UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20212022
OR
���☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-15283
Dine Brands Global, Inc. (Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | |
Delaware | | | 95-3038279 |
(State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
450 North Brand Boulevard, | | | 91203-190391203-2346 |
Glendale, | CA | | | |
(Address of principal executive offices) | | | (Zip Code) |
| | | | | |
(818) | 240-6055 |
(Registrant’s telephone number, including area code) |
______________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | |
Title of each class | | Trading symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | | DIN | New York Stock Exchange |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 | ☒ | | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | | | |
| | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
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 ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
As of July 29, 2021,August 2, 2022, the Registrant had 17,176,01815,681,189 shares of Common Stock outstanding.
Dine Brands Global, Inc. and Subsidiaries
Index
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 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: uncertainty regarding the duration and severity of the ongoing COVID-19 pandemic (including the emergence of variant strains) and its ultimate impact on our business; general economic conditions;conditions, including the impact of inflation; 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, including any insolvency or bankruptcy; credit risks from our IHOP franchisees operating under our previous IHOP business model in which we built and equipped IHOP restaurants and then franchised them to franchisees; 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; 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
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 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; and other matters in the “Risk Factors” section of this report and our Annual Report on Form 10-K for the fiscal year ended December 31, 20202021 and in our other filings with the Securities and Exchange Commission, many of which are beyond our control.
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 2022 began on January 3, 2022 and ended on April 3, 2022; the second fiscal quarter of 2022 ended on July 3, 2022. The first fiscal quarter of 2021 began on January 4, 2021 and ended on April 4, 2021; the second fiscal quarter of 2021 ended on July 4, 2021. The first fiscal quarter of 2020 began on December 30, 2019 and ended on March 29, 2020; the second fiscal quarter of 2020 ended on June 28, 2020.
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)
| | | | | | | | | | | | | | | | June 30, 2022 | | December 31, 2021 |
Assets | Assets | | Assets | | (Unaudited) | | |
| June 30, 2021 | | December 31, 2020 | |
| | (Unaudited) | | | |
Current assets: | Current assets: | | | | | Current assets: | | | | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 259,461 | | | $ | 383,369 | | Cash and cash equivalents | | $ | 263,536 | | | $ | 361,412 | |
| Receivables, net of allowance of $10,095 (2021) and $15,057 (2020) | | 99,308 | | | 121,897 | | |
Receivables, net of allowance of $4,500 (2022) and $4,959 (2021) | | Receivables, net of allowance of $4,500 (2022) and $4,959 (2021) | | 91,888 | | | 119,968 | |
Restricted cash | Restricted cash | | 72,137 | | | 39,884 | | Restricted cash | | 49,776 | | | 47,541 | |
Prepaid gift card costs | Prepaid gift card costs | | 21,716 | | | 29,080 | | Prepaid gift card costs | | 25,028 | | | 28,175 | |
Prepaid income taxes | Prepaid income taxes | | 397 | | | 6,178 | | Prepaid income taxes | | 6,890 | | | 10,529 | |
Other current assets | Other current assets | | 8,134 | | | 6,098 | | Other current assets | | 12,710 | | | 6,728 | |
Total current assets | Total current assets | | 461,153 | | | 586,506 | | Total current assets | | 449,828 | | | 574,353 | |
Other intangible assets, net | Other intangible assets, net | | 544,587 | | | 549,671 | | Other intangible assets, net | | 534,247 | | | 539,390 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | | 331,826 | | | 346,086 | | Operating lease right-of-use assets | | 355,149 | | | 335,428 | |
Goodwill | Goodwill | | 251,628 | | | 251,628 | | Goodwill | | 251,628 | | | 251,628 | |
Property and equipment, net | Property and equipment, net | | 178,571 | | | 187,977 | | Property and equipment, net | | 175,265 | | | 179,411 | |
| Long-term receivables, net of allowance of $5,503 (2021) and $7,999 (2020) | | 47,839 | | | 54,512 | | |
Deferred rent receivable | Deferred rent receivable | | 53,017 | | | 56,449 | | Deferred rent receivable | | 46,293 | | | 50,257 | |
Long-term receivables, net of allowance of $5,713 (2022) and $6,897 (2021) | | Long-term receivables, net of allowance of $5,713 (2022) and $6,897 (2021) | | 43,076 | | | 42,493 | |
Non-current restricted cash | Non-current restricted cash | | 16,400 | | | 32,800 | | Non-current restricted cash | | 16,400 | | | 16,400 | |
Other non-current assets, net | Other non-current assets, net | | 10,902 | | | 9,316 | | Other non-current assets, net | | 9,880 | | | 10,006 | |
Total assets | Total assets | | $ | 1,895,923 | | | $ | 2,074,945 | | Total assets | | $ | 1,881,766 | | | $ | 1,999,366 | |
Liabilities and Stockholders’ Deficit | Liabilities and Stockholders’ Deficit | | | | | Liabilities and Stockholders’ Deficit | | | | |
Current liabilities: | Current liabilities: | | | | | Current liabilities: | | | | |
Current maturities of long-term debt | | $ | 3,250 | | | $ | 13,000 | | |
| Accounts payable | Accounts payable | | 40,126 | | | 37,424 | | Accounts payable | | $ | 38,537 | | | $ | 55,956 | |
Gift card liability | Gift card liability | | 120,842 | | | 144,159 | | Gift card liability | | 133,874 | | | 165,530 | |
Current maturities of operating lease obligations | Current maturities of operating lease obligations | | 70,491 | | | 69,672 | | Current maturities of operating lease obligations | | 71,663 | | | 72,079 | |
Current maturities of finance lease and financing obligations | Current maturities of finance lease and financing obligations | | 10,954 | | | 11,293 | | Current maturities of finance lease and financing obligations | | 10,662 | | | 10,693 | |
Accrued employee compensation and benefits | Accrued employee compensation and benefits | | 22,785 | | | 21,237 | | Accrued employee compensation and benefits | | 21,202 | | | 40,785 | |
Accrued advertising | Accrued advertising | | 52,707 | | | 21,641 | | Accrued advertising | | 33,574 | | | 33,752 | |
| Dividends payable | | Dividends payable | | 8,239 | | | 6,919 | |
| Deferred franchise revenue, short-term | Deferred franchise revenue, short-term | | 7,447 | | | 7,682 | | Deferred franchise revenue, short-term | | 7,077 | | | 7,246 | |
Other accrued expenses | Other accrued expenses | | 16,253 | | | 22,460 | | Other accrued expenses | | 18,970 | | | 17,770 | |
Total current liabilities | Total current liabilities | | 344,855 | | | 348,568 | | Total current liabilities | | 343,798 | | | 410,730 | |
Long-term debt | Long-term debt | | 1,278,504 | | | 1,491,996 | | Long-term debt | | 1,280,747 | | | 1,279,623 | |
Operating lease obligations, less current maturities | Operating lease obligations, less current maturities | | 325,278 | | | 345,163 | | Operating lease obligations, less current maturities | | 338,169 | | | 320,848 | |
Finance lease obligations, less current maturities | Finance lease obligations, less current maturities | | 64,095 | | | 69,012 | | Finance lease obligations, less current maturities | | 63,562 | | | 59,625 | |
Financing obligations, less current maturities | Financing obligations, less current maturities | | 32,393 | | | 32,797 | | Financing obligations, less current maturities | | 29,887 | | | 31,967 | |
Deferred income taxes, net | Deferred income taxes, net | | 67,780 | | | 78,293 | | Deferred income taxes, net | | 75,064 | | | 76,228 | |
Deferred franchise revenue, long-term | Deferred franchise revenue, long-term | | 47,794 | | | 52,237 | | Deferred franchise revenue, long-term | | 43,873 | | | 46,100 | |
| Other non-current liabilities | Other non-current liabilities | | 17,975 | | | 11,530 | | Other non-current liabilities | | 15,322 | | | 17,052 | |
Total liabilities | Total liabilities | | 2,178,674 | | | 2,429,596 | | Total liabilities | | 2,190,422 | | | 2,242,173 | |
Commitments and contingencies | Commitments and contingencies | | 0 | | 0 | Commitments and contingencies | | 0 | | 0 |
Stockholders’ deficit: | Stockholders’ deficit: | | | | | Stockholders’ deficit: | | | | |
Preferred stock, $1 par value, 10,000,000 shares authorized; 0 shares issued or outstanding | | 0 | | | 0 | | |
Common stock, $0.01 par value; shares: 40,000,000 authorized; June 30, 2021 - 25,011,253 issued, 17,177,950 outstanding; December 31, 2020 - 24,882,122 issued, 16,452,174 outstanding | | 250 | | | 249 | | |
Preferred stock, $1 par value, 10,000,000 shares authorized; no shares issued or outstanding | | Preferred stock, $1 par value, 10,000,000 shares authorized; no shares issued or outstanding | | — | | | — | |
Common stock, $0.01 par value; shares: 40,000,000 authorized; June 30, 2022 - 24,974,835 issued, 15,823,390 outstanding; December 31, 2021 - 24,992,275 issued, 17,163,946 outstanding | | Common stock, $0.01 par value; shares: 40,000,000 authorized; June 30, 2022 - 24,974,835 issued, 15,823,390 outstanding; December 31, 2021 - 24,992,275 issued, 17,163,946 outstanding | | 250 | | | 250 | |
Additional paid-in-capital | Additional paid-in-capital | | 250,509 | | | 257,625 | | Additional paid-in-capital | | 253,213 | | | 256,189 | |
Accumulated deficit | | (588) | | | (55,553) | | |
Retained earnings | | Retained earnings | | 68,265 | | | 35,415 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (57) | | | (55) | | Accumulated other comprehensive loss | | (63) | | | (59) | |
Treasury stock, at cost; shares: June 30, 2021 - 7,833,303; December 31, 2020 - 8,429,948 | | (532,865) | | | (556,917) | | |
Treasury stock, at cost; shares: June 30, 2022 - 9,151,445; December 31, 2021 - 7,828,329 | | Treasury stock, at cost; shares: June 30, 2022 - 9,151,445; December 31, 2021 - 7,828,329 | | (630,321) | | | (534,602) | |
Total stockholders’ deficit | Total stockholders’ deficit | | (282,751) | | | (354,651) | | Total stockholders’ deficit | | (308,656) | | | (242,807) | |
Total liabilities and stockholders’ deficit | Total liabilities and stockholders’ deficit | | $ | 1,895,923 | | | $ | 2,074,945 | | Total liabilities and stockholders’ deficit | | $ | 1,881,766 | | | $ | 1,999,366 | |
See the accompanying Notes to Consolidated Financial Statements.
Dine Brands Global, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(In thousands, except per share amounts)
(Unaudited)
| | | | Three Months Ended | | Six Months Ended | | | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, | | June 30, | | June 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 |
Revenues: | Revenues: | | | | | | | | | Revenues: | | | | | | | | |
Franchise revenues: | Franchise revenues: | | Franchise revenues: | |
Royalties, franchise fees and other | Royalties, franchise fees and other | | $ | 94,630 | | | $ | 38,781 | | | $ | 174,721 | | | $ | 122,095 | | Royalties, franchise fees and other | | $ | 94,148 | | | $ | 94,630 | | | $ | 184,497 | | | $ | 174,721 | |
Advertising revenues | Advertising revenues | | 72,324 | | | 29,095 | | | 133,209 | | | 90,818 | | Advertising revenues | | 74,111 | | | 72,324 | | | 144,994 | | | 133,209 | |
Total franchise revenues | Total franchise revenues | | 166,954 | | | 67,876 | | | 307,930 | | | 212,913 | | Total franchise revenues | | 168,259 | | | 166,954 | | | 329,491 | | | 307,930 | |
Company restaurant sales | Company restaurant sales | | 38,194 | | | 16,774 | | | 74,143 | | | 48,074 | | Company restaurant sales | | 39,511 | | | 38,194 | | | 78,927 | | | 74,143 | |
Rental revenues | Rental revenues | | 27,382 | | | 23,707 | | | 53,524 | | | 52,716 | | Rental revenues | | 29,066 | | | 27,382 | | | 57,873 | | | 53,524 | |
Financing revenues | Financing revenues | | 1,089 | | | 1,355 | | | 2,221 | | | 2,893 | | Financing revenues | | 958 | | | 1,089 | | | 1,926 | | | 2,221 | |
Total revenues | Total revenues | | 233,619 | | | 109,712 | | | 437,818 | | | 316,596 | | Total revenues | | 237,794 | | | 233,619 | | | 468,217 | | | 437,818 | |
Cost of revenues: | Cost of revenues: | | | | | | | | | Cost of revenues: | | | | | | | | |
Franchise expenses: | Franchise expenses: | | Franchise expenses: | |
Advertising expenses | Advertising expenses | | 72,324 | | | 29,095 | | | 133,209 | | | 90,818 | | Advertising expenses | | 74,111 | | | 72,324 | | | 144,994 | | | 133,209 | |
Bad debt (credit) expense | | (291) | | | 5,053 | | | (2,284) | | | 5,571 | | |
Bad debt credit | | Bad debt credit | | (147) | | | (291) | | | (446) | | | (2,284) | |
Other franchise expenses | Other franchise expenses | | 7,224 | | | 2,932 | | | 13,275 | | | 10,141 | | Other franchise expenses | | 8,305 | | | 7,224 | | | 15,753 | | | 13,275 | |
Total franchise expenses | Total franchise expenses | | 79,257 | | | 37,080 | | | 144,200 | | | 106,530 | | Total franchise expenses | | 82,269 | | | 79,257 | | | 160,301 | | | 144,200 | |
Company restaurant expenses | Company restaurant expenses | | 34,759 | | | 21,139 | | | 67,643 | | | 51,471 | | Company restaurant expenses | | 37,881 | | | 34,759 | | | 75,289 | | | 67,643 | |
Rental expenses: | Rental expenses: | | Rental expenses: | |
Interest expense from finance leases | Interest expense from finance leases | | 893 | | | 1,137 | | | 1,855 | | | 2,347 | | Interest expense from finance leases | | 746 | | | 893 | | | 1,514 | | | 1,855 | |
Other rental expenses | Other rental expenses | | 19,718 | | | 20,106 | | | 39,714 | | | 41,429 | | Other rental expenses | | 21,097 | | | 19,718 | | | 42,452 | | | 39,714 | |
Total rental expenses | Total rental expenses | | 20,611 | | | 21,243 | | | 41,569 | | | 43,776 | | Total rental expenses | | 21,843 | | | 20,611 | | | 43,966 | | | 41,569 | |
Financing expenses | Financing expenses | | 115 | | | 128 | | | 243 | | | 270 | | Financing expenses | | 106 | | | 115 | | | 213 | | | 243 | |
Total cost of revenues | Total cost of revenues | | 134,742 | | | 79,590 | | | 253,655 | | | 202,047 | | Total cost of revenues | | 142,099 | | | 134,742 | | | 279,769 | | | 253,655 | |
Gross profit | Gross profit | | 98,877 | | | 30,122 | | | 184,163 | | | 114,549 | | Gross profit | | 95,695 | | | 98,877 | | | 188,448 | | | 184,163 | |
General and administrative expenses | General and administrative expenses | | 39,276 | | | 30,870 | | | 79,187 | | | 68,478 | | General and administrative expenses | | 44,063 | | | 39,276 | | | 85,611 | | | 79,187 | |
Interest expense, net | Interest expense, net | | 15,739 | | | 17,127 | | | 32,235 | | | 32,299 | | Interest expense, net | | 15,359 | | | 15,739 | | | 30,892 | | | 32,235 | |
Impairment and closure charges | | 2,571 | | | 124,365 | | | 4,581 | | | 124,353 | | |
Closure and impairment charges | | Closure and impairment charges | | 1,311 | | | 2,571 | | | 1,457 | | | 4,581 | |
Amortization of intangible assets | Amortization of intangible assets | | 2,663 | | | 2,755 | | | 5,351 | | | 5,581 | | Amortization of intangible assets | | 2,665 | | | 2,663 | | | 5,330 | | | 5,351 | |
| (Gain) loss on disposition of assets | (Gain) loss on disposition of assets | | (30) | | | 1,776 | | | 137 | | | 1,543 | | (Gain) loss on disposition of assets | | (234) | | | (30) | | | (1,530) | | | 137 | |
Income before income taxes | Income before income taxes | | 38,658 | | | (146,771) | | | 62,672 | | | (117,705) | | Income before income taxes | | 32,531 | | | 38,658 | | | 66,688 | | | 62,672 | |
Income tax (provision) benefit | | (9,296) | | | 11,992 | | | (7,707) | | | 5,254 | | |
Net income (loss) | | 29,362 | | | (134,779) | | | 54,965 | | | (112,451) | | |
Other comprehensive income net of tax: | | |
Income tax provision | | Income tax provision | | (8,569) | | | (9,296) | | | (17,876) | | | (7,707) | |
Net income | | Net income | | 23,962 | | | 29,362 | | | 48,812 | | | 54,965 | |
Other comprehensive income, net of tax: | | Other comprehensive income, net of tax: | |
| Foreign currency translation adjustment | Foreign currency translation adjustment | | (1) | | | 0 | | | (2) | | | 0 | | Foreign currency translation adjustment | | (3) | | | (1) | | | (4) | | | (2) | |
Total comprehensive income (loss) | | $ | 29,361 | | | $ | (134,779) | | | $ | 54,963 | | | $ | (112,451) | | |
Net income (loss) available to common stockholders: | | | | | | | | | |
Net income (loss) | | $ | 29,362 | | | $ | (134,779) | | | $ | 54,965 | | | $ | (112,451) | | |
Total comprehensive income | | Total comprehensive income | | $ | 23,959 | | | $ | 29,361 | | | $ | 48,808 | | | $ | 54,963 | |
Net income available to common stockholders: | | Net income available to common stockholders: | | | | | | | | |
Net income | | Net income | | $ | 23,962 | | | $ | 29,362 | | | $ | 48,812 | | | $ | 54,965 | |
Less: Net income allocated to unvested participating restricted stock | Less: Net income allocated to unvested participating restricted stock | | (657) | | | 0 | | | (1,431) | | | (420) | | Less: Net income allocated to unvested participating restricted stock | | (673) | | | (657) | | | (1,273) | | | (1,431) | |
Net income (loss) available to common stockholders | | $ | 28,705 | | | $ | (134,779) | | | $ | 53,534 | | | $ | (112,871) | | |
Net income available to common stockholders | | Net income available to common stockholders | | $ | 23,289 | | | $ | 28,705 | | | $ | 47,539 | | | $ | 53,534 | |
| Net income (loss) available to common stockholders per share: | | | | | | |
Net income available to common stockholders per share: | | Net income available to common stockholders per share: | | | | | |
Basic | Basic | | $ | 1.70 | | | $ | (8.33) | | | $ | 3.21 | | | $ | (6.96) | | Basic | | $ | 1.45 | | | $ | 1.70 | | | $ | 2.90 | | | $ | 3.21 | |
Diluted | Diluted | | $ | 1.69 | | | $ | (8.33) | | | $ | 3.19 | | | $ | (6.96) | | Diluted | | $ | 1.45 | | | $ | 1.69 | | | $ | 2.90 | | | $ | 3.19 | |
Weighted average shares outstanding: | Weighted average shares outstanding: | | | | | | | | | Weighted average shares outstanding: | | | | | | | | |
Basic | Basic | | 16,886 | | | 16,177 | | | 16,673 | | | 16,215 | | Basic | | 16,050 | | | 16,886 | | | 16,386 | | | 16,673 | |
Diluted | Diluted | | 16,977 | | | 16,177 | | | 16,802 | | | 16,215 | | Diluted | | 16,080 | | | 16,977 | | | 16,418 | | | 16,802 | |
|
See the accompanying Notes to Consolidated Financial Statements.
Dine Brands Global, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
(In thousands)
(Unaudited)
| | | Three Months ended June 30, 2021 | | Three Months Ended June 30, 2022 |
| | Common Stock | | Accumulated Other Comprehensive Loss | | Treasury Stock | | | Common Stock | | Accumulated Other Comprehensive Loss | | Treasury Stock | |
| | Shares Outstanding | | Amount | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Shares | | Cost | | Total | | Shares Outstanding | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Shares | | Cost | | Total |
Balance at March 31, 2021 | | 17,142 | | | $ | 250 | | | $ | 247,498 | | | $ | (29,950) | | | $ | (56) | | | 7,891 | | | $ | (535,144) | | | $ | (317,402) | | |
Balance at March 31, 2022 | | Balance at March 31, 2022 | | 16,746 | | | $ | 250 | | | $ | 250,150 | | | $ | 52,516 | | | $ | (60) | | | 8,245 | | | $ | (568,028) | | | $ | (265,172) | |
Net income | Net income | | — | | | — | | | — | | | 29,362 | | | — | | | — | | | — | | | 29,362 | | Net income | | — | | | — | | | — | | | 23,962 | | | — | | | — | | | — | | | 23,962 | |
Other comprehensive loss | Other comprehensive loss | | — | | | — | | | — | | | — | | | (1) | | | — | | | — | | | (1) | | Other comprehensive loss | | — | | | — | | | — | | | — | | | (3) | | | — | | | — | | | (3) | |
| Purchase of common stock | | Purchase of common stock | | (913) | | | — | | | — | | | — | | | — | | | 913 | | | (62,608) | | | (62,608) | |
Reissuance of treasury stock | Reissuance of treasury stock | | 58 | | | — | | | 748 | | | — | | | — | | | (58) | | | 2,279 | | | 3,027 | | Reissuance of treasury stock | | 7 | | | — | | | (315) | | | — | | | — | | | (7) | | | 315 | | | — | |
Net issuance of shares for stock plans | Net issuance of shares for stock plans | | (20) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Net issuance of shares for stock plans | | (8) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Repurchase of restricted shares for taxes | Repurchase of restricted shares for taxes | | (2) | | | — | | | (183) | | | — | | | — | | | — | | | — | | | (183) | | Repurchase of restricted shares for taxes | | (9) | | | — | | | (608) | | | — | | | — | | | — | | | — | | | (608) | |
Stock-based compensation | Stock-based compensation | | — | | | — | | | 2,518 | | | — | | | — | | | — | | | — | | | 2,518 | | Stock-based compensation | | — | | | — | | | 3,986 | | | — | | | — | | | — | | | — | | | 3,986 | |
Dividends on common stock | | Dividends on common stock | | — | | | — | | | — | | | (8,213) | | | — | | | — | | | — | | | (8,213) | |
| Tax payments for share settlement of restricted stock units | | — | | | — | | | (72) | | | — | | | — | | | — | | | — | | | (72) | | |
Balance at June 30, 2021 | | 17,178 | | | $ | 250 | | | $ | 250,509 | | | $ | (588) | | | $ | (57) | | | 7,833 | | | $ | (532,865) | | | $ | (282,751) | | |
Balance at June 30, 2022 | | Balance at June 30, 2022 | | 15,823 | | | $ | 250 | | | $ | 253,213 | | | $ | 68,265 | | | $ | (63) | | | 9,151 | | | $ | (630,321) | | | $ | (308,656) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months ended June 30, 2021 |
| | Common Stock | | | | | | Accumulated Other Comprehensive Loss | | Treasury Stock | | |
| | Shares Outstanding | | Amount | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Shares | | Cost | | Total |
Balance at December 31, 2020 | | 16,452 | | | $ | 249 | | | $ | 257,625 | | | $ | (55,553) | | | $ | (55) | | | 8,430 | | | $ | (556,917) | | | $ | (354,651) | |
Net income | | — | | | — | | | — | | | 54,965 | | | — | | | — | | | — | | | 54,965 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (2) | | | — | | | — | | | (2) | |
| | | | | | | | | | | | | | | | |
Reissuance of treasury stock | | 597 | | | 1 | | | (1,542) | | | — | | | — | | | (597) | | | 24,052 | | | 22,511 | |
Net issuance of shares for stock plans | | 146 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Repurchase of restricted shares for taxes | | (17) | | | — | | | (1,403) | | | — | | | — | | | — | | | — | | | (1,403) | |
Stock-based compensation | | — | | | — | | | 5,612 | | | — | | | — | | | — | | | — | | | 5,612 | |
| | | | | | | | | | | | | | | | |
Tax payments for share settlement of restricted stock units | | — | | | — | | | (9,783) | | | — | | | — | | | — | | | — | | | (9,783) | |
Balance at June 30, 2021 | | 17,178 | | | $ | 250 | | | $ | 250,509 | | | $ | (588) | | | $ | (57) | | | 7,833 | | | $ | (532,865) | | | $ | (282,751) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2022 |
| | Common Stock | | | | | | Accumulated Other Comprehensive Loss | | Treasury Stock | | |
| | Shares Outstanding | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Shares | | Cost | | Total |
Balance at December 31, 2021 | | 17,164 | | | $ | 250 | | | $ | 256,189 | | | $ | 35,415 | | | $ | (59) | | | 7,828 | | | $ | (534,602) | | | $ | (242,807) | |
Net income | | — | | | — | | | — | | | 48,812 | | | — | | | — | | | — | | | 48,812 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (4) | | | — | | | — | | | (4) | |
Purchase of common stock | | (1,501) | | | — | | | — | | | — | | | — | | | 1,501 | | | (104,053) | | | (104,053) | |
Reissuance of treasury stock | | 178 | | | — | | | (8,093) | | | — | | | — | | | (178) | | | 8,334 | | | 241 | |
Net issuance of shares for stock plans | | 14 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Repurchase of restricted shares for taxes | | (32) | | | — | | | (2,353) | | | — | | | — | | | — | | | — | | | (2,353) | |
Stock-based compensation | | — | | | — | | | 8,327 | | | — | | | — | | | — | | | — | | | 8,327 | |
Dividends on common stock | | — | | | — | | | 96 | | | (15,962) | | | — | | | — | | | — | | | (15,866) | |
Tax payments for share settlement of restricted stock units | | — | | | — | | | (953) | | | — | | | — | | | — | | | — | | | (953) | |
Balance at June 30, 2022 | | 15,823 | | | $ | 250 | | | $ | 253,213 | | | $ | 68,265 | | | $ | (63) | | | 9,151 | | | $ | (630,321) | | | $ | (308,656) | |
See the accompanying Notes to Consolidated Financial Statements.
