenues, as reclassified $ 119,438
Company restaurant sales, as reclassified 4,140
$ 123,578

Franchise and restaurant expenses, as reported $ 41,007

Franchise expenses, as reclassified 36,664
Company restaurant expenses, as reclassified 4,343
$ 41,007

~~Adoption of ASC 606 impacted our previously reported Consolidated Statement of Comprehensive Income for the three months ended March 31, 2017, as follows:~~

Three Months ended March 31, 2017, as reported Adjustments due to ASC 606 adoption Three Months ended March 31, 2017, as adjusted
(In thousands)
Franchise revenues (as reclassified above) $ 119,438
$ 35,287
$ 154,725
Franchise expenses (as reclassified above) 36,664
33,503
70,167
Income before income tax provision 24,225
1,784
26,009
Income tax provision (9,862 ) (552 ) (10,414 )
Net income 14,363
1,232
15,595
Net income per share:
Basic $ 0.80

$ 0.87
Diluted $ 0.79

$ 0.86

~~Recognition of Applebee's advertising revenue and expense comprised $33.5 million~~present value of the ~~revenue~~remaining minimum lease payments, discounted using the Company's incremental borrowing rate. The Company recognized operating lease right-of-use assets of $395.6 million. The Company recognized an adjustment to retained earnings upon adoption of $5.0 million, net of tax of $1.7 million, primarily related to an impairment resulting from an unfavorable differential between lease payments to be made and ~~all~~sublease rentals to be received on certain leases. The remaining difference of $50.7 million between the ~~expense adjustment. Approximately $1.8 million of the revenue adjustment is due~~recognized operating lease obligation and right-of-use assets relates to the ~~change~~derecognition of certain liabilities and assets that had been recorded in ~~method of recognizing franchise and development fees. See Note 4 - Revenue Disclosures, of the Notes to Consolidated Financial Statements for a description of these changes.~~accordance with U.S. GAAP that had been applied prior

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Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

3. Accounting Standards Adopted and Newly Issued Accounting Standards Not Yet Adopted (Continued)

~~The~~to the adoption of ASC ~~606~~842, primarily $43.3 million of accrued rent payments. Lease-related reserves for lease incentives, closed restaurants and unfavorable leaseholds were also derecognized.

The accounting for the Company's existing finance (capital) leases upon adoption of ASC 842 remained substantially unchanged. Adoption of ASC 842 had no significant impact on the Company's cash ~~provided by~~flows from operations or ~~used in operating, investing or financing activities as previously reported in~~ its ~~Consolidated Statements~~results of ~~Cash Flows.~~operations and did not impact any covenant related to the Company's long-term debt. The Company implemented internal controls necessary to ensure compliance with the accounting and disclosure requirements of ASC 842.

Additional new accounting guidance became effective for the Company ~~effective January 1, 2018~~as of the beginning of fiscal 2019 that the Company reviewed and concluded was either ~~are~~ not applicable to ~~the Company's~~its operations or had no material effect on ~~the Company's~~its consolidated financial ~~statements.~~statements in the current or future fiscal years.

Newly Issued Accounting Standards Not Yet Adopted

In June 2016, the FASB issued new guidance on the measurement of credit losses on financial instruments. The new guidance will replace the incurred loss methodology of recognizing credit losses on financial instruments that is currently required with a methodology that estimates the expected credit loss on financial instruments and reflects the net amount expected to be collected on the financial instrument. Application of the new guidance may result in the earlier recognition of credit losses as the new methodology will require entities to consider forward-looking information in addition to historical and current information used in assessing incurred losses. The Company will be required to adopt the new guidance on a modified retrospective basis beginning with its first fiscal quarter of 2020, with early adoption permitted in its first fiscal quarter of 2019. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related ~~disclosures and whether early adoption will be elected.~~

disclosures.

In ~~February 2016,~~August 2018, the FASB issued ~~new~~ guidance ~~with respect~~designed to improve the ~~accounting for leases. The new guidance will require lessees~~effectiveness of disclosures by removing, modifying and adding disclosures related to recognize a right-of-use asset and a lease liability for virtually all leases, other than leases with a term of 12 months or less, and to provide additional disclosures about leasing arrangements. Accounting by lessors is largely unchanged from existing accounting guidance.fair value measurements. The Company will be required to adopt the new guidance ~~on a modified retrospective basis~~ beginning with its first fiscal quarter of ~~2019. Early~~2020; early adoption ~~is permitted.~~

~~While the Company is still~~ in ~~the process of evaluating the impact~~any interim period after issuance of the new guidance is permitted. The Company is currently assessing the impact this guidance will have on its consolidated financial ~~statements~~statements.

In August 2018, the FASB issued new guidance on the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with existing guidance for capitalizing implementation cost incurred to develop or obtain internal-use software. The guidance also provides presentation and ~~disclosures,~~disclosure requirements for such capitalized costs. The Company will be required to adopt the ~~Company expects~~new guidance beginning with its first fiscal quarter of 2020; early adoption in any interim period after issuance of the new guidance is permitted. The Company is currently assessing the impact this guidance will have ~~a material impact~~ on its Consolidated Balance Sheets due to recognition of the right-of-use asset and lease liability related to its operating leases. While the new guidance is also expected to impact the measurement and presentation of elements of expenses and cash flows related to leasing arrangements, the Company does not presently believe there will be a material impact on its Consolidated Statements of Comprehensive Income or Consolidated Statements of Cash Flows. Recognition of a lease liability related to operating leases will not impact any covenants related to the Company's long-term debt because the debt agreements specify that covenant ratios be calculated using U.S. GAAP in effect at the time the debt agreements were entered into.

consolidated financial statements.

The Company reviewed all other 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 Company's financial statements because of future adoption.

4. Revenue Disclosures

Franchise revenue (which comprises ~~the majority~~most of the Company's revenues) and revenue from company-operated restaurants are recognized in accordance with ASC 606. Under ASC 606, revenue is recognized upon transfer of control of promised services or goods to customers in an amount that reflects the consideration the Company expects to receive for those services or goods. ~~The Company's rental and financing revenues are recognized in accordance with applicable U.S. GAAP accounting standards promulgated prior to the issuance of ASC 606 which remain in effect.~~

Franchising Activities

The Company owns and franchises the Applebee’s and IHOP restaurant concepts. The franchise arrangement for both brands is documented in the form of a franchise agreement and, in most cases, a development agreement. The franchise arrangement between the Company as the franchisor and the franchisee as the customer requires the Company to perform various activities to support the brand that do not directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which is the transfer of the franchise license. The intellectual property subject to the franchise license is symbolic intellectual property as it does not have significant standalone functionality, and substantially all of the utility is derived from its association with the Company’s past or ongoing activities. The nature of the Company’s promise in

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~~Dine Brands Global, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~4. Revenue Disclosures (Continued)~~

granting the franchise license is to provide the franchisee with access to the brand’s symbolic intellectual property over the term of the license. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.

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Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

4. Revenue Disclosures (Continued)

The transaction price in a standard franchise arrangement for both brands primarily consists of (a) initial franchise/development fees; (b) continuing franchise fees (royalties); and (c) advertising fees. Since the Company considers the licensing of the franchising right to be a single performance obligation, no allocation of the transaction price is required. Additionally, all domestic IHOP franchise agreements require franchisees to purchase proprietary pancake and waffle dry mix from the Company.

The Company recognizes the primary components of the transaction price as follows:

Franchise and development fees are recognized as revenue ratably on a straight-line basis over the term of the franchise agreement commencing with the restaurant opening date. As these fees are typically received in cash at or near the beginning of the franchise term, the cash received is initially recorded as a contract liability until recognized as revenue over time;

The Company is entitled to royalties and advertising fees based on a percentage of the franchisee's gross sales as defined in the franchise agreement. Royalty and advertising revenue isare recognized when the franchisee's reported sales occur. Depending on timing within a fiscal period, the recognition of revenue results in either what is considered a contract asset (unbilled receivable) or, once billed, accounts receivable, on the balance sheet.

Revenue from the sales of proprietary pancake and waffle dry mix is recognized in the period in which distributors ship the franchisee's order; recognition of revenue results in accounts receivable on the balance sheet.

Company Restaurant Revenue

Sales by company-operated restaurants are recognized when food and beverage items are sold. Company restaurant sales are reported net of sales taxes collected from guests that are remitted to the appropriate taxing authorities.

In determining the amount and timing of revenue from contracts with customers, the Company exercises significant judgment with respect to collectibility of the amount; however, the timing of recognition does not require significant judgments as it is based on either the term of the franchise ~~term,~~agreement, the month of reported sales by the franchisee or the date of product shipment, none of which require estimation.

The Company does not incur a significant amount of contract acquisition costs in conducting its franchising ~~activities and has not capitalized any such costs.~~activities. The Company believes its franchising arrangements do not contain a significant financing component.

~~Prior to~~The following table disaggregates franchise revenue by major type for the adoption of ASC 606, the Company generally recognized the entire franchise and/or development fee as revenue at the restaurant opening date. The impact on the Company's previously reported financial statements of the change from that policy to the policy described above is presented in Note 3 - Accounting Standards Adoptedthree months ended March 31, 2019 and ~~Newly Issued Accounting Standards Not Yet Adopted, of the Notes to Consolidated Financial Statements.~~2018:



	Three Months Ended
	March 31,
	2019		2018
	(In thousands)
Franchise Revenue:
Royalties	$	78,730	$	75,097
Advertising fees	72,630		63,836
Pancake and waffle dry mix sales and other	14,431		13,097
Franchise and development fees	3,135		3,283
Total franchise revenue	$	168,926	$	155,313

~~Prior to the adoption~~Receivables from franchisees as of ~~ASC 606, the Company did not record advertising fees received under Applebee's franchise agreements as franchise revenue. In evaluating advertising activity under the guidance~~March 31, 2019 and December 31, 2018 were $67.1 million (net of ~~ASC 606, the Company considers itself to be primarily responsible for fulfilling the promise to provide all~~allowance of ~~the services specified~~$2.1 million) and $62.6 million (net of allowance of $4.6 million), respectively, and were included in receivables, net in the contract, including advertising activities, which are not considered to be distinct services in the context of providing the right to the symbolic intellectual property. Accordingly, under ASC 606, the Company will record advertising fees received under Applebee's franchise agreements as franchise revenue. The Company had previously recorded advertising fees received under IHOP franchise agreements as franchise revenue. Under previously issued accounting guidance for franchisors, advertising revenue and expense were recognized in the same amount in each period. That guidance was superceded by ASC 606 such that advertising expense may now be different than the advertising revenue recognized as described above. The impact of these changes with respect to Applebee's advertising fees and advertising expenses on the Company's previously reported financial statements is presented in Note 3 - Accounting Standards Adopted and Newly Issued Accounting Standards Not Yet Adopted, of the Notes to Consolidated ~~Financial Statements.~~

~~The adoption of ASC 606 had no impact on the Company's recording of royalties and sales of proprietary pancake and waffle dry mix.~~Balance Sheets.

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Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

4. Revenue Disclosures (Continued)

~~The following table disaggregates our franchise revenue by major type for the three months ended March 31, 2018 and 2017:~~

Three Months Ended
March 31,
2018 2017
(In thousands)
Franchise Revenue:
Royalties $ 75,097
$ 77,772
Advertising fees 63,836
61,701
Pancake and waffle dry mix sales and other 13,097
12,434
Franchise and development fees 3,283
2,818
Total franchise revenue $ 155,313
$ 154,725

Receivables (both unbilled and billed) from franchise revenue transactions as of March 31, 2018 and December 31, 2017 were $69.8 million (net of allowance of $21.3 million) and $66.2 million (net of allowance of $22.2 million), respectively, and were included in receivables, net in the Consolidated Balance Sheets.

Changes in the Company's contract liability for deferred franchise and development fees during the three months ended March 31, ~~2018~~2019 are as follows:

Deferred Revenue (short- and long-term)
Balance at December 31, 2017 $ 81,433
Recognized as revenue during the three months ended March 31, 2018 (2,848 )
Fees received and deferred during the three months ended March 31, 2018 847
Balance at March 31, 2018 $ 79,432



	Deferred Franchise Revenue (short- and long-term)
	(In thousands)
Balance at December 31, 2018	$	74,695
Recognized as revenue during the three months ended March 31, 2019	(2,948		)
Fees deferred during the three months ended March 31, 2019	1,101
Balance at March 31, 2019	$	72,848

~~Company-operated Restaurants~~The balance of deferred revenue as of March 31, 2019 is expected to be recognized as follows:



	(In thousands)
Remainder of 2019	$	6,633
2020	10,066
2021	7,780
2022	7,251
2023	6,675
2024	5,987
Thereafter	28,456
Total	$	72,848

The Company currently does not operate any restaurants but did operate restaurants in the comparative prior period. Sales by company-operated restaurants were recognized when food and beverage items were sold and were reported net of sales taxes collected from guests that are remitted to the appropriate taxing authorities. Recognition of revenue from company-operated restaurants was not impacted by the adoption of ASC 606 using the full retrospective method.

5. Lease Disclosures

The Company engages in leasing activity as both a lessee and a lessor. The majority of the Company's lease portfolio originated when the Company was actively involved in the development and financing of IHOP restaurants prior to the franchising of the restaurant to the franchisee. This activity included the Company's leasing or purchase of the site on which the restaurant was located and subsequently leasing/subleasing the site to the franchisee. With a few exceptions, the Company ended this practice in 2003 and the Company's current lease activity is predominantly comprised of renewals of existing lease arrangements and exercises of options on existing lease arrangements.

The Company currently leases from third parties the real property on which approximately 620 IHOP franchisee-operated restaurants are located; the Company (as lessor) subleases the property to the franchisees that operate those restaurants. The Company also leases property it owns to the franchisees that operate approximately 60 IHOP restaurants and one Applebee's restaurant. The Company leases from third parties the real property on which 69 Applebee's company-operated restaurants are located. The Company also leases office space for its principal corporate office in Glendale, California and a restaurant support center in Kansas City, Missouri. The Company does not have a significant amount of non-real estate leases.

The Company's existing leases related to IHOP restaurants generally provided for an initial term of 20 to 25 years with most having one or more five-year renewal options. Option periods were not included in determining liabilities and right-of-use assets related to operating leases. Approximately 260 of the Company's leases contain provisions requiring additional rent payments to the Company (as lessor) based on a percentage of restaurant sales. Approximately 220 of the Company's leases contain provisions requiring additional rent payments by the Company (as lessee) based on a percentage of restaurant sales.