Dine Brands Global, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2021 |
| | Common Stock | | | | | | Accumulated Other Comprehensive Loss | | Treasury Stock | | |
| | Shares Outstanding | | Amount | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Shares | | Cost | | Total |
Balance at March 31, 2021 | | 17,142 | | | $ | 250 | | | $ | 247,498 | | | $ | (29,950) | | | $ | (56) | | | 7,891 | | | $ | (535,144) | | | $ | (317,402) | |
Net income | | — | | | — | | | — | | | 29,362 | | | — | | | — | | | — | | | 29,362 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (1) | | | — | | | — | | | (1) | |
| | | | | | | | | | | | | | | | |
Reissuance of treasury stock | | 58 | | | — | | | 748 | | | — | | | — | | | (58) | | | 2,279 | | | 3,027 | |
Net issuance of shares for stock plans | | (20) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Repurchase of restricted shares for taxes | | (2) | | | — | | | (183) | | | — | | | — | | | — | | | — | | | (183) | |
Stock-based compensation | | — | | | — | | | 2,518 | | | — | | | — | | | — | | | — | | | 2,518 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Tax payments for share settlement of restricted stock units | | — | | | — | | | (72) | | | — | | | — | | | — | | | — | | | (72) | |
Balance at June 30, 2021 | | 17,178 | | | $ | 250 | | | $ | 250,509 | | | $ | (588) | | | $ | (57) | | | 7,833 | | | $ | (532,865) | | | $ | (282,751) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months ended June 30, 2020 |
| | Common Stock | | | | | | Accumulated Other Comprehensive Loss | | Treasury Stock | | |
| | Shares Outstanding | | Amount | | Additional Paid-in Capital | | (Accumulated Deficit) Retained Earnings | | Shares | | Cost | | Total |
Balance at March 31, 2020 | | 16,421 | | | $ | 249 | | | $ | 252,443 | | | $ | 70,769 | | | $ | (58) | | | 8,496 | | | $ | (559,780) | | | $ | (236,377) | |
| | | | | | | | | | | | | | | | |
Net loss | | — | | | — | | | — | | | (134,779) | | | — | | | — | | | — | | | (134,779) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Reissuance of treasury stock | | 14 | | | — | | | (600) | | | — | | | — | | | (13) | | | 599 | | | (1) | |
Net issuance of shares for stock plans | | (14) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Repurchase of restricted shares for taxes | | (3) | | | — | | | (129) | | | — | | | — | | | — | | | — | | | (129) | |
Stock-based compensation | | — | | | — | | | 2,632 | | | — | | | — | | | — | | | — | | | 2,632 | |
Dividends on common stock | | — | | | — | | | 261 | | | 0 | | | — | | | — | | | — | | | 261 | |
Tax payments for share settlement of restricted stock units | | — | | | — | | | (178) | | | — | | | — | | | — | | | — | | | (178) | |
Balance at June 30, 2020 | | 16,418 | | | $ | 249 | | | $ | 254,429 | | | $ | (64,010) | | | $ | (58) | | | 8,483 | | | $ | (559,181) | | | $ | (368,571) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months ended June 30, 2020 |
| | Common Stock | | | | | | Accumulated Other Comprehensive Loss | | Treasury Stock | | |
| | Shares Outstanding | | Amount | | Additional Paid-in Capital | | (Accumulated Deficit) Retained Earnings | | Shares | | Cost | | Total |
Balance at December 31, 2019 | | 16,522 | | | $ | 249 | | | $ | 246,192 | | | $ | 61,653 | | | $ | (58) | | | 8,404 | | | $ | (549,810) | | | $ | (241,774) | |
Adoption of credit loss accounting guidance (Note 3) | | — | | | — | | | — | | | (497) | | | — | | | — | | | — | | | (497) | |
Net loss | | — | | | — | | | — | | | (112,451) | | | — | | | — | | | — | | | (112,451) | |
| | | | | | | | | | | | | | | | |
Purchase of Company common stock | | (460) | | | — | | | — | | | — | | | — | | | 460 | | | (26,527) | | | (26,527) | |
Reissuance of treasury stock | | 381 | | | — | | | 3,367 | | | — | | | — | | | (381) | | | 17,156 | | | 20,523 | |
Net issuance of shares for stock plans | | 4 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Repurchase of restricted shares for taxes | | (29) | | | — | | | (2,129) | | | — | | | — | | | — | | | — | | | (2,129) | |
Stock-based compensation | | — | | | — | | | 6,670 | | | — | | | — | | | — | | | — | | | 6,670 | |
Dividends on common stock | | — | | | — | | | 507 | | | (12,715) | | | — | | | — | | | — | | | (12,208) | |
Tax payments for share settlement of restricted stock units | | — | | | — | | | (178) | | | — | | | — | | | — | | | — | | | (178) | |
Balance at June 30, 2020 | | 16,418 | | | $ | 249 | | | $ | 254,429 | | | $ | (64,010) | | | $ | (58) | | | 8,483 | | | $ | (559,181) | | | $ | (368,571) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 |
| | Common Stock | | | | | | Accumulated Other Comprehensive Loss | | Treasury Stock | | |
| | Shares Outstanding | | Amount | | Additional Paid-in Capital | | Retained Earnings (Accumulated Deficit) | | Shares | | Cost | | Total |
Balance at December 31, 2020 | | 16,452 | | | $ | 249 | | | $ | 257,625 | | | $ | (55,553) | | | $ | (55) | | | 8,430 | | | $ | (556,917) | | | $ | (354,651) | |
Net income | | — | | | — | | | — | | | 54,965 | | | — | | | — | | | — | | | 54,965 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (2) | | | — | | | — | | | (2) | |
| | | | | | | | | | | | | | | | |
Reissuance of treasury stock | | 597 | | | 1 | | | (1,542) | | | — | | | — | | | (597) | | | 24,052 | | | 22,511 | |
Net issuance of shares for stock plans | | 146 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Repurchase of restricted shares for taxes | | (17) | | | — | | | (1,403) | | | — | | | — | | | — | | | — | | | (1,403) | |
Stock-based compensation | | — | | | — | | | 5,612 | | | — | | | — | | | — | | | — | | | 5,612 | |
| | | | | | | | | | | | | | | | |
Tax payments for share settlement of restricted stock units | | — | | | — | | | (9,783) | | | — | | | — | | | — | | | — | | | (9,783) | |
Balance at June 30, 2021 | | 17,178 | | | $ | 250 | | | $ | 250,509 | | | $ | (588) | | | $ | (57) | | | 7,833 | | | $ | (532,865) | | | $ | (282,751) | |
| | | | | | | | | | | | | | | | |
See the accompanying Notes to Consolidated Financial Statements.
Dine Brands Global, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| | | Six Months Ended | | Six Months Ended |
| | | June 30, | | | June 30, |
| | | 2021 | | 2020 | | | 2022 | | 2021 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
Net income (loss) | | $ | 54,965 | | | $ | (112,451) | | |
Adjustments to reconcile net income (loss) to cash flows provided by (used in) operating activities: | | | |
Non-cash impairment and closure charges | | 4,514 | | | 124,343 | | |
Net income | | Net income | | $ | 48,812 | | | $ | 54,965 | |
Adjustments to reconcile net income to cash flows provided by operating activities: | | Adjustments to reconcile net income to cash flows provided by operating activities: | | |
Depreciation and amortization | Depreciation and amortization | | 19,976 | | | 21,345 | | Depreciation and amortization | | 19,969 | | | 19,976 | |
Non-cash closure and impairment charges | | Non-cash closure and impairment charges | | 1,348 | | | 4,514 | |
Non-cash stock-based compensation expense | Non-cash stock-based compensation expense | | 5,612 | | | 6,670 | | Non-cash stock-based compensation expense | | 8,327 | | | 5,612 | |
Non-cash interest expense | Non-cash interest expense | | 1,427 | | | 1,318 | | Non-cash interest expense | | 1,436 | | | 1,427 | |
| Deferred income taxes | Deferred income taxes | | (10,007) | | | (10,793) | | Deferred income taxes | | (773) | | | (10,007) | |
Deferred revenue | Deferred revenue | | (4,678) | | | (4,840) | | Deferred revenue | | (2,396) | | | (4,678) | |
| Loss on disposition of assets | | 137 | | | 1,543 | | |
(Gain) loss on disposition of assets | | (Gain) loss on disposition of assets | | (1,530) | | | 137 | |
| Other | Other | | (3,608) | | | (252) | | Other | | (2,647) | | | 2,139 | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | | Changes in operating assets and liabilities: | | |
Accounts receivable, net | Accounts receivable, net | | 4,928 | | | (31,039) | | Accounts receivable, net | | (1,114) | | | 4,928 | |
Deferred rent receivable | | Deferred rent receivable | | 3,964 | | | 3,432 | |
Current income tax receivables and payables | Current income tax receivables and payables | | 5,315 | | | (5,456) | | Current income tax receivables and payables | | 3,715 | | | 5,315 | |
Gift card receivables and payables | Gift card receivables and payables | | (3,837) | | | 2,293 | | Gift card receivables and payables | | (8,397) | | | (3,837) | |
Other current assets | Other current assets | | (2,036) | | | (2,503) | | Other current assets | | (5,983) | | | (2,036) | |
Accounts payable | Accounts payable | | 6,195 | | | (903) | | Accounts payable | | (9,656) | | | 6,195 | |
Operating lease assets and liabilities | | Operating lease assets and liabilities | | (5,724) | | | (9,179) | |
Accrued employee compensation and benefits | Accrued employee compensation and benefits | | 1,466 | | | (13,336) | | Accrued employee compensation and benefits | | (18,894) | | | 1,466 | |
| Accrued advertising | Accrued advertising | | 31,066 | | | 13,012 | | Accrued advertising | | (178) | | | 31,066 | |
Other current liabilities | Other current liabilities | | (5,419) | | | 532 | | Other current liabilities | | (400) | | | (5,419) | |
Cash flows provided by (used in) operating activities | | 106,016 | | | (10,517) | | |
Cash flows provided by operating activities | | Cash flows provided by operating activities | | 29,879 | | | 106,016 | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | | Cash flows from investing activities: | | | | |
Principal receipts from notes, equipment contracts and other long-term receivables | Principal receipts from notes, equipment contracts and other long-term receivables | | 9,703 | | | 10,772 | | Principal receipts from notes, equipment contracts and other long-term receivables | | 9,476 | | | 9,703 | |
Net additions to property and equipment | Net additions to property and equipment | | (4,064) | | | (7,380) | | Net additions to property and equipment | | (12,749) | | | (4,064) | |
Proceeds from sale of property and equipment | Proceeds from sale of property and equipment | | 946 | | | 456 | | Proceeds from sale of property and equipment | | 3,658 | | | 946 | |
Additions to long-term receivables | Additions to long-term receivables | | 0 | | | (1,475) | | Additions to long-term receivables | | (1,069) | | | — | |
Other | Other | | (237) | | | (276) | | Other | | (93) | | | (237) | |
Cash flows provided by investing activities | | 6,348 | | | 2,097 | | |
Cash flows (used in) provided by investing activities | | Cash flows (used in) provided by investing activities | | (777) | | | 6,348 | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | | Cash flows from financing activities: | | | | |
| Repayment of long-term debt | Repayment of long-term debt | | (6,500) | | | 0 | | Repayment of long-term debt | | — | | | (6,500) | |
Borrowing from revolving credit facility | | 0 | | | 220,000 | | |
| Repayment of revolving credit facility | Repayment of revolving credit facility | | (220,000) | | | 0 | | Repayment of revolving credit facility | | — | | | (220,000) | |
| Dividends paid on common stock | Dividends paid on common stock | | 0 | | | (23,934) | | Dividends paid on common stock | | (14,588) | | | — | |
Repurchase of common stock | Repurchase of common stock | | 0 | | | (29,853) | | Repurchase of common stock | | (102,394) | | | — | |
Principal payments on finance lease obligations | Principal payments on finance lease obligations | | (5,244) | | | (5,993) | | Principal payments on finance lease obligations | | (4,696) | | | (5,244) | |
Proceeds from stock options exercised | Proceeds from stock options exercised | | 22,511 | | | 20,523 | | Proceeds from stock options exercised | | 241 | | | 22,511 | |
Repurchase of restricted stock for tax payments upon vesting | Repurchase of restricted stock for tax payments upon vesting | | (1,403) | | | (2,129) | | Repurchase of restricted stock for tax payments upon vesting | | (2,353) | | | (1,403) | |
Tax payments for share settlement of restricted stock units | Tax payments for share settlement of restricted stock units | | (9,783) | | | (178) | | Tax payments for share settlement of restricted stock units | | (953) | | | (9,783) | |
Cash flows (used in) provided by financing activities | | (220,419) | | | 178,436 | | |
Cash flows used in financing activities | | Cash flows used in financing activities | | (124,743) | | | (220,419) | |
Net change in cash, cash equivalents and restricted cash | Net change in cash, cash equivalents and restricted cash | | (108,055) | | | 170,016 | | Net change in cash, cash equivalents and restricted cash | | (95,641) | | | (108,055) | |
Cash, cash equivalents and restricted cash at beginning of period | Cash, cash equivalents and restricted cash at beginning of period | | 456,053 | | | 172,475 | | Cash, cash equivalents and restricted cash at beginning of period | | 425,353 | | | 456,053 | |
Cash, cash equivalents and restricted cash at end of period | Cash, cash equivalents and restricted cash at end of period | | $ | 347,998 | | | $ | 342,491 | | Cash, cash equivalents and restricted cash at end of period | | $ | 329,712 | | | $ | 347,998 | |
Supplemental disclosures: | Supplemental disclosures: | | | | | Supplemental disclosures: | | | | |
Interest paid in cash | Interest paid in cash | | $ | 33,405 | | | $ | 34,108 | | Interest paid in cash | | $ | 31,701 | | | $ | 33,405 | |
Income taxes paid in cash | Income taxes paid in cash | | $ | 13,341 | | | $ | 11,103 | | Income taxes paid in cash | | $ | 16,065 | | | $ | 13,341 | |
Non-cash conversion of accounts receivable to notes receivable | Non-cash conversion of accounts receivable to notes receivable | | $ | 1,640 | | | $ | 0 | | Non-cash conversion of accounts receivable to notes receivable | | $ | — | | | $ | 1,640 | |
|
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 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 six months ended June 30, 20212022 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2021.2022.
The consolidated balance sheet at December 31, 20202021 has been derived from the audited consolidated financial statements at that date but does not include all of 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, 2020.2021.
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 2022 began on January 3, 2022 and ended on April 3, 2022; the second fiscal quarter of 2022 ended on July 3, 2022. The first fiscal quarter of 2021 began on January 4, 2021 and ended on April 4, 2021; the second fiscal quarter of 2021 ended on July 4, 2021. The first fiscal quarter of 2020 began on December 30, 2019 and ended on March 29, 2020; the second fiscal quarter of 2020 ended on June 28, 2020.
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 may include the calculation and assessment of the following: impairment of goodwill, other intangible assets and tangible assets; income taxes; allowance for credit losses on 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.
Risks and Uncertainties
The Company was subject to risks and uncertainties as a result of the continuing outbreak of a novel strain of coronavirus, designated “COVID-19.“COVID-19,” and evolving variants thereof. The extent of the continued impact of the COVID-19 pandemic on the Company's business is highlyremains uncertain and difficult to predict, as measures taken in response to and the effect of the pandemic have varied and continue to vary by country, state and municipalities within states. Assessments of the success of measures taken and the timing of any further restrictions, or lifting of such restrictions, continues to evolve. The Company first began to experience impacts from the COVID-19 pandemic in March 2020, as federal, state, local and international governments began to reactreacted to the public health crisis by encouraging “social distancing”social distancing and requiring, in varying degrees, restaurant dine-in limitations and other restrictions that largely limited the restaurants of the Company's franchisees and its company-operated restaurants to take-out and delivery sales.sales during the initial stages of the pandemic. Subsequently, government-imposed dine-in restrictions have been relaxed or removed in many of the locations in which the Company operates as incidents of infection decline and vaccination rates increase within the respective governmental jurisdictions. As of June 30, 2021, 98% of2022, substantially all domestic Applebee's Neighborhood Grill & Bar® (“Applebee's”) and IHOP restaurantsInternational House of Pancakes® (“IHOP”) were open and operating at 100% capacity and 99% of domestic Applebee's and IHOP restaurants were open.without government-mandated restrictions.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
2. Basis of Presentation (Continued)
The Company took several actions to mitigate the effects of the COVID-19 pandemic on its operations and its franchisees, as follows: (i) drew down $220 million from its revolving credit facility in March 2020 and repaid the borrowing in March 2021; (ii) suspended repurchases of common stock and the declaration of dividends on common stock after the first quarter of 2020.; (iii) deferred franchisee payment of royalty, advertising and other fees, and lease obligations for up to two months on a case-by-case basis, with 98% of Applebee's and 87% of IHOP deferrals collected as of June 30, 2021; (iv) deferred franchisee remodel and development obligations for up to 15 months; and (v) negotiated deferrals and abatements for properties on which the Company was lessee.
The severity of the continued impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, how long the pandemic will last, whether/when recurrences of the virus and variants of the virus may arise, the availability and acceptance of vaccines, what restrictions on in-restaurant dining may be imposed or re-imposed, the timing and extent of customer re-engagement with the Company's brands and, in general, what the short- and long-term impact on consumer discretionary spending the COVID-19 pandemic might have on the Company and the restaurant industry as a whole, all of which are uncertain and cannot be predicted. The Company's future results of operations and liquidity could adversely be impacted by the lengthresurgence of timeoutbreaks of the virus and its variants that result in the re-imposition of dine-in restrictions, remain in place andas well as the success of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by itself and its franchisees. As such, the extent to which the COVID-19 pandemic may continue to materially impact the Company's financial condition, liquidity, or results of operations isremains highly uncertain.
3. Accounting Standards Adopted and Newly Issued Accounting Standards Not Yet Adopted
Accounting Standards Adopted in the Current Fiscal Year
In December 2019,July 2021, the Financial Accounting Standards Board (“FASB”) issued new guidance intended to simplifywhich affect lessors with lease contracts that (i) have variable lease payments that do not depend on a reference index or a rate and (ii) would have resulted in the accountingrecognition of a selling loss at lease commencement if classified as sales-type or direct financing. The amendments are effective for income taxes, change the accounting for certain income tax transactions, and make other minor changes. The Company adopted the new guidance at thefiscal years beginning of the first fiscal quarter ofafter December 15, 2021. Adoption did not have any material effect on the consolidated financial statements.
Additional new accounting guidance became effective for the Company as of the beginning of fiscal 20212022 that the Company reviewed and concluded was either not applicable to its operations or had no material effect on its consolidated financial statements in the current or future fiscal years.
Newly Issued Accounting Standards Not Yet Adopted
In March 2020, with an update in January 2021, the FASB issued guidance which provides optional expedients and exceptions for applying current U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The guidance can be adopted immediately and is applicable to contracts entered into on or before December 31, 2022. The Company is currently evaluating its contracts that reference LIBOR and the potential effects of adopting this new guidance.
In July 2021, the FASB issued guidance which affect lessors with lease contracts that (i) have variable lease payments that do not depend on a reference index or a rate and (ii) would have resulted in the recognition of a selling loss at lease commencement if classified as sales-type or direct financing. The amendments are effective for fiscal years beginning after December 15, 2021. The Company is are currently evaluating lease contracts and the potential effects of adopting this new guidance.
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 when adoption is required in the future.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
4. Revenue Disclosures
Franchise revenue and revenue from company-operated restaurants are recognized in accordance with current guidance for revenue recognition as codified in Accounting Standards Topic 606 (“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.
Franchising Activities
The Company owns, franchises and operates the Applebee's Neighborhood Grill & Bar® (“Applebee's”) concept in the casual dining category of the restaurant industry and the Company owns and franchises the International House of Pancakes® (“IHOP”)IHOP concept in the family dining category of the restaurant industry. 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 brands 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 the utility is derived from its association with the Company’s past or ongoing activities. The nature of the Company’s promise in granting the franchise license is to provide the franchisee with access to the respective brand’s symbolic intellectual property
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
4. Revenue Disclosures (Continued)
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.
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. 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;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 are 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, and are included in “receivables, net” in the Consolidated Balance Sheets.
•Revenue from the sale 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 an accounts receivable included in “receivables, net” in the Consolidated Balance Sheets.
In determining the amount and timing of revenue from contracts with customers, the Company exercises significant judgment with respect to collectability of the amount; however, the timing of recognition does not require significant judgments as it is based on either the term of the franchise 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 franchising activities. The Company's franchising arrangements do not contain a significant financing component.
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.
The following table disaggregates franchise revenue by major type for the three and six months ended June 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | (In thousands) |
Franchise Revenue: | | | | | | | | |
Royalties | | $ | 78,006 | | | $ | 78,124 | | | $ | 153,248 | | | $ | 142,401 | |
Advertising fees | | 74,111 | | | 72,324 | | | 144,994 | | | 133,209 | |
Pancake and waffle dry mix sales and other | | 14,077 | | | 13,525 | | | 27,008 | | | 24,415 | |
Franchise and development fees | | 2,065 | | | 2,981 | | | 4,241 | | | 7,905 | |
Total franchise revenue | | $ | 168,259 | | | $ | 166,954 | | | $ | 329,491 | | | $ | 307,930 | |
Accounts and other receivables related to franchise revenues as of June 30, 2022 and December 31, 2021 were $65.4 million (net of allowance of $0.7 million) and $66.0 million (net of allowance of $1.1 million), respectively, and were included in receivables, net in the Consolidated Balance Sheets.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
4. Revenue Disclosures (Continued)
The following table disaggregates franchise revenue by major type for the three and six months ended June 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (In thousands) |
Franchise Revenue: | | | | | | | | |
Royalties | | $ | 78,124 | | | $ | 31,011 | | | $ | 142,401 | | | $ | 98,611 | |
Advertising fees | | 72,324 | | | 29,095 | | | 133,209 | | | 90,818 | |
Pancake and waffle dry mix sales and other | | 13,525 | | | 4,037 | | | 24,415 | | | 16,885 | |
Franchise and development fees | | 2,981 | | | 3,733 | | | 7,905 | | | 6,599 | |
Total franchise revenue | | $ | 166,954 | | | $ | 67,876 | | | $ | 307,930 | | | $ | 212,913 | |
Accounts and other receivables from franchisees as of June 30, 2021 and December 31, 2020 were $69.4 million (net of allowance of $6.0 million) and $76.3 million (net of allowance of $11.4 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 six months ended June 30, 2021 are2022 were as follows:
| | | | | | | | |
| | Deferred Franchise Revenue (short- and long-term) |
| | (In thousands) |
Balance at December 31, 20202021 | | $ | 59,91953,346 | |
Recognized as revenue during the six months ended June 30, 20212022 | | (7,433)(4,075) | |
Fees deferred during the six months ended June 30, 20212022 | | 2,7551,679 | |
Balance at June 30, 20212022 | | $ | 55,24150,950 | |
The balance of deferred revenue as of June 30, 20212022 is expected to be recognized as follows:
| | | (In thousands) | | (In thousands) |
Remainder of 2021 | $ | 3,743 | | |
2022 | 7,278 | | |
2022 (remaining six months) | | 2022 (remaining six months) | $ | 3,539 | |
2023 | 2023 | 6,644 | | 2023 | 6,994 | |
2024 | 2024 | 6,051 | | 2024 | 6,297 | |
2025 | 2025 | 5,274 | | 2025 | 5,516 | |
2026 | | 2026 | 4,692 | |
Thereafter | Thereafter | 26,251 | | Thereafter | 23,912 | |
Total | Total | $ | 55,241 | | Total | $ | 50,950 | |
5. Current Expected Credit Losses (“CECL”)
The CECL reserve methodology requires companies to measure expected credit losses on financial instruments based on the total estimated amount to be collected over the lifetime of the instrument. Under the CECL model, reserves may be established against financial asset balances even if the risk of loss is remote or has not yet manifested itself. The Company records specific reserves against account balances of franchisees deemed at-risk when a potential loss is likely or imminent as a result of prolonged payment delinquency (greater than 90 days past due) and where notable credit deterioration has become evident. For financial assets that are not currently deemed at-risk, an allowance is recorded based on expected loss rates derived pursuant to the Company's CECL methodology that assesses four components -– historical losses, current conditions, reasonable and supportable forecasts, and a reversion to history, if applicable.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
5. Current Expected Credit Losses (Continued)
The Company considers its portfolio segments to be the following:
Accounts Receivable (Franchise-Related)
Most of the Company’s short-term receivables due from franchisees are derived from royalty, advertising and other franchise-related fees.