The individual lease agreements do not provide information to determine the implicit rate in the agreements. The Company made significant judgments in determining the incremental borrowing rates that were used in calculating operating lease liabilities as of the adoption date. Due to the large number of leases, the Company applied a portfolio approach by grouping the leases based on the original lease term. The Company estimated the rate for each grouping primarily by reference to yield rates on debt issuances by companies of a similar credit rating as the Company, U.S. Treasury rates as of the adoption date and adjustments for differences in years to maturity.

Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

5. Lease Disclosures (Continued)

The Company's lease cost for the three months ended March 31, 2019 was as follows:



Finance lease cost:	(In millions)
Amortization of right-of-use assets	$	1.3
Interest on lease liabilities	2.1
Operating lease cost	26.4
Variable lease cost	0.7
Short-term lease cost	0.0
Sublease income	(28.1		)
Lease cost	$	2.4

Future minimum lease payments under noncancelable leases as lessee as of March 31, 2019 were as follows:



	Finance Leases			Operating Leases
	(In millions)
2019 (remaining nine months)	$	15.8		$	69.0
2020	20.1			93.0
2021	16.5			76.0
2022	14.7			68.0
2023	11.6			55.6
Thereafter	65.0			212.7
Total minimum lease payments	143.7			574.3
Less: interest/imputed interest	(43.1		)	(120.6		)
Total obligations	100.6			453.7
Less: current portion	(13.0		)	(67.3		)
Long-term lease obligations	$	87.6		$	386.4

The weighted average remaining lease term as of March 31, 2019 was 8.6 years for finance leases and 8.1 years for operating leases. The weighted average discount rate as of March 31, 2019 was 10.4% for finance leases and 5.8% for operating leases.

During the three months ended March 31, 2019, the Company made the following payments for leases:



	(In millions)
Principal payments on finance lease obligations	$	3.5
Interest payments on finance lease obligations	$	2.0
Payments on operating leases	$	22.9
Variable lease payments	$	0.9

The Company's income from operating leases for the three months ended March 31, 2019 was as follows:



	(In millions)
Minimum lease payments	$	25.7
Variable lease income	3.2
Total operating lease income	$	28.9

Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

5. Lease Disclosures (Continued)

Future minimum payments to be received as lessor under noncancelable operating leases as of March 31, 2019 were as follows:



	(In millions)
2019 (remaining nine months)	$	79.5
2020	107.1
2021	101.2
2022	98.1
2023	93.7
Thereafter	288.3
Total minimum rents receivable	767.9

The Company's income from direct financing leases for the three months ended March 31, 2019 was as follows:



	(In millions)
Interest income	$	1.4
Variable lease income	0.4
Total operating lease income	$	1.8

Future minimum payments to be received as lessor under noncancelable direct financing leases as of March 31, 2019 were as follows:



	(In millions)
2019 (remaining nine months)	$	12.1
2020	14.8
2021	11.7
2022	8.4
2023	3.6
Thereafter	3.7
Total minimum rents receivable	54.3
Less: unearned income	(11.4		)
Total net investment in direct financing leases	42.9
Less: current portion	(11.2		)
Long-term investment in direct financing leases	$	31.7

6. Long-Term Debt

At March 31, 2019 and December 31, 2018, long-term debt consisted of the following:



	March 31, 2019			December 31, 2018
	(In millions)
Series 2014-1 4.277% Fixed Rate Senior Secured Notes, Class A-2	$	1,283.8		$	1,283.8
Series 2018-1 Variable Funding Senior Notes Class A-1, variable interest rate of 4.93% at December 31, 2018	—			25.0
Class A-2 Note debt issuance costs	(8.9		)	(9.7		)
Long-term debt, net of debt issuance costs	1,274.9			1,299.1
Current portion of long-term debt	—			(25.0		)
Long-term debt	$	1,274.9		$	1,274.1

For a description of the Series 2014-1 4.277% Fixed Rate Senior Secured Notes, Class A-2 and the Series 2018-1 Variable Funding Notes Class A-1, 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, 2018.

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DineEquity, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

6. Long-Term Debt (Continued)

During the three months ended March 31, 2019, the Company repaid $25.0 million of Variable Funding Notes, representing the amount outstanding at December 31, 2018. The Company did not draw on the Variable Funding Notes during the three months ended March 31, 2019. The maximum amount of Variable Funding Notes outstanding during the three months ended March 31, 2019 was $25.0 million and the weighted average interest rate on the Variable Funding Notes for the period outstanding was 4.88%.

At March 31, 2019, $2.2 million was pledged against the Variable Funding Notes for outstanding letters of credit, leaving $222.8 million of 2018 Variable Funding Notes available for borrowing. The letters of credit are used primarily to satisfy insurance-related collateral requirements.

7. Stockholders' Deficit

Dividends

During the three months ended March 31, ~~2018~~,2019, the Company paid dividends on common stock of ~~$17.5~~$11.2 million, representing a cash ~~dividends~~dividend of ~~$0.97~~$0.63 per share declared in the fourth quarter of ~~2017.~~2018. On February ~~14, 2018,~~20, 2019, the Company's Board of Directors declared a first quarter ~~2018~~2019 cash dividend of ~~$0.63~~$0.69 per share of common stock. This dividend was paid on April ~~6, 2018~~5, 2019 to ~~the Company's~~ stockholders of record at the close of business on March ~~19, 2018.~~20, 2019. The Company reported dividends payable of ~~$11.5~~$12.5 million at March 31, ~~2018.~~2019.

Dividends declared and paid per share for the three months ended March 31, 2019 and 2018 were as follows:



	Three months ended March 31,
	2019		2018
Dividends declared per common share	$	0.69	$	0.63
Dividends paid per common share	$	0.63	$	0.97

Stock Repurchase Program

In February 2019, the Company’s Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $200 million of the Company’s common stock (“2019 Repurchase Program”) on an opportunistic basis from time to time in the open market or in privately negotiated transactions based on business, market, applicable legal requirements and other considerations. The 2019 Repurchase Program, as approved by the Board of Directors, does not require the repurchase of a specific number of shares and can be terminated at any time.

In October 2015, the Company's Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $150 million of its common stock (the “2015 Repurchase Program”) on an opportunistic basis from time to time in open market transactions and in privately negotiated transactions based on business, market, applicable legal requirements and other considerations. The 2015 Repurchase Program, as approved by the Board of Directors, ~~does~~did not require the repurchase of a specific number of shares and ~~can~~could be terminated at any time. In connection with the approval of the 2019 Repurchase Program, the Board of Directors terminated the 2015 Repurchase Program.

A summary of shares repurchased under the 2019 Repurchase Program and the 2015 Repurchase Program, during the three months ended March 31, ~~2018~~2019 and cumulatively, is as follows:



	Shares	Cost of shares
		(In millions)
2019 Repurchase Program:
Repurchased during the three months ended March 31, 2019	40,817	$	3.6
Cumulative (life-of-program) repurchases	40,817	$	3.6
Remaining dollar value of shares that may be repurchased	n/a	$	196.4
2015 Repurchase Program:
Repurchased during the three months ended March 31, 2019	110,499	$	8.4
Cumulative (life-of-program) repurchases	1,589,995	$	126.2
Remaining dollar value of shares that may be repurchased	n/a	n/a

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Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

5.7. Stockholders' ~~Equity~~Deficit (Continued)

2015 Repurchase Program Shares Cost of shares
(In millions)
Repurchased during the three months ended March 31, 2018 138,638
$ 10.0
Cumulative repurchases as of March 31, 2018 1,139,295
$ 92.9
Remaining dollar value of shares that may be repurchased n/a $ 57.1

Treasury Stock

Repurchases of the Company's common stock are included in treasury stock at the cost of shares repurchased plus any transaction costs. Treasury stock may be re-issued when stock options are exercised, when restricted stock awards are granted and when restricted stock units settle in stock upon vesting. The cost of treasury stock re-issued is determined using the first-in, first-out (“FIFO”) method. During the three months ended March 31, ~~2018,~~2019, the Company re-issued ~~76,896~~168,047 shares of treasury stock at a total FIFO cost of ~~$3.0~~$7.4 million.

6.8. Income Taxes

The Company's effective tax rate was 23.1% for the three months ended March 31, 2019 as compared to 24.8% for the three months ended March 31, ~~2018 as compared to 40.0%~~2018. The effective tax rate of 23.1% for the three months ended March 31, ~~2017.~~ T~~he effective tax rate of 24.8% for the three months ended March 31, 2018~~2019 was ~~significantly~~ lower than the rate of the prior period primarily due to ~~the federal statutory~~excess tax ~~rate decreasing from 35% to 21% in accordance with the Tax Cuts and Jobs Act enacted in December 2017.~~benefits on stock-based compensation.

The total gross unrecognized tax benefit as of March 31, ~~2018~~2019 and December 31, ~~2017~~2018 was ~~$6.1~~$5.2 million and ~~$5.9~~$5.2 million, respectively, excluding interest, penalties and related tax benefits. The Company estimates the unrecognized tax benefit may decrease over the upcoming 12 months by an amount up to ~~$3.1~~$0.9 million related to settlements with taxing authorities and the lapse of statutes of limitations. For the remaining liability, due to the uncertainties related to these tax matters, the Company is unable to make a reasonably reliable estimate as to when cash settlement with a taxing authority will occur.

As of March 31, ~~2018,~~2019, accrued interest was ~~$1.0~~$1.3 million and accrued penalties were less than $0.1 million, excluding any related income tax benefits. As of December 31, ~~2017,~~2018, accrued interest was $1.1 million and accrued penalties were less than $0.1 million, excluding any related income tax benefits. The Company recognizes interest accrued related to unrecognized tax benefits and penalties as a component of its income tax provision recognized in its Consolidated Statements of Comprehensive Income.

The Company files federal income tax returns and the Company or one of its subsidiaries files income tax returns in various ~~states~~state and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state or non-United States tax examinations by tax authorities for years before 2011. The Internal Revenue Service commenced examination of the Company’s U.S. federal income tax return for the tax years 2011 to 2013 in fiscal year 2016. The examination is anticipated to conclude during fiscal year ~~2018.~~2019. The Company believes that adequate reserves have been provided relating to all matters contained in the tax periods open to examination.

The Securities and Exchange Commission has issued guidance which provides for a measurement period of one year from the enactment date to finalize the accounting for effects of the Tax Act. Consistent with that guidance, the Company provisionally recorded income tax benefit of $77.5 million related to the Tax Act in the fourth quarter of 2017. As of March 31, 2018, we have not yet completed our accounting for the tax effects of the enactment of the Tax Act. The Internal Revenue Service is expected to issue additional guidance clarifying provisions of the Act. As additional guidance is issued, one or more of the provisional amounts may change.

7.9. Stock-Based Compensation

The following table summarizes the components of stock-based compensation expense included in general and administrative expenses in the Consolidated Statements of Comprehensive Income:



	Three months ended March 31,
	2019			2018
	(In millions)
Total stock-based compensation expense:
Equity classified awards expense	$	4.1		$	3.4
Liability classified awards expense	1.0			0.5
Total pre-tax stock-based compensation expense	5.1			3.9
Book income tax benefit	(1.3		)	(1.0		)
Total stock-based compensation expense, net of tax	$	3.8		$	2.9

As of March 31, 2019, total unrecognized compensation expense of $24.1 million related to restricted stock and restricted stock units and $5.8 million related to stock options are expected to be recognized over a weighted average period of 1.7 years for restricted stock and restricted stock units and 1.8 years for stock options.

1114

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Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

7.9. Stock-Based Compensation (Continued)

Three months ended March 31,
2018 2017
(In millions)
Total stock-based compensation expense:
Equity classified awards expense $ 3.4
$ 6.2
Liability classified awards expense 0.5
0.2
Total pre-tax stock-based compensation expense 3.9
6.4
Book income tax benefit (1.0 ) (2.4 )
Total stock-based compensation expense, net of tax $ 2.9
$ 4.0

~~As of~~ ~~March 31, 2018~~, total unrecognized compensation expense of $22.8 million related to restricted stock and restricted stock units and $5.0 million related to stock options are expected to be recognized over a weighted average period of 2.0 years for restricted stock and restricted stock units and 2.0 years for stock options.

Fair Value Assumptions

The Company granted ~~209,634~~132,832 stock options during the three months ended March 31, ~~2018~~2019 for which the fair value was estimated using a Black-Scholes option pricing model. The following summarizes the assumptions used in the Black-Scholes model:



Risk-free interest rate	~~2.6~~2.5	%
Weighted average historical volatility	~~26.0~~30.3	%
Dividend yield	~~3.7~~2.8	%
Expected years until exercise	~~4.6~~4.7
Weighted average fair value of options granted	$~~11.77~~

The Company granted 25,330 performance-based stock options and 26,670 performance-based restricted stock units during the three months ended March 31, 2018 for which the fair value was estimated using a Monte Carlo simulation method. The following summarizes the assumptions used in estimating the fair values:



~~Risk-free interest rate~~	~~2.4~~	%
~~Weighted average historical volatility~~	~~33.0~~	%
~~Dividend yield~~	~~3.7~~	%
~~Expected years until exercise~~	~~3.0~~
~~Weighted average fair value of options granted~~	~~$9.79~~
~~Weighted average fair value of restricted stock units granted~~	~~$34.53~~21.93

Equity Classified Awards - Stock Options

Stock option balances at March 31, ~~2018~~2019, and activity for the three months ended March 31, ~~2018~~2019 were as follows:

Shares
Weighted
Average
Exercise
Price

Weighted Average
Remaining
Contractual Term
(in Years)

Aggregate
Intrinsic
Value (in Millions)
Outstanding at December 31, 2017 1,272,048
$ 61.44

Granted 234,964
68.71

Exercised (8,527 ) 53.49

Outstanding at March 31, 2018 1,498,485
62.63
7.2 $ 15.1
Vested at March 31, 2018 and Expected to Vest 1,295,298
64.44
6.8 $ 11.9
Exercisable at March 31, 2018 632,737
$ 74.90
4.2 $ 3.3



	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (in Millions)
Outstanding at December 31, 2018	1,439,708		$	63.21
Granted	132,832		98.97
Exercised	(116,590	)	58.05
Outstanding at March 31, 2019	1,455,950		66.88		6.8	$	38.2
Vested at March 31, 2019 and Expected to Vest	1,311,896		67.76		6.6	$	33.3
Exercisable at March 31, 2019	682,494		$	75.92	4.6	$	12.1

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 ~~2018~~2019 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

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~~Dine Brands Global, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~7. Stock-Based Compensation (Continued)~~

exercised their options on March 31, ~~2018~~2019. The 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.

Equity Classified Awards - Restricted Stock and Restricted Stock Units

Outstanding balances as of March 31, ~~2018~~2019, and activity related to restricted stock and restricted stock units for the three months ended March 31, ~~2018~~2019 were as follows:


	Restricted Stock		Weighted Average Grant Date Fair Value		Restricted Stock Units		Weighted Average Grant Date Fair Value		Restricted Stock		Weighted Average Grant Date Fair Value		Stock-Settled Restricted Stock Units		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2017	275,191		$	65.81	303,348		$	28.39
Outstanding at December 31, 2018									267,242		$	63.97	374,529		$	31.05
Granted	68,369		66.88		49,706		47.85		51,457		98.58		13,464		98.97
Released	(39,728	)	87.61		(10,734	)	112.74		(48,022	)	79.60		(12,293	)	90.34
Forfeited	(4,628	)	60.58		(71	)	53.49		(2,562	)	48.22		—		—
Outstanding at March 31, 2018	299,204		$	63.25	342,248		$	28.25
Outstanding at March 31, 2019									268,115		$	69.96	375,700		$	30.95

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Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

9. Stock-Based Compensation (Continued)

Liability Classified Awards - Cash-settled Restricted Stock Units

The Company has granted cash-settled restricted stock units to certain employees. These instruments are recorded as liabilities at fair value as of the respective period end. ~~During the three months ended March 31, 2018, 54,822 units were issued and 365 units were forfeited. At March 31, 2018, there were 54,457 units outstanding.~~



	Cash-Settled Restricted Stock Units		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2018	53,766		$	94.77
Granted	19,736		91.05
Released	(317	)	82.16
Forfeited	(3,622	)	98.96
Outstanding at March 31, 2019	69,563		$	93.58

For the three months ended March 31, 2019, and 2018, $0.6 million and $0.1 million, respectively, was included as stock-based compensation expense related to cash-settled restricted stock units.

Liability Classified Awards - Long-Term Incentive Awards

The Company has granted cash long-term incentive awards (“LTIP awards”) to certain employees. Annual LTIP awards vest over a three-year period and are determined using ~~a multiplier~~multipliers from 0% to 200% of the target award based on (i) the total stockholder return of Dine Brands Global common stock compared to the total stockholder returns of a peer group of ~~companies. Although LTIP awards are only paid~~companies and (ii) the percentage increase in ~~cash, since the multiplier is based on the price of~~ the Company's ~~common stock, the~~adjusted earnings per share (as defined). The awards are considered stock-based compensation ~~in accordance with U.S. GAAP~~ and are classified as ~~liabilities.~~liabilities measured at fair value as of the respective period end. For the three months ended March 31, ~~2018~~2019 and ~~2017,~~2018, $0.4 million and ~~$0.2~~$0.4 million, respectively ~~was~~were included in total stock-based compensation expense related to LTIP awards. At March 31, ~~2018~~2019 and December 31, ~~2017~~,2018, liabilities of ~~$0.6~~$1.7 million and ~~$0.2~~$2.4 million, respectively, related to LTIP awards were included as part of accrued employee compensation and benefits in the Consolidated Balance Sheets.

8.10. Segments

The Company identifies its reporting segments based on the organizational units used by management to monitor performance and make operating decisions. The Company currently has ~~four~~five operating segments: Applebee's franchise operations, Applebee's company-operated restaurant operations, IHOP franchise operations, rental operations and financing operations. ~~Prior to June 2017, the Company operated 10 IHOP restaurants and those operations were considered to be a fifth operating segment.~~ The Company has four reportable segments: franchise operations, (an aggregation of Applebee's and IHOP franchise operations), company-operated restaurant operations, rental operations ~~financing operations~~ and ~~company-operated restaurant~~financing operations. The Company considers these to be its reportable segments, regardless of whether any segment exceeds 10% of consolidated revenues, income before income tax provision or total assets.

As of March 31, ~~2018,~~2019, the franchise operations segment consisted of (i) ~~1,912~~1,761 restaurants operated by Applebee’s franchisees in the United States, two U.S. territories and 1513 countries outside the United States and (ii) ~~1,791~~1,822 restaurants operated by IHOP franchisees and area licensees in the United States, three U.S. territories and 12 countries outside the United States. Franchise operations revenue consists primarily of franchise royalty revenues, franchise advertising revenue, sales of proprietary products to franchisees (primarily pancake and waffle dry mixes for the IHOP restaurants), and franchise fees. Franchise operations expenses include advertising expenses, the cost of IHOP proprietary products, bad debt expense, franchisor contributions to marketing funds, pre-opening training expenses and other franchise-related costs.

Company restaurant sales are retail sales at company-operated restaurants. Company restaurant expenses are operating expenses at company-operated restaurants and include food, labor, utilities, rent and other restaurant operating costs.

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 from capital leases on franchisee-operated restaurants.

~~Table of Contents~~

~~Dine Brand Global, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~8. Segments (Continued)~~

Financing operations revenue primarily consists of interest income from the financing of franchise fees and equipment leases and sales of equipment associated with refranchised IHOP restaurants. Financing expenses are primarily the cost of restaurant equipment associated with refranchised IHOP restaurants.

Company restaurant sales were retail sales at company-operated restaurants. Company restaurant expenses were operating expenses at company-operated restaurants and include food, labor, utilities, rent and other restaurant operating costs. In June 2017, the Company refranchised nine of ten company-operated restaurants in the Cincinnati, Ohio market area; the one restaurant not refranchised was permanently closed. As a result, the Company no longer operates any restaurants on a permanent basis. The Company has not presented these restaurants as discontinued operations as defined by U.S. GAAP because the refranchising of nine restaurants out of a total of over 3,700 restaurants did not represent a strategic shift that had a major effect on the Company's operations.

From time to time, the Company may operate restaurants reacquired from franchisees on a temporary basis until those restaurants are refranchised. There were no restaurants under temporary operation at March 31, 2018.

~~Information on segments is as follows:~~

Three months ended March 31,
2018 2017 (as adjusted)
(In millions)
Revenues from external customers:
Franchise operations $ 155.3
$ 154.7
Rental operations 30.9
30.5
Company restaurants —
4.2
Financing operations 2.0
2.1
Total $ 188.2
$ 191.5

Interest expense:
Rental operations $ 2.4
$ 2.7
Company restaurants —
0.1
Corporate 15.2
15.4
Total $ 17.6
$ 18.2

Depreciation and amortization:
Franchise operations $ 2.7
$ 2.7
Rental operations 2.9
3.0
Company restaurants —
0.1
Corporate 2.3
1.9
Total $ 7.9
$ 7.7

Gross profit, by segment:
Franchise operations $ 73.4
$ 84.6
Rental operations 8.2
7.8
Company restaurants —
(0.2 )
Financing operations 1.9
2.1
Total gross profit 83.5
94.3
Corporate and unallocated expenses, net (60.8 ) (68.3 )
Income before income tax provision $ 22.7
$ 26.0

1416

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Dine ~~Brands~~Brand Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

10. Segments (Continued)

9.Information on segments is as follows:



		Three months ended March 31,
		2019			2018
	(In millions)
Revenues from external customers:
Franchise operations		$	168.9		$	155.3
Rental operations		30.7			30.9
Company restaurants		35.8			—
Financing operations		1.8			2.0
Total		$	237.2		$	188.2

Interest expense:
Rental operations		$	2.5		$	2.4
Company restaurants		0.5			—
Corporate		15.4			15.2
Total		$	18.4		$	17.6

Depreciation and amortization:
Franchise operations		$	2.6		$	2.7
Rental operations		3.5			$	2.9
Company restaurants		1.3			—
Corporate		2.8			2.3
Total		$	10.2		$	7.9

Gross profit, by segment:
Franchise operations		$	88.6		$	73.4
Rental operations		8.1			8.2
Company restaurants		4.2			—
Financing operations		1.7			1.9
Total gross profit		102.6			83.5
Corporate and unallocated expenses, net		(61.5		)	(60.8		)
Income before income tax provision		$	41.1		$	22.7

11. 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,						Three months ended March 31,
	2018			2017 (as adjusted)			2019			2018
	(In thousands, except per share data)						(In thousands, except per share data)
Numerator for basic and diluted income per common share:
Net income	$	17,073		$	15,595		$	31,643		$	17,073
Less: Net income allocated to unvested participating restricted stock	(568		)	(283		)	(1,111		)	(568		)
Net income available to common stockholders - basic	16,505			15,312			30,532			16,505
Effect of unvested participating restricted stock in two-class calculation	2			—			12			2
Net income available to common stockholders - diluted	$	16,507		$	15,312		$	30,544		$	16,507
Denominator:
Weighted average outstanding shares of common stock - basic	17,703			17,694			17,343			17,703
Dilutive effect of stock options	142			43			347			142
Weighted average outstanding shares of common stock - diluted	17,845			17,737			17,690			17,845
Net income per common share:
Basic	$	0.93		$	0.87		$	1.76		$	0.93
Diluted	$	0.92		$	0.86		$	1.73		$	0.92

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Dine Brands Global, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

~~10.~~12. Fair Value Measurements

The Company does not have a material amount of financial assets or liabilities that are required under U.S. GAAP to be measured on a recurring basis at fair value. The Company is not a party to any derivative financial instruments. The Company does not have a material amount of non-financial assets or non-financial liabilities that are required under U.S. GAAP to be measured at fair value on a recurring basis. The Company has not elected to use the fair value measurement option, as permitted under U.S. GAAP, for any assets or liabilities for which fair value measurement is not presently required.

The Company believes the fair values of cash equivalents, accounts receivable and accounts payable approximate their carrying amounts due to their short duration.

The fair values of the Company's Series 2014-1 Class A-2 Notes (the “Class A-2 Notes”) at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows:

March 31, 2018 December 31, 2017
Carrying Amount Fair Value Carrying Amount Fair Value
(In millions)
Long-term debt, current and long-term $ 1,280.4
$ 1,277.3
$ 1,282.8
$ 1,265.5



	March 31, 2019		December 31, 2018
	(In millions)
Carrying amount of Class A-2 Notes	$	1,283.8	$	1,283.8
Fair Value of Class A-2 Notes	$	1,289.0	$	1,280.9

The fair values were determined based on Level 2 inputs, including information gathered from brokers who trade in the Company’s Class A-2 Notes and information on notes that are similar to those of the Company.

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~~Dine Brands Global, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Continued)~~

~~11.~~13. Commitments and Contingencies

Litigation, Claims and Disputes

The Company is subject to various lawsuits, administrative proceedings, audits and claims arising in the ordinary course of business. Some of these lawsuits purport to be class actions and/or seek substantial damages. The Company is required under U.S. GAAP to record an accrual for litigation loss contingencies that are both probable and reasonably estimable. Legal fees and expenses associated with the defense of all of the Company's litigation are expensed as such fees and expenses are incurred. Management regularly assesses the Company's insurance coverage, analyzes litigation information with the Company's attorneys and evaluates the Company's loss experience in connection with pending legal proceedings. While the Company does not presently believe that any of the legal proceedings to which it is currently a party will ultimately have a material adverse impact on the Company, there can be no assurance that the Company will prevail in all the proceedings the Company is party to, or that the Company will not incur material losses from them.

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 has potential continuing liability for lease payments totaling ~~$300.6~~$280.0 million as of March 31, ~~2018~~2019. This amount represents the maximum potential liability for 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 ~~2018~~2019 through 2048. Excluding unexercised option periods, the Company's potential liability for future payments under these leases is ~~$50.0~~$42.1 million. In the event of default, the indemnity and default clauses in the sale or assignment agreements govern the Company's ability to pursue and recover damages incurred.

~~12.~~14. Restricted Cash

Current restricted cash of ~~$32.4~~$36.7 million at March 31, ~~2018~~2019 primarily consisted of ~~$31.2~~$33.7 million of funds required to be held in trust in connection with the Company's securitized debt and ~~$1.2~~$2.9 million of funds from Applebee's franchisees pursuant to franchise agreements, usage of which was restricted to advertising activities. Current restricted cash of ~~$31.4~~$48.5 million at December 31, ~~2017~~2018 primarily consisted of ~~$29.3~~$42.3 million of funds required to be held in trust in connection with the Company's securitized debt and ~~$2.1~~$6.2 million of funds from Applebee's franchisees pursuant to franchise agreements, usage of which was restricted to advertising activities.

Non-current restricted cash of $14.7 million at March 31, ~~2018~~2019 and December 31, ~~2017~~2018 represents interest reserves required to be set aside for the duration of the Company's securitized debt.

11. Facility Exit Costs (Continued)

15. Acquisition of Business

In December 2018, the Company acquired 69 Applebee’s restaurants in North Carolina and South Carolina from a former Applebee's franchisee for a total purchase price of $21.6 million. The Company entered into the transaction to resolve certain franchisee financial health issues in what the Company believes was the most expedient and favorable manner for the Company and the Applebee's system.

During the three months ended March 31, 2019, the Company completed the calculation of deferred income taxes related to the transaction and adjusted the preliminary purchase price as follows:



	Preliminary Allocation			Adjustments			Adjusted Allocation
	(In millions)
Reacquired franchise rights	$	11.6		$	—		$	11.6
Equipment and fixtures	10.0			—			10.0
Inventory	1.4			—			1.4
Deferred income taxes	—			1.5			1.5
Total identifiable assets acquired	23.0			1.5			24.5

Above-market leaseholds, net	(6.5		)	—			(6.5		)
Other liabilities	(1.0		)	—			(1.0		)
Net identifiable assets acquired	15.5			1.5			17.0
Goodwill	6.1			(1.5		)	4.6
Consideration transferred	$	21.6		$	—		$	21.6

In conjunction with the acquisition, the Company assumed capital (finance) lease obligations and related property under capital (finance) leases of $9.1 million. The Company also entered into new capital (finance) leases totaling $28.1 million of property under capital (finance) leases and capital (finance) lease obligations.

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

~~Cautionary Statement Regarding Forward-Looking Statements~~

Statements contained in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. You can identify these forward-looking statements by words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan,” “goal” and other similar expressions. You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors,” as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the United States Securities and Exchange Commission. The forward-looking statements contained in this report are made as of the date hereof and the Company assumes no obligation to update or supplement any forward-looking statements.

You should read the following Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this report. Statements contained in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to the section of this report under the heading “Cautionary Statement Regarding Forward-Looking Statements” for more information.

Overview

The following discussion and analysis provides information which we believe is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes thereto and the MD&A contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~.2018. Except where the context indicates otherwise, the words “we,” “us,” “our,” “Dine Brands Global” and the “Company” refer to Dine Brands Global, Inc. ~~(formerly DineEquity, Inc.)~~, together with its subsidiaries that are consolidated in accordance with United States generally accepted accounting principles (“U.S. GAAP”).