Gift Card Receivables
Gift card receivables consist primarily of amounts due from third-party vendors. Receivables related to gift card sales are subject to seasonality and usually peak around year-end as a result of the December holiday season.
Notes Receivable
Notes receivable balances primarily relate to the conversion of certain past due Applebee's franchisee accounts receivable to notes receivable, cash loans to franchisees for working capital purposes, a note receivable in connection with the sale of IHOP company restaurants and IHOP franchise fee and other notes. The notes are typically collateralized by the franchise. A significant portion of these notes have specific reserves recorded against them amounting to $9.2 million as of June 30, 2021.2022.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
5. Current Expected Credit Losses (Continued)
Equipment Leases Receivable
Equipment leases receivable relate to IHOP franchise development activity prior to 2003 when IHOP typically leased or purchased the restaurant site, built and equipped the restaurant, then franchised the restaurant to a franchisee. Equipment lease contracts are collateralized by the equipment in the restaurant. The estimated fair value of the equipment collateralizing these lease contracts are not deemed to be significant given the very seasoned and mature nature of this portfolio. The weighted average remaining life of the Company’s equipment leases is 5.14.3 years as of June 30, 2021.2022.
Direct FinancingReal Estate Leases Receivable
Direct financing lease receivables alsoReal estate leases receivable relate to IHOP franchise development activity prior to 2003. IHOP provided the financing for leasing or subleasing the site. Direct financingReal estate leases at June 30, 2021,2022, comprised 8162 leases with a weighted average remaining life of 4.45.8 years, and relate to locations that IHOP is leasing from third parties and subleasing to franchisees.
Distributor Receivables
Receivables due from distributors are related to the sale of IHOP’s proprietary pancake and waffle dry mix to franchisees through the Company’s network of suppliers and distributors and are included as part of Other receivables.
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| | (In millions) | | (In millions) |
Accounts receivable | Accounts receivable | $ | 72.8 | | | $ | 85.7 | | Accounts receivable | $ | 62.5 | | | $ | 63.6 | |
Gift card receivables | Gift card receivables | 6.9 | | | 22.5 | | Gift card receivables | 6.8 | | | 33.4 | |
Notes receivable | Notes receivable | 20.1 | | | 18.6 | | Notes receivable | 17.9 | | | 19.7 | |
Financing receivables: | Financing receivables: | | Financing receivables: | |
Equipment leases receivable | Equipment leases receivable | 37.5 | | | 43.9 | | Equipment leases receivable | 30.2 | | | 33.4 | |
Direct financing leases receivable | 18.9 | | | 22.7 | | |
Franchise fee notes receivable | 0.1 | | | 0.1 | | |
Real estate leases receivable | | Real estate leases receivable | 19.4 | | | 16.7 | |
| Other | Other | 6.4 | | | 6.0 | | Other | 8.4 | | | 7.6 | |
| | 162.7 | | | 199.5 | | | 145.2 | | | 174.4 | |
Less: allowance for credit losses | Less: allowance for credit losses | (15.6) | | | (23.1) | | Less: allowance for credit losses | (10.2) | | | (11.9) | |
| | 147.1 | | | 176.4 | | | 135.0 | | | 162.5 | |
Less: current portion | Less: current portion | (99.3) | | | (121.9) | | Less: current portion | (91.9) | | | (120.0) | |
Long-term receivables | Long-term receivables | $ | 47.8 | | | $ | 54.5 | | Long-term receivables | $ | 43.1 | | | $ | 42.5 | |
Changes in the allowance for credit losses during the six months ended June 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Accounts Receivable | | Notes receivable, short-term | | Notes receivable, long-term | | Lease Receivables | | Equipment Notes | | Other (1) | | Total |
| (In millions) |
Balance, December 31, 2021 | $ | 1.0 | | | $ | 3.8 | | | $ | 6.6 | | | $ | 0.2 | | | $ | 0.1 | | | $ | 0.2 | | | $ | 11.9 | |
| | | | | | | | | | | | | |
Bad debt (credit) expense | (0.2) | | | 0.8 | | | (1.0) | | | (0.1) | | | 0.1 | | | 0.0 | | | (0.4) | |
Advertising provision adjustment | 0.0 | | | (0.3) | | | (0.2) | | | — | | | — | | | — | | | (0.5) | |
Write-offs | (0.1) | | | (0.5) | | | — | | | — | | | — | | | (0.2) | | | (0.8) | |
Recoveries | 0.0 | | | — | | | — | | | — | | | 0.0 | | | — | | | 0.0 | |
Balance, June 30, 2022 | $ | 0.7 | | | $ | 3.8 | | | $ | 5.4 | | | $ | 0.1 | | | $ | 0.2 | | | $ | 0.0 | | | $ | 10.2 | |
(1)Primarily distributor receivables, gift card receivables and credit card receivables
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
5. Current Expected Credit Losses (Continued)
Changes in the allowance for credit losses during the six months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Accounts Receivable | | Notes receivable, short-term | | Notes receivable, long-term | | Lease Receivables | | Equipment Notes | | Other (1) | | Total |
| (In millions) |
Balance, December 31, 2020 | $ | 11.2 | | | $ | 3.6 | | | $ | 5.3 | | | $ | 0.4 | | | $ | 2.3 | | | $ | 0.3 | | | $ | 23.1 | |
| | | | | | | | | | | | | |
Bad debt (credit) expense for the six months ended June 30, 2021 | (2.2) | | | 0.4 | | | (0.1) | | | 0.1 | | | (0.4) | | | (0.1) | | | (2.3) | |
Advertising provision adjustment | (2.9) | | | 0.0 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2.9) | |
Write-offs | (0.2) | | | 0 | | | 0 | | | (0.5) | | | (1.7) | | | 0 | | | (2.4) | |
Other | 0 | | | 0 | | | 0 | | | 0.1 | | | 0.0 | | | 0 | | | 0.1 | |
Balance, June 30, 2021 | $ | 5.9 | | | $ | 4.0 | | | $ | 5.2 | | | $ | 0.1 | | | $ | 0.2 | | | $ | 0.2 | | | $ | 15.6 | |
(1)Primarily distributor receivables, gift card receivables and credit card receivables
The Company's primary credit quality indicator for all portfolio segments is delinquency. The delinquency status of receivables (other than accounts receivable, gift card receivables and distributor receivables) at June 30, 20212022 was as follows:
| | | | Notes receivable, short-term | | Notes receivable, long-term | | Lease Receivables | | Equipment Notes | | Other (1) | | Total | | Notes receivable, short-term | | Notes receivable, long-term | | Lease Receivables | | Equipment Notes | | Other (1) | | Total |
| | (In millions) | | (In millions) |
Current | Current | $ | 5.3 | | | $ | 12.0 | | | $ | 18.9 | | | $ | 37.5 | | | $ | 1.8 | | | $ | 75.5 | | Current | $ | 4.6 | | | $ | 11.6 | | | $ | 19.4 | | | $ | 30.2 | | | $ | 2.4 | | | $ | 68.2 | |
30-59 days | 30-59 days | 0.2 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0.2 | | 30-59 days | 0.0 | | | — | | | — | | | — | | | — | | | 0.0 | |
60-89 days | 60-89 days | 0.1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0.1 | | 60-89 days | 0.0 | | | — | | | — | | | — | | | — | | | 0.0 | |
90-119 days | 90-119 days | 0.1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0.1 | | 90-119 days | 0.1 | | | — | | | — | | | — | | | — | | | 0.1 | |
120+ days | 120+ days | 2.5 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2.5 | | 120+ days | 1.6 | | | — | | | — | | | — | | | — | | | 1.6 | |
Total | Total | $ | 8.2 | | | $ | 12.0 | | | $ | 18.9 | | | $ | 37.5 | | | $ | 1.8 | | | $ | 78.4 | | Total | $ | 6.3 | | | $ | 11.6 | | | $ | 19.4 | | | $ | 30.2 | | | $ | 2.4 | | | $ | 69.9 | |
(1) Primarily credit card receivables
The year of origination of the Company's notes receivable and financing receivables is as follows:
| | | | Notes receivable, short and long-term | | Lease Receivables | | Equipment Notes | | Total | | Notes receivable, short and long-term | | Lease Receivables | | Equipment Notes | | Total |
| | (In millions) | | (In millions) |
2022 | | 2022 | $ | 0.5 | | | $ | 6.3 | | | $ | — | | | $ | 6.8 | |
2021 | 2021 | $ | 2.3 | | | $ | 1.0 | | | $ | 0 | | | $ | 3.3 | | 2021 | 11.4 | | | 2.6 | | | — | | | 14.0 | |
2020 | 2020 | 0.8 | | | 1.5 | | | 0 | | | 2.3 | | 2020 | 0.5 | | | 1.4 | | | — | | | 1.9 | |
2019 | 2019 | 2.5 | | | 0.8 | | | 0 | | | 3.3 | | 2019 | 0.2 | | | 0.8 | | | — | | | 1.0 | |
2018 | 2018 | 8.0 | | | 0 | | | 0 | | | 8.0 | | 2018 | — | | | — | | | — | | | 0.0 | |
2017 | 6.4 | | | 0 | | | 0 | | | 6.4 | | |
Prior | Prior | 0.1 | | | 15.6 | | | 37.5 | | | 53.2 | | Prior | 5.3 | | | 8.3 | | | 30.2 | | | 43.8 | |
Total | Total | $ | 20.1 | | | $ | 18.9 | | | $ | 37.5 | | | $ | 76.5 | | Total | $ | 17.9 | | | $ | 19.4 | | | $ | 30.2 | | | $ | 67.5 | |
The Company does not place its financing receivables in non-accrual status.
6. Lease Disclosures
The Company engages in leasing activity as both a lessee and a lessor. The Company currently leases from third parties the real property on which approximately 540 IHOP franchisee-operated restaurants and 1 Applebee's franchisee-operated restaurant 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 5550 IHOP restaurants and 1 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 officeoffices in Glendale, California and Pasadena, California and restaurant support centers in Leawood, Kansas City, Missouri and Raleigh, North Carolina. The Company does not have a significant amount of non-real estate leases.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
6. Lease Disclosures (Continued)
The Company's existing leases/subleases related to IHOP restaurants generally provide for an initial term of 20 to 25 years, with most having one or more five-year renewal options. Leases related to Applebee's restaurants generally have an initial term of 10 to 20 years, with renewal terms of five to 20 years. Option periods were not included in determining liabilities and right-of-use assets related to operating leases. Approximately 275285 of the Company's leases met the sales levels that required variable rent payments to the Company (as lessor), based on a percentage of restaurant sales during the six months ended June 30, 2021.2022. Approximately 40 of the leases met the sales levels that required variable rent payments by the Company (as lessee), based on a percentage of restaurant sales during the six months ended June 30, 2021.2022.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
6. Lease Disclosures (Continued)
The Company's lease cost for the three and six months ended June 30, 20212022 and 20202021 was as follows:
| | | Three months ended June 30, | | Six months ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| | (In millions) | | (In millions) |
Finance lease cost: | Finance lease cost: | | Finance lease cost: | |
Amortization of right-of-use assets | Amortization of right-of-use assets | $ | 1.1 | | | $ | 1.3 | | | $ | 2.3 | | | $ | 2.5 | | Amortization of right-of-use assets | $ | 1.1 | | | $ | 1.1 | | | $ | 2.2 | | | $ | 2.3 | |
Interest on lease liabilities | Interest on lease liabilities | 1.4 | | | 1.6 | | | 2.8 | | | 3.4 | | Interest on lease liabilities | 1.2 | | | 1.4 | | | 2.5 | | | 2.8 | |
Operating lease cost(1) | Operating lease cost(1) | 24.7 | | | 26.6 | | | 49.8 | | | 53.1 | | Operating lease cost(1) | 21.2 | | | 21.0 | | | 42.3 | | | 42.4 | |
Variable lease cost | Variable lease cost | 0.5 | | | (0.1) | | | 0.8 | | | 0.3 | | Variable lease cost | 1.9 | | | 0.5 | | | 3.6 | | | 0.7 | |
Short-term lease cost | Short-term lease cost | 0.0 | | | 0.0 | | | 0.0 | | | 0.0 | | Short-term lease cost | 0.0 | | | 0.0 | | | 0.0 | | | 0.0 | |
Sublease income | Sublease income | (24.9) | | | (21.5) | | | (49.1) | | | (48.1) | | Sublease income | (26.6) | | | (24.9) | | | (53.1) | | | (49.1) | |
Lease cost | $ | 2.8 | | | $ | 7.9 | | | $ | 6.6 | | | $ | 11.2 | | |
Lease (income) cost | | Lease (income) cost | $ | (1.2) | | | $ | (0.9) | | | $ | (2.5) | | | $ | (0.9) | |
(1)Operating lease cost for the three and six months ended June 30, 2021 previously disclosed as $24.7 million and $49.8 million, respectively, were overstated due to the inclusion of certain finance lease activity.The correct operating lease cost for the three and six months ended June 30, 2021 was $21.0 million and $42.4 million, respectively, as reflected in the above table. The overstatement only impacted this note disclosure, and there was no impact to the Consolidated Statement of Comprehensive Income.
Future minimum lease payments under noncancelable leases as lessee as of June 30, 20212022 were as follows:
| | | | | | | | | | | |
| Finance Leases | | Operating Leases |
| (In millions) |
2021 (remaining six months) | $ | 7.7 | | | $ | 46.0 | |
2022 | 14.4 | | | 87.9 | |
2023 | 11.6 | | | 72.4 | |
2024 | 9.7 | | | 67.2 | |
2025 | 8.6 | | | 58.6 | |
Thereafter | 51.0 | | | 150.4 | |
Total minimum lease payments | 103.0 | | | 482.5 | |
Less: interest/imputed interest | (28.7) | | | (86.7) | |
Total obligations | 74.3 | | | 395.8 | |
Less: current portion | (10.2) | | | (70.5) | |
Long-term lease obligations | $ | 64.1 | | | $ | 325.3 | |
| | | | | | | | | | | |
| Finance Leases | | Operating Leases |
| (In millions) |
2022 (remaining six months) | $ | 7.3 | | | $ | 41.9 | |
2023 | 12.2 | | | 68.5 | |
2024 | 10.6 | | | 76.8 | |
2025 | 9.0 | | | 65.1 | |
2026 | 8.4 | | | 56.1 | |
Thereafter | 54.6 | | | 180.2 | |
Total minimum lease payments | 102.1 | | | 488.6 | |
Less: interest/imputed interest | (28.8) | | | (78.8) | |
Total obligations | 73.3 | | | 409.8 | |
Less: current portion | (9.7) | | | (71.7) | |
Long-term lease obligations | $ | 63.6 | | | $ | 338.2 | |
The weighted average remaining lease term as of June 30, 20212022 was 9.410.0 years for finance leases and 7.06.6 years for operating leases. The weighted average discount rate as of June 30, 20212022 was 10.2%9.8% for finance leases and 5.6%5.5% for operating leases.
During the three and six months ended June 30, 2022 and 2021, the Company made the following cash payments for leases:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (In millions) |
Principal payments on finance lease obligations | $ | 2.4 | | | $ | 2.6 | | | $ | 4.7 | | | $ | 5.2 | |
Interest payments on finance lease obligations | $ | 1.2 | | | $ | 1.4 | | | $ | 2.5 | | | $ | 2.8 | |
Payments on operating leases | $ | 22.8 | | | $ | 22.8 | | | $ | 45.8 | | | $ | 45.8 | |
Variable lease payments | $ | 1.8 | | | $ | 0.3 | | | $ | 3.9 | | | $ | 0.6 | |
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
6. Lease Disclosures (Continued)
During the three and six months ended June 30, 2021 and 2020, the Company made the following cash payments for leases:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (In millions) |
Principal payments on finance lease obligations | $ | 2.6 | | | $ | 3.0 | | | $ | 5.2 | | | $ | 6.0 | |
Interest payments on finance lease obligations | $ | 1.4 | | | $ | 1.6 | | | $ | 2.8 | | | $ | 3.4 | |
Payments on operating leases | $ | 22.8 | | | $ | 23.0 | | | $ | 45.8 | | | $ | 46.5 | |
Variable lease payments | $ | 0.3 | | | $ | 0.2 | | | $ | 0.6 | | | $ | 0.5 | |
The Company's income from operating leases for the three and six months ended June 30, 20212022 and 20202021 was as follows:
| | | Three months ended June 30, | | Six months ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| | (In millions) | | (In millions) |
Minimum lease payments | Minimum lease payments | $ | 23.9 | | | $ | 22.5 | | | $ | 47.7 | | | $ | 47.9 | | Minimum lease payments | $ | 24.0 | | | $ | 23.9 | | | $ | 47.8 | | | $ | 47.7 | |
Variable lease income | Variable lease income | 2.8 | | | 0.4 | | | 4.4 | | | 2.8 | | Variable lease income | 4.6 | | | 2.8 | | | 8.5 | | | 4.4 | |
Total operating lease income | Total operating lease income | $ | 26.7 | | | $ | 22.9 | | | $ | 52.1 | | | $ | 50.7 | | Total operating lease income | $ | 28.6 | | | $ | 26.7 | | | $ | 56.3 | | | $ | 52.1 | |
Minimum payments to be received as lessor under noncancelable operating leases as of June 30, 20212022 were as follows:
| | | | (In millions) | | (In millions) |
2021 (remaining six months) | $ | 50.2 | | |
2022 | 100.0 | | |
2022 (remaining six months) | | 2022 (remaining six months) | $ | 51.4 | |
2023 | 2023 | 96.4 | | 2023 | 99.4 | |
2024 | 2024 | 87.7 | | 2024 | 90.8 | |
2025 | 2025 | 76.2 | | 2025 | 77.9 | |
2026 | | 2026 | 63.5 | |
Thereafter | Thereafter | 178.9 | | Thereafter | 139.0 | |
Total minimum rents receivable | Total minimum rents receivable | $ | 589.4 | | Total minimum rents receivable | $ | 522.0 | |
The Company's income from direct financingreal estate leases receivables for the three and six months ended June 30, 20212022 and 20202021 was as follows:
| | | Three months ended June 30, | | Six months ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| | (In millions) | | (In millions) |
Interest income | Interest income | $ | 0.5 | | | $ | 0.8 | | | $ | 1.1 | | | $ | 1.8 | | Interest income | $ | 0.4 | | | $ | 0.5 | | | $ | 0.8 | | | $ | 1.1 | |
Variable lease income | Variable lease income | 0.2 | | | 0.0 | | | 0.3 | | | 0.2 | | Variable lease income | 0.2 | | | 0.2 | | | 0.4 | | | 0.3 | |
Total operating lease income | $ | 0.7 | | | $ | 0.8 | | | $ | 1.4 | | | $ | 2.0 | | |
Selling (loss) profit | | Selling (loss) profit | (0.1) | | | — | | | 0.4 | | | — | |
Total real estate lease income | | Total real estate lease income | $ | 0.5 | | | $ | 0.7 | | | $ | 1.6 | | | $ | 1.4 | |
Minimum payments to be received as lessor under noncancelable real estate leases as of June 30, 2022 were as follows:
| | | | | |
| |
| (In millions) |
2022 (remaining six months) | $ | 3.7 | |
2023 | 4.5 | |
2024 | 2.3 | |
2025 | 1.5 | |
2026 | 1.5 | |
Thereafter | 12.2 | |
Total minimum rents receivable | 25.7 | |
Less: unearned income | (6.3) | |
Total net investment in real estate leases | 19.4 | |
Less: current portion | (5.3) | |
Long-term investment in real estate leases | $ | 14.1 | |
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
6. Lease Disclosures (Continued)
Minimum payments to be received as lessor under noncancelable direct financing leases as of June 30, 2021 were as follows:
| | | | | |
| |
| (In millions) |
2021 (remaining six months) | $ | 4.8 | |
2022 | 7.6 | |
2023 | 3.7 | |
2024 | 1.6 | |
2025 | 0.8 | |
Thereafter | 4.0 | |
Total minimum rents receivable | 22.5 | |
Less: unearned income | (3.6) | |
Total net investment in direct financing leases | 18.9 | |
Less: current portion | (7.5) | |
Long-term investment in direct financing leases | $ | 11.4 | |
7. Long-Term Debt
At June 30, 20212022 and December 31, 2020,2021, long-term debt consisted of the following:
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| | (In millions) | | (In millions) |
Series 2019-1 4.194% Fixed Rate Senior Secured Notes, Class A-2-I | Series 2019-1 4.194% Fixed Rate Senior Secured Notes, Class A-2-I | $ | 694.8 | | | $ | 698.3 | | Series 2019-1 4.194% Fixed Rate Senior Secured Notes, Class A-2-I | $ | 693.0 | | | $ | 693.0 | |
Series 2019-1 4.723% Fixed Rate Senior Secured Notes, Class A-2-II | Series 2019-1 4.723% Fixed Rate Senior Secured Notes, Class A-2-II | 595.5 | | | 598.5 | | Series 2019-1 4.723% Fixed Rate Senior Secured Notes, Class A-2-II | 594.0 | | | 594.0 | |
Series 2019-1 Variable Funding Senior Notes Class A-1, variable interest rate of 2.42% at December 31, 2020 | 0 | | | 220.0 | | |
| Debt issuance costs | Debt issuance costs | (8.5) | | | (11.8) | | Debt issuance costs | (6.3) | | | (7.4) | |
Long-term debt, net of debt issuance costs | Long-term debt, net of debt issuance costs | 1,281.8 | | | 1,505.0 | | Long-term debt, net of debt issuance costs | 1,280.7 | | | 1,279.6 | |
Current portion of long-term debt | Current portion of long-term debt | (3.3) | | | (13.0) | | Current portion of long-term debt | — | | | — | |
Long-term debt | Long-term debt | $ | 1,278.5 | | | $ | 1,492.0 | | Long-term debt | $ | 1,280.7 | | | $ | 1,279.6 | |
On June 5, 2019, Applebee’s Funding LLC and IHOP Funding LLC (the “Co-Issuers”), each a special purpose, wholly-owned indirect subsidiary of the Company, issued two tranches of fixed rate senior secured notes, the Series 2019-1 4.194% Fixed Rate Senior Secured Notes, Class A-2-I (“Class A-2-I Notes”) in an initial aggregate principal amount of $700 million and the Series 2019-1 4.723% Fixed Rate Senior Secured Notes, Class A-2-II (“Class A-2-II Notes”) in an initial aggregate
principal amount of $600 million (the “Class A-2-II Notes” and, together with the Class A-2-I Notes, the “2019 Class A-2 Notes”). The 2019 Class A-2 Notes were issued pursuant to an offering exempt from registration under the Securities Act of 1933, as amended.
The Co-Issuers also entered into a revolving financing facility, the 2019-1 Variable Funding Senior Notes, Class A-1 (the “Credit Facility”), that allows for drawings up to $225 million of variable funding notes and the issuance of letters of credit. The Credit Facility and the 2019 Class A-2 Notes are referred to collectively herein as the “New Notes.” The New Notes were issued in a securitization transaction pursuant to which substantially all the domestic revenue-generating assets and domestic intellectual property held by the Co-Issuers and certain other special-purpose, wholly-owned indirect subsidiaries of the Company (the “Guarantors”) were pledged as collateral to secure the New Notes.
The New Notes were issued under a Base Indenture, dated as of September 30, 2014, and amended and restated as of June 5, 2019 (the “Base Indenture”), and the related Series 2019-1 Supplement to the Base Indenture, dated June 5, 2019 (the “Series 2019-1 Supplement”), among the Co-Issuers and Citibank, N.A., as the trustee (in such capacity, the “Trustee”) and securities intermediary. The Base Indenture and the Series 2019-1 Supplement (collectively, the “Indenture”) will allow the Co-Issuers to issue additional series of notes in the future subject to certain conditions set forth therein.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
7. Long-Term Debt (Continued)
2019 Class A-2 Notes
The legal final maturity of the 2019 Class A-2 Notes is June 2049, but rapid amortization will apply if the Class A-2-I Notes are not repaid by June 2024 (the “Class A-2-I Anticipated Repayment Date”) and for the Class A-2-II Notes if not repaid by June 2026 (the “Class A-2-II Anticipated Repayment Date”). If the Co-Issuers have not repaid or refinanced the Class A-2-I Notes by the Class A-2-I Anticipated Repayment Date or the Class A-2-II Notes by the Class A-2-II Anticipated Repayment Date, then additional interest will accrue on the Class A-2-I Notes and the Class A-2-II Notes, as applicable, at the greater of: (A) 5.0% and (B) the amount, if any, by which the sum of the following exceeds the applicable Series 2019-1 Class A-2 Note interest rate: (x) the yield to maturity (adjusted to a quarterly bond-equivalent basis) on the applicable anticipated repayment date of the United States Treasury Security having a term closest to 10 years plus (y) 5.0%, plus (z) 2.15% for the Series 2019-1 Class A-2-I Notes and 2.64% for the Series 2019-1 Class A-2-II Notes.
While the 2019 Class A-2 Notes are outstanding, payment of principal and interest is required to be made on the 2019 Class A-2 Notes on a quarterly basis. The quarterly principal payment of $3.25 million on the 2019 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. Exceeding the leverage ratio of 5.25x does not violate any covenant related to the New Notes. In general, the leverage ratio is the Company's indebtedness (as defined in the Indenture) divided by adjusted EBITDA (as defined in the Indenture) for the four preceding quarterly periods. The complete definitions of all calculation elements of the leverage ratio are contained in the Indenture.