Through various subsidiaries, we own, franchise and ~~franchise~~operate the Applebee's Neighborhood Grill & Bar^® (“Applebee's”) concept in the bar and grill segment within the casual dining category of the restaurant industry and we own and franchise the International House of Pancakes^® (“IHOP”) concept in the family dining category of the restaurant industry. References herein to Applebee's^®and IHOP^® restaurants are to these two restaurant concepts, whether operated by franchisees, or area licensees and their sub-licensees (collectively, “area licensees”). or by us. With over ~~3,700~~3,600 restaurants combined, ~~all~~the substantial majority of which are franchised, we believe we are one of the largest full-service restaurant companies in the world.

We identify our ~~reporting~~business segments based on the organizational units used by management to monitor performance and make operating decisions. We currently have ~~four~~five operating segments: Applebee's franchise operations, Applebee's company-operated restaurant operations, IHOP franchise operations, rental operations and financing operations. ~~Prior to June 2017, we operated 10 IHOP restaurants and those operations were considered to be a fifth operating segment.~~ We have four reportable segments: franchise operations, (an aggregation of Applebee's and IHOP franchise operations), company-operated restaurant operations, rental operations ~~financing operations~~ and ~~company-operated restaurant~~financing operations. We consider these to be our reportable segments, regardless of whether any segment exceeds 10% of consolidated revenues, income before income tax provision or total assets.

The financial tables appearing in Management's Discussion and Analysis present amounts in millions of dollars that are rounded from our consolidated financial statements presented in thousands of dollars. As a result, the tables may not foot or crossfoot due to rounding.

Key Financial Results


											Three months ended March 31,						Favorable (Unfavorable) Variance
		Three months ended March 31,						Favorable (Unfavorable) Variance			2019			2018			Favorable (Unfavorable) Variance
		2018			2017 (as adjusted)			Favorable (Unfavorable) Variance
	(In millions, except per share data)										(In millions, except per share data)
Income before income taxes		$	22.7		$	26.0		$	(3.3	)	$	41.1		$	22.7		$	18.4
Income tax provision		(5.6		)	(10.4		)	4.8			(9.5		)	(5.6		)	(3.9		)
Net income		$	17.1		$	15.6		$	1.5		$	31.6		$	17.1		$	14.6

Effective tax rate		24.8		%	40.0		%	15.2		%	23.1		%	24.8		%	1.7		%

								% increase (decrease)
Net income per diluted share		$	0.92		$	0.86		7.0		%	$	1.73		$	0.92		$	0.81
Weighted average shares		17.8			17.7			0.6		%

~~Our net~~The following table highlights the primary reasons for the increase in our income before income taxes in the three months ended March 31, 2019 compared to the same period of 2018:



	Favorable (Unfavorable) Variance
	Favorable (Unfavorable) Variance
	(In millions)
Increase (decrease) in gross profit:
Applebee's franchise operations	$	13.4
IHOP franchise operations	1.8
Company restaurant operations	4.2
All other operations	(0.3		)
Total gross profit increase	19.1
Increase in General and Administrative (“G&A”) expenses	(0.9		)
Other	0.2
Increase in income before income taxes	$	18.4

The changes in Applebee's franchise gross profit for the three months ended March 31, ~~2018 increased 9.5% from~~2019 compared to the ~~the comparable~~same period of ~~2017 (as adjusted). A decrease~~the prior year were primarily due to franchisor contributions to the Applebee’s National Advertising Fund (the “Applebee's NAF”) of $13.5 million we made during the three months ended March 31, 2018 that did not recur in ~~income before income taxes was more than offset by a larger decrease in~~2019. See “Consolidated Results of Operations - Comparison of the ~~effective tax rate~~Three Months ended March 31, 2019 and ~~in turn,~~2018” for additional discussion of the changes presented above.

Our effective income tax ~~provision. The December 2017 enactment of the Tax Cuts and Jobs Act (the “Tax Act”) reduced the federal statutory tax~~ rate ~~from 35% to 21%, effective January 1, 2018. The decrease in our effective tax rate was approximately the same as the decrease in the federal statutory rate resulting from the Tax Act.~~

~~On January 1, 2018, we adopted the guidance of Accounting Standards Codification 606 -~~ ~~Revenue from Contracts with Customers~~ (“ASC 606”) using the full retrospective method. Accordingly, previously reported financial information has been restated to reflect the application of ASC 606 to all comparative periods presented. The retrospective adoption of ASC 606 increased our net income for the three months ended March 31, ~~2017 by $1.2 million, approximately $0.07 per diluted share. See Notes 3 and 4~~2019 was lower than the comparable period of 2018 due to the ~~Notes to Consolidated Financial Statements for additional discussion~~recognition of ~~our adoption of ASC 606.~~

~~The following sets forth the significant reasons for the decrease in our income before income taxes between~~excess tax benefits on stock-based compensation during the three months ended March 31, ~~2018 and the comparable period of 2017 (as adjusted):~~

(In millions)
Decrease in gross profit:
Applebee's franchise operations $ (13.3 )
IHOP franchise operations 2.2

All other operations 0.3

Total gross profit decrease (10.8 )
Decrease in General and Administrative (“G&A”) expenses:
Decrease due to executive separation costs in 2017 8.8

Increase in all other G&A (net) (0.4 )
Total G&A decrease 8.4

Increase in closure charges (2.4 )
Increase in gain on disposition of assets 1.3

Other 0.2

Decrease in income before income taxes $ (3.3 )
2019.

Key Performance Indicators

In evaluating the performance of each restaurant concept, we consider the key performance indicators to be the system-wide sales percentage change, the percentage change in domestic system-wide same-restaurant sales (“domestic same-restaurant sales” ~~and~~), net franchise restaurant ~~development.~~development and the change in effective restaurants. Changes in both domestic same-restaurant sales and in the number of Applebee's and IHOP ~~franchise~~ restaurants will impact our system-wide retail sales that drive franchise royalty revenues. Restaurant development also impacts franchise revenues in the form of initial franchise fees and, in the case of IHOP restaurants, sales of proprietary pancake and waffle dry mix.

~~An overview of these~~Our key performance indicators for the three months ended March 31, ~~2018 is~~2019 were as follows:

Three months ended March 31, 2018
Applebee's IHOP
Sales percentage increase 0.9 % 3.9 %
% increase in domestic same-restaurant sales 3.3 % 1.0 %
Net franchise restaurant (reduction) development ⁽¹⁾
(24 ) 5



	Three months ended March 31, 2019
	Applebee's		IHOP
Sales percentage (decrease) increase	(1.4	)%	2.4	%
% increase in domestic system-wide same-restaurant sales	1.8	%	1.2	%
Net franchise restaurant reductions ⁽¹⁾	(7	)	(9	)
Net (decrease) increase in total effective restaurants ⁽²⁾	(92	)	30

⁽¹⁾ Franchise and area license restaurant openings, net of closings, during the three months ended March 31, 2019.

⁽²⁾Change in effective franchise, area license and company-operated restaurants open for the three months ended March 31, 2019 compared to the same period of 2018.

The Applebee's sales percentage ~~increase~~decrease for the three months ended March 31, 2019 when compared to the same period of 2018 was due to restaurant closures over the past 12 months that were partially offset by an increase in domestic same-restaurant ~~sales that was partially offset by restaurant closures.~~sales. The IHOP sales percentage increase for the three months ended March 31, ~~2018~~2019 was due to net restaurant development over the past 12 months and an increase in domestic same-restaurant sales.

Detailed information on each of these key performance indicators is presented under the captions “Domestic Same-Restaurant Sales,” “Restaurant Data” and “Restaurant Development Activity” that follow.

Domestic Same-Restaurant Sales

Applebee’s domestic same-restaurant sales increased ~~3.3%~~1.8% for the three months ended March 31, ~~2018~~2019 from the same period in ~~2017. This was~~2018, the ~~largest increase for a quarterly period for Applebee's since the first~~sixth consecutive quarter of ~~2011.The~~growth in same-restaurant sales. The improvement resulted from an increase in average customer ~~traffic~~check that was partially offset by a ~~small decrease~~decline in customer traffic. The increase in domestic same-restaurant sales for three months ended March 31, 2019 primarily was due to an increase in off-premise sales, which comprised 13% of Applebee's sales mix during the quarter.

The increase in same-restaurant sales for the three months ended March 31, 2019 was impacted by comparisons against significant increases in same-restaurant sales and traffic for the three months ended March 31, 2018. In terms of a two-year comparison, Applebee's domestic same-restaurant sales have grown 5.1%, with increases in both average customer ~~check.~~check and customer traffic.

Based on data from Black Box Intelligence, a restaurant sales reporting firm (“Black Box”), Applebee's outperformed the casual dining segment of the restaurant industry during the three months ended March 31, ~~2018.~~2019. During that period, the casual dining segment experienced ~~a decrease~~an increase in same-restaurant sales ~~due to a decline in customer traffic~~ that was ~~partially offset by an increase in average customer check.~~

We believe the differential between Applebee's performance and that of the casual dining segment is due to a multi-faceted strategy we began implementing in the latter half of 2017 to address a two-year decline in Applebee's same-restaurant sales that started in the second half of 2015. The goal of that strategy was to redefinesmaller than the Applebee's ~~brand identity and culture and reconnect with what historically had been our core customer base. Our recent marketing, culinary and operational initiatives appear~~increase, due to ~~have resonated positively with our guests as customer traffic has increased in each of the past two quarters.~~

We and the Applebee's franchisees are making significant investments in national marketing. Virtually all domestic Applebee’s franchisees have entered into an amendment to their franchise agreements that will increase their contribution to the Applebee’s National Advertising Fund (the “Applebee's NAF”) by 0.25% to 3.50% of their gross sales and decrease their minimum local promotional expenditures to 0.25% of their gross sales for the period from January 1, 2018 to December 31, 2019. Such franchisees have also agreed to an incremental temporary increase in the advertising contribution rate, subject to certain contingencies. We will contribute $30 million to the Applebee's NAF during the first six months of 2018, of which $13.5 million was contributed during the three months ended March 31, 2018. As discussed under Consolidated Results of Operations - Franchise Operations, our contributions to the Applebee's NAF had an adverse impact on franchise operations gross profit for that period.

~~IHOP’s domestic same-restaurant sales increased 1.0% for the three months ended March 31, 2018 from the same period in 2017. The improvement resulted from~~ an increase in average customer check that was partially offset by a decline in customer traffic. ~~IHOP~~Applebee's increase in average customer check for the three months ended March 31, 2019 was larger than that of the casual dining segment, while Applebee's decrease in traffic ~~has declined~~was also larger than that of the casual dining segment.

* Same-restaurant sales data includes area license restaurants beginning in 2019

IHOP’s domestic same-restaurant sales increased 1.2% (including area license restaurants) for ~~ten consecutive quarters; however,~~ the ~~percentage decrease has been progressively smaller~~three months ended March 31, 2019 from the same period in 2018. This growth was due to an increase in average customer check that was partially offset by a decline in customer traffic. The increase in average customer check was due in part to a favorable mix shift we believe was driven by successful promotional activity during the quarter. The increase in domestic same-restaurant sales for three months ended March 31, 2019 was favorably impacted by an increase in off-premise sales, which comprised 9.5% of IHOP's sales mix during the quarter. We believe the results for the first quarter were adversely impacted by a shift in the ~~two most recent fiscal quarters.~~Easter holiday period which fell in the second quarter of 2019 as compared to the first quarter of 2018. Typically, the Easter holiday period has had a positive impact on IHOP sales.

Based on data from Black Box, the family dining segment of the restaurant industry experienced a ~~decrease~~small increase in same-restaurant sales during the three months ended March 31, ~~2018,~~2019, compared to the same ~~periods~~period of the prior year, due to an increase in average customer check that was offset by a decrease in customer traffic. IHOP's increase in same-restaurant sales during the three months ended March 31, 2019 was larger than that of that the family dining segment because of a larger increase in average customer check than that experienced by the family dining segment. This was partially offset by IHOP experiencing a decrease in customer traffic that was partially offset by an increase in average customer check. The IHOP decline in customer traffic was smaller than that experienced by the overall family dining segment for the three months ended March 31, 2018. IHOP's increase in average customer check was also smallerlarger than that of the overall family dining segment for that same period. We believe that IHOP's moderated increase in average customer check was in part responsible for the differentially favorable performance in customer traffic and overall same-restaurant sales compared to the family dining segment.

Restaurant Data

The following table sets forth the number of “Effective Restaurants” in the Applebee’s and IHOP systems and information regarding the percentage change in sales at those restaurants compared to the same period of the prior year. Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company and, as such, the percentage change in sales at Effective Restaurants is based on non-GAAP sales data. However, we believe that presentation of this information is useful in analyzing our revenues because franchisees and area licensees pay us royalties and advertising fees that are based on a percentage of their sales, and, where applicable, rental payments under leases that partially may be based on a percentage of their sales. Management also uses this information to make decisions about plans for future development of additional restaurants as well as evaluation of current operations.


—		Three months ended March 31,
								Three months ended March 31,
		2018			2017			2019			2018
Applebee's Restaurant Data	Applebee's Restaurant Data	(Unaudited)						(Unaudited)
Effective Restaurants^(a)	Effective Restaurants^(a)
Franchise	Franchise	1,923			2,007			1,762			1,923
Company								69			—
Total								1,831			1,923

System-wide^(b)	System-wide^(b)
Domestic sales percentage change^(c)	Domestic sales percentage change^(c)	0.9		%	(8.6		)%	(1.4		)%	0.9		%
Domestic same-restaurant sales percentage change^(d)	Domestic same-restaurant sales percentage change^(d)	3.3		%	(7.9		)%	1.8		%	3.3		%
Franchise^(b)	Franchise^(b)
Domestic sales percentage change^(c)	Domestic sales percentage change^(c)	0.9		%	(8.6		)%	(4.7		)%	0.9		%
Domestic same-restaurant sales percentage change^(d)	Domestic same-restaurant sales percentage change^(d)	3.3		%	(7.9		)%	1.6		%	3.3		%
Average weekly domestic unit sales (in thousands)	Average weekly domestic unit sales (in thousands)	$	47.6		$	45.2		$	49.6		$	47.6

IHOP Restaurant Data	IHOP Restaurant Data

Effective Restaurants^(a)	Effective Restaurants^(a)
Franchise	Franchise	1,619			1,552			1,657			1,619
Area license	Area license	164			166			156			164
Company		—			10
Total	Total	1,783			1,728			1,813			1,783

System-wide^(b)	System-wide^(b)
Sales percentage change^(c)	Sales percentage change^(c)	3.9		%	0.2		%	2.4		%	3.9		%
Domestic same-restaurant sales percentage change^(d)		1.0		%	(1.7		)%
Domestic same-restaurant sales percentage change, including area license restaurants^(d)								1.2		%	1.0		%
Domestic same-restaurant sales percentage change, excluding area license restaurants^(d)								1.1		%	1.0		%
Franchise^(b)	Franchise^(b)
Sales percentage change^(c)	Sales percentage change^(c)	4.9		%	0.7		%	2.3		%	4.9		%
Domestic same-restaurant sales percentage change^(d)	Domestic same-restaurant sales percentage change^(d)	1.0		%	(1.7		)%	1.1		%	1.0		%
Average weekly domestic unit sales (in thousands)		$	37.1		$	36.9
Average weekly unit sales (in thousands)								$	37.1		$	37.1
Area License^(b)	Area License^(b)
Sales percentage change^(c)	Sales percentage change^(c)	(0.2		)%	(3.7		)%	2.7		%	(0.2		)%

(a) “Effective Restaurants” are the weighted average number of restaurants open in each fiscal period, adjusted to account for restaurants open for only a portion of the period. Information is presented for all Effective Restaurants in the Applebee’s and IHOP systems, which consist of restaurants owned by franchisees and area licensees as well as those owned by the Company.

(b) “System-wide sales” are retail sales at Applebee’s restaurants operated by franchisees and IHOP restaurants operated by franchisees and area licensees, as reported to the Company, in addition to retail sales at company-operated Applebee's restaurants. Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company. An increase in franchisees' reported sales will result in a corresponding increase in our royalty revenue, while a decrease in franchisees' reported sales will result in a corresponding decrease in our royalty revenue. Unaudited reported sales for Applebee's domestic franchise restaurants, Applebee's company-operated restaurants, IHOP franchise restaurants and IHOP area license restaurants were as follows:


	Three months ended March 31,				Three months ended March 31,
	2018		2017		2019		2018
Reported sales (In millions)	(Unaudited)
Reported sales (in millions)					(Unaudited)

Applebee's domestic franchise restaurant sales	$	1,095.6	$	1,086.2	$	1,044.2	$	1,095.6
Applebee's company-operated restaurants					35.7		—
IHOP franchise restaurant sales	780.6		744.2		798.8		780.6
IHOP area license restaurant sales	75.3		72.5		74.3		72.3
Total	$	1,951.5	$	1,902.9	$	1,953.0	$	1,948.5

(c) “Sales percentage change” reflects, for each category of restaurants, the percentage change in sales in any given fiscal period compared to the prior fiscal period for all restaurants in that category.

(d) “Domestic same-restaurant sales percentage change” reflects the percentage change in sales in any given fiscal period, compared to the same weeks in the prior fiscal period, for domestic restaurants that have been operated throughout both fiscal periods that are being compared and have been open for at least 18 months. Because of new restaurant openings and restaurant closures, the domestic restaurants open throughout both fiscal periods being compared may be different from period to period. ~~Domestic same-restaurant sales percentage change does not include data on IHOP area license restaurants.~~


Restaurant Development Activity	Three months ended March 31,				Three months ended March 31,
	2018		2017		2019		2018
Applebee's	(Unaudited)				(Unaudited)
Summary - beginning of period:
Franchise					1,768		1,936
Company restaurants					69		—
Beginning of period	1,936		2,016		1,837		1,936

Franchise restaurants opened:
Domestic	—		1
International	2		—		—		2
Total franchise restaurants opened	2		1		—		2
Franchise restaurants closed:
Domestic	(22	)	(19	)	(4	)	(22	)
International	(4	)	—		(3	)	(4	)
Total franchise restaurants closed	(26	)	(19	)	(7	)	(26	)
Net franchise restaurant reduction	(24	)	(18	)	(7	)	(24	)

Summary - end of period:
Franchise					1,761		1,912
Company restaurants					69		—
Total Applebee's restaurants, end of period	1,912		1,998		1,830		1,912
Domestic	1,760		1,843		1,689		1,760
International	152		155		141		152


IHOP
Summary - beginning of period:
Franchise	1,622		1,556		1,669		1,622
Area license	164		167		162		164
Company	—		10
Total IHOP restaurants, beginning of period	1,786		1,733		1,831		1,786

Franchise/area license restaurants opened:
Domestic franchise	13		11		6		13
International franchise	3		4		—		3
Total franchise/area license restaurants opened	16		15		6		16
Franchise/area license restaurants closed:
Domestic franchise	(5	)	(7	)	(11	)	(5	)
Domestic area license					(3	)	—
International franchise	(6	)	—		(1	)	(6	)
Total franchise/area license restaurants closed	(11	)	(7	)	(15	)	(11	)
Net franchise/area license restaurant development	5		8
Net franchise/area license restaurant (reduction) development					(9	)	5

Summary - end of period:
Franchise	1,627		1,564		1,663		1,627
Area license	164		167		159		164
Company	—		10
Total IHOP restaurants, end of period	1,791		1,741		1,822		1,791
Domestic	1,679		1,641		1,697		1,679
International	112		100		125		112

For the full year of ~~2018,~~2019, we expect Applebee's franchisees to ~~develop~~close between 1020 and ~~15 new~~30 net restaurants globally, the majority of which are expected to be ~~international openings.~~domestic closures. IHOP franchisees and area licensees are projected to develop between 8535 and ~~100~~55 net new IHOP restaurants globally, the majority of which are expected to be domestic openings. Historically, the majority of restaurant openings have taken place in the second half of any given year. We anticipate the closing of between 60 and 80 Applebee's restaurants in 2018 as part of the continuation of a system-wide analysis to optimize the health of the franchisee system. We expect to close between 30 and 40 IHOP restaurants in 2018, due to lease expirations and system optimization.

The actual number of openings may differ from both our expectations and development commitments. Historically, the actual number of restaurants developed in any given year has been less than the total number committed to be developed due to various factors, including economic conditions and franchisee noncompliance with development agreements. The timing of new restaurant openings also may be affected by various factors including weather-related and other construction delays, difficulties in obtaining timely regulatory approvals and the impact of currency fluctuations on our international franchisees. The actual number of closures also may differ from expectations. Our franchisees are independent businesses and decisions to close restaurants can be impacted by numerous factors, in addition to declines in same-restaurant sales, that are outside of our control, including but not limited to, franchisees' agreements with landlords and lenders.

CONSOLIDATED RESULTS OF OPERATIONS

Comparison of the Three Months ~~Ended~~ended March 31, ~~2018~~2019 and ~~2017~~2018

~~Significant Known~~ Events ~~Trends or Uncertainties~~Impacting Comparability of Financial Information

~~Franchisee Financial Health~~Acquisition of Franchise Restaurants

In December 2018, we acquired 69 Applebee's ~~experienced~~restaurants in North and South Carolina from a ~~decline in system-wide sales between~~former Applebee's franchisee. While we currently intend to own and operate these restaurants for the ~~third quarter~~near term, we will assess and monitor opportunities to refranchise these restaurants under favorable circumstances. We operated no restaurants of ~~2015 and~~either brand during the ~~third quarter of 2017 that was primarily due~~three months ended March 31, 2018.

Franchisor Contributions to ~~a decrease in customer traffic. This decline in sales at our franchisees' restaurants adversely impacted~~ the financial health of some of the franchisees and the timely payment of amounts they owe us for royalty payments and advertising fund contributions. The non-timely or partial payments are primarily concentrated amongst three franchisees. Two franchisees representing approximately 13% of Applebee's domestic system-wide sales are exhibiting a higher level of financial difficulty than the other franchisees. These franchisee health issues, in turn, have had an adverse impact on our financial results in the form of increased bad debt expense, lower royalty and advertising revenue due to uncertainty as to its collectibility and the need for us to contributeApplebee’s NAF

We contributed $13.5 million to the Applebee's NAF during the three months ended March 31, 2018 to mitigate the decline in franchisee contributions due to restaurant closures and the non-timely payment of advertising fees by certain franchisees. Our contributions to the Applebee's NAF ceased as of June 30, 2018.

~~We continue~~Temporary Increase in Franchisee Contribution Rate to address franchisee financial health through a collaborative effort between ourselves, a third-party advisor and franchisee representatives. We have provided, and may continue to provide, various forms of assistance to franchisees, such as approval of restaurant closures, assessing franchisee debt arrangements, temporary forbearance on payment obligations, extensions of credit and other support programs. To date, the assistance provided primarily has been the approved closures of non-viable restaurants and waiver of related termination fees, as well as making loans to certain franchisees, of which there are approximately $8 million outstanding at March 31, 2018. Any additional assistance to franchisees may entail incremental costs.Applebee's NAF

~~While we are encouraged by~~The contribution rate to the ~~improvement in Applebee's same-restaurant~~Applebee’s NAF for virtually all Applebee’s franchisees was 3.5% of their gross sales ~~and customer traffic during~~for the first quarter of 2018 and the fourth quarter of 2017, there can be no assurance that this favorable trend will continue or to what extent any improvement in same-restaurant sales and customer traffic might mitigate the franchisee health issues discussed above. Until such mitigation occurs, we may, in the future, continue to experience one or more of the adverse financial impacts discussed above.

~~Change in Accounting Policy~~

Onperiod from January 1, 2018 ~~we adopted the guidance~~to June 30, 2018. Such franchisees also agreed to an incremental temporary increase of ~~Accounting Standards Codification 606 -~~ ~~Revenue from Contracts with Customers~~ ~~(“ASC 606”). The two most significant impacts of this change in accounting policy are as follows:~~

Prior to the adoption of ASC 606, we did not record advertising fees received under Applebee's franchise agreements as franchise revenue and expense; we did record advertising fees received under IHOP franchise agreements as franchise revenue and expense. In evaluating advertising activity under the guidance of ASC 606, we consider ourselves to be primarily responsible for fulfilling the promise to provide all of the services specified0.75% in the ~~contract, including~~ advertising ~~activities, which are not considered~~contribution rate to ~~be distinct services in the context of providing the right~~4.25%, effective July 1, 2018 to the symbolic intellectual property. Accordingly, under ASC 606, we are recording advertising fees received under Applebee's franchise agreements as franchise revenue. Under previous accounting guidance for franchisors, advertising revenue and expense were recognized in the same amount in each period. That guidance was superceded by ASC 606, such that advertising expense may now be recognized inDecember 31, 2019. As a ~~different period than~~result, the advertising ~~revenue recognized as described above.~~

Prior to the adoption of ASC 606, the Company generally recognized the entire franchise and/or development fee as revenue at the restaurant opening date. Under ASC 606, franchise and development fees are recognized as revenue ratably on a straight-line basis over the term of the franchise agreement commencing with the restaurant opening date.

~~The Company adopted this change in accounting principles using the full retrospective method. Accordingly, previously reported financial information~~contribution rate for virtually all Applebee's franchisees was 4.25% during the three months ended March 31, ~~2017 has been restated~~2019 as compared to reflect the changes as described above from application of ASC 606. See Notes 3 and 4 of the Notes to Consolidated Financial Statements for additional discussion of our adoption of ASC 606 and our policies for recognition of revenue from contracts with customers.

In conjunction with the adoption of ASC 606, we implemented internal controls to ensure we adequately evaluated our contracts with franchisees and properly assessed the impact of ASC 606 on our consolidated financial statements.

~~Events Impacting Comparability of Financial Information~~

~~Tax Cuts and Jobs Act~~

The Tax Cuts and Jobs Act (the “Tax Act”) enacted in December 2017 lowered the federal statutory corporate tax rate from 35% to 21%, beginning in 2018. We expect to benefit meaningfully from the Tax Act in future periods, primarily due to the impact of reducing the statutory federal tax rate to 21%.

~~Executive Separation Costs~~

In February 2017, we announced the resignation of our former Chairman and Chief Executive Officer (the “former CEO”), effective March 1, 2017. In accordance with the terms of the Separation Agreement and General Release filed as Exhibit 10.1 to Form 8-K filed on February 17, 2017, we recorded approximately $5.9 million for severance, separation pay and ancillary costs in the first quarter of 2017. All stock options and restricted stock awards held by the former CEO that were unvested at the time of the announcement became vested in connection with the separation. We recorded a charge of approximately $2.9 million related to the accelerated vesting of the equity awards in the first quarter of 2017. Total costs of $8.8 million related to the separation were included in G&A expenses for3.50% during the three months ended March 31, ~~2017.~~

~~Refranchising of Company-operated Restaurants~~

In June 2017, we refranchised nine of our ten company-operated IHOP restaurants in the Cincinnati, Ohio market area; the one restaurant not refranchised was closed. As a result, we no longer operate any IHOP restaurants on a permanent basis. While this refranchising reduced our gross2018. This increased advertising revenue by approximately $4$8 million ~~for the three months ended March 31, 2018 compared to the same period of the prior year, there was minimal impact on our gross profit.~~in 2019.

Financial Results


Revenue	Three months ended March 31,					Favorable (Unfavorable) Variance				Three months ended March 31,					Favorable (Unfavorable) Variance
						Favorable (Unfavorable) Variance				2019			2018		Favorable (Unfavorable) Variance
	2018			2017 (as adjusted)		Favorable (Unfavorable) Variance
	(In millions)					Favorable (Unfavorable) Variance			(In millions)
Franchise operations	$	155.3		$	154.7	$	0.6			$	168.9		$	155.3	$	13.6
Rental operations	30.9			30.5		0.4				30.7			30.9		(0.2		)
Company restaurant operations	—			4.1		(4.1		)		35.8			—		35.8
Financing operations	2.0			2.1		(0.1		)		1.8			2.0		(0.2		)
Total revenue	$	188.2		$	191.4	$	(3.2	)		$	237.2		$	188.2	$	49.0
Change vs. prior period	(1.7		)%							26.1		%

Total revenue for the three months ended March 31, ~~2018 decreased~~2019 increased compared with the same period of the prior year, primarily due to the ~~refranchising~~operation of 69 Applebee's restaurant acquired in December 2018 and the impact of a higher advertising contribution rate on Applebee's advertising revenue. IHOP ~~company-operated restaurants discussed above. Smaller changes~~restaurant development over the past 12 months and increases in ~~franchise~~same-restaurant sales for both Applebee's and ~~rental revenues are discussed~~IHOP also contributed to the increase in ~~the sections that follow.~~revenue.