As of June 30, 2021,2022, the Company's leverage ratio was 4.94x.4.27x. As a result, quarterly principal payments on the 2019 Class A-2 Notes of $3.25 million will no longercurrently are not required.
Dine Brands Global, Inc. and Subsidiaries
Notes to be required after a payment is made on September 7, 2021.Consolidated Financial Statements (Continued)
7. Long-Term Debt (Continued)
The Company may voluntarily repay the 2019 Class A-2 Notes at any time; however, if the 2019 Class A-2 Notes are repaid prior to certain dates, the Company would be required to pay make-whole premiums. As of June 30, 2021,2022, the make-whole premium associated with voluntary prepayment of the Class A-2-I Notes was approximately $22 million; this amount declines progressively each quarter to zero in June 2022.and will remain as such. As of June 30, 2021,2022, the make-whole premium associated with voluntary prepayment of the Class A-2-II Notes was approximately $57$16 million; this amount declines progressively each quarter to zero in June 2024. The Company also would also be subject to a make-whole premium in the event of a mandatory prepayment required following a Rapid Amortization Event or certain asset dispositions. The mandatory make-whole premium requirements are considered derivatives embedded in the New Notes that must be bifurcated for separate valuation. The Company estimated the fair value of these derivatives to be immaterial as of June 30, 2021,2022, based on the probability-weighted discounted cash flows associated with either event.
2019 Class A-1 Notes
The Co-Issuers entered into the Credit Facility that allows for drawings up to $225 million of variable funding notes and the issuance of letters of credit. The applicable interest rate under the Credit Facility depends on the type of borrowing by the Co-Issuers. The applicable interest rate for advances is generally calculated at a per annum rate equal to the commercial paper funding rate or one-, two-, three- or six-month Eurodollar Funding Rate, in either case, plus 2.15%. The applicable interest rate for swingline advances and unreimbursed draws on outstanding letters of credit is a per annum base rate equal to the sum of (a) 1.15% plus (b) the greatest of (i) the Prime Rate in effect from time to time,time; (ii) the Federal Funds Rate in effect from time to time plus 0.50% and (iii) the one-month Eurodollar Funding Rate plus 1.00%. There is no upfront fee for the Credit Facility. There is a fee of 50 basis points on any unused portion of the revolving financing facility. Undrawn face amounts of outstanding letters of credit that are not cash collateralized accrue a fee of 2.15% per annum.
In March 2020, the Company borrowed $220.0 million against the Credit Facility. The maximum amount of borrowings from the Credit Facility outstanding during the six months ended June 30, 2021 was $220.0 million. The $220.0 million was repaid on March 5, 2021, and there have been no new borrowings since that date. As of June 30, 2021,2022, there were 0no outstanding borrowings under the Credit Facility. The interest rate for borrowings under the Credit Facility is the three-month LIBOR rate plus 2.15% for 60% of the advances and the commercial paper funding rate of ourthe Company's conduit investor plus 2.15% for 40% of the advances. The weighted average interest rate on Credit Facility borrowings for the period outstanding during the six months ended June 30, 2021 was 2.4%.
At June 30, 2021, $3.32022, $3.5 million was pledged against the Credit Facility for outstanding letters of credit, leaving $221.7$221.5 million available for borrowing. The letters of credit are used primarily to satisfy insurance-related collateral requirements.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
7. Long-Term Debt (Continued)
Covenants and Restrictions
The New Notes are subject to a series of covenants and restrictions customary for transactions of this type, including: (i) that the Co-Issuers maintain specified reserve accounts to be used to make required payments in respect of the New Notes,Notes; (ii) provisions relating to optional and mandatory prepayments, and the related payment of specified amounts, including specified call redemption premiums in the case of Class A-2 Notes under certain circumstances; (iii) certain indemnification payments in the event, among other things, the transfers of the assets pledged as collateral for the New Notes are in stated ways defective or ineffectiveineffective; and (iv) covenants relating to recordkeeping, access to information and similar matters. The New Notes are subject to customary rapid amortization events provided for in the Indenture, including events tied to failure of the Securitization Entities (as defined in the Indenture) 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 Class A-2 Notes on the anticipated repayment dates. The New 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 New Notes, failure of the Securitization Entities 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.
In general, the DSCR ratio is Net Cash Flow (as defined in the Indenture) for the four quarters preceding the calculation date divided by the total debt service payments (as defined in the Indenture) of the preceding four quarters. The complete definitions of the DSCR and all calculation elements are contained in the Indenture. Failure to maintain a prescribed DSCR can trigger a Cash Flow Sweeping Event, A Rapid Amortization Event, a Manager Termination Event or a Default Event as described below. In a Cash Flow Sweeping Event, the Trustee is required to retain 50% of excess Cash Flow (as defined in the Indenture) in a restricted account. In a Rapid Amortization Event, all excess Cash Flow is retained and used to retire principal
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
7. Long-Term Debt (Continued)
amounts of debt. In a Manager Termination Event, the Company may be replaced as manager of the assets securitized under the Indenture. In a Default Event, the outstanding principal amount and any accrued but unpaid interest can be called to become immediately due and payable. Key DSCRs are as follows:
•DSCR less than 1.75x - Cash Flow Sweeping Event
•DSCR less than 1.20x - Rapid Amortization Event
•Interest-only DSCR less than 1.20x - Manager Termination Event
•Interest-only DSCR less than 1.10x - Default Event
The Company's DSCR for the reporting period ended June 30, 20212022 was approximately 4.6x.4.31x.
Debt Issuance Costs
Amortization of costs incurred in connection with the issuance of the 2019 Class A-2 Notes of $0.6 million and $0.5$0.6 million were included in interest expense for the three months ended June 30, 20212022 and 2020,2021, respectively. Amortization of costs incurred in connection with the issuance of the 2019 Class A-2 Notes of $1.1 million and $1.0$1.1 million were included in interest expense for the six months ended June 30, 20212022 and 2020,2021, respectively. Amortization costs incurred in connection with the Company's Credit Facility and prior credit facility of $0.1 million and $0.1 million were included in interest expense for the three months ended June 30, 20212022 and 2020,2021, respectively. Amortization costs incurred in connection with the Company's Credit Facility and prior credit facility of $0.3 million and $0.3 million were included in interest expense for the six months ended June 30, 20212022 and 2020,2021, respectively.
At June 30, 2021,2022, total unamortized debt issuance costs related to the 2019 Class A-2 Notes of $8.5$6.3 million are reported as a direct reduction of the 2019 Class A-2 Notes in the Consolidated Balance Sheets. At June 30, 2021,2022, total unamortized debt issuance costs of $1.8$1.2 million related to the Credit Facility and prior credit facility are classified as other long-term assets because there are no borrowings outstanding against the Credit Facility.assets.
Maturities of Long-term Debt
•The anticipated repayment date of the Class A-2-I Notes is June 2024.
•The anticipated repayment date of the Class A-2-II Notes is in June 2026.
•Quarterly principal payments on the Class A-2-I and Class A-2-II Notes totaling $3.25 million ($13.0 million per annum) are required if the Company's leverage ratio is greater than 5.25x.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
8. Stockholders' Deficit
Dividends
Dividends declared and paid per share for the three and six months ended June 30, 20212022 and 20202021 were as follows:
| | | Three months ended June 30, | | Six months ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Dividends declared per common share | Dividends declared per common share | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0.76 | | Dividends declared per common share | $ | 0.51 | | | $ | — | | | $ | 0.97 | | | $ | — | |
Dividends paid per common share | Dividends paid per common share | $ | 0 | | | $ | 0.76 | | | $ | 0 | | | $ | 1.45 | | Dividends paid per common share | $ | — | | | $ | — | | | $ | 0.86 | | | $ | — | |
On October 28, 2021, the Company's Board of Directors declared a fourth quarter 2021 cash dividend of $0.40 per share of common stock, paid on January 7, 2022 to the stockholders of record as of the close of business on December 17, 2021.
On February 17, 2022, the Company's Board of Directors declared a first quarter 2022 cash dividend of $0.46 per share of
common stock, paid on April 1, 2022 to the stockholders of record as of the close of business on March 21, 2022.
On May 12, 2022, the Company's Board of Directors declared a second quarter 2022 cash dividend of $0.51 per share of
common stock, paid on July 8, 2022 to the stockholders of record as of the close of business on June 20, 2022.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
8. Stockholders' Deficit (Continued)
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 (the “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.
TheOn February 17, 2022, the Company's Board of Directors authorized a new share repurchase program, effective April 1, 2022, of up to $250 million (the “2022 Repurchase Program”). In connection with the approval of the 2022 Repurchase Program, the 2019 Repurchase Program terminated effective April 1, 2022. Cumulatively, the Company did 0t repurchase anyrepurchased 2,344,804 shares duringat a cost of $175.8 million under the 2019 Repurchase Program through April 1, 2022.
During the three and six months ended June 30, 2021.2022, the Company repurchased 912,992 and 1,501,100 shares of common stock at a cost of $62.6 million and $104.1 million, respectively. The amounts for the three months ended June 30, 2022 relate to the 2022 Repurchase Program. The Company did 0tnot repurchase any shares during the three months ended June 30, 2020 and repurchased 459,899 shares during the six months ended June 30, 2020. As of June 30, 2021, cumulative repurchases of stock total 1,697,597 shares at a cost of $129.8 million, with a dollar value of $70.2 million remaining for repurchase under the 2019 Repurchase Program.2021.
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 six months ended June 30, 2021,2022, the Company re-issued 596,645177,984 shares of treasury stock at a total FIFO cost of $24.1$8.3 million.
9. Income Taxes
The Company's effective tax rate was 26.8% (a tax provision of $17.9 million on pre-tax book income of $66.7 million) for the six months ended June 30, 2022, as compared to 12.3% (a tax provision of $7.7 million on pretaxpre-tax book income of $62.7 million) for the six months ended June 30, 2021, as compared to 4.5% for the six months ended June 30, 2020 (a tax benefit of $5.3 million on pretax book loss of $117.7 million).2021. The effective tax rate for the six months ended June 30, 20212022 was lowerdifferent than the statutory federal tax rate of 21%the prior comparable period, primarily due to the recognition of excess tax benefits on stock-based compensation related to the departure of the Company's previous chief executive officer in the first quarter of 2021. In addition, the effective tax rate for the six months ended June 30, 2021 was different than the prior comparable period due to the impairment of goodwill in the second quarter of 2020, which was not deductible for income tax purposes and therefore had no associated tax benefit.
The total gross unrecognized tax benefit as of June 30, 20212022 and December 31, 20202021 was $1.9$2.2 million and $2.2$1.9 million, respectively, excluding interest, penalties and related tax benefits. The Company estimates the unrecognized tax benefit as of June 30, 20212022 may decrease over the upcoming 12 months by an amount up to $0.2$0.3 million related to settlements with taxing authorities and expiring statutes of limitations. For the remaining liability, due to the uncertainties related to these tax matters, the Company is unable to make a reasonable estimate as to when cash settlement with a taxing authority will occur.
As of June 30, 2021,2022, accrued interest was $0.6$0.7 million and accrued penalties were less than $0.1 million, excluding any related income tax benefits. As of December 31, 2020,2021, accrued interest was $0.9$0.6 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.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
9. Income Taxes (Continued)
The Company files federal income tax returns and the Company or one of its subsidiaries file income tax returns in various state and international jurisdictions. With few exceptions, the Company is no longer subject to federal tax examinations by tax authorities for years before 2017 and state or non-United States tax examinations by tax authorities for years before 2011. The Company believes that adequate reserves have been provided related to all matters contained in the tax periods open to examination.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
On March 11, 2021, the American Rescue Plan Act of 2021 (“ARP Act”) was enacted in response to the COVID-19 pandemic. The Company is continuing to evaluate the impact of the ARP Act, but at present, does not expect the ARP Act would result in a material impact to our income tax benefit or provision.
10. 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 June 30, | | Six months ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Total stock-based compensation expense: | Total stock-based compensation expense: | (In millions) | Total stock-based compensation expense: | (In millions) |
| Equity classified awards expense | Equity classified awards expense | $ | 2.5 | | | $ | 2.6 | | | $ | 5.6 | | | $ | 6.7 | | Equity classified awards expense | $ | 4.0 | | | $ | 2.5 | | | $ | 8.4 | | | $ | 5.6 | |
Liability classified awards expense (credit) | 0.5 | | | 0.1 | | | 2.0 | | | (0.5) | | |
Liability classified awards expense | | Liability classified awards expense | 1.0 | | | 0.5 | | | 1.4 | | | 2.0 | |
Total pre-tax stock-based compensation expense | Total pre-tax stock-based compensation expense | 3.0 | | | 2.7 | | | 7.6 | | | 6.2 | | Total pre-tax stock-based compensation expense | 5.0 | | | 3.0 | | | 9.8 | | | 7.6 | |
Book income tax benefit | Book income tax benefit | (0.8) | | | (0.7) | | | (1.9) | | | (1.6) | | Book income tax benefit | (1.2) | | | (0.8) | | | (2.4) | | | (1.9) | |
Total stock-based compensation expense, net of tax | Total stock-based compensation expense, net of tax | $ | 2.2 | | | $ | 2.0 | | | $ | 5.7 | | | $ | 4.6 | | Total stock-based compensation expense, net of tax | $ | 3.8 | | | $ | 2.2 | | | $ | 7.4 | | | $ | 5.7 | |
As of June 30, 2021,2022, total unrecognized compensation expense of $20.9$22.7 million related to restricted stock and restricted stock units and $3.9 million related to stock options are expected to be recognized over a weighted average period of 1.51.6 years for restricted stock and restricted stock units and 1.81.6 years for stock options.
Fair Value Assumptions
The Company granted 95,891following table summarizes the assumptions used in the Black-Scholes model for stock options granted during the six months ended June 30, 2021 for which the fair value was estimated using a Black-Scholes option pricing model. The following summarizes the weighted average assumptions used in the Black-Scholes model:2022.
| | | | | |
Risk-free interest rate | 0.51.7 | % |
Historical volatility | 67.770.1 | % |
Dividend yield | 02.6 | % |
Expected years until exercise | 4.5 |
Fair value of options granted | $40.2533.23 |
Equity Classified Awards - Stock Options
Stock option balances at June 30, 2021,2022, and activity for the six months ended June 30, 20212022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (in Years) | | Aggregate Intrinsic Value (in Millions) |
Outstanding at December 31, 2020 | | 1,014,670 | | | $ | 64.16 | | | | | |
Granted | | 95,891 | | | 75.28 | | | | | |
Exercised | | (474,686) | | | 47.96 | | | | | |
Expired | | (24,540) | | | 98.26 | | | | | |
Forfeited | | (56,582) | | | 88.34 | | | | | |
Outstanding at June 30, 2021 | | 554,753 | | | 75.97 | | | 6.4 | | $ | 8.3 | |
Vested at June 30, 2021 and Expected to Vest | | 533,000 | | | 75.81 | | | 6.3 | | $ | 8.1 | |
Exercisable at June 30, 2021 | | 372,922 | | | $ | 72.86 | | | 5.1 | | $ | 6.9 | |
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
10. Stock-Based Compensation (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (in Years) | | Aggregate Intrinsic Value (in Millions) |
Outstanding at December 31, 2021 | | 475,904 | | | $ | 76.65 | | | | | |
Granted | | 75,795 | | | 70.08 | | | | | |
Exercised | | (3,505) | | | 68.80 | | | | | |
Expired | | (2,448) | | | 94.43 | | | | | |
Forfeited | | (2,635) | | | 90.54 | | | | | |
Outstanding at June 30, 2022 | | 543,111 | | | 75.64 | | | 6.4 | | $ | 1.9 | |
Vested at June 30, 2022 and Expected to Vest | | 521,010 | | | 75.74 | | | 6.3 | | $ | 1.9 | |
Exercisable at June 30, 2022 | | 373,651 | | | $ | 75.86 | | | 5.4 | | $ | 1.7 | |
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 second quarter of 20212022 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2021.2022. 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.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
10. Stock-Based Compensation (Continued)
Equity Classified Awards - Restricted Stock and Restricted Stock Units
Outstanding balances as of June 30, 2021,2022, and activity related to restricted stock and restricted stock units for the six months ended June 30, 20212022 were as follows:
| | | | Restricted Stock | | Weighted Average Grant Date Fair Value | | Stock-Settled 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, 2020 | | 254,331 | | | $ | 76.50 | | | 355,570 | | | $ | 28.01 | | |
Outstanding at December 31, 2021 | | Outstanding at December 31, 2021 | | 276,611 | | | $ | 80.85 | | | 105,592 | | | $ | 71.00 | |
Granted | Granted | | 127,041 | | | 83.73 | | | 68,578 | | | 62.92 | | Granted | | 174,479 | | | 70.19 | | | 59,002 | | | 49.36 | |
Released | Released | | (46,223) | | | 67.14 | | | (314,713) | | | 22.84 | | Released | | (77,563) | | | 90.37 | | | (42,107) | | | 66.45 | |
Forfeited | Forfeited | | (40,105) | | | 83.34 | | | 0 | | | 0 | | Forfeited | | (15,708) | | | 77.95 | | | — | | | — | |
Outstanding at June 30, 2021 | | 295,044 | | | $ | 80.15 | | | 109,435 | | | $ | 64.76 | | |
Outstanding at June 30, 2022 | | Outstanding at June 30, 2022 | | 357,819 | | | $ | 73.72 | | | 122,487 | | | $ | 62.19 | |
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.
| | | | | | | | |
| | Cash-Settled Restricted Stock Units |
Outstanding at December 31, 20202021 | | 52,956 12,799 | |
Granted | | 67 | |
Released | | (12,866) | |
| | |
Released | | (38,916) | |
Forfeited | | (740) | |
Outstanding at June 30, 20212022 | | 13,300— | |
For the three months ended June 30, 20212022 and 2020,2021, an expense of $0.1zero and $0.1 million and $0.4 million, respectively,, respectively, was included as stock-based compensation expense related to cash-settled restricted stock units. For the six months ended June 30, 20212022 and 2020,2021, an expense of $1.5$0.2 million and a credit of $0.9$1.5 million, respectively, was included as stock-based compensation expense related to cash-settled restricted stock units. At June 30, 20212022 and December 31, 2020,2021, liabilities of $0.8 millionwere zero and $2.5$0.9 million, respectively, related to cash-settled restricted stock units were included as part of accrued employee compensation and benefits in the Consolidated Balance Sheets.
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 multipliers from 0% to 200% of the target award based on the total stockholder return of Dine Brands Globalthe Company's common stock compared to the total stockholder returns of a peer group of companies. The awards are considered stock-based compensation and are classified as liabilities measured at fair value as of the respective period end. For the three months ended June 30, 20212022 and 2020,2021, an expense of $0.3$1.0 million and a credit of $0.3$0.4 million, respectively, were included in total stock-based compensation expense related to LTIP awards. For the six months ended June 30, 2022 and 2021, and 2020, $0.5$1.3 million and $0.4$0.5 million, respectively, were included in total stock-based compensation expense related to LTIP awards. At June 30, 20212022 and December 31, 2020,2021, liabilities of $1.2$2.2 million and $2.1$1.2 million, respectively, related to LTIP awards were included as part of accrued employee compensation and benefits, and for the long-term portion in other non-current liabilities in the Consolidated Balance Sheets.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
11. Net Income per Share
The computation of the Company's basic and diluted net income per share is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (In thousands, except per share data) |
Numerator for basic and diluted income per common share: | | | | | | | |
Net income | $ | 23,962 | | | $ | 29,362 | | | $ | 48,812 | | | $ | 54,965 | |
Less: Net income allocated to unvested participating restricted stock | (673) | | | (657) | | | (1,273) | | | (1,431) | |
Net income available to common stockholders - basic | 23,289 | | | 28,705 | | | 47,539 | | | 53,534 | |
Effect of unvested participating restricted stock in two-class calculation | 1 | | | 3 | | | 1 | | | 10 | |
| | | | | | | |
Net income available to common stockholders - diluted | $ | 23,290 | | | $ | 28,708 | | | $ | 47,540 | | | $ | 53,544 | |
Denominator: | | | | | | | |
Weighted average outstanding shares of common stock - basic | 16,050 | | | 16,886 | | | 16,386 | | | 16,673 | |
Dilutive effect of stock options | 30 | | | 91 | | | 32 | | | 129 | |
Weighted average outstanding shares of common stock - diluted | 16,080 | | | 16,977 | | | 16,418 | | | 16,802 | |
Net income per common share: | | | | | | | |
Basic | $ | 1.45 | | | $ | 1.70 | | | $ | 2.90 | | | $ | 3.21 | |
Diluted | $ | 1.45 | | | $ | 1.69 | | | $ | 2.90 | | | $ | 3.19 | |
12. 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 5 operating segments: Applebee's franchise operations, Applebee's company-operated restaurant operations, IHOP franchise operations, rental operations and financing
Dine Brand Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
11. Segments (Continued)
operations. The Company has 4 reportable segments: franchise operations, (an aggregation of Applebee's and IHOP franchise operations), company-operated restaurant operations, rental operations and 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 June 30, 2021,2022, the franchise operations segment consisted of (i) 1,6271,604 restaurants operated by Applebee’s franchisees in the United States, 2 U.S. territories and 11 countries outside the United States and (ii) 1,7441,764 restaurants operated by IHOP franchisees and area licensees in the United States, 2 U.S. territories and 78 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 69 Applebee's 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 financingreal estate leases. Rental operations expenses are costs of operating leases and interest expense from finance leases on which the Company is the lessee.
Financing revenues primarily consist of interest income from the financing of IHOP equipment leases and franchise fees and interest income on Applebee's notes receivable from franchisees. Financing expenses are the cost of taxes related to IHOP equipment leases.
Dine Brand Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
12. Segments (Continued)
Information on segments is as follows:
| | | | | Three months ended June 30, | | Six months ended June 30, | | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 |
| | | (In millions) | | | (In millions) |
Revenues from external customers: | Revenues from external customers: | | | | | | Revenues from external customers: | | | | | |
| Franchise operations | Franchise operations | | $ | 166.9 | | | $ | 67.8 | | | $ | 307.9 | | | $ | 212.9 | | Franchise operations | | $ | 168.3 | | | $ | 166.9 | | | $ | 329.5 | | | $ | 307.9 | |
Rental operations | Rental operations | | 27.4 | | | 23.7 | | | 53.5 | | | 52.7 | | Rental operations | | 29.1 | | | 27.4 | | | 57.9 | | | 53.5 | |
Company restaurants | Company restaurants | | 38.2 | | | 16.8 | | | 74.2 | | | 48.1 | | Company restaurants | | 39.5 | | | 38.2 | | | 78.9 | | | 74.2 | |
Financing operations | Financing operations | | 1.1 | | | 1.4 | | | 2.2 | | | 2.9 | | Financing operations | | 0.9 | | | 1.1 | | | 1.9 | | | 2.2 | |
Total | Total | | $ | 233.6 | | | $ | 109.7 | | | $ | 437.8 | | | $ | 316.6 | | Total | | $ | 237.8 | | | $ | 233.6 | | | $ | 468.2 | | | $ | 437.8 | |
| Interest expense: | Interest expense: | | | | | | Interest expense: | | | | | |
| Rental operations | Rental operations | | $ | 1.3 | | | $ | 1.5 | | | $ | 2.6 | | | $ | 3.1 | | Rental operations | | $ | 1.0 | | | $ | 1.3 | | | $ | 2.2 | | | $ | 2.6 | |
Company restaurants | Company restaurants | | 0.8 | | | 0.5 | | | 1.7 | | | 1.0 | | Company restaurants | | 0.8 | | | 0.8 | | | 1.6 | | | 1.7 | |
Corporate | Corporate | | 15.7 | | | 17.1 | | | 32.2 | | | 32.3 | | Corporate | | 15.4 | | | 15.7 | | | 30.9 | | | 32.2 | |
Total | Total | | $ | 17.8 | | | $ | 19.1 | | | $ | 36.5 | | | $ | 36.4 | | Total | | $ | 17.2 | | | $ | 17.8 | | | $ | 34.7 | | | $ | 36.5 | |
| Depreciation and amortization: | Depreciation and amortization: | | | | | | Depreciation and amortization: | | | | | |
| Franchise operations | Franchise operations | | $ | 2.5 | | | $ | 2.6 | | | $ | 5.0 | | | $ | 5.1 | | Franchise operations | | $ | 2.5 | | | $ | 2.5 | | | $ | 5.0 | | | $ | 5.0 | |
Rental operations | Rental operations | | 2.8 | | | 3.1 | | | 5.6 | | | 6.3 | | Rental operations | | 2.6 | | | 2.8 | | | 5.3 | | | 5.6 | |
Company restaurants | Company restaurants | | 1.8 | | | 1.7 | | | 3.5 | | | 3.2 | | Company restaurants | | 1.9 | | | 1.8 | | | 3.8 | | | 3.5 | |
Corporate | Corporate | | 2.9 | | | 3.4 | | | 5.9 | | | 6.7 | | Corporate | | 3.0 | | | 2.9 | | | 5.9 | | | 5.9 | |
Total | Total | | $ | 10.0 | | | $ | 10.7 | | | $ | 20.0 | | | $ | 21.3 | | Total | | $ | 10.0 | | | $ | 10.0 | | | $ | 20.0 | | | $ | 20.0 | |
| Gross profit (loss), by segment: | Gross profit (loss), by segment: | | | | | | Gross profit (loss), by segment: | | | | | |
| Franchise operations | Franchise operations | | $ | 87.7 | | | $ | 30.8 | | | $ | 163.7 | | | $ | 106.4 | | Franchise operations | | $ | 86.0 | | | $ | 87.7 | | | $ | 169.2 | | | $ | 163.7 | |
Rental operations | Rental operations | | 6.8 | | | 2.4 | | | 12.0 | | | 8.9 | | Rental operations | | 7.2 | | | 6.8 | | | 13.9 | | | 12.0 | |
Company restaurants | Company restaurants | | 3.4 | | | (4.4) | | | 6.5 | | | (3.4) | | Company restaurants | | 1.6 | | | 3.4 | | | 3.6 | | | 6.5 | |
Financing operations | Financing operations | | 1.0 | | | 1.2 | | | 2.0 | | | 2.6 | | Financing operations | | 0.9 | | | 1.0 | | | 1.7 | | | 2.0 | |
Total gross profit | Total gross profit | | 98.9 | | | 30.0 | | | 184.2 | | | 114.5 | | Total gross profit | | 95.7 | | | 98.9 | | | 188.4 | | | 184.2 | |
Corporate and unallocated expenses, net | Corporate and unallocated expenses, net | | (60.2) | | | (176.9) | | | (121.5) | | | (232.3) | | Corporate and unallocated expenses, net | | (63.2) | | | (60.2) | | | (121.8) | | | (121.5) | |
Income (loss) before income taxes | | $ | 38.7 | | | $ | (146.8) | | | $ | 62.7 | | | $ | (117.7) | | |
Income before income taxes | | Income before income taxes | | $ | 32.5 | | | $ | 38.7 | | | $ | 66.7 | | | $ | 62.7 | |
13. Closure and Impairment Charges
Closure and impairment charges for the three and six months ended June 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Closure and Impairment Charges | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | (In millions) |
Closure charges | | $ | 1.0 | | | $ | 1.0 | | | $ | 1.2 | | | $ | 2.9 | |
Long-lived tangible asset impairment | | 0.3 | | | 1.6 | | | 0.3 | | | 1.7 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total closure and impairment charges | | $ | 1.3 | | | $ | 2.6 | | | $ | 1.5 | | | $ | 4.6 | |
The closure charges for the three and six months ended June 30, 2022 were primarily related to the revisions to existing closure reserves, including accretion, primarily for approximately 35 IHOP restaurants. The closure charges for the three months ended June 30, 2021 related to the establishment of, or revisions to existing closure reserves, including accretion, primarily for approximately 30 IHOP restaurants. The closure charges for the six months ended June 30, 2021 related to the establishment of or revisions to existing closure reserves for approximately 50 IHOP restaurants.
Long-lived tangible asset impairment charges for the three and six months ended June 30, 2022 related to the impairment of land and buildings for 2 IHOP restaurants located on sites owned by the Company.Long-lived tangible asset impairment charges for the six months ended June 30, 2021 related to 4 IHOP franchisee-operated restaurants. The impairment recorded represented the difference between the carrying value and the estimated fair value.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
12. Net Income (Loss) per Share
The computation of the Company's basic and diluted net income (loss) per share is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| (In thousands, except per share data) |
Numerator for basic and diluted income (loss) per common share: | | | | | | | |
Net income (loss) | $ | 29,362 | | | $ | (134,779) | | | $ | 54,965 | | | $ | (112,451) | |
Less: Net income allocated to unvested participating restricted stock | (657) | | | 0 | | | (1,431) | | | (420) | |
Net income (loss) available to common stockholders - basic | 28,705 | | | (134,779) | | | 53,534 | | | (112,871) | |
Effect of unvested participating restricted stock in two-class calculation | 3 | | | 0 | | | 10 | | | 0 | |
| | | | | | | |
Net income (loss) available to common stockholders - diluted | $ | 28,708 | | | $ | (134,779) | | | $ | 53,544 | | | $ | (112,871) | |
Denominator: | | | | | | | |
Weighted average outstanding shares of common stock - basic | 16,886 | | | 16,177 | | | 16,673 | | | 16,215 | |
Dilutive effect of stock options | 91 | | | 0 | | | 129 | | | 0 | |
Weighted average outstanding shares of common stock - diluted | 16,977 | | | 16,177 | | | 16,802 | | | 16,215 | |
Net income (loss) per common share: | | | | | | | |
Basic | $ | 1.70 | | | $ | (8.33) | | | $ | 3.21 | | | $ | (6.96) | |
Diluted | $ | 1.69 | | | $ | (8.33) | | | $ | 3.19 | | | $ | (6.96) | |
For the six months ended June 30, 2020, diluted loss per common share was computed using the basic weighted average number of shares outstanding during the period as the 101,000 shares from common stock equivalents would have been antidilutive. There were 0 common stock equivalents for the three months ended June 30, 2020.
13. Impairment and Closure Charges
Closure and long-lived tangible asset impairment charges for the three and six months ended June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Impairment and Closure Charges | | Three months ended June 30, | | Six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | (In millions) |
Closure charges | | $ | 1.0 | | | $ | 0.7 | | | $ | 2.9 | | | $ | 0.7 | |
Long-lived tangible asset impairment | | 1.6 | | | 17.2 | | | 1.7 | | | 17.2 | |
Goodwill impairment | | 0 | | | 92.2 | | | 0 | | | 92.2 | |
Tradename impairment | | 0 | | | 11.0 | | | 0 | | | 11.0 | |
Impairment of reacquired franchise rights | | 0 | | | 3.3 | | | 0 | | | 3.3 | |
Total impairment and closure charges | | $ | 2.6 | | | $ | 124.4 | | | $ | 4.6 | | | $ | 124.4 | |
Closure Charges
The closure charges of $1.0 million for the three months ended June 30, 2021 related to the establishment of or revision
to closure reserves for approximately 30 IHOP restaurants. The closure charges of $2.9 million for the six months ended June 30, 2021 related to the establishment of or revision to closure reserves for approximately 50 IHOP restaurants.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
13. Closure and Impairment Charges (Continued)
Long-lived Tangible Asset Impairment
The long-lived asset impairment of $1.6 million for the three months ended June 30, 2021 related to 3 IHOP franchisee-operated restaurants for which the carrying amount exceeded the undiscounted cash flows. The long-lived asset impairment of $1.7 million for the six months ended June 30, 2021 related to 4 IHOP franchisee-operated restaurants. The impairment recorded represented the difference between the carrying value and the estimated fair value. The impairments related to operating lease right-of-use assets that had been recorded in 2019 upon adoption of new lease accounting guidance codified in Accounting Standards Codification Topic 842.
Goodwill and Intangible Assets
For the three and six months ended June 30, 2021, the Company determined that there were 0 indicators for impairment to goodwill and intangible assets.
Impairment in 2020
Most of the Company's goodwill and intangible assets arose from the November 29, 2007 acquisition of Applebee's. The Company evaluates its goodwill and the indefinite-lived Applebee's tradename for impairment annually in the fourth quarter of each year or on an interim basis if events or changes in circumstances between annual tests indicate a potential impairment. Definite-lived intangible assets and long-lived tangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on estimated undiscounted future cash flows.
In the second quarter of 2020, the Company noted that its common stock had recovered less of its early March 2020 (pre-pandemic) market value than the overall U.S. stock market had recovered. The Company also was able to assess several additional months of data as to the impact of the COVID-19 pandemic on its operations and, in turn, assess the impact that might have on the risk premium incorporated into its discount rate. Based on these developments, the Company determined that an interim quantitative test of goodwill and indefinite-lived intangible assets for impairment should be performed as of May 24, 2020. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The fair value technique used in this instance is classified as Level 3, where unobservable inputs are used when little or no market data is available.
In performing the quantitative test for impairment of goodwill, the Company used the income approach method of valuation that includes the discounted cash flow method and the market approach that includes the guideline public company method to determine the fair value of goodwill and intangible assets. Significant assumptions made by management in estimating fair value under the discounted cash flow model include future trends in sales, operating expenses, overhead expenses, depreciation, capital expenditures and changes in working capital, along with an appropriate discount rate based on the Company's estimated cost of equity capital and after-tax cost of debt. Significant assumptions used to determine fair value under the guideline public company method include the selection of guideline companies and the valuation multiples applied.
In performing the impairment review of the tradename, the Company used the relief of royalty method under the income approach method of valuation. Significant assumptions used to determine fair value under the relief of royalty method include future trends in sales, a royalty rate and a discount rate to be applied to the forecast revenue stream.
As a result of performing the quantitative test of impairment, the Company recognized an impairment of $92.2 million to the goodwill of the Applebee's franchise unit and an impairment of $11.0 million to Applebee's tradename during the three months ended June 30, 2020. The majority of the impairment was due to an increase in the assessed risk premium incorporated into the discount rate assumption.
In addition, the Company reviewed its reacquired franchising rights and determined that the carrying amount exceeded the estimated fair value by $3.3 million and has recorded an impairment to that intangible asset.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
14. 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 material 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 2019 Class A-2 Notes at June 30, 20212022 and December 31, 20202021 were as follows:
| | | | June 30, 2021 | December 31, 2020 | | | June 30, 2022 | December 31, 2021 |
| | | (In millions) | | | (In millions) |
Face Value of Class A-2 Notes | Face Value of Class A-2 Notes | | $ | 1,290.3 | | | $ | 1,296.8 | | | Face Value of Class A-2 Notes | | $ | 1,287.0 | | | $ | 1,287.0 | | |
Fair Value of Class A-2 Notes | Fair Value of Class A-2 Notes | | $ | 1,354.9 | | | $ | 1,259.5 | | | Fair Value of Class A-2 Notes | | $ | 1,253.8 | | | $ | 1,312.9 | | |
The fair values were determined based on Level 2 inputs, including information gathered from brokers who trade in the Company’s 2019 Class A-2 Notes, as well as information on notes that are similar to those of the Company.
15. 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 to franchisees, the Company has, in certain cases, guaranteed or has potential continuing liability for lease payments totaling $234.8$215.8 million as of June 30, 2021.2022. 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 20212022 through 2048. Excluding unexercised option periods, the Company's potential liability for future payments under these leases is $40.1$45.5 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.
16. Cash, Cash Equivalents and Restricted Cash
Cash and Cash Equivalents
The Company considers all highly liquid investment securities with remaining maturities at the date of purchase of three months or less to be cash equivalents. These cash equivalents are stated at cost which approximates market value. Cash held related to IHOP advertising funds and the Company's gift card programs is not considered to be restricted cash as there are no restrictions on the use of these funds.
Dine Brands Global, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
16. Cash, Cash Equivalents and Restricted Cash (Continued)
The components of cash and cash equivalents were as follows:
|
|
| June 30, 2021 | | December 31, 2020 |
| June 30, 2022 | | December 31, 2021 |
| | (In millions) | | (In millions) |
Money market funds | Money market funds | $ | 30.0 | | | $ | 175.0 | | Money market funds | $ | 15.0 | | | $ | 30.0 | |
IHOP advertising funds and gift card programs | IHOP advertising funds and gift card programs | 76.2 | | | 71.6 | | IHOP advertising funds and gift card programs | 82.1 | | | 101.5 | |
Other depository accounts | Other depository accounts | 153.3 | | | 136.8 | | Other depository accounts | 166.4 | | | 229.9 | |
Total cash and cash equivalents | Total cash and cash equivalents | $ | 259.5 | | | $ | 383.4 | | Total cash and cash equivalents | $ | 263.5 | | | $ | 361.4 | |
The decrease in money market funds between December 31, 2020 and June 30, 2021 was due to the repayment of $220.0 million previously drawn on the Company's Credit Facility.
Current Restricted Cash
Current restricted cash primarily consisted of funds required to be held in trust in connection with the Company's securitized debt and funds from Applebee's franchisees pursuant to franchise agreements, usage of which was restricted to advertising activities. The components of current restricted cash were as follows:
| |
|
| June 30, 2021 | | December 31, 2020 |
| June 30, 2022 | | December 31, 2021 |
| | (In millions) | | (In millions) |
Securitized debt reserves | Securitized debt reserves | $ | 33.7 | | | $ | 27.0 | | Securitized debt reserves | $ | 29.6 | | | $ | 29.9 | |
Applebee's advertising funds | Applebee's advertising funds | 38.3 | | | 12.8 | | Applebee's advertising funds | 20.1 | | | 17.5 | |
Other | Other | 0.1 | | | 0.1 | | Other | 0.1 | | | 0.1 | |
Total current restricted cash | Total current restricted cash | $ | 72.1 | | | $ | 39.9 | | Total current restricted cash | $ | 49.8 | | | $ | 47.5 | |
Non-current Restricted Cash
Non-current restricted cash was $16.4 million and $32.8$16.4 million at June 30, 20212022 and December 31, 2020,2021, respectively, and represents interest reserves required to be set aside for the duration of the Company's securitized debt. The minimum reserve
17. Subsequent Event
On July 26, 2022, the Company entered into an asset purchase agreement for the refranchising and sale of related restaurant assets of 69 Applebee’s company-operated restaurants located in North Carolina and South Carolina. This sale is approximately one quarter's interest payment on the Company's securitized debt, currently approximately $16 million. The Company voluntarily increased the amount heldexpected to close in the reserve account to twice the minimum amount during the year ended December 31, 2020 and, in turn, reduced the reserve to the minimum amount during the six months ended June 30, 2021.fiscal third quarter of 2022.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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, 2020.2021. Except where the context indicates otherwise, the words “we,” “us,” “our,” “Dine Brands Global” and the “Company” refer to Dine Brands Global, Inc., together with its subsidiaries that are consolidated in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The financial tables appearing in MD&A 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.
Through various subsidiaries, we own, franchise and 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, area licensees and their sub-licensees (collectively, “area licensees”) or by us. With 3,4433,437 restaurants combined, the substantial majority98% of which are franchised, we believe we are one of the largest full-service restaurant companies in the world.
We identify our business segments based on the organizational units used by management to monitor performance and make operating decisions. We currently have five operating segments: Applebee's franchise operations, Applebee's company-operated restaurant operations, IHOP franchise operations, rental operations and financing operations. We have four reportable segments: franchise operations (an aggregation of Applebee's and IHOP franchise operations), company-operated restaurant operations, rental operations and 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.
Events Impacting the Comparability of Financial Information
Comparisons of financial results for the three and six months ended June 30, 20212022 with those for the three and six months ended June 30, 20202021 were significantly impacted by the degreeextent of restrictions in place on restaurant operations during the respective periods.in 2021. In March 2020, the World Health Organization (“WHO”) declared a global pandemic related to the outbreak of a novel strain of coronavirus, designated “COVID-19.” Initially, federal, state, local and international governments reacted to the COVID-19 pandemic by encouraging or requiring social distancing, instituting shelter-in-place orders, and requiring,implementing restrictions that resulted in, to varying degrees, reduced operating hours, restaurant dine-in and/or indoor dining limitations, capacity limitations or other restrictions. Generally speaking, these restrictions largely limited our restaurants to off-premise sales (take-out and delivery) approximately from the second week of March 2020 until May 2020. In May 2020, governmental entities slowly began to relax restrictions as infection rates from the initial outbreak declined, but restaurants allowed to re-open were largely limited to occupancy of 50% or less of capacity as of June 30, 2020.
The operating status of our restaurants was fluid during the three and six months ended June 30, 2021 and subject to change. While many federal, state, local and international governments maintained the restrictive protocols noted above, the degree and duration of restrictions varied by individual geographic area. Restrictions on restaurant operations were increasedrelaxed, removed or decreasedincreased in response to changes in the number of COVID-19 infections, the availability and acceptance of vaccines and an increase in vaccination rates within the respective governmental jurisdictions. While the significant majority of our restaurants were open for in-restaurant diningGenerally speaking, during the three and six months ended June 30,second quarter of 2021, somemany federal, state and local andgovernments began to relax or remove the restrictive protocols noted above, while most international governments continue to maintain protocols that limit restaurant dine-in occupancy levels to less than 100%maintained the restrictions, the degree of capacity.which varied by country.
As of June 30, 2021, 98% of2022, almost all domestic Applebee's and IHOP restaurants were open and operating at 100% capacity and 99% of domestic Applebee's and IHOP restaurants were open.without government-mandated restrictions. This was anrepresents a slight improvement from March 31,June 30, 2021, asat which time only one-third of domestic Applebee's restaurants and less than 20% of domestic IHOPsome restaurants were operating with restrictions that varied by individual geographic area. Internationally, government-mandated restrictions vary by country, with some international restaurants still under restrictions. As of June 30, 2022, approximately 87% of international restaurants were operating without restrictions, a significant improvement from June 30, 2021, at greater than 50%which time there were no international restaurants operating without restrictions.
capacity. However, nearly
Government-mandated restrictions notwithstanding, almost half of IHOP restaurants that operated 24 hours a day for all or parts of a week prior to the pandemic are currently closed during overnight hours. Internationally, restrictions vary by country, with restaurants in Mexico and Puerto Rico primarily operating at greater than 50% capacity, with other countries maintaining a higher level of restriction. Temporary closures of occur for a variety of reasons, and the temporary closures reflected below were not necessarily related to the impact of the COVID-19 pandemic or related restrictions.
The operating status of all restaurants asAs of June 30, 2021 and March 31, 2021 was as follows:
| | | | | | | | | | | | | | | | | |
| Status as of June 30, 2021 |
| Domestic | | |
Dining room capacity %/other status | Applebee's | | IHOP | | International |
100% capacity | 1,568 | | | 1,617 | | | 16 | |
> 50% capacity | 19 | | | 12 | | | 77 | |
26%-50% capacity | — | | | — | | | 75 | |
Up to 25% capacity | — | | | — | | | 6 | |
Off-premise/outdoors only and other | 1 | | | 5 | | | 19 | |
Restaurants temporarily closed | 2 | | | 20 | | | 7 | |
Total | 1,590 | | | 1,654 | | | 200 | |
| | | | | | | | | | | | | | | | | |
| Status as of March 31, 2021 |
| Domestic | | |
Dining room capacity %/other status | Applebee's | | IHOP | | International |
100% capacity | 374 | | | 183 | | | — | |
> 50% capacity | 142 | | | 135 | | | 31 | |
26%-50% capacity | 959 | | | 1,086 | | | 112 | |
Up to 25% capacity | 106 | | | 209 | | | 28 | |
Off-premise/outdoors only and other | 9 | | | 21 | | | 22 | |
Restaurants temporarily closed | 6 | | | 26 | | | 9 | |
Total | 1,596 | | | 1,660 | | | 202 | |
Note that at the onset2022, approximately 514 IHOP restaurants were operating 24 hours a day, seven days a week, with approximately 149 restaurants operating 24 hours a day for some portion of the week. As of December 31, 2019, the last reporting period prior to the pandemic, information as to restaurant capacity was not available inapproximately 845 IHOP restaurants were operating 24 hours a day, seven days a week, with approximately 245 restaurants operating 24 hours a day for some portion of the same detail as is available currently and therefore specific dining room capacity details are unavailable for the comparative 2020 periods. Information as to operating status of all our restaurants combined is provided for each month during the three months ended June 30, 2020, given the significant change in opening status over the course of that period.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Restaurant Status | Status as of 2020 Fiscal Month Ended |
| Mar | | Apr | | May | | June | |
Dining rooms open* | 271 | | | 85 | | | 1,808 | | | 3,138 | |
Limited to off-premise sales | 2,615 | | | 2,820 | | | 1,429 | | | 202 | |
Temporarily closed | 729 | | | 698 | | | 355 | | | 232 | |
Total | 3,615 | | | 3,603 | | | 3,592 | | | 3,572 | |
| | | | | | | | |
* In most instances limited to 50% capacity or less, and/or reduced operating hours.week.
We have experienced a number of temporary and permanent closures of our restaurants during the COVID-19 pandemic. These closures occurred for a variety of reasons, and all closures were not necessarily related to the impact of the COVID-19 pandemic or related restrictions. We cannot predict how long the COVID-19duration of the pandemic, and its impact on our operations will last, including recurrences of the virus and(including the emergence of new variants of the virus,virus), the acceptance of vaccines and booster vaccines worldwide and the availability of vaccines internationally, restrictions on in-restaurant dining that may be imposed or re-imposed, the timing and extent of customer re-engagement with our brands and, in general, what the short- and long-termultimate impact on consumer discretionary spending the COVID-19 pandemic might have on our operations and the restaurant industry as a whole.
Update on Key COVID-19 Pandemic ActionsFinancial Results
Updates regarding several actions taken overThe financial tables appearing in MD&A present amounts in millions of dollars that are rounded from our consolidated financial statements presented in thousands of dollars. As a result, the past 15 monthstables may not foot or crossfoot due to mitigate the effects of the COVID-19 pandemic on the Company, its operations and its franchisees, are discussed below:rounding.
•In March 2021, we repaid $220 million of borrowings outstanding under our revolving credit facility (“Credit Facility”) that initially had been drawn in March 2020. At the time of the initial draw, we had no immediate need for additional liquidity, but in light of then-current market conditions and significant uncertainty related to the COVID-19 pandemic, we drew on the revolving facility to maximize our financial flexibility. As of June 30, 2021, our borrowing capacity under the Credit Facility was $221.7 million. See “Liquidity and Capital Resources” below for more information.
•We offered Applebee's franchisees the opportunity to defer payment of their royalty, advertising and other fees, primarily amounts due for the months of March and April 2020. A total of 30 franchisees representing 94% of Applebee’s restaurants deferred payments totaling $33.4 million. Repayment of deferred amounts, scheduled over up to nine months, began in the third quarter of 2020. As of June 30, 2021, the outstanding balance of these deferrals was $0.7 million, with 29 of the 30 franchisees having repaid their deferred balances in full. Approximately $3.2 million and $12.6 million was collected during the three and six months ended June 30, 2021, respectively. Collection of these balances had a favorable impact on cash provided by operating activities during the six months ended June 30, 2021.
•We offered IHOP franchisees the opportunity to defer their royalty, advertising, equipment rent and sublease rent payments, primarily amounts due for the months of March and April 2020. Initially, 193 franchisees representing 58% of IHOP restaurants deferred payments totaling $24.1 million. Including subsequent deferrals made on a case-by case basis, the deferral program totaled $28.6 million. Repayment of deferred amounts, scheduled over up to 36 weeks, began in the third quarter of 2020. In certain instances, repayments were temporarily paused for up to 60 days. As of June 30, 2021, the outstanding balance of these deferrals was $3.7 million, with approximately $6.0 million and $12.8 million collected during the three months and six months ended June 30, 2021, respectively. A total of 106 franchisees have repaid their deferred balances in full. Collection of these balances had a favorable impact on cash provided by operating activities during the six months ended June 30, 2021.
•We received rent deferrals and abatements on properties we lease of approximately $11 million during fiscal 2020, primarily related to rent deferrals for properties on which IHOP restaurants are located. As of June 30, 2021, the outstanding balance of those deferrals was $0.8 million, with approximately $1.6 million and $4.1 million paid during the three and six months ended June 30, 2021, respectively. Payment of these deferrals reduced our cash provided by operating activities during the six months ended June 30, 2021.
•We suspended our repurchasing of common stock and the declaration of dividends on our common stock after the first quarter of 2020. We evaluate repurchases of common stock and dividend payments on 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. We will continue to evaluate our capital allocation strategy in consideration of, among other things, resurgence of COVID-19 infections due to variants of the virus and changes in the percentage of the population that is fully vaccinated, as well as overall industry conditions.
Key Financial Results
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Favorable (Unfavorable) Variance | | Six months ended June 30, | | Favorable (Unfavorable) Variance |
| | 2021 | | 2020 | | 2021 | | 2020 | |
| | | | | | | | | | | | |
| | (In millions, except per share data) |
Income (loss) before income taxes | | $ | 38.7 | | | $ | (146.8) | | | $ | 185.4 | | | $ | 62.7 | | | $ | (117.7) | | | $ | 180.4 | |
Income tax (provision) benefit | | (9.3) | | | 12.0 | | | (21.3) | | | (7.7) | | | 5.3 | | | (13.0) | |
Net income (loss) | | $ | 29.4 | | | $ | (134.8) | | | $ | 164.1 | | | $ | 55.0 | | | $ | (112.5) | | | $ | 167.4 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Effective tax rate | | 24.0 | % | | 8.2 | % | | (15.9) | % | | 12.3 | % | | 4.5 | % | | (7.8) | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Net income (loss) per diluted share | | $ | 1.69 | | | $ | (8.33) | | | $ | 10.02 | | | $ | 3.19 | | | $ | (6.96) | | | $ | 10.15 | |
| | | | | | % increase | | | | | | % increase |
Weighted average diluted shares | | 17.0 | | | 16.2 | | | 4.9 | % | | 16.8 | | | 16.2 | | | 3.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Favorable (Unfavorable) Variance | | Six Months Ended June 30, | | Favorable (Unfavorable) Variance |
| | 2022 | | 2021 | | 2022 | | 2021 | |
| | | | | | | | | | | | |
| | (In millions, except per share data) |
Income before income taxes | | $ | 32.5 | | | $ | 38.7 | | | $ | (6.2) | | | $ | 66.7 | | | $ | 62.7 | | | $ | 4.0 | |
Income tax provision | | (8.6) | | | (9.3) | | | 0.7 | | | (17.9) | | | (7.7) | | | $ | (10.2) | |
Net income | | $ | 24.0 | | | $ | 29.4 | | | $ | (5.5) | | | $ | 48.8 | | | $ | 55.0 | | | $ | (6.2) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Effective tax rate | | 26.3 | % | | 24.0 | % | | (2.3) | % | | 26.8 | % | | 12.3 | % | | (14.5) | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Net income per diluted share | | $ | 1.45 | | | $ | 1.69 | | | $ | (0.24) | | | $ | 2.90 | | | $ | 3.19 | | | $ | (0.29) | |
| | | | | | % decrease | | | | | | % decrease |
Weighted average diluted shares | | 16.1 | | | 17.0 | | | (5.3) | % | | 16.4 | | | 16.8 | | | (2.3) | % |
The effective tax rate for the six months ended June 30, 20212022 was lowerdifferent than the statutory federal tax rate of 21%the prior comparable period primarily due to the one-time recognition of excess tax benefits on stock-based compensation related to the departure of our previous chief executive officer in the first quarter of 2021. In addition, the effective tax rate for the six months ended June 30, 2021 was different than the prior comparable period due to the impairment of goodwill in the second quarter of 2020, which was not deductible for income tax purposes and therefore had no associated tax benefit.
The following table highlights the primary components of the increase (decrease) in our income before income taxes for the three and six months ended June 30, 2021,2022, compared to our income before income taxes for the three and six months ended June 30, 2020:2021:
| | | Favorable (Unfavorable) Variance | | Favorable (Unfavorable) Variance |
| | Three months ended June 30, 2021 | | Six months ended June 30, 2021 | | Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
| | (In millions) | | (In millions) |
Increase in gross profit: | | |
(Decrease) increase in gross profit: | | (Decrease) increase in gross profit: | |
Applebee's franchise operations | Applebee's franchise operations | $ | 26.8 | | | $ | 27.8 | | Applebee's franchise operations | $ | 0.0 | | | $ | 5.6 | |
IHOP franchise operations | IHOP franchise operations | 30.1 | | | 29.5 | | IHOP franchise operations | (1.7) | | | (0.1) | |
Company restaurant operations | Company restaurant operations | 7.8 | | | 9.9 | | Company restaurant operations | (1.8) | | | (2.9) | |
Rental and financing operations | Rental and financing operations | 4.1 | | | 2.5 | | Rental and financing operations | 0.3 | | | 1.7 | |
Total increase in gross profit | 68.8 | | | 69.7 | | |
Impairment and closure charges | 121.8 | | | 119.8 | | |
Increase in G&A expenses | (8.4) | | | (10.7) | | |
Total (decrease) increase in gross profit | | Total (decrease) increase in gross profit | (3.2) | | | 4.3 | |
Increase in general and administrative expenses | | Increase in general and administrative expenses | (4.8) | | | (6.4) | |
Decrease in closure and impairment charges | | Decrease in closure and impairment charges | 1.3 | | | 3.1 | |
| Other | Other | 3.2 | | | 1.6 | | Other | 0.6 | | | 3.0 | |
Increase in income before income taxes | $ | 185.4 | | | $ | 180.4 | | |
(Decrease) increase in income before income taxes | | (Decrease) increase in income before income taxes | $ | (6.1) | | | $ | 4.0 | |
As discussed above under
With almost all domestic Applebee’s and IHOP restaurants open and operating without government-mandated restrictions, the Comparability of Financial Information,” Company has returned to normal operations supporting franchisees as well as making strategic growth investments, resulting in the impositionincrease in general and subsequent relaxation or removal of restrictions imposed on in-restaurant dining in response to the COVID-19 pandemic had a significant impact on comparisons of our gross profit betweenadministrative (“G&A”) expenses for the three and six months ended June 30, 2021 and2022, compared with the same respective periods of 2020.the prior year.
The significant impacts of the COVID-19 pandemic resultedIncreases in our performing impairment assessments of our long-lived assets, goodwillcommodity, labor and other intangible assets duringrestaurant operating costs experienced at restaurants owned and operated by our franchisees could impact us to the three months ended June 30, 2020. Asextent our franchisees are adversely impacted by a result of these assessments, we recorded an impairment to Applebee's goodwill of $92.2 million, an impairment to Applebee's intangible assets of $14.3 millionsustained decline in their operating margins; and impairments to long-lived assets of both brands totaling approximately $17.2 millionat company operated restaurants, impact us directly. The changes in the second quarter of 2020. There were no impairments of goodwill or other intangible assets duringcompany restaurant operations gross profit for the three and six months ended June 30, 2021.2022 compared with the same respective periods of the prior year were primarily impacted by increases in commodity, labor and other restaurant operating costs offset by higher retail sales. As of June 30, 2022, we operate 69 Applebee’s restaurants, representing 2% of the 3,437 restaurants comprising our system.
The decrease in IHOP franchise operations gross profit for the three months ended June 30, 2022 compared with the same period of the prior year was primarily due to higher termination fees in the prior year. The increase in Applebee’s franchise operations gross profit for the six months ended June 30, 2022 compared with the same period of the prior year, was primarily due to higher royalty revenues from a 7.6% domestic franchise same-restaurant sales and increased international royalty revenues.
See “Consolidated Results of Operations - Comparison of the Three andSix Months endedEnded June 30, 20212022 and June 30, 2020”2021” for additional discussion of the changes shown above.
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”), net franchise restaurant development and the change in effective restaurants. Changes in both domestic same-restaurant sales and in the number of Applebee's and IHOP 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.
Our key performance indicators for the three and six months ended June 30, 20212022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, 2021 | | Six months ended June 30, 2021 |
| Applebee's | | IHOP | | Applebee's | | IHOP |
Sales percentage increase in reported retail sales | 125.3 | % | | 163.6 | % | | 43.3 | % | | 39.2 | % |
% increase in domestic system-wide same-restaurant sales - 2021 vs 2020 | 102.2 | % | | 120.1 | % | | 46.4 | % | | 40.7 | % |
% increase (decrease) in domestic system-wide same-restaurant sales - 2021 vs 2019 | 10.5 | % | | (3.4) | % | | 2.0 | % | | (12.2) | % |
Net franchise restaurant reduction (1) | (9) | | | (5) | | | (13) | | | (25) | |
Net increase in total effective restaurants (2) | 98 | | | 204 | | | 14 | | | 59 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 | | Six Months Ended June 30, 2022 |
| Applebee's | | IHOP | | Applebee's | | IHOP |
Sales percentage increase in reported retail sales - 2022 vs. 2021 | 1.4 | % | | 5.7 | % | | 7.2 | % | | 12.1 | % |
% increase in domestic system-wide same-restaurant sales - 2022 vs. 2021 | 1.8 | % | | 3.6 | % | | 7.6 | % | | 10.1 | % |
| | | | | | | |
Net franchise restaurant (reduction) increase (1) | (2) | | | 8 | | | (7) | | | 13 | |
Net (decrease) increase in total effective restaurants (2) | (19) | | | 26 | | | (20) | | | 24 | |
(1) Franchise and area license restaurant closings, net of openings, during the three and six months ended June 30, 2021.2022.
(2) Change in the weighted average number of franchise, area license and company-operated restaurants open during the three and six months ended June 30, 2021,2022, compared to the weighted average number of those open during the same periodsperiod of 2020.2021.
The changes in sales percentage and domestic same-restaurant sales of both brands were impacted by increases in customer traffic and average check, as the varying degrees of restrictions on in-restaurant dining in effect during each periodthe first quarter of 2021 that substantially had been relaxed during the first quarter of 2022, as discussed under “Events Impacting the Comparability of Financial Information.” Additionally, the calculation of the percentage change in domestic same-restaurant sales was also impacted by a shift in the weeks of comparison because of a 53rd week in fiscal 2020.
In light of the distortion caused by the pandemic and a 53rd week in fiscal 2020 on the changes in sales percentage and domestic same-restaurant sales, we believe a comparison of average weekly unit sales, a function of reported retail sales and the number of effective restaurants, for the six individual months of 2021 and 2020, provides additional insight into each brand's performance during the three and six months ended June 30, 2021 as compared to the same periods of 2020 and 2019:
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Average Weekly Unit Sales | Applebee's | | IHOP |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
| (in thousands) |
June | $ | 52.9 | | | $ | 33.8 | | | $ | 47.5 | | | $ | 37.6 | | | $ | 22.1 | | | $ | 37.2 | |
May | $ | 53.1 | | | $ | 22.5 | | | $ | 48.4 | | | $ | 35.8 | | | $ | 13.7 | | | $ | 36.2 | |
April | $ | 53.9 | | | $ | 14.5 | | | $ | 48.2 | | | $ | 35.5 | | | $ | 8.7 | | | $ | 36.9 | |
March | $ | 54.3 | | | $ | 35.1 | | | $ | 51.1 | | | $ | 35.1 | | | $ | 25.3 | | | $ | 39.2 | |
February | $ | 43.5 | | | $ | 49.7 | | | $ | 47.9 | | | $ | 27.4 | | | $ | 35.0 | | | $ | 35.8 | |
January | $ | 39.6 | | | $ | 49.8 | | | $ | 48.2 | | | $ | 24.8 | | | $ | 36.1 | | | $ | 35.9 | |
The change in total effective restaurants for each brand reflects both permanent closures, net of openings, over the past 12 months as well as the weighted effect of restaurants temporarily closed during the three and six months ended June 30, 2021. While the absolute numbereach period.
Domestic Same-Restaurant Sales
Applebee’s system-wide domestic same-restaurant sales increased 102.2%1.8% for the three months ended June 30, 20212022 and 46.4%7.6% for the six months ended June 30, 20212022 as compared to the same periodsperiod of 2020.2021. The increase in both periodsof 1.8% for the three months ended June 30, 2022 was due to an increase in average check, partially offset by a substantialdecrease in customer traffic. The increase of 7.6% for the six months ended June 30, 2022 was due to an increase in customer traffic as well as increase inand average check. The increase in customer traffic primarily was due to the positive changes in restaurant operating status as discussed under “Events Impacting the Comparability of Financial Information,” as well as increased consumer desire to patronize restaurants after the relaxation of pandemic restrictions. The increase in average check was primarily due to favorable mix shifts related to a reduction in core menu
items, successful promotional food and beverage offerings as well as menu price increases by franchisees.
| | | | | | | | | | | | | | | | | | | | | | | |
Applebee's Off-premise Sales Data | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Off-premise sales (in millions) (1) | $ | 281.6 | | | $ | 317.1 | | | $ | 578.7 | | | $ | 661.6 | |
% sales mix | 25.6 | % | | 30.3 | % | | 26.6 | % | | 33.3 | % |
(1) Primarily to-go, delivery and a larger number of items purchased with off-premise orders. We believe the distribution of the latest round of government stimulus checks that began in Marchcatering sales for comparable 2022 and 2021 favorably impacted consumer spending behavior as well. Applebee’s system-wide domestic same-restaurant sales increased 10.5% for the three months ended June 30, 2021 and 2.0% for the six months ended June 30, 2021 as compared to the same periods of 2019. The increase in both periods was due to an increase in customer check partially offset by a decrease in traffic.restaurants.
Based on data from Black Box Intelligence, a restaurant sales reporting firm (“Black Box”), Applebee's increase in same-restaurant sales for both the three and six months ended June 30, 2021 outperformed2022 underperformed the casual dining segment of the restaurant industry (excluding Applebee's) during the same periods.period of 2022.
| | | | | | | | | | | | | | | | | | | | | | | |
Applebee's Off-premise Sales Data | Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Off-premise sales (in millions) (1) | $ | 317.1 | | | $ | 293.9 | | | $ | 661.6 | | | $ | 447.0 | |
% sales mix | 30.3 | % | | 56.6 | % | | 33.3 | % | | 33.0 | % |
(1) Primarily to-go, delivery and catering sales.
IHOP's system-wide domestic same-restaurant sales increased 120.1%3.6% for the three months ended June 30, 20212022 and 40.7%10.1% for the six months ended June 30, 20212022 as compared to the same periods of 2020. Most of the2021. The improvement in both periods was due to a significant increase in customer traffic as well an increase in average check. The increasecheck, partially offset by a decrease in customer traffic was primarily was due to the positive changes in restaurant operating status as discussed under “Events Impacting the Comparability of Financial Information,” as well as increased consumer desire to patronize restaurants after the relaxation of pandemic restrictions.traffic. The increase in average check was primarily due to increasesan increase in both menu prices and delivery prices as well as a general increase in consumer spending. We believe the distribution of the latest round of government stimulus checks that began in March 2021 favorably impacted consumer spending behavior. IHOP’s system-wide domestic same-restaurant sales decreased 3.4% for the three months ended June 30, 2021 and 12.2% for the six months ended June 30, 2021 as compared to the same periods of 2019. The decrease in both periods was due to a decrease in traffic partially offset by an increase in customer check.larger party sizes and greater spending per person.
| | | | | | | | | | | | | | | | | | | | | | | |
IHOP Off-premise Sales Data | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Off-premise sales (in millions) (1) | $ | 154.6 | | | $ | 167.4 | | | $ | 317.3 | | | $ | 350.3 | |
% sales mix | 21.3 | % | | 26.1 | % | | 22.9 | % | | 29.4 | % |
(1) Primarily to-go, delivery and catering sales for comparable 2022 and 2021 restaurants
Based on data from Black Box, IHOP's increase in same-restaurant sales for the three months ended June 30, 2021 outperformed the family dining segment of the restaurant industry (excluding IHOP) during that same period. IHOP's increase in same-restaurant sales for theand six months ended June 30, 20212022 underperformed the family dining segment of the restaurant industry (excluding IHOP) during that same period.
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IHOP Off-premise Sales Data | Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Off-premise sales (in millions) (1) | $ | 167.4 | | | $ | 152.9 | | | $ | 350.3 | | | $ | 232.9 | |
% sales mix | 26.1 | % | | 56.9 | % | | 29.4 | % | | 26.1 | % |
(1) Primarily to-go, delivery and catering sales.
2022.
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 periodsperiod 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.
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| | Three months ended June 30, | | Six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Applebee's Restaurant Data | | (Unaudited) |
Effective Restaurants(a) | | | | | | | | |
Franchise | | 1,623 | | | 1,527 | | | 1,625 | | | 1,612 | |
Company | | 69 | | | 67 | | | 69 | | | 68 | |
Total | | 1,692 | | | 1,594 | | | 1,694 | | | 1,680 | |
| | | | | | | | |
System-wide(b) | | | | | | | | |
Domestic sales percentage change(c) | | 125.3 | % | | (53.5) | % | | 43.3 | % | | (32.5) | % |
Domestic same-restaurant sales percentage change(d) | | 102.2 | % | | (49.4) | % | | 46.4 | % | | (29.1) | % |
Franchise(b) | | | | | | | | |
Domestic sales percentage change(c) | | 125.2 | % | | (53.6) | % | | 43.0 | % | | (32.5) | % |
Domestic same-restaurant sales percentage change(d) | | 102.1 | % | | (49.4) | % | | 46.1 | % | | (29.0) | % |
Average weekly domestic unit sales (in thousands) | | $ | 53.8 | | | $ | 25.0 | | | $ | 50.3 | | | $ | 35.2 | |
| | | | | | | | |
IHOP Restaurant Data | | | | | | | | |
| | | | | | | | |
Effective Restaurants(a) | | | | | | | | |
Franchise | | 1,568 | | | 1,375 | | | 1,566 | | | 1,510 | |
Area license | | 155 | | | 144 | | | 156 | | | 153 | |
| | | | | | | | |
Total | | 1,723 | | | 1,519 | | | 1,722 | | | 1,663 | |
| | | | | | | | |
System-wide(b) | | | | | | | | |
Sales percentage change(c) | | 163.6 | % | | (64.3) | % | | 39.2 | % | | (39.1) | % |
Domestic same-restaurant sales percentage change, including area license restaurants(d) | | 120.1 | % | | (59.1) | % | | 40.7 | % | | (35.6) | % |
| | | | | | | | |
Franchise(b) | | | | | | | | |
Sales percentage change(c) | | 163.1 | % | | (64.4) | % | | 38.5 | % | | (39.2) | % |
Domestic same-restaurant sales percentage change(d) | | 118.2 | % | | (58.9) | % | | 39.4 | % | | (35.4) | % |
Average weekly unit sales (in thousands) | | $ | 36.4 | | | $ | 15.8 | | | $ | 32.9 | | | $ | 24.6 | |
| | | | | | | | |
Area License(b) | | | | | | | | |
Sales percentage change(c) | | 168.8 | % | | (63.3) | % | | 46.7 | % | | (38.1) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2022 | | 2021 | | 2022 | | 2021 |
Applebee's Restaurant Data | | (Unaudited) |
Effective Restaurants(a) | | | | | | | | |
Franchise | | 1,604 | | | 1,623 | | | 1,605 | | | 1,625 | |
Company | | 69 | | | 69 | | | 69 | | | 69 | |
Total | | 1,673 | | | 1,692 | | | 1,674 | | | 1,694 | |
| | | | | | | | |
System-wide(b) | | | | | | | | |
Domestic sales percentage change(c) | | 1.4 | % | | 125.3 | % | | 7.2 | % | | 43.3 | % |
Domestic same-restaurant sales percentage change(d) | | 1.8 | % | | 102.2 | % | | 7.6 | % | | 46.4 | % |
Franchise(b) | | | | | | | | |
Domestic sales percentage change(c) | | 1.3 | % | | 125.2 | % | | 7.3 | % | | 43.0 | % |
Domestic same-restaurant sales percentage change(d) | | 1.7 | % | | 102.1 | % | | 7.6 | % | | 46.1 | % |
Average weekly domestic unit sales (in thousands) | | $ | 55.1 | | | $ | 53.8 | | | $ | 54.5 | | | $ | 50.3 | |
| | | | | | | | |
IHOP Restaurant Data | | | | | | | | |
| | | | | | | | |
Effective Restaurants(a) | | | | | | | | |
Franchise | | 1,593 | | | 1,568 | | | 1,590 | | | 1,566 | |
Area license | | 156 | | | 155 | | | 156 | | | 156 | |
| | | | | | | | |
Total | | 1,749 | | | 1,723 | | | 1,746 | | | 1,722 | |
| | | | | | | | |
System-wide(b) | | | | | | | | |
Sales percentage change(c) | | 5.7 | % | | 163.6 | % | | 12.1 | % | | 39.2 | % |
Domestic same-restaurant sales percentage change, including area license restaurants(d) | | 3.6 | % | | 120.1 | % | | 10.1 | % | | 40.7 | % |
| | | | | | | | |
Franchise(b) | | | | | | | | |
Sales percentage change(c) | | 5.6 | % | | 163.1 | % | | 12.3 | % | | 38.5 | % |
Domestic same-restaurant sales percentage change(d) | | 3.6 | % | | 118.2 | % | | 10.4 | % | | 39.4 | % |
Average weekly unit sales (in thousands) | | $ | 37.9 | | | $ | 36.4 | | | $ | 36.4 | | | $ | 32.9 | |
| | | | | | | | |
Area License(b) | | | | | | | | |
Sales percentage change(c) | | 6.2 | % | | 168.8 | % | | 10.0 | % | | 46.7 | % |
(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. Effective Restaurants do not include units operated as ghost kitchens (small kitchens with no store-front presence, used to fill off-premise orders).
(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. System-wide sales do not include retail sales of ghost kitchens. 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 June 30, | | Six months ended June 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Reported sales (in millions) | Reported sales (in millions) | (Unaudited) | Reported sales (in millions) | (Unaudited) |
| | | | | | | | | | |
Applebee's domestic franchise restaurant sales | Applebee's domestic franchise restaurant sales | $ | 1,062.8 | | | $ | 472.0 | | | $ | 1,987.5 | | | $ | 1,390.2 | | Applebee's domestic franchise restaurant sales | $ | 1,076.7 | | | $ | 1,062.8 | | | $ | 2,131.7 | | | $ | 1,987.5 | |
Applebee's company-operated restaurants | Applebee's company-operated restaurants | 38.2 | | | 16.8 | | | 74.1 | | | 48.1 | | Applebee's company-operated restaurants | 39.5 | | | 38.2 | | | 78.9 | | | 74.1 | |
IHOP franchise restaurant sales | IHOP franchise restaurant sales | 742.0 | | | 282.1 | | | 1,338.8 | | | 966.9 | | IHOP franchise restaurant sales | 783.8 | | | 742.0 | | | 1,503.5 | | | 1,338.8 | |
IHOP area license restaurant sales | IHOP area license restaurant sales | 70.9 | | | 26.4 | | | 132.6 | | | 90.4 | | IHOP area license restaurant sales | 75.3 | | | 70.9 | | | 145.8 | | | 132.6 | |
Total | Total | $ | 1,913.9 | | | $ | 797.3 | | | $ | 3,533.0 | | | $ | 2,495.6 | | Total | $ | 1,975.3 | | | $ | 1,913.9 | | | $ | 3,859.9 | | | $ | 3,533.0 | |
(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 during 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.
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Restaurant Development Activity | Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Applebee's | (Unaudited) |
Summary - beginning of period: | | | | | | | |
Franchise | 1,636 | | | 1,706 | | | 1,640 | | | 1,718 | |
Company | 69 | | | 69 | | | 69 | | | 69 | |
Beginning of period | 1,705 | | | 1,775 | | | 1,709 | | | 1,787 | |
| | | | | | | |
Franchise restaurants opened: | | | | | | | |
Domestic | — | | | — | | | 2 | | | — | |
International | 1 | | | — | | | 1 | | | — | |
Total franchise restaurants opened | 1 | | | — | | | 3 | | | — | |
Franchise restaurants permanently closed: | | | | | | | |
Domestic | (6) | | | (24) | | | (10) | | | (32) | |
International | (4) | | | (2) | | | (6) | | | (6) | |
Total franchise restaurants permanently closed | (10) | | | (26) | | | (16) | | | (38) | |
Net franchise restaurant reduction | (9) | | | (26) | | | (13) | | | (38) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Summary - end of period: | | | | | | | |
Franchise | 1,627 | | | 1,680 | | | 1,627 | | | 1,680 | |
Company | 69 | | | 69 | | | 69 | | | 69 | |
Total Applebee's restaurants, end of period | 1,696 | | | 1,749 | | | 1,696 | | | 1,749 | |
Domestic | 1,590 | | | 1,633 | | | 1,590 | | | 1,633 | |
International | 106 | | | 116 | | | 106 | | | 116 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Restaurant Development Activity | Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
IHOP | | | | | | | |
Summary - beginning of period: | | | | | | | |
Franchise | 1,593 | | | 1,680 | | | 1,611 | | | 1,680 | |
Area license | 156 | | | 160 | | | 158 | | | 161 | |
Company | 4 | | | — | | | 3 | | | — | |
Total IHOP restaurants, beginning of period | 1,753 | | | 1,840 | | | 1,772 | | | 1,841 | |
| | | | | | | |
Franchise/area license restaurants opened: | | | | | | | |
Domestic franchise | 7 | | | 1 | | | 15 | | | 7 | |
Domestic area license | 1 | | | — | | | 1 | | | 1 | |
International franchise | 1 | | | — | | | 1 | | | 2 | |
| | | | | | | |
Total franchise/area license restaurants opened | 9 | | | 1 | | | 17 | | | 10 | |
Franchise/area license restaurants permanently closed: | | | | | | | |
Domestic franchise | (14) | | | (13) | | | (30) | | | (19) | |
Domestic area license | — | | | (1) | | | (2) | | | (3) | |
International franchise | — | | | (2) | | | (9) | | | (4) | |
International area license | (1) | | | (2) | | | (1) | | | (2) | |
Total franchise/area license restaurants permanently closed | (15) | | | (18) | | | (42) | | | (28) | |
Net franchise/area license restaurant reduction | (6) | | | (17) | | | (25) | | | (18) | |
Refranchised by the Company | 1 | | | — | | | 1 | | | — | |
Franchise restaurants reacquired by the Company | — | | | — | | | (1) | | | — | |
Net reduction in franchise/area license restaurants | (5) | | | (17) | | | (25) | | | (18) | |
| | | | | | | |
Summary - end of period: | | | | | | | |
Franchise | 1,588 | | | 1,666 | | | 1,588 | | | 1,666 | |
Area license | 156 | | | 157 | | | 156 | | | 157 | |
Company | 3 | | | — | | | 3 | | | — | |
Total IHOP restaurants, end of period | 1,747 | | | 1,823 | | | 1,747 | | | 1,823 | |
Domestic | 1,654 | | | 1,696 | | | 1,654 | | | 1,696 | |
International | 93 | | | 127 | | | 93 | | | 127 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Restaurant Development Activity | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Applebee's | (Unaudited) |
Summary - beginning of period: | | | | | | | |
Franchise | 1,606 | | | 1,636 | | | 1,611 | | | 1,640 | |
Company | 69 | | | 69 | | | 69 | | | 69 | |
Beginning of period | 1,675 | | | 1,705 | | | 1,680 | | | 1,709 | |
| | | | | | | |
Franchise restaurants opened: | | | | | | | |
Domestic | 1 | | | — | | | 2 | | | 2 | |
International | — | | | 1 | | | — | | | 1 | |
Total franchise restaurants opened | 1 | | | 1 | | | 2 | | | 3 | |
Franchise restaurants permanently closed: | | | | | | | |
Domestic | (2) | | | (6) | | | (6) | | | (10) | |
International | (1) | | | (4) | | | (3) | | | (6) | |
Total franchise restaurants permanently closed | (3) | | | (10) | | | (9) | | | (16) | |
Net franchise restaurant reduction | (2) | | | (9) | | | (7) | | | (13) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Summary - end of period: | | | | | | | |
Franchise | 1,604 | | | 1,627 | | | 1,604 | | | 1,627 | |
Company | 69 | | | 69 | | | 69 | | | 69 | |
Total Applebee's restaurants, end of period | 1,673 | | | 1,696 | | | 1,673 | | | 1,696 | |
Domestic | 1,574 | | | 1,590 | | | 1,574 | | | 1,590 | |
International | 99 | | | 106 | | | 99 | | | 106 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | | | | | |
IHOP | | | | | | | |
Summary - beginning of period: | | | | | | | |
Franchise | 1,600 | | | 1,593 | | | 1,595 | | | 1,611 | |
Area license | 156 | | | 156 | | | 156 | | | 158 | |
Company | — | | | 4 | | | — | | | 3 | |
Total IHOP restaurants, beginning of period | 1,756 | | | 1,753 | | | 1,751 | | | 1,772 | |
| | | | | | | |
Franchise/area license restaurants opened: | | | | | | | |
Domestic franchise | 8 | | | 7 | | | 15 | | | 15 | |
Domestic area license | — | | | 1 | | | 1 | | | 1 | |
International franchise | 5 | | | 1 | | | 7 | | | 1 | |
| | | | | | | |
Total franchise/area license restaurants opened | 13 | | | 9 | | | 23 | | | 17 | |
Franchise/area license restaurants permanently closed: | | | | | | | |
Domestic franchise | (4) | | | (14) | | | (7) | | | (30) | |
Domestic area license | — | | | — | | | (1) | | | (2) | |
International franchise | (1) | | | — | | | (2) | | | (9) | |
International area license | — | | | (1) | | | — | | | (1) | |
Total franchise/area license restaurants permanently closed | (5) | | | (15) | | | (10) | | | (42) | |
Net franchise/area license restaurant additions (reductions) | 8 | | | (6) | | | 13 | | | (25) | |
Refranchised by the Company | — | | | 1 | | | — | | | 1 | |
Franchise restaurants reacquired by the Company | — | | | — | | | — | | | (1) | |
Net increase (decrease) in franchise/area license restaurants | 8 | | | (5) | | | 13 | | | (25) | |
| | | | | | | |
Summary - end of period: | | | | | | | |
Franchise | 1,608 | | | 1,588 | | | 1,608 | | | 1,588 | |
Area license | 156 | | | 156 | | | 156 | | | 156 | |
Company | — | | | 3 | | | — | | | 3 | |
Total IHOP restaurants, end of period | 1,764 | | | 1,747 | | | 1,764 | | | 1,747 | |
Domestic | 1,665 | | | 1,654 | | | 1,665 | | | 1,654 | |
International | 99 | | | 93 | | | 99 | | | 93 | |
The restaurant counts and activity presented above do not include two domestic Applebee's ghost kitchens (small kitchens with no store-front presence, used to fill off-premise orders), one12 international Applebee's ghost kitchenkitchens and three28 international IHOP ghost kitchens. The Applebee's franchise restaurant count at the beginning of the six-month period ended June 30, 2021 was adjusted downward by two restaurants, representing two ghost kitchens that had been included in the total reported count as of December 31, 2020.
The closures presented in the tables above represent permanent closures of restaurants. Temporary closures, which can occur for a variety of reasons, are not reflected as reductions in this table and are included in the summary counts at the beginning and end of each period shown. Temporary closures are reflected in the weighted calculation of Effective Restaurants presented in the preceding Restaurant Data table.
Closures of Applebee's and IHOP restaurants adversely impact our system-wide retail sales that drive our franchise royalty revenues as well as, in the case of IHOP restaurants, sales of proprietary pancake and waffle dry mix. Further, with certain restaurants, we own or lease the underlying property and sublease it to the applicable franchisee. Thus, our rental income also could be adversely affected due to the loss of such income, as well as our obligation to make rental or other payments for such properties.
CONSOLIDATED RESULTS OF OPERATIONS
Comparison of the Three and Six Months endedEnded June 30, 20212022 and 20202021
Financial Results
| Revenue | Revenue | | Three months ended June 30, | | Favorable (Unfavorable) Variance | | Six months ended June 30, | | Favorable (Unfavorable) Variance | Revenue | | Three Months Ended June 30, | | Favorable (Unfavorable) Variance | | Six Months Ended June 30, | | Favorable (Unfavorable) Variance |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | | 2022 | | 2021 | | 2022 | | 2021 | |
| | | | (In millions) | | | (In millions) |
Franchise operations | Franchise operations | | $ | 166.9 | | | $ | 67.8 | | | $ | 99.1 | | | $ | 307.9 | | | $ | 212.9 | | | $ | 95.0 | | Franchise operations | | $ | 168.3 | | | $ | 166.9 | | | $ | 1.3 | | | $ | 329.5 | | | $ | 307.9 | | | $ | 21.6 | |
Rental operations | Rental operations | | 27.4 | | | 23.7 | | | 3.7 | | | 53.5 | | | 52.7 | | | 0.8 | | Rental operations | | 29.1 | | | 27.4 | | | 1.7 | | | 57.9 | | | 53.5 | | | 4.3 | |
Company restaurant operations | Company restaurant operations | | 38.2 | | | 16.8 | | | 21.4 | | | 74.2 | | | 48.1 | | | 48.1 | | Company restaurant operations | | 39.5 | | | 38.2 | | | 1.3 | | | 78.9 | | | 74.2 | | | 4.7 | |
Financing operations | Financing operations | | 1.1 | | | 1.4 | | | (0.3) | | | 2.2 | | | 2.9 | | | (0.7) | | Financing operations | | 0.9 | | | 1.1 | | | (0.1) | | | 1.9 | | | 2.2 | | | (0.3) | |
Total revenue | Total revenue | | $ | 233.6 | | | $ | 109.7 | | | $ | 123.9 | | | $ | 437.8 | | | $ | 316.6 | | | $ | 121.2 | | Total revenue | | $ | 237.8 | | | $ | 233.6 | | | $ | 4.2 | | | $ | 468.2 | | | $ | 437.8 | | | $ | 30.4 | |
Change vs. prior period | Change vs. prior period | | 112.9 | % | | | | | | 38.3 | % | | | | | Change vs. prior period | | 1.8 | % | | | | | | 6.9 | % | | | | |
Total revenue for the three and six months ended June 30, 20212022 increased significantly compared with the same periodsperiod of the prior year. As discussed under “Events Impacting the Comparability of Financial Information,” the operating capacity of our restaurants during the respective 2020 periods was severely restricted after the first week of March 2020 as federal, state, local and international governments reacted to the COVID-19 pandemic by encouraging or requiring social distancing, instituting shelter-in-place orders, and requiring, in varying degrees, reduced operating hours, restaurant dine-in and/or indoor dining limitations, capacity limitations or other restrictions that largely limited restaurants to off-premise sales (take-out and delivery) in the early stages of the pandemic. During the respective 2021 periods,2022 period, many governmental authorities had relaxed or eliminated restrictions on restaurant operations that had been in place during the 2021 period in response to declines in the number of COVID-19 infections, the availability of vaccines and an increase of the number of vaccinated individuals within their respective jurisdictions. This had a favorable impact on same-restaurant sales and customer traffic in our franchise and company restaurant operations as well as a favorable impact on rental revenue based on a percentage of franchisees' retail sales.
| Gross Profit (Loss) | | Three months ended June 30, | | Favorable (Unfavorable) Variance | | Six months ended June 30, | | Favorable (Unfavorable) Variance | |
Gross Profit | | Gross Profit | | Three Months Ended June 30, | | Favorable (Unfavorable) Variance | | Six Months Ended June 30, | | Favorable (Unfavorable) Variance |
| | | 2021 | | 2020 | | Favorable (Unfavorable) Variance | | 2021 | | 2020 | | Favorable (Unfavorable) Variance | | | 2022 | | 2021 | | 2022 | | 2021 | |
| | | | (In millions) | | | (In millions) |
Franchise operations | Franchise operations | | $ | 87.7 | | | $ | 30.8 | | | $ | 56.9 | | | $ | 163.7 | | | $ | 106.4 | | | $ | 57.3 | | Franchise operations | | $ | 86.0 | | | $ | 87.7 | | | $ | (1.7) | | | $ | 169.2 | | | $ | 163.7 | | | $ | 5.5 | |
Rental operations | Rental operations | | 6.8 | | | 2.5 | | | 4.3 | | | 12.0 | | | 8.9 | | | 3.1 | | Rental operations | | 7.2 | | | 6.8 | | | 0.4 | | | 13.9 | | | 12.0 | | | 2.0 | |
Company restaurant operations | Company restaurant operations | | 3.4 | | | (4.4) | | | 7.8 | | | 6.5 | | | (3.4) | | | 9.9 | | Company restaurant operations | | 1.6 | | | 3.4 | | | (1.8) | | | 3.6 | | | 6.5 | | | (2.9) | |
Financing operations | Financing operations | | 1.0 | | | 1.2 | | | (0.2) | | | 2.0 | | | 2.6 | | | (0.6) | | Financing operations | | 0.9 | | | 1.0 | | | (0.1) | | | 1.7 | | | 2.0 | | | (0.3) | |
Total gross profit | Total gross profit | | $ | 98.9 | | | $ | 30.1 | | | $ | 68.8 | | | $ | 184.2 | | | $ | 114.5 | | | $ | 69.7 | | Total gross profit | | $ | 95.7 | | | $ | 98.9 | | | $ | (3.2) | | | $ | 188.4 | | | $ | 184.2 | | | $ | 4.3 | |
Change vs. prior period | Change vs. prior period | | 228.3 | % | | | | | | 60.8 | % | | | | | Change vs. prior period | | (3.2) | % | | | | | | 2.3 | % | | | | |
Total gross profit for the three months ended June 30, 2022 decreased compared with the same period of the prior year, primarily due to increased costs of food, beverage and labor in company restaurant operations, along with an increase in the cost of proprietary products for franchise operations, partially offset by rental operations.
Total gross profit for the six months ended June 30, 20212022 increased compared with the same periodsperiod of the prior year, primarily due to the increased revenue from franchise company-operated restaurant and rental operations, as well as lower bad debt expensepartially offset by higher costs of food, beverage and labor in franchisecompany restaurant operations. Favorable changes to the aging status of certain franchisee receivables resulted in a downward revision of estimated reserve requirements.
| | | Three months ended June 30, | | Favorable (Unfavorable) Variance | | Six months ended June 30, | | Favorable (Unfavorable) Variance | | Three Months Ended June 30, | | Favorable (Unfavorable) Variance | | Six Months Ended June 30, | | Favorable (Unfavorable) Variance |
Franchise Operations | Franchise Operations | | 2021 | | 2020 | | 2021 | | 2020 | | Franchise Operations | | 2022 | | 2021 | | 2022 | | 2021 | |
| | | (In millions, except number of restaurants) | | | (In millions, except number of restaurants) |
Effective Franchise Restaurants:(1) | Effective Franchise Restaurants:(1) | | Effective Franchise Restaurants:(1) | |
Applebee’s | Applebee’s | | 1,623 | | | 1,527 | | | 96 | | | 1,625 | | | 1,612 | | | 13 | | Applebee’s | | 1,604 | | | 1,623 | | | (19) | | | 1,605 | | | 1,625 | | | (20) | |
IHOP | IHOP | | 1,723 | | | 1,519 | | | 204 | | | 1,722 | | | 1,663 | | | 59 | | IHOP | | 1,749 | | | 1,723 | | | 26 | | | 1,746 | | | 1,722 | | | 24 | |
| Franchise Revenues: | Franchise Revenues: | | | | | | | | Franchise Revenues: | | | | | | | |
Applebee’s franchise fees | Applebee’s franchise fees | | $ | 43.9 | | | $ | 19.9 | | | $ | 24.0 | | | $ | 82.5 | | | $ | 57.7 | | | $ | 24.8 | | Applebee’s franchise fees | | $ | 43.9 | | | $ | 43.9 | | | $ | 0.0 | | | $ | 88.0 | | | $ | 82.5 | | | $ | 5.4 | |
IHOP franchise fees | IHOP franchise fees | | 50.8 | | | 18.9 | | | 31.9 | | | 92.2 | | | 64.4 | | | 27.8 | | IHOP franchise fees | | 50.3 | | | 50.8 | | | (0.5) | | | 96.5 | | | 92.2 | | | 4.3 | |
Advertising fees | Advertising fees | | 72.3 | | | 29.1 | | | 43.2 | | | 133.2 | | | 90.8 | | | 42.4 | | Advertising fees | | 74.1 | | | 72.3 | | | 1.8 | | | 145.0 | | | 133.2 | | | 11.8 | |
Total franchise revenues | Total franchise revenues | | 167.0 | | | 67.9 | | | 99.1 | | | 307.9 | | | 212.9 | | | 95.0 | | Total franchise revenues | | 168.3 | | | 167.0 | | | 1.3 | | | 329.5 | | | 307.9 | | | 21.6 | |
Franchise Expenses: | Franchise Expenses: | | | | | | | | | | | | | Franchise Expenses: | | | | | | | | | | | | |
Applebee’s | Applebee’s | | 0.7 | | | 3.5 | | | 2.8 | | | 1.7 | | | 4.7 | | | 3.0 | | Applebee’s | | 0.7 | | | 0.7 | | | 0.0 | | | 1.6 | | | 1.7 | | | 0.1 | |
IHOP | IHOP | | 6.3 | | | 4.5 | | | (1.8) | | | 9.3 | | | 11.0 | | | 1.7 | | IHOP | | 7.4 | | | 6.3 | | | (1.2) | | | 13.7 | | | 9.3 | | | (4.4) | |
Advertising expenses | Advertising expenses | | 72.3 | | | 29.1 | | | (43.2) | | | 133.2 | | | 90.8 | | | (42.4) | | Advertising expenses | | 74.1 | | | 72.3 | | | (1.8) | | | 145.0 | | | 133.2 | | | (11.8) | |
Total franchise expenses | Total franchise expenses | | 79.3 | | | 37.1 | | | (42.2) | | | 144.2 | | | 106.5 | | | (37.7) | | Total franchise expenses | | 82.3 | | | 79.3 | | | (3.0) | | | 160.3 | | | 144.2 | | | (16.1) | |
Franchise Gross Profit: | Franchise Gross Profit: | | | | | | | | | | | | | Franchise Gross Profit: | | | | | | | | | | | | |
Applebee’s | Applebee’s | | 43.2 | | | 16.4 | | | 26.8 | | | 80.8 | | | 53.0 | | | 27.8 | | Applebee’s | | 43.1 | | | 43.2 | | | 0.0 | | | 86.4 | | | 80.8 | | | 5.6 | |
IHOP | IHOP | | 44.5 | | | 14.4 | | | 30.1 | | | 82.9 | | | 53.4 | | | 29.5 | | IHOP | | 42.8 | | | 44.5 | | | (1.7) | | | 82.8 | | | 82.9 | | | (0.1) | |
Total franchise gross profit | Total franchise gross profit | | $ | 87.7 | | | $ | 30.8 | | | $ | 56.9 | | | $ | 163.7 | | | $ | 106.4 | | | $ | 57.3 | | Total franchise gross profit | | $ | 86.0 | | | $ | 87.7 | | | $ | (1.7) | | | $ | 169.2 | | | $ | 163.7 | | | $ | 5.5 | |
Gross profit as % of revenue (2) | | 52.5 | % | | 45.4 | % | | | | 53.2 | % | | 50.0 | % | | | |
Gross profit as % of franchise revenue (2) | | Gross profit as % of franchise revenue (2) | | 51.1 | % | | 52.5 | % | | | | 51.3 | % | | 53.2 | % | | |
Gross profit as % of franchise fees (2)(3) | Gross profit as % of franchise fees (2)(3) | | 92.7 | % | | 79.4 | % | | 93.7 | % | | 87.1 | % | | Gross profit as % of franchise fees (2)(3) | | 91.3 | % | | 92.7 | % | | 91.7 | % | | 93.7 | % | |
_____________________________________________________
(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,long-term, advertising activity should not generate gross profit or loss.
Applebee’s franchise fee revenue for the three months ended June 30, 2021 increased 120.6%2022 was flat compared towith the same period of the prior year. Approximately $21.5 million of the increase wasyear, primarily due to the 102.1%favorable impact on royalties of an 1.8% increase in domestic franchise same-restaurant sales $1.9 million was due tooffset by a decrease in the reopening of restaurants temporarily closed during the prior year period and $0.7 million due to an increase in international revenues.effective restaurant count.
Applebee’sApplebee's franchise fee revenue for the six months ended June 30, 20212022 increased 43.0%6.6% as compared towith the same period of the prior year. Approximately $22.8 million of the increase wasyear, primarily due to the 46.1%favorable impact on royalties of a 7.6% increase in domestic franchise same-restaurant sales, $1.9sales. Applebee's international revenues increased $0.9 million was due to the reopening of restaurants temporarily closed during the prior year period, approximately $1.7 million was due to improved collectability and a higher effective royalty rate, and $0.6 million was due to an increaseimprovement in other franchise fees. These favorable items were partially offset by a $1.2 million decrease in royalty revenue due to permanent restaurant closures and a $1.0 million increase in delivery incentive credits that reduce royalty revenue.sales.
The decrease in Applebee's franchise expenses for the three months ended June 30, 20212022 was flat compared with the same period of the prior year, primarily was due to a decrease inslightly lower recovery of bad debt expense. Bad debt expense for the three months ended June 30, 2021 was a credit of $0.1 million as compared to bad debt expense of $2.7 million during the three months ended June 30, 2020.debt.
The decrease in Applebee's franchise expenses for the six months ended June 30, 20212022 decreased $0.1 million compared with the same period of the prior year, primarily was due to a decrease inhigher recovery of bad debt expense. Bad debt expense for the six months ended June 30, 2021 was a credit of $0.1 million as compared to bad debt expense of $2.9 million during the six months ended June 30, 2020.debt.
IHOP franchise fee revenue for the three months ended June 30, 2021 increased 168.6%2022 decreased $0.5 million compared towith the same period of the prior year, primarily due to higher royalty and pancake and waffle dry mix revenues resulting from a 118.2% increase$1.6 million decrease in domestic franchise same-restaurant sales,international termination fees, a $0.4$1.3 million increasedecrease in domestic termination and other franchise fees an increase of $1.6 million in international termination fees and an increase of $0.7 million in international royalty revenues. These favorable changes were partially offset by higher royalty revenues from a decrease of $0.1 million due to restaurant closures.3.6% increase in domestic franchise same-restaurant sales.
IHOP franchise fee revenue for the six months ended June 30, 20212022 increased 43.2%4.7% as compared towith the same period of the prior year, primarily due to higher royaltythe favorable impact on royalties and pancake and waffle dry mix revenues resulting fromrevenue of a 46.1%10.1% increase in domestic franchise same-restaurant sales, partially offset by a $2.2$3.0 million increasedecrease in domestic termination and other franchise fees and a $1.6 million increasedecrease in international termination fees. These favorable changes were partially offset by a decrease of $0.7 million due to restaurant closures.
IHOP franchise expenses for the three months ended June 30, 20212022 increased from the$1.2 million as compared with same period of the prior year, primarily due to an increase in purchasesthe cost of pancakeproprietary products and waffle dry mix, partially offset by a $2.3 million decreasean increase in bad debt expense. IHOP bad debt expense was less than $0.1 million forfranchisor contributions to the three months ended June 30, 2021 as compared to bad debt expense of $2.3 million in the prior year period.advertising fund.
IHOP franchise expenses for the six months ended June 30, 2021 declined from the2022 increased $4.4 million as compared with same period of the prior year, primarily due to a $4.6 million decrease inlower recovery of bad debt expense partially offset byof $2.0 million, an increase in purchasesthe cost of proprietary products (primarily pancake and waffle dry mix. IHOP reduced its allowance for bad debts by $2.1 million duringmix) and an increase in franchisor contributions to the six months ended June 30, 2021 compared to bad debt expense of $2.5 million in the prior year period.advertising fund.
Advertising revenue and expense by brand for the three and six months ended June 30, 20212022 and 20202021 were as follows:
| | | Three months ended June 30, | | Increase | | Six months ended June 30, | | Increase | | Three Months Ended June 30, | | Favorable (Unfavorable) Variance | | Six Months Ended June 30, | | Favorable (Unfavorable) Variance |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 | |
| | (In millions) | | (In millions) |
Advertising Revenues and Expenses: | Advertising Revenues and Expenses: | | | | | | | | Advertising Revenues and Expenses: | | | | | | | |
Applebee’s | Applebee’s | | $ | 44.9 | | | $ | 18.4 | | | $ | 26.5 | | | $ | 83.5 | | | $ | 54.9 | | | $ | 28.6 | | Applebee’s | | $ | 45.3 | | | $ | 44.9 | | | $ | 0.4 | | | $ | 89.8 | | | $ | 83.5 | | | $ | 6.3 | |
IHOP | IHOP | | 27.4 | | | 10.7 | | | 16.7 | | | 49.7 | | | 35.9 | | | 13.8 | | IHOP | | 28.8 | | | 27.4 | | | 1.4 | | | 55.2 | | | 49.7 | | | 5.5 | |
Total advertising revenues and expenses | Total advertising revenues and expenses | | $ | 72.3 | | | $ | 29.1 | | | $ | 43.2 | | | $ | 133.2 | | | $ | 90.8 | | | $ | 42.4 | | Total advertising revenues and expenses | | $ | 74.1 | | | $ | 72.3 | | | $ | 1.8 | | | $ | 145.0 | | | $ | 133.2 | | | $ | 11.8 | |
|
Applebee'sApplebee’s advertising revenue and expense for the three months ended June 30, 20212022 increased compared to the same period of the prior year. Approximately $23.2 million of the increase was due to the 102.1% increase in domestic franchise same-restaurant sales, $2.1 million was due to the reopening of restaurants temporarily closed during the prior year period and $2.0 million of the increase was due to improved collectability from franchisees. IHOP's advertising revenue and expense for the three months ended June 30, 2021 increased 156.0%1.0% compared to the same period of the prior year, primarily due to the 118.2%1.8% increase in domestic franchise same-restaurant sales. IHOP advertising revenue and expense for the three months ended June 30, 2022 increased 5.1% compared to the same period of the prior year primarily, due to the 3.6% increase in domestic franchise same-restaurant sales and the reopening of restaurants temporarily closed during the prior year period.
Applebee'sApplebee’s advertising revenue and expense for the six months ended June 30, 20212022 increased 52.0% compared to the same period of the prior year. Approximately $24.5 million of the increase was due to the 43.0% increase in domestic franchise same-restaurant sales, $4.1 million of the increase was due to improved collectability from franchisees and $2.1 million was due to the reopening of restaurants temporarily closed during the prior year period. Partially offsetting the increases was a $1.3 million decrease in advertising revenue due to permanent restaurant closures. IHOP's advertising revenue and expense for the six months ended June 30, 2021 increased 38.5%7.5% compared to the same period of the prior year, primarily due to the 46.1%7.6% increase in domestic franchise same-restaurant sales, partially offset bysales. IHOP advertising revenue and expense for the impactsix months ended June 30, 2022 increased 11.1% compared to the same period of permanent restaurant closures over the past 12 months.prior year, primarily due to the 10.4% increase in domestic franchise same-restaurant sales.
It is our accounting policy to recognize any deficiency in advertising fee revenue compared to advertising expenditure or any recovery of a previously recognized deficiency in advertising fee revenue compared to advertising expenditure in the fourth quarter of our fiscal year.
| Rental Operations | Rental Operations | | Three months ended June 30, | | Favorable (Unfavorable) Variance | | Six months ended June 30, | | Favorable (Unfavorable) Variance | Rental Operations | | Three Months Ended June 30, | | Favorable (Unfavorable) Variance | | Six Months Ended June 30, | | Favorable (Unfavorable) Variance |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | | 2022 | | 2021 | | 2022 | | 2021 | |
| | | (In millions) | | | (In millions) |
Rental revenues | Rental revenues | | $ | 27.4 | | | $ | 23.7 | | | $ | 3.7 | | | $ | 53.5 | | | $ | 52.7 | | | $ | 0.8 | | Rental revenues | | $ | 29.1 | | | $ | 27.4 | | | $ | 1.7 | | | $ | 57.9 | | | $ | 53.5 | | | $ | 4.3 | |
| Rental expenses | Rental expenses | | 20.6 | | | 21.2 | | | 0.6 | | | 41.5 | | | 43.8 | | | 2.3 | | Rental expenses | | 21.8 | | | 20.6 | | | (1.2) | | | 44.0 | | | 41.5 | | | (2.4) | |
Rental operations gross profit | Rental operations gross profit | | $ | 6.8 | | | $ | 2.5 | | | $ | 4.3 | | | $ | 12.0 | | | $ | 8.9 | | | $ | 3.1 | | Rental operations gross profit | | $ | 7.2 | | | $ | 6.8 | | | $ | 0.5 | | | $ | 13.9 | | | $ | 12.0 | | | $ | 2.0 | |
Gross profit as % of revenue (1) | Gross profit as % of revenue (1) | | 24.7 | % | | 10.4 | % | | | | 22.3 | % | | 17.0 | % | | | Gross profit as % of revenue (1) | | 24.9 | % | | 24.7 | % | | | | 24.0 | % | | 22.3 | % | | |
(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 financingreal estate leases. Rental expenses are costs of prime operating leases and interest expense on prime finance leases.
Rental segment revenue for the three months ended June 30, 20212022 increased as compared to the same period of the prior year, as rental revenue increased $1.4 million due to the gross presentation of certain elements of variable sublease income, such as common area maintenance payments received from franchisees and remitted to landlords, which previously were reported on a net basis. Rental segment expenses for the three months ended June 30, 2022 increased compared to the same period of the prior year, primarily due to a $2.6$1.4 million increase in rental income based on a percentagegross-up of franchisees' retail sales and a $1.9 decline in level rent adjustments, partially offset by a $0.6 million decrease due to restaurant closures and lease buy-outs and a progressive decline of $0.3 million in interest income as direct financing leases are repaid. Rental segment expenses for the three months ended June 30, 2021 decreased compared to the same period of the prior year due to a $0.5 million decrease in rental expenses, primarily due to restaurant closures, lease buy-outs and expirations, a $0.4 million decrease in depreciation expense and a $0.3 million decrease in interest expense as finance lease obligations are repaid, partially offset by a $0.5 million increase in rent paid based on a percentage of franchisees' retail sales.lease-related expenses.
Rental segment revenue for the six months ended June 30, 20212022 increased as compared to the same period of the prior year, as rental revenue increased $2.7 million due to the gross presentation of certain elements of variable sublease income, such as common area maintenance payments received from franchisees and remitted to landlords, which previously were reported on a net basis. Also adding to the higher rental segment revenue was a $1.7 million increase in rental income based on a percentage of franchisees' retail sales. Rental segment expenses for the six months ended June 30, 2022 increased compared to the same period of the prior year, primarily due to a $1.6$2.7 million increase in rental income based on a percentagegross-up of franchisees' retail sales and a $1.4 decline in level rent adjustments, partially offset by a $1.7 million decrease due to restaurant closures and lease buy-outs and a progressive decline of $0.7 million in interest income as direct financing leases are repaid. Rental segment expenses for the six months ended June 30, 2021 decreased compared to the same period of the prior year due to a $1.4 million decrease in rental expenses, primarily due to restaurant closures and lease buy-outs, a $0.7 million decrease in depreciation expense and a $0.5 million decrease in interest expense as finance lease obligations are repaid, partially offset by a $0.4 million increase in rent paid based on a percentage of franchisees' retail sales.lease-related expenses.
Company Restaurant Operations
| | | Three months ended June 30, | | Favorable (Unfavorable) Variance | | Six months ended June 30, | | Favorable (Unfavorable) Variance | | Three Months Ended June 30, | | Favorable (Unfavorable) Variance | | Six Months Ended June 30, | | Favorable (Unfavorable) Variance |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | | 2022 | | 2021 | | 2022 | | 2021 | |
| Effective Restaurants | Effective Restaurants | | 69 | | | 67 | | | 2 | | | 69 | | | 68 | | | 1 | | Effective Restaurants | | 69 | | | 69 | | | — | | | 69 | | | 69 | | | — | |
| | | (In millions) | | | (In millions) |
Applebee's Company restaurant sales (1) | Applebee's Company restaurant sales (1) | | $ | 38.2 | | | $ | 16.8 | | | $ | 21.4 | | | $ | 74.2 | | | $ | 48.1 | | | $ | 26.1 | | Applebee's Company restaurant sales (1) | | $ | 39.5 | | | $ | 38.2 | | | $ | 1.3 | | | $ | 78.9 | | | $ | 74.2 | | | $ | 4.8 | |
Applebee's Company restaurant expenses (1) | Applebee's Company restaurant expenses (1) | | 34.6 | | | 20.1 | | | (14.4) | | | 67.3 | | | 50.5 | | | (16.8) | | Applebee's Company restaurant expenses (1) | | 37.9 | | | 34.6 | | | (3.3) | | | 75.3 | | | 67.3 | | | (8.0) | |
IHOP restaurant expenses (2) | IHOP restaurant expenses (2) | | 0.2 | | | 1.0 | | | 0.8 | | | 0.4 | | | 1.0 | | | 0.6 | | IHOP restaurant expenses (2) | | — | | | 0.2 | | | 0.2 | | | — | | | 0.4 | | | 0.4 | |
Company restaurant gross profit | Company restaurant gross profit | | $ | 3.4 | | | $ | (4.4) | | | $ | 7.8 | | | $ | 6.5 | | | $ | (3.4) | | | $ | 9.9 | | Company restaurant gross profit | | $ | 1.6 | | | $ | 3.4 | | | $ | (1.8) | | | $ | 3.6 | | | $ | 6.5 | | | $ | (2.9) | |
| Gross profit as % of revenue (3) | Gross profit as % of revenue (3) | | 9.5 | % | | (19.9) | % | | | | 9.3 | % | | (4.9) | % | | | Gross profit as % of revenue (3) | | 4.1 | % | | 9.5 | % | | | | 4.6 | % | | 9.3 | % | | |
(1) Related to 69 Applebee's company-operated restaurants.
(2) Costs associated with IHOP restaurants in the process of being refranchised.
(3) Calculated for Applebee's company-operated restaurants only. Percentages calculated on actual amounts, not rounded amounts presented above.
Applebee's company same-restaurant sales for the three months ended June 30, 20212022 increased 105.9%3.4% compared to the same period of 2020,2021, the significant majority of which was due to an increase in average check. Applebee's company same-restaurant sales for the six months ended June 30, 2022 increased 6.5% compared to the same period of 2021, the significant majority of which was due to an increase in customer traffic. Applebee's company same-restaurant sales for the six months ended June 30, 2021 increased 55.7% compared to the same period of 2020, primarily due to an increase in customer traffic as well as an increase inand average check.
The increase in customer traffic primarily was due to the favorable change in operating capacity of the restaurants during the three and six months ended June 30, 20212022 compared to the same periodsperiod of 2020.2021. All 69 of the Applebee's company-operated restaurants are located in South Carolina or North Carolina. Since the second week of January 2021, the 27 restaurants in South Carolina have operated without capacity limitations, while the 42 restaurants in North Carolina operated at 50% capacity until June 1, 2021, from which point those 42 restaurants also were also able to operate without capacity limitations. In comparison, all 69 restaurants operated without restriction for the first 10 weeks of the 2020 but essentially were limited only to off-premise sales from the middle of March until the middle of May 2020, at which time all 69 restaurants were allowed to operate at 50% capacity.
The increase in average check for the six months ended June 30, 2021 was due to favorable product mix and daypart shifts. We believe the distribution of additional government stimulus checks that began in March 2021 favorably impacted both customer traffic and average check during the three and six months ended June 30, 2021.
Gross profit and gross profit as a percentage of revenue for the three and six months ended June 30, 2021 improved2022 were unfavorable compared to the same periods of the prior year, which were adversely impacted by the COVID-19-related operating constraints described above.due to higher food, labor and delivery costs.
Company segment restaurant expenses for the three and six months ended June 30, 2021 and 2020 also include costs associated with reacquired IHOP restaurants in the process of being refranchised. None of theThere were no reacquired IHOP restaurants were openexpenses during the three and six months ended June 30, 2022 and approximately $0.2 million and $0.4 million of expenses during the three and six months ended June 30, 2021, respectively.
On July 26, 2022, the Company entered into an asset purchase agreement for the refranchising and 2020sale of related restaurant assets of 69 Applebee’s company-operated restaurants located in North Carolina and recorded no restaurant revenuesSouth Carolina. This sale is expected to close in eitherthe fiscal third quarter of those periods.2022.
Financing Operations
Financing revenues primarily consist of interest income from the financing of IHOP equipment leases and franchise fees as well as interest income on Applebee's notes receivable from franchisees. Financing expenses are the cost of taxes related to IHOP equipment leases.
Financing revenue and gross profit for the six months ended June 30, 20212022 declined compared to the same periodsperiod of the prior year, primarily because of progressive declinedeclines in interest income as note balances are repaid.
| G&A Expenses | G&A Expenses | | Three months ended June 30, | | Increase | | Six months ended June 30, | | Increase | G&A Expenses | | Three Months Ended June 30, | | Increase | | Six Months Ended June 30, | | Increase |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 | |
| | | (In millions) | | | (In millions) |
Total G&A expenses | Total G&A expenses | | $ | 39.3 | | | $ | 30.9 | | | $ | (8.4) | | | $ | 79.2 | | | $ | 68.5 | | | $ | (10.7) | | Total G&A expenses | | $ | 44.1 | | | $ | 39.3 | | | $ | (4.8) | | | $ | 85.6 | | | $ | 79.2 | | | $ | (6.4) | |
G&A expenses for the three months ended June 30, 20212022 increased 27.2%12.2% compared to the same period of the prior year, primarily due to an increase in personnel-related costs. The increaseincreases in personnel-related costs, primarily was due to higher costs of bonustravel and equity-based incentive compensation.conference expenses and professional services. Included in total G&A expenses for the three months ended June 30, 2021 were $1.42022 was $1.8 million of expensesexpense related to company-operated restaurants, ana slight increase of $0.5 million from the same period of the prior year.
G&A expenses for the six months ended June 30, 20212022 increased 15.6%8.1% compared to the same period of the prior year, primarily due to an increaseincreases in travel and conference expenses, personnel-related costs partially offset by a decrease in travel costs. The increase in personnel-related costs primarily was due to higher costs of bonus and equity-based incentive compensation.professional services. Included in total G&A expenses for the six months ended June 30, 2021 were $2.72022 was $3.6 million of expensesexpense related to company-operated restaurants, an increase of $0.5$0.2 million from the same period of the prior year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Closure and Impairment Charges | | Three Months Ended June 30, | | Favorable (Unfavorable) Variance | | Six Months Ended June 30, | | Favorable (Unfavorable) Variance |
| | 2022 | | 2021 | | | 2022 | | 2021 | |
| | (In millions) |
Closure charges | | $ | 1.0 | | | $ | 1.0 | | | $ | 0.0 | | | $ | 1.2 | | | $ | 2.9 | | | $ | 1.7 | |
Long-lived tangible asset impairment | | 0.3 | | | 1.6 | | | 1.3 | | | 0.3 | | | 1.7 | | | 1.4 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total closure and impairment charges | | $ | 1.3 | | | $ | 2.6 | | | $ | 1.3 | | | $ | 1.5 | | | $ | 4.6 | | | $ | 3.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Impairment and Closure Charges | | Three months ended June 30, | | Favorable (Unfavorable) Variance | | Six months ended June 30, | | Favorable (Unfavorable) Variance |
| | 2021 | | 2020 | | | 2021 | | 2020 | |
| | (In millions) |
Closure charges | | $ | 1.0 | | | $ | 0.7 | | | $ | (0.3) | | | $ | 2.9 | | | $ | 0.7 | | | $ | (2.2) | |
Long-lived tangible asset impairment | | 1.6 | | | 17.2 | | | 15.6 | | | 1.7 | | | 17.2 | | | 15.5 | |
Goodwill impairment | | — | | | 92.2 | | | 92.2 | | | — | | | 92.2 | | | 92.2 | |
Tradename impairment | | — | | | 11.0 | | | 11.0 | | | — | | | 11.0 | | | 11.0 | |
Impairment of reacquired franchise rights | | — | | | 3.3 | | | 3.3 | | | — | | | 3.3 | | | 3.3 | |
Total impairment and closure charges | | $ | 2.6 | | | $ | 124.4 | | | $ | 121.8 | | | $ | 4.6 | | | $ | 124.4 | | | $ | 119.8 | |
The closure charges for the three and six months ended June 30, 2022 were primarily related to the revisions to existing closure reserves, including accretion, primarily for approximately 35 IHOP restaurants. The closure charges for the three months ended June 30, 2021 related to the establishment of, or revisionrevisions to existing closure reserves, including accretion, primarily for approximately 30 IHOP restaurants. The closure charges for the six months ended June 30, 2021 related to the establishment of or revisionrevisions to existing closure reserves for approximately 50 IHOP restaurants.
Long-lived tangible asset impairment charges for the three and six months ended June 30, 20212022 related to threethe impairment of land and buildings for two IHOP franchisee-operated restaurants for which the carrying amount exceeded the undiscounted cash flows. located on sites owned by us.Long-lived tangible asset impairment charges for the six months ended June 30, 2021 related to four IHOP franchisee-operated restaurants for which the carrying amount exceeded the undiscounted cash flows. The charges in both periods primarily related to the impairment of operating lease right-of-use assets that had been recorded in 2019 upon adoption of new lease accounting guidance codified in Accounting Standards Codification Topic 842.restaurants.
The Company evaluates its goodwill and the indefinite-lived Applebee's tradename for impairment annually in the fourth quarter of each year or on an interim basis if events or changes in circumstances between annual tests indicate a potential impairment. Definite-lived intangible assets and long-lived tangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on estimated undiscounted future cash flows.
We determined that an interim quantitative test of goodwill and indefinite-lived intangible assets for impairment should be performed as of May 24, 2020 based on circumstances that had arisen from the COVID-19 epidemic. In determining fair value, we utilized valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The fair value technique used in this instance is classified as Level 3, where unobservable inputs are used when little or no market data is available.
In performing the quantitative test for impairment of goodwill, we used the income approach method of valuation that includes the discounted cash flow method and the market approach that includes the guideline public company method to determine the fair value of goodwill and intangible assets. Significant assumptions made by management in estimating fair value under the discounted cash flow model include future trends in sales, operating expenses, overhead expenses, depreciation, capital expenditures and changes in working capital, along with an appropriate discount rate based on our estimated cost of equity capital and after-tax cost of debt. Significant assumptions used to determine fair value under the guideline public company method include the selection of guideline companies and the valuation multiples applied. In performing the impairment review of the tradename, we used the relief of royalty method under the income approach method of valuation. Significant assumptions used to determine fair value under the relief of royalty method include future trends in sales, a royalty rate and a discount rate to be applied to the forecast revenue stream.
As a result of performing the quantitative test of impairment, the Company recognized an impairment of Applebee's goodwill of $92.2 million and an impairment of Applebee's tradename of $11.0 million during the three and six months ended June 30, 2020.
The majority of the impairment was due to an increase in the assessed risk premium incorporated in the discount rate. These assets are at risk of additional impairment in the future in the event of sustained downward movement in the Company's stock price, downward revisions of long-term performance assumptions or increases in the assumed long-term discount rate. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Other Income and Expense Items
| | Three Months Ended June 30, | | Favorable (Unfavorable) Variance | | Six Months Ended June 30, | | Favorable (Unfavorable) Variance |
| | 2022 | | 2021 | | | 2022 | | 2021 | |
| | (In millions) |
Interest expense, net | | $ | 15.4 | | | $ | 15.7 | | | $ | 0.4 | | | $ | 30.9 | | | $ | 32.2 | | | $ | 1.3 | |
| | | | | | | | | | | | |
Amortization of intangible assets | | 2.7 | | | 2.7 | | | (0.0) | | | 5.3 | | | 5.4 | | | 0.0 | |
(Gain) loss on disposition of assets | | (0.2) | | | (0.0) | | | 0.2 | | | (1.5) | | | 0.1 | | | 1.7 | |
Total | | $ | 17.8 | | | $ | 18.4 | | | $ | 0.6 | | | $ | 34.7 | | | $ | 37.7 | | | $ | 2.5 | |
During the three and six months ended June 30, 2020, we recognized a long-lived asset impairment totaling $17.2 million related to 46 Applebee's company-operated restaurants and 33 IHOP franchisee-operated restaurants for which the carrying amount exceeded the undiscounted cash flows. The impairment recorded represented the difference between the carrying value and the estimated fair value. Approximately $9.4 million of the total impairment related to operating lease right-of-use assets that had been recorded in 2019 upon adoption of new accounting guidance for leases codified in Accounting Standards Topic 842, while $7.8 million related to impairments of land, building, leasehold improvements and finance leases. The impairments by individual property varied in amount, ranging from the largest individual impairment of $1.3 million to less than $5,000.
An impairment of $3.3 million was recognized during the three and six months ended June 30, 2020 related to the reacquired franchise rights intangible asset recorded in the purchase price allocation of the December 2018 acquisition of 69 Applebee's restaurants from a former franchisee.
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Other Income and Expense Items
| | Three months ended June 30, | | Favorable (Unfavorable) Variance | | Six months ended June 30, | | Favorable (Unfavorable) Variance |
| | 2021 | | 2020 | | | 2021 | | 2020 | |
| | (In millions) |
Interest expense, net | | $ | 15.7 | | | $ | 17.1 | | | $ | 1.4 | | | $ | 32.2 | | | $ | 32.3 | | | $ | 0.1 | |
| | | | | | | | | | | | |
Amortization of intangible assets | | 2.7 | | | 2.8 | | | 0.1 | | | 5.4 | | | 5.6 | | | 0.2 | |
(Gain) loss on disposition of assets | | (0.0) | | | 1.8 | | | 1.8 | | | 0.1 | | | 1.5 | | | 1.4 | |
Total | | $ | 18.4 | | | $ | 21.7 | | | $ | 3.3 | | | $ | 37.7 | | | $ | 39.4 | | | $ | 1.7 | |
Interest expense, net
Interest expense, net for the six months ended June 30, 2022 declined compared to the same period of the prior year due to a decrease in interest expense on our Credit Facility (as defined below). We had no borrowings outstanding under our Credit Facility during the threesix months ended June 30, 2021,2022, whereas we had $220 million outstanding during the entire three months ended June 30, 2020. Accordingly, interest expense, net was lower for the 2021 period than the 2020 period. Interest expense, net forapproximately nine weeks during the six months ended June 30, 2021 was slightly lower than the same period of the prior year, as borrowings under our Credit Facility were outstanding for fewer days in the 2021 period than the 2020 period. We borrowed $220.0 million during the third week of March 2020 and that amount remained outstanding until it was repaid the first week of March 2021. See “Liquidity and Capital Resources” for additional discussion related to our Credit Facility.
Loss(Gain) loss on disposition of assets
The gain on disposition of assets for the three and six months ended June 30, 2022 primarily related to sale of land and buildings for three IHOP restaurants located on sites owned by us and the termination of an IHOP restaurant lease. There were no individually significant lossesgains or gainslosses on disposition of assets during the three and six months ended June 30, 2021. The loss on disposition of assets for the three and six months ended June 30, 2020 primarily related to termination of 13 IHOP restaurant leases.
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Income Taxes | | Three months ended June 30, | | Favorable (Unfavorable) Variance | | Six months ended June 30, | | Favorable (Unfavorable) Variance |
| | 2021 | | 2020 | | | 2021 | | 2020 | |
| | (In millions) |
Income (loss) before income taxes | | $ | 38.7 | | | $ | (146.8) | | | $ | 185.4 | | | $ | 62.7 | | | $ | (117.7) | | | $ | 180.4 | |
Income tax provision (benefit) | | $ | 9.3 | | | $ | (12.0) | | | $ | (21.3) | | | $ | 7.7 | | | $ | (5.3) | | | $ | (13.0) | |
Effective tax rate | | 24.0 | % | | 8.2 | % | | (15.9) | % | | 12.3 | % | | 4.5 | % | | (7.8) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Income Taxes | | Three Months Ended June 30, | | Favorable (Unfavorable) Variance | | Six Months Ended June 30, | | Favorable (Unfavorable) Variance |
| | 2022 | | 2021 | | | 2022 | | 2021 | |
| | (In millions) |
Income before income taxes | | $ | 32.5 | | | $ | 38.7 | | | $ | (6.2) | | | $ | 66.7 | | | $ | 62.7 | | | $ | 4.0 | |
Income tax provision | | $ | 8.6 | | | $ | 9.3 | | | $ | 0.7 | | | $ | 17.9 | | | $ | 7.7 | | | $ | (10.2) | |
Effective tax rate | | 26.3 | % | | 24.0 | % | | (2.3) | % | | 26.8 | % | | 12.3 | % | | (14.5) | % |
Our income tax provision or benefit will vary from period to period in our normal course of business for two reasons: a change in income (loss) before income taxes and a change in the effective tax rate. Changes in our income (loss) before income taxes were addressed in the preceding sections of “Consolidated Results of Operations - Comparison of the Three and Six Months Ended June 30, 20212022 and 2020.2021.”
Our effective tax rate for the three and six months ended June 30, 20212022 was significantly different than the rate of the prior comparable period, and the statutory federal tax rate of 21% primarily due to the one-timedecrease of unrecognized tax benefits resulting from the closing of a state audit in the second quarter of 2021. Our effective tax rate for the six months ended June 30, 2022 was different than the rate of the prior comparable period primarily due to the recognition of excess tax benefits on stock-based compensation related to the departure of our previous chief executive officer in the first quarter of 2021 and the impairment of goodwill in the second quarter of 2020 which was not deductible for income tax purposes and therefore had no associated tax benefit.2021.
Liquidity and Capital Resources
On June 5, 2019, Applebee’s Funding LLC and IHOP Funding LLC (the “Co-Issuers”), each a special purpose, wholly-owned indirect subsidiary of the Company, issued two tranches of fixed rate senior secured notes, the Series 2019-1 4.194% Fixed Rate Senior Secured Notes, Class A-2-I (“Class A-2-I Notes”) in an initial aggregate principal amount of $700 million and the Series 2019-1 4.723% Fixed Rate Senior Secured Notes, Class A-2-II (“Class A-2-II Notes”) in an initial aggregate principal amount of $600 million (the “Class A-2-II Notes” and, together with the Class A-2-I Notes, the “2019 Class A-2 Notes”). The 2019 Class A-2 Notes were issued pursuant to an offering exempt from registration under the Securities Act of 1933, as amended.
The Co-Issuers also established a new revolving financing facility, the 2019-1 Variable Funding Senior Notes, Class A-1 (the “Credit Facility”) that allows for drawings up to $225 million of variable funding notes and the issuance of letters of credit. The 2019 Class A-2 Notes and the Credit Facility are referred to collectively herein as the “New Notes.” The New Notes were issued in a securitization transaction pursuant to which substantially all the domestic revenue-generating assets and domestic intellectual property held by the Co-Issuers and certain other special-purpose, wholly-owned indirect subsidiaries of the Company (the “Guarantors”) were pledged as collateral to secure the New Notes.
While the 2019 Class A-2 Notes are outstanding, payment of principal and interest is required to be made on the 2019 Class A-2 Notes on a quarterly basis. The quarterly principal payment totaling $3.25 million on the 2019 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. The leverage ratio is not a maintenance covenant and exceeding the leverage ratio of 5.25x does not violate any covenant related to the New Notes. The complete definitions of all calculation elements of the leverage ratio are contained in the Base Indenture, dated as of September 30, 2014, amended and restated as of June 5, 2019 (the “Base Indenture”), as supplemented by the related Series
2019-1 Supplement to the Base Indenture, dated June 5, 2019 (the “Series 2019-1 Supplement”), among the Co-Issuers and Citibank, N.A., as the trustee (in such capacity, the “Trustee”) and securities intermediary (the Base Indenture and the Series 2019-1 Supplement, collectively, the “Indenture”). In general, the leverage ratio is our indebtedness (as defined in the Indenture) divided by adjusted EBITDA (as defined in the Indenture) for the four preceding quarterly periods.
As of June 30, 2021,2022, our leverage ratio was 4.94x.4.27x. As a result, quarterly principal payments on the 2019 Class A-2 Notes will no longer be required after the scheduled $3.25 million principal payment is made on September 7, 2021.are not required.
The CompanyWe may voluntarily repay the 2019 Class A-2 Notes at any time; however, if we repay the 2019 Class A-2 Notes prior to certain dates we would be required to pay make-whole premiums. As of June 30, 2021,2022, the make-whole premium associated with voluntary prepayment of the Class A-2-I Notes was approximately $22 million; this amount declines each quarter to zero in June 2022.and will remain as such. As of June 30, 2021,2022, the make-whole premium associated with voluntary prepayment of the Class A-2-II Notes was approximately $57$16 million; this amount declines each quarter to zero in June 2024. We would also be subject to a make-whole premium in the event of a mandatory prepayment required following a Rapid Amortization Event or certain asset dispositions. The mandatory make-whole premium requirements are considered derivatives embedded in the New Notes that must be bifurcated for separate valuation. We estimated the fair value of these derivatives to be immaterial as of June 30, 2021,2022, based on the probability-weighted discounted cash flows associated with either event.
Covenants and Restrictions
The New Notes are subject to a series of covenants and restrictions customary for transactions of this type, including: (i) that the Co-Issuers maintain specified reserve accounts to be used to make required payments in respect of the New Notes,Notes; (ii) provisions relating to optional and mandatory prepayments, and the related payment of specified amounts, including specified call redemption premiums in the case of Class A-2 Notes under certain circumstances; (iii) certain indemnification payments in the event, among other things, the transfers of the assets pledged as collateral for the New Notes are in stated ways defective or ineffectiveineffective; and (iv) covenants relating to recordkeeping, access to information and similar matters. The New Notes are subject to customary rapid amortization events provided for in the Indenture, including events tied to failure of the Securitization Entities 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 Class A-2 Notes on the anticipated repayment dates. The New Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal or other amounts due, failure of the Securitization Entities 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.
In general, the DSCR ratio is Net Cash Flow (as defined in the Indenture) for the four quarters preceding the calculation date divided by the total debt service payments (as defined in the Indenture) of