Gross Profit (Loss)	Three months ended March 31,						Favorable (Unfavorable) Variance
Gross Profit							Favorable (Unfavorable) Variance			Three months ended March 31,					Favorable (Unfavorable) Variance
										2019			2018		Favorable (Unfavorable) Variance
	2018			2017 (as adjusted)			Favorable (Unfavorable) Variance
	(In millions)						Favorable (Unfavorable) Variance			(In millions)
Franchise operations	$	73.4		$	84.6		$	(11.1	)	$	88.6		$	73.4	$	15.2
Rental operations	8.2			7.8			0.4			8.1			8.2		(0.1		)
Company restaurant operations	—			(0.2		)	0.2			4.2			—		4.2
Financing operations	1.9			2.1			(0.3		)	1.7			1.9		(0.2		)
Total gross profit	$	83.5		$	94.3		$	(10.8	)	$	102.6		$	83.5	$	19.1
Change vs. prior period	(11.4		)%							22.8		%

Total gross profit for the three months ended March 31, ~~2018 declined~~2019 increased nearly 23% compared with the same ~~periods~~period of the prior year, primarily due to ~~increased franchisor contributions~~a $13.5 million contribution to the Applebee's NAF made during the three months ended March 31, 2018 that did not recur in 2019. Operation of 69 Applebee's restaurants favorably impacted total gross profit by $2.8 million, as the gross profit of $4.2 million from operating the 69 restaurants was partially offset by royalties of approximately $1.4 million that would have been recognized in franchise operations had the restaurants been franchisee-operated. IHOP restaurant development over the past ~~twelve~~12 months and increases in same-restaurant sales for both Applebee's and ~~IHOP's domestic same-restaurant sales. Smaller changes~~IHOP also contributed to the increase in ~~rental and financing operations are discussed in the sections that follow.~~gross profit.


	Three months ended March 31,						Favorable (Unfavorable) Variance			Three months ended March 31,						Favorable (Unfavorable) Variance
Franchise Operations	2018			2017 (as adjusted)						2019			2018
	(In millions, except number of restaurants)									(In millions, except number of restaurants)
Effective Franchise Restaurants:⁽¹⁾
Applebee’s	1,923			2,007			(84		)	1,762			1,923			(161		)
IHOP	1,783			1,718			65			1,813			1,783			30

Franchise Revenues:
Applebee’s	$	40.7		$	45.4		$	(4.7	)
IHOP	50.8			47.6			3.2
Advertising	63.8			61.7			2.1
Applebee’s franchise fees										$	43.3		$	40.7		$	2.6
IHOP franchise fees										53.0			50.8			2.2
Advertising fees										72.6			63.8			8.8
Total franchise revenues	155.3			154.7			0.6			168.9			155.3			13.6
Franchise Expenses:
Applebee’s	11.4			2.8			(8.6		)	0.6			11.4			10.8
IHOP	6.7			5.7			(1.0		)	7.1			6.7			(0.4		)
Advertising	63.8			61.7			(2.1		)
Advertising expenses										72.6			63.8			(8.8		)
Total franchise expenses	81.9			70.2			(11.7		)	80.3			81.9			1.6
Franchise Gross Profit:
Applebee’s	29.3			42.6			(13.3		)	42.7			29.3			13.4
IHOP	44.1			41.9			2.2			45.9			44.1			1.8
Total franchise gross profit	$	73.4		$	84.6		$	(11.1	)	$	88.6		$	73.4		$	15.2
Gross profit as % of revenue ⁽²⁾	47.3		%	54.7		%				52.5		%	47.3		%
Gross profit as % of franchise fees ^{(2) (3)}										92.0		%	80.3		%

_____________________________________________________

⁽¹⁾Effective Franchise Restaurants are the weighted average number of franchise and area license restaurants open in each fiscal period, adjusted to account for restaurants open for only a portion of the period.

⁽²⁾ Percentages calculated on actual amounts, not rounded amounts presented above.

⁽³⁾ From time to time, advertising fee revenue may be different from advertising expenses in a given accounting period. Over the long term, advertising revenue should not generate gross profit or loss.

Applebee’s franchise fee revenue for the three months ended March 31, ~~2018 decreased 10.3%~~2019 increased 6% compared to the same period of the prior year. ~~This~~The increase was primarily due to an ~~increase of $4.4 million~~improvement in revenue ~~not recognized due to uncertainty~~collectibility of $4.5 million as ~~to collectibility~~a result of favorable changes in franchisee health and the impact on royalty revenue of a ~~$1.3 million decrease~~1.6% increase in ~~royalties due to the net closure of~~domestic franchise ~~restaurants.~~same-restaurant sales. These ~~unfavorable~~favorable items were partially offset by a ~~3.3% increase~~$2.8 million decrease in ~~domestic same-restaurant sales.~~revenue because of fewer effective franchise restaurants, the number of which declined due to restaurant closures and our acquisition of 69 Applebee's restaurants in North and South Carolina from a former Applebee's franchisee in December 2018.

The ~~increase~~decrease in Applebee's franchise expenses for the three months ended March 31, ~~2018~~2019 compared with the same period of the prior year was primarily due to ~~an increase~~a decrease of $13.5 million in franchisor contributions to the Applebee's NAF, partially offset by a ~~decrease of $4.9~~$3.0 million ~~in bad debt expense. The~~ decrease in bad debt ~~expense was due~~recoveries. Our franchisor contributions to the ~~recovery~~Applebee's NAF ceased as of ~~certain amounts reserved in prior periods.~~June 30, 2018.

IHOP franchise fee revenue for the three months ended March 31, ~~2018~~2019 increased 4% compared to the same period of the prior year, primarily due to ~~a 3.8%~~an increase in sales of pancake and waffle dry mix, an increase in Effective Franchise Restaurants because of net restaurant development over the past twelve months and a ~~1.0%~~1.2% increase in domestic same-restaurant sales. ~~An increase in sales of pancake and waffle dry mix and royalty revenue from refranchised company-operated restaurants contributed to the revenue improvement as well.~~

The increase in IHOP franchise expenses for the three months ended March 31, ~~2018~~2019 compared with the same period of the prior year ~~were~~was primarily due to an increase in purchases of pancake and waffle dry mix ~~and an increase of $0.3 million~~partially offset by a decrease in bad debt expense.

Advertising revenue and expense ~~of both brands~~ for the three months ended March 31, ~~2018~~2019 increased ~~3.9%~~ compared to the same period of the prior year, primarily due to an increase in the franchisee advertising contribution rate to the Applebee's NAF. As previously reported, virtually all domestic Applebee's franchisees agreed to an incremental temporary increase of 0.75% in the advertising contribution rate to 4.25% effective July 1, 2018 to December 31, 2019. This change represented $7.7 million of the increase. In addition, advertising revenue and expense increased due to an improvement of franchisee collectibility of advertising fees from certain Applebee's franchisees, IHOP net restaurant development over the past twelve months and ~~the~~ increases in Applebee's and IHOP domestic same-restaurant ~~sales, partially offset by~~sales. It is our policy to recognize any excess or deficiency of advertising fee revenue compared to advertising expenditure in the ~~net decline in Applebee's restaurants due to closures.~~fourth quarter of our fiscal year.

Gross profit as a percentage of ~~revenue declined~~franchise fees increased for the three months ended March 31, ~~2018~~2019 compared to the same period of the prior year, primarily ~~because of~~due to the ~~increase in~~$13.5 million franchisor ~~contributions~~contribution to the Applebee's NAF ~~partially offset by~~made in the first quarter of 2018 that did not recur in 2019. IHOP net restaurant ~~development.~~development over the past twelve months and increases in Applebee's and IHOP domestic same-restaurant sales also contributed to the improvement in gross profit percentage.


Rental Operations	Three months ended March 31,						Favorable (Unfavorable) Variance		Three months ended March 31,						Favorable (Unfavorable) Variance
	2018			2017			Favorable (Unfavorable) Variance		2019			2018			Favorable (Unfavorable) Variance
	(In millions)								(In millions)
Rental revenues	$	30.9		$	30.5		$	0.4	$	30.7		$	30.9		$	(0.2	)
Rental expenses	22.7			22.7			—
Finance lease interest									1.5			1.9			0.4
Other rental expenses									21.1			20.8			(0.3		)
Total rental expenses									22.6			22.7			0.1
Rental operations gross profit	$	8.2		$	7.8		$	0.4	$	8.1		$	8.2		$	(0.1	)
Gross profit as % of revenue ⁽¹⁾	26.6		%	25.6		%			26.3		%	26.6		%

⁽¹⁾ Percentages calculated on actual amounts, not rounded amounts presented above.

Rental operations relate primarily to IHOP franchise restaurants. Rental income includes sublease revenue from operating leases and interest income from direct financing leases. Rental expenses are costs of prime operating leases and interest expense on prime ~~capital leases on certain franchise restaurants.~~financing leases.

Rental segment revenue for the three months ended March 31, ~~2018 increased~~2019 decreased as compared to the same period of the prior year ~~primarily~~ due to ~~contractual increases in base sub-rental income and an increase in rental income based on a percentage of franchisees' retail sales, partially offset by~~ the ~~expected~~ progressive decline of $0.3 million in interest income as direct financing leases are ~~repaid.~~repaid, partially offset by contractual increases in base sub-rental income. Rental segment expenses for the three months ended March 31, 2019 were essentially unchanged from the same period of the prior year.

~~There was~~

Company Restaurant Operations

As discussed above under “Events Impacting Comparability of Financial Information,” we acquired 69 Applebee’s restaurants in North Carolina and South Carolina in December 2018. We had no ~~impact~~company-operated restaurants of either brand during the ~~adoption~~first quarter of ~~ASC 606 on rental revenues.~~2018.

Financing Operations

Financing revenues primarily consist of interest income from the financing of equipment leases and franchise fees, as well as sales of equipment associated with refranchised IHOP restaurants. Financing expenses are the cost of any restaurant equipment sold associated with refranchised IHOP restaurants.

~~The decrease in financing~~Financing revenue and gross profit for the three months ended March 31, ~~2018 was primarily due~~2019 did not change significantly compared to the ~~expected progressive declines of $0.2 million in interest revenue as note balances are repaid.~~

~~There was no impact~~same period of the ~~adoption of ASC 606 on financing revenues.~~

~~Company Restaurant Operations~~

Effective June 19, 2017, we refranchised nine of our ten company-operated IHOP restaurants in the Cincinnati, Ohio market area; the one restaurant not refranchised was closed. As a result, we no longer operate any restaurants on a permanent basis.prior year.

G&A Expenses Three months ended March 31, Favorable
(Unfavorable) Variance
2018 2017
(In millions)

$ 41.9
$ 50.3
$ 8.4



G&A Expenses	Three months ended March 31,				Favorable (Unfavorable) Variance
	2019		2018		Favorable (Unfavorable) Variance
	(In millions)
	$	42.8	$	41.9	$	(0.9	)

The ~~decrease~~increase in G&A expenses for the three months ended March 31, ~~2018~~2019 compared to the same period of the prior year was primarily due to ~~charges~~a $3.1 million increase in personnel-related costs, partially offset by decreases in costs of ~~$8.8 million~~professional services, travel and conferences.



Other Income and Expense Items	Three months ended March 31,					Favorable (Unfavorable) Variance
	2019		2018			Favorable (Unfavorable) Variance
	(In millions)
Interest expense	$	15.4	$	15.2		$	(0.2	)
Amortization of intangible assets	2.9		2.5			(0.4		)
Closure and impairment costs	0.2		2.6			2.4
Loss (gain) on disposition of assets	0.1		(1.4		)	(1.5		)
Total	$	18.6	$	18.9		$	0.3

Interest expense

Interest expense for the three months ended March 31, 2019 was slightly higher than the same period of the prior year, primarily due to amortization of costs associated with the issuance of variable funding notes in September 2018.

Amortization of intangible assets

Amortization of intangible assets for the three months ended March 31, 2019 increased compared to the same period of the prior year due to amortization of reacquired franchise rights recognized in conjunction with the December 2018 acquisition of 69 Applebee's restaurants.

Closure and impairment costs

There were no individually significant closure and impairment charges during the three months ended March 31, ~~2017 related to the executive separation costs discussed under “Events Impacting Comparability of Financial Information” that did not recur in 2018.~~



~~Closure and Impairment Charges~~

2019. Closure and impairment charges of ~~$2.5~~$2.6 million for the three months ended March 31, 2018 primarily comprised of lease closure obligations, net of estimated subrental income, related to two properties on which refranchised Applebee's company-operated restaurants had been located. ~~Closure and impairment~~There were no other individually significant charges ~~for the three months ended March 31, 2017 were not significant.~~in that period.

During the three months ended March 31, 2018, we performed assessments to determine whether events or changes in circumstances have occurred that could indicate a potential impairment to our goodwill and indefinite-lived intangible assets. We considered, among other things, Applebee's key performance indicatorsGain on disposition of assets

There were no individually significant asset dispositions during the three months ended March 31, 2018 and what, if any, impact that performance had on the long-term forecast of future trends in sales, operating expenses, overhead expenses, depreciation, capital expenditures and changes in working capital that was used in performing the qualitative impairment test in the third quarter of 2017. We also considered the current market price of our common stock and the impact of the Tax Act. We concluded that an interim test for impairment was not necessary as of March 31, 2018. We also considered whether there were any indicators that the carrying value of tangible long-lived assets may not be recoverable. No significant impairments were noted in performing the assessments.



~~(Gain) Loss on Disposition of Assets~~

As part of the transaction discussed above under “Events Impacting Comparability of Financial Information,” we entered into an asset purchase agreement, nine franchise agreements and nine sublease agreements for land and buildings. The Company compared the stated rent under the sublease agreements with comparable market rents and recorded net favorable lease assets of $2.3 million related to the transaction.2019. During the three months ended March 31, 2018, the sublease tenant of ~~one of the properties~~a property with lease terms favorable to the Company purchased the property, ~~terminating the lease~~ which allowed us to recognize a gain of $1.4 million on disposition of the favorable lease asset. ~~There were no individually significant asset dispositions during the three months ended March 31, 2017.~~

Other Expense and Income Items
Three months ended March 31, Favorable
(Unfavorable) Variance
2018 2017
(In millions)
Interest expense $ 15.2
$ 15.4
$ 0.2
Amortization of intangible assets 2.5
2.5
(0.0 )
Total $ 17.7
$ 17.9
$ 0.2

~~Interest expense and amortization of intangible assets for the three months ended March 31, 2018 were consistent with the same periods of the prior year.~~


Income Taxes	Three months ended March 31,						Favorable (Unfavorable) Variance			Three months ended March 31,						Favorable (Unfavorable) Variance
	2018			2017			Favorable (Unfavorable) Variance			2019			2018			Favorable (Unfavorable) Variance
	(In millions)									(In millions)
Income tax provision	$	5.6		$	10.4		$	4.8		$	9.5		$	5.6		$	(3.9	)
Effective tax rate	24.8		%	40.0		%	15.2		%	23.1		%	24.8		%	1.7		%

Our income tax provision will vary from period to period for two reasons: a change in income before income taxes and a change in the effective tax rate. Changes in our income before income taxes ~~between 2018 and 2017~~ were addressed in the preceding sections of ~~“Consolidated~~“Consolidated Results of Operations - Comparison of the Three Months Ended March 31, ~~2018~~2019 and ~~2017.~~2018.”

Our effective tax ~~rates~~rate for the three months ended March 31, ~~2018 were significantly~~2019 was lower ~~than~~compared to the same period of the prior year due to recognition of excess tax benefits on stock-based compensation. Completion of the ~~Tax Act, enacted~~IRS audits for tax years 2011 through 2013 will allow us to accelerate the collection of certain tax benefits recognized in ~~December 2017, that lowered~~prior years. As a result, we expect to receive a cash refund of $12.4 million, excluding interest, in 2019. The expected refund is currently included in Prepaid Income Taxes in the ~~federal statutory corporate tax rate from 35% to 21%.~~Consolidated Balance Sheets.

Liquidity and Capital Resources

At March 31, ~~2018,~~2019, our outstanding long-term debt consisted of $1.3 billion of Series 2014-1 4.277% Fixed Rate Senior Notes, Class A-2 (the “Class A-2 Notes”). We also have a revolving financing facility consisting of Series ~~2014-1~~2018-1 Variable Funding Senior Notes, Class A-1 (the “Variable Funding Notes” or “VFN”), which allows for drawings of up to ~~$100~~$225 million of Variable Funding Notes and the issuance of letters of credit. The Class A-2 Notes and the Variable Funding Notes are referred to collectively as the “Notes.” The Notes were issued in a private securitization transaction pursuant to which substantially all our domestic revenue-generating assets and our domestic intellectual property are held by certain special-purpose, wholly-owned indirect subsidiaries of the Company (the “Guarantors”) that act as guarantors of the Notes and that have pledged substantially all their assets to secure the Notes.

While the Notes are outstanding, payment of principal and interest is required to be made on the Class A-2 Notes on a quarterly basis. The quarterly principal payment of $3.25 million on the Class A-2 Notes may be suspended when the leverage ratio for the Company and its subsidiaries is less than or equal to 5.25x. At ~~March~~December 31, 2018, our leverage ratio was ~~5.70x (see Exhibit 12.1).~~4.90x and we were not required to make a principal payment in the first quarter of 2019. At March 31, 2019, our leverage ratio was 4.75x and we will not be required to make a principal payment in the second quarter of 2019. Exceeding the leverage ratio of 5.25x does not violate any covenant related to the Notes; however, we were required to make a principal payment of $3.25 million in the first quarter of 2018 and anticipate we will be required to make principal payments in each of the remaining quarters of 2018.

Notes. We may voluntarily repay the Class A-2 Notes at any ~~time; however, if we voluntarily repay the Class A-2 Notes prior to~~time, and as of September 30, 2018, ~~we would be required to pay a make-whole premium. As of March 31, 2018, the~~there was no longer any make-whole payment required for voluntary repayment was approximately $12 million; this amount declines ratably to zero in September 2018. We would also be subject to a make-whole premium in the event of a mandatory prepayment occurring prior to September 2018 following a Rapid Amortization Event (as defined in the Class A-2 Notes) or certain asset dispositions. The make-whole premium requirements are considered derivatives embedded in the Class A-2 Notes that must be bifurcated for separate valuation. We estimated the fair value of these derivatives to be insignificant at March 31, 2018, based on the probability-weighted discounted cash flows associated with either event.

repayment.

The Variable Funding Notes were not drawn upon at March 31, ~~2018. At~~2019. During the three months ended March 31, ~~2018, $3.1~~2019, we repaid $25.0 million of Variable Funding Notes, representing the amount outstanding at December 31, 2018; we did not draw on the Variable Funding Notes during the three months ended March 31, 2019. The maximum amount of Variable Funding Notes outstanding during the three months ended March 31, 2019 was $25.0 million and the weighted average interest rate on the Variable Funding Notes for the period outstanding was 4.88%. Additionally, at March 31, 2019, $2.2 million was pledged against the Variable Funding Notes for outstanding letters of credit, leaving ~~$96.9~~$222.8 million of 2018 Variable Funding Notes available for ~~borrowings.~~borrowing. The letters of credit are used primarily to satisfy insurance-related collateral requirements. ~~In April 2018, we drew $20 million against this revolving credit facility.~~

The Notes are subject to customary rapid amortization events for similar types of financing, including events tied to our failure to maintain the stated debt service coverage ratio (“DSCR”), the sum of domestic retail sales for all restaurants being below certain levels on certain measurement dates, certain manager termination events, certain events of default and the failure to repay or refinance the Notes on the Class A-2 Anticipated Repayment Date in September 2021. The Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal or other amounts due on or with respect to the Notes, failure to maintain the stated DSCR, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties and certain judgments.

Failure to maintain a prescribed DSCR can trigger a Cash Trapping Event, A Rapid Amortization Event, a Manager Termination Event or a Default Event as described below. In a Cash Trapping Event, the Trustee is required to retain a certain percentage of excess Cash Flow (as defined) in a restricted account. In a Rapid Amortization Event, all excess Cash Flow is retained and used to retire principal amounts of debt. Key DSCRs are as follows:

•DSCR less than 1.75x but equal to or greater than 1.50x - Cash Trapping Event, 50% of Net Cash Flow

•DSCR less than 1.50x - Cash Trapping Event, 100% of Net Cash Flow

•DSCR less than 1.30x - Rapid Amortization Event

•DSCR less than 1.20x - Manager Termination Event

•DSCR less than 1.10x - Default Event

Our DSCR for the reporting period ended March 31, ~~2018~~2019 was ~~3.85x (see Exhibit 12.1).~~4.95x.

Capital Allocation

Dividends

During the three months ended March 31, ~~2018,~~2019, we paid dividends on common stock of ~~$17.5~~$11.2 million, representing a cash ~~dividends~~dividend of ~~$0.97~~$0.63 per share declared in the fourth quarter of ~~2017.~~2018 and paid in January 2018. On February ~~14, 2018,~~20, 2019, our Board of Directors declared a first quarter ~~2018~~2019 cash dividend of ~~$0.63~~$0.69 per share of common stock. This dividend was paid on April ~~6, 2018~~5, 2019 to our stockholders of record at the close of business on March ~~19, 2018.~~20, 2019. We reported dividends payable of ~~$11.5~~$12.5 million at March 31, ~~2018.~~2019.

Share Repurchases

In ~~October 2015, our~~February 2019, the Company’s Board of Directors approved a stock repurchase program authorizing usthe Company to repurchase up to $200 million of the Company’s common stock (“2019 Repurchase Program”) on an opportunistic basis from time to time in the open market or in privately negotiated transactions based on business, market, applicable legal requirements and other considerations. The 2019 Repurchase Program, as approved by the Board of Directors, does not require the repurchase of a specific number of shares and can be terminated at any time.

In October 2015, the Company's Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $150 million of ~~our~~the Company's common stock (the “2015 Repurchase Program”) on an opportunistic basis from time to time in open market transactions and in privately negotiated transactions based on business, market, applicable legal requirements and other considerations. The 2015 Repurchase Program, as approved by the Board of Directors, ~~does~~did not require the repurchase of a

specific number of shares and ~~can~~could be terminated at any time. In connection with the approval of the 2019 Repurchase Program, the Board of Directors terminated the 2015 Repurchase Program.

A summary of shares repurchased under the 2019 Repurchase Program and the 2015 Repurchase Program, ~~currently~~during the three months ended March 31, 2019 and cumulatively, is as follows:

Shares Cost of shares
(In millions)
Repurchased during the three months ended March 31, 2018 138,638
$ 10.0
Cumulative repurchases as of March 31, 2018 1,139,295
$ 92.9
Remaining dollar value of shares that may be repurchased n/a $ 57.1



	Shares	Cost of shares
		(In millions)
2019 Repurchase Program:
Repurchased during the three months ended March 31, 2019	40,817	$	3.6
Cumulative (life-of-program) repurchases	40,817	$	3.6
Remaining dollar value of shares that may be repurchased	n/a	$	196.4

2015 Repurchase Program:
Repurchased during the three months ended March 31, 2019	110,499	$	8.4
Cumulative (life-of-program) repurchases	1,589,995	$	126.2
Remaining dollar value of shares that may be repurchased	n/a	n/a

We evaluate dividend payments on common stock and repurchases of common stock within the context of our overall capital allocation strategy with our Board of Directors on an ongoing basis, giving consideration to our current and forecast earnings, financial condition, cash requirements and other factors.

From time to time, we also repurchase shares owned and tendered by employees to satisfy tax withholding obligations on the vesting of restricted stock awards. Shares are deemed purchased at the closing price of our common stock on the vesting date. See Part II, Item 2 for detail on all share repurchase activity during the first quarter of ~~2018.~~2019.

Cash Flows

In summary, our cash flows for the three months ended March 31, ~~2018~~2019 and ~~2017~~2018 were as follows:


	Three months ended March 31,									Three months ended March 31,
	2018			2017			Variance			2019			2018			Variance
	(In millions)									(In millions)
Net cash provided by operating activities	$	16.5		$	19.5		$	(3.0	)	$	28.9		$	16.5		$	12.4
Net cash (used in) provided by investing activities	(0.3		)	1.8			(2.1		)
Net cash provided by (used in) investing activities										0.4			(0.3		)	0.7
Net cash used in financing activities	(35.9		)	(31.6		)	(4.3		)	(45.5		)	(35.9		)	(9.6		)
Net decrease in cash, cash equivalents and restricted cash	$	(19.7	)	$	(10.2	)	$	(9.5	)	$	(16.1	)	$	(19.7	)	$	3.6

Operating Activities

~~Our net income for~~Cash provided by operating activities increased $12.4 million during the three months ended March 31, ~~2018 increased $1.5 million~~2019 compared to the same period of ~~2017,~~the prior year. Our net income plus the non-cash reconciling items shown in our statements of cash flows (primarily depreciation, deferred taxes and stock-based compensation) increased $19.2 million from 2018. This change was primarily due to ~~a decrease in the federal statutory tax rate and a decrease in G&A expenses, partially offset by a decline~~an increase in gross profit ~~from franchise operations,~~and a lower effective tax rate, each of which was discussed in preceding sections of the MD&A. ~~Our~~Additionally, net income including the non-cash reconciling items shown in the statement of cash flows (primarily depreciation, deferred taxes and stock-based compensation expense) was $23.0 million for the three months ended March 31, 2018 compared to $24.7 million the same period of 2016, a decrease of $1.7 million. This decrease was primarily due to the timing of deferred rent recognition. Net changes in working capital used cash of $13.3 million during the three months ended March 31, 2019 compared to using cash of $6.6 million during the ~~first three months~~same period of ~~2018, compared to a use~~the prior year. This unfavorable change of ~~cash of $5.2~~$6.7 million ~~during the first three months of 2017. The working capital change adversely impacted cash~~between years primarily resulted from ~~operations by $1.4 million~~an increase in payments for incentive compensation and ~~was primarily due to a decrease in~~income taxes, ~~paid~~partially offset by the timing of payments of marketing accruals.

The ~~decrease~~increase of ~~$3.0~~$12.4 million in cash provided by operating activities for the three months ended March 31, ~~2018~~2019 was ~~primarily~~ due to the ~~$1.7~~favorability of $19.2 million ~~decrease~~ in net income ~~including the~~plus non-cash reconciling items ~~and~~offset by the ~~$1.4~~unfavorable change of $6.7 million ~~increase~~ in cash used by working capital changes.

Investing Activities

Investing activities ~~used~~provided net cash of ~~$0.3~~$0.4 million for the three months ended March 31, ~~2018~~.2019. Principal receipts from notes, equipment contracts and other long-term receivables of ~~$4.9 million~~ ~~and proceeds from asset sales of $0.7~~$5.3 million were ~~more than~~partially offset by ~~$3.5~~$4.7 million in capital expenditures and ~~additions~~loans to ~~long-term receivables~~franchisees of ~~$2.3~~$1.4 million.

Financing Activities

Financing activities used net cash of ~~$35.9~~$45.5 million for the three months ended March 31, ~~2018~~.2019. Cash used in financing activities primarily consisted of repayments of 2018 Variable Funding Notes of $25.0 million, cash dividends paid on our common stock totaling ~~$17.5~~$11.2 million,, repurchases of our common stock totaling ~~$10.0~~$10.8 million and repayments of capital lease obligations ~~and long-term debt~~ of ~~$7.8~~$3.5 million ~~and~~ . These financing outflows were partially offset bya net cash ~~outflow~~inflow of approximately ~~$0.6~~$5.0 million related to equity compensation ~~awards.~~awards.

Cash and Cash Equivalents

At March 31, ~~2018~~2019, our cash and cash equivalents totaled ~~$96.4~~$132.9 million,, including ~~$46.9~~$58.4 million of cash held for gift card programs and advertising funds. Additionally, ~~several of~~ our franchisor subsidiaries held a total of approximately ~~$28~~$29 million in cash at March 31, ~~2018,~~2019, to maintain certain net worth requirements under state franchise disclosure laws.

Based on our current level of operations, we believe that our cash flow from operations, available cash and available borrowing capacity under our Variable Funding Notes will be adequate to meet our liquidity needs for the next twelve months.

Adjusted Free Cash Flow

We define “adjusted free cash flow” for a given period as cash provided by operating activities, plus receipts from notes and equipment contract receivables, less additions to property and equipment. Management uses this liquidity measure in its periodic assessment of, among other things, cash dividends per share of common stock and repurchases of common stock and we believe it is important for investors to have the same measure used by management for that purpose. Adjusted free cash flow does not represent residual cash flow available for discretionary purposes.

Adjusted free cash flow is a non-U.S. GAAP measure. ~~Reconciliation of the cash provided by operating activities to adjusted free cash flow is as follows:~~

Three months ended March 31,
2018 2017 Variance
(In millions)
Cash flows provided by operating activities $ 16.5
$ 19.5
$ (3.0 )
Receipts from notes and equipment contracts receivable 2.3
2.7
(0.4 )
Additions to property and equipment (3.5 ) (3.0 ) (0.5 )
Adjusted free cash flow $ 15.3
$ 19.2
$ (3.9 )

This non-U.S. GAAP measure is not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-U.S. GAAP measures should be considered in addition to, and not as a substitute for, the U.S. GAAP information contained within our financial statements. Reconciliation of the cash provided by operating activities to adjusted free cash flow is as follows:



	Three months ended March 31,
	2019			2018			Variance
	(In millions)
Cash flows provided by operating activities	$	28.9		$	16.5		$	12.4
Receipts from notes and equipment contracts receivable	3.5			2.3			1.2
Additions to property and equipment	(4.7		)	(3.5		)	(1.2		)
Adjusted free cash flow	$	27.7		$	15.3		$	12.4

The ~~decrease~~increase in adjusted free cash flow for the three months ended March 31, ~~2018~~2019 compared to the same period of the prior year is primarily due to the ~~decrease~~increase in cash from operating activities discussed above. ~~Capital expenditures are expected~~

Statement of Financial Position

As discussed in Note 3, “Accounting Standards Adopted and Newly Issued Accounting Standards Not Yet Adopted,” in the Notes to Consolidated Financial Statements, we adopted the guidance as codified in ASC 842 with respect to accounting for leases. We adopted this change in accounting principle using the modified retrospective method as of the first day of our first fiscal quarter of 2019. Upon adoption of ASC 842, we recognized operating lease obligations of $453.0 million, which represents the present value of the remaining minimum lease payments, discounted using our incremental borrowing rate. We recognized operating lease right-of-use assets of $395.6 million and also recognized an adjustment to retained earnings upon adoption of $5.0 million, net of tax of $1.7 million, primarily related to an impairment resulting from an unfavorable differential between lease payments to be ~~approximately $16~~made and sublease rentals to be received on certain leases. The remaining difference of $50.7 million between the recognized operating lease obligation and right-of-use assets relates to the derecognition of certain liabilities and assets that had been recorded in accordance with U.S. GAAP that had been applied prior to the adoption of ASC 842, primarily $43.3 million of accrued rent payments. Lease-related reserves for ~~fiscal 2018.~~lease incentives, closed restaurants and unfavorable leaseholds were also derecognized.The accounting for our existing finance (capital) leases upon adoption of ASC 842 remained substantially unchanged. Adoption of ASC 842 had no significant impact on our cash flows from operations or our results of operations.

Off-Balance Sheet Arrangements

We have obligations for guarantees on certain franchisee lease agreements, as disclosed in Note 1012 - Commitments and Contingencies, of Notes to Consolidated Financial Statements of Part I, Item 1 of this Form 10-Q. Other than such guarantees, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4) of SEC Regulation S-K as of March 31, ~~2018.~~2019.

Contractual Obligations and Commitments

There were no material changes to the contractual obligations table as disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~

2018.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenues and expenses in the reporting period. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for

making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. We continually review the estimates and underlying assumptions to ensure they are appropriate for the circumstances. Accounting assumptions and estimates are inherently uncertain and actual results may differ materially from our estimates.

A summary of our critical accounting estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~.2018. During the three months ended March 31, ~~2018~~2019, there were no significant changes in our estimates and critical accounting policies, other than our accounting policy for leases, which changed because of the adoption of ASC ~~606~~842 as discussed in Note 3, “Accounting Standards Adopted and Newly Issued Accounting Standards Not Yet ~~Adopted”~~Adopted,” in the Notes to Consolidated Financial Statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

There were no material changes from the information contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~.2018.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting.

There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings.

We are subject to various lawsuits, administrative proceedings, audits and claims arising in the ordinary course of business. Some of these lawsuits purport to be class actions and/or seek substantial damages. We are required to record an accrual for litigation loss contingencies that are both probable and reasonably estimable. Legal fees and expenses associated with the defense of all of our litigation are expensed as such fees and expenses are incurred. Management regularly assesses our insurance deductibles, analyzes litigation information with our attorneys and evaluates our loss experience in connection with pending legal proceedings. While we do not presently believe that any of the legal proceedings to which we are currently a party will ultimately have a material adverse impact on us, there can be no assurance that we will prevail in all the proceedings we are party to, or that we will not incur material losses from them.

Item 1A. Risk Factors.

There are no material changes from the risk factors set forth under Item 1A of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~.2018.

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

Purchases of Equity Securities by the Company
Period
Total number of
shares
purchased

Average price
paid per
share

Total number of
shares purchased as
part of publicly
announced plans or
programs (c)

Approximate dollar value of
shares that may yet be
purchased under the
plans or programs (c)
January 1, 2018 – January 28, 2018^(a)
10
$ 53.42
—
$ 67,100,000
January 29, 2018 – February 25, 2018^(a)
8,665
68.99
—
$ 67,100,000
February 26, 2018 – April 1, 2018^(b)
145,196
72.23
138,638
$ 57,100,000
Total 153,871
$ 72.05
138,638
$ 57,100,000



Purchases of Equity Securities by the Company
Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs (b)	Approximate dollar value of shares that may yet be purchased under the plans or programs (b)
December 31, 2018 - January 27, 2019^(a)	75,915	$	73.66	74,896	$	33,700,000
January 28, 2019 - February 24, 2019^(a)	37,291	81.18		37,218	$	199,900,000
February 25, 2019 - March 31, 2019^(a)	57,334	90.92		39,202	$	196,400,000
	170,540	$	81.11	151,316	$	196,400,000

^(a)These amounts ~~represent~~include 1,019 shares owned and tendered by employees at an average price of $78.64 per share during the fiscal month ended January 27, 2019, 73 shares owned and tendered by employees at an average price of $87.40 per share during the fiscal month ended February 24, 2019 and 18,132 shares owned and tendered by employees at an average price of $95.46 per share during the fiscal month ended March 31, 2019, to satisfy tax withholding obligations arising upon vesting of restricted stock awards. Shares so surrendered by the participants are repurchased by us pursuant to the terms of the plan under which the shares were issued and the applicable individual award agreements and not pursuant to publicly announced repurchase authorizations.

^(b)~~These amounts include 6,558 shares owned and tendered by employees at an average price of $73.93 to satisfy tax withholding obligations arising upon vesting of restricted stock awards.~~

^(c) In ~~October 2015, our~~February 2019, the Company’s Board of Directors approved ~~a stock~~the 2019 Repurchase Program authorizing the Company to repurchase ~~program authorizing us~~up to $200 million of the Company's common stock. In connection with the approval of the 2019 Repurchase Program, the Board of Directors terminated the 2015 Repurchase Program, which authorized the Company to repurchase up to $150 million of ~~it's~~the Company's common stock on an opportunistic basis from time to time in open market transactions and in privately negotiated transactions, including Rule 10b-5 stock repurchase plans, based on business, market, applicable legal requirements and other considerations.stock. The ~~program~~2019 Repurchase Program, as approved by the Board of Directors, does not require the repurchase of a specific number of shares and can be terminated at any time.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.



~~3.1~~		~~Restated Certificate of Incorporation of Dine Brands Global, Inc. (Exhibit 3.1 to Registrant’s Form 10-K filed on February 20, 2018 is incorporated herein by reference)~~†*10.1
~~3.2~~		~~Amended Bylaws of Dine Brands Global, Inc. (Exhibit 3.2 to Registrant’s Form 10-K filed on February 20, 2018 is incorporated herein by reference)~~
*†10.1		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan~~
*†10.2		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Cash-Settled RSU Agreement - Non-Employee Directors~~
*†10.3		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Cash-Settled RSU Agreement - Employees~~
*†10.4		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Cash-Settled RSU Agreement - International Employees~~
*†10.5		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Stock-Settled RSU Agreement - Employees - Performance Based~~
*†10.6		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Stock-Settled RSU Agreement 50/50% Annual Vesting - International Employees~~
*†10.7		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Stock-Settled RSU Agreement - International Employees~~
*†10.8		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Stock-Settled RSU Agreement - Employees~~
*†10.9		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Nonqualified Stock Option Agreement - Employees~~
*†10.10		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Nonqualified Stock Option Agreement - International Employees~~
*†10.11		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Nonqualified Stock Option Agreement - Non-Employee Directors~~
*†10.12		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Nonqualified Stock Option Agreement - Employees - Performance Based~~
*†10.13		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Performance Shares Agreement - Employees~~
*†10.14		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Performance Shares Agreement - Employees - 50% stock/50% cash~~
*†10.15		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Performance Award Agreement - Employees - Single Metric~~
*†10.16		Dine Brands Global, Inc. 2016 Stock Incentive Plan Performance Award Agreement - Employees - Double Metric - Cycle 10
* †~~10.17~~	10.2	Separation Agreement and General Release between Greggory H. Kalvin and Dine Brands Global, Inc. ~~2016 Stock Incentive Plan Restricted Stock Agreement Employees - 25/25/50% Annual Vesting~~
*†10.18		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Restricted Stock Agreement - Employees~~
*†10.19		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Restricted Stock Agreement - Non-Employee Directors~~
*†10.20		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Restricted Stock Agreement - Employees - Specified Date Vesting~~
*†10.21		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan - Employees - 5-/50% Annual Vesting~~
*†10.22		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Restricted Stock Agreement - Employees - One-Fourth Annual Vesting~~
*†10.23		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Restricted Stock Agreement - Employees - One Third Annual Vesting~~
*†10.24		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan Restricted Stock Agreement - Employees - Annual Vesting~~
*†10.25		~~Dine Brands Global, Inc. 2016 Stock Incentive Plan SAR Agreement - Employees~~
*12.1		~~Computation of Debt Service Coverage Ratio for the Trailing Twelve Months Ended March 31, 2018 and Leverage Ratio as of March 31, 2018.~~dated February 20, 2019 (Exhibit 10.1 to Registrant's Form 8-K filed on February 21, 2019 is incorporated herein by reference).
*31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
*31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
*32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
*32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**



101.INS			XBRL Instance Document.***
101.SCH			XBRL Schema Document.***
101.CAL			XBRL Calculation Linkbase Document.***
101.DEF			XBRL Definition Linkbase Document.***
101.LAB			XBRL Label Linkbase Document.***
101.PRE			XBRL Presentation Linkbase Document.***

* Filed herewith.


**	The certifications attached as Exhibits 32.1 and 32.2 accompany this Quarterly Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

***

Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.


†	A contract, compensatory plan or arrangement in which directors or executive officers are eligible to participate.


#	~~Portions of this exhibit have been omitted pending a determination by the Securities and Exchange Commission as to whether these portions should be granted confidential treatment.~~

SIGNATURES

Pursuant to the requirements 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.



		Dine Brands Global, Inc. (Registrant)


Dated:	1st day of May, ~~2, 2018~~2019	By:	/s/ Stephen P. Joyce
			Stephen P. Joyce Chief Executive Officer (Principal Executive Officer)


Dated:	1st day of May, ~~2, 2018~~2019	By:	/s/ ~~Greggory~~Thomas H. ~~Kalvin~~Song
			~~Greggory~~Thomas H. ~~Kalvin~~Song ~~Interim~~ Chief Financial Officer ~~Senior Vice President, Corporate Controller~~ (Principal Financial Officer and Principal Accounting Officer)

3537



	Balance at December 31, 2017, as reported			Adjustments/Reclassifications Due to ASC 606 adoption			Balance at December 31, 2017, as adjusted
	(In thousands)
Assets:
Receivables, net	$	150,174		$	(9,986	)	$	140,188
Prepaid income taxes	43,654			2,327			45,981
Long-term receivables, net	131,212			(4,642		)	126,570

Liabilities:
Deferred franchise revenue (short-term)	—			11,001			11,001
Other accrued expenses	17,780			(1,779		)	16,001
Deferred franchise revenue (long-term)	—			70,432			70,432
Other non-current liabilities	23,003			(4,932		)	18,071
Deferred income taxes, net	138,177			(18,181		)	119,996

Equity:
Accumulated deficit	$	(1,098	)	$	(68,842	)	$	(69,940	)



	(in thousands)
Franchise and restaurant revenues, as reported	$	123,578

Franchise revenues, as reclassified	$	119,438
Company restaurant sales, as reclassified	4,140
	$	123,578

Franchise and restaurant expenses, as reported	$	41,007

Franchise expenses, as reclassified	36,664
Company restaurant expenses, as reclassified	4,343
	$	41,007



	Three Months ended March 31, 2017, as reported			Adjustments due to ASC 606 adoption			Three Months ended March 31, 2017, as adjusted
	(In thousands)
Franchise revenues (as reclassified above)	$	119,438		$	35,287		$	154,725
Franchise expenses (as reclassified above)	36,664			33,503			70,167
Income before income tax provision	24,225			1,784			26,009
Income tax provision	(9,862		)	(552		)	(10,414		)
Net income	14,363			1,232			15,595
Net income per share:
Basic	$	0.80					$	0.87
Diluted	$	0.79					$	0.86



	Deferred Revenue (short- and long-term)
Balance at December 31, 2017	$	81,433
Recognized as revenue during the three months ended March 31, 2018	(2,848		)
Fees received and deferred during the three months ended March 31, 2018	847
Balance at March 31, 2018	$	79,432



2015 Repurchase Program	Shares	Cost of shares
		(In millions)
Repurchased during the three months ended March 31, 2018	138,638	$	10.0
Cumulative repurchases as of March 31, 2018	1,139,295	$	92.9
Remaining dollar value of shares that may be repurchased	n/a	$	57.1



	March 31, 2018				December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In millions)
Long-term debt, current and long-term	$	1,280.4	$	1,277.3	$	1,282.8	$	1,265.5



	(In millions)
Decrease in gross profit:
Applebee's franchise operations		$	(13.3	)
IHOP franchise operations		2.2
All other operations		0.3
Total gross profit decrease		(10.8		)
Decrease in General and Administrative (“G&A”) expenses:
Decrease due to executive separation costs in 2017		8.8
Increase in all other G&A (net)		(0.4		)
Total G&A decrease		8.4
Increase in closure charges		(2.4		)
Increase in gain on disposition of assets		1.3
Other		0.2
Decrease in income before income taxes		$	(3.3	)



	Three months ended March 31, 2018
	Applebee's		IHOP
Sales percentage increase	0.9	%	3.9	%
% increase in domestic same-restaurant sales	3.3	%	1.0	%
Net franchise restaurant (reduction) development ⁽¹⁾	(24	)	5



Other Expense and Income Items	Three months ended March 31,				Favorable (Unfavorable) Variance
	2018		2017		Favorable (Unfavorable) Variance
	(In millions)
Interest expense	$	15.2	$	15.4	$	0.2
Amortization of intangible assets	2.5		2.5		(0.0		)
Total	$	17.7	$	17.9	$	0.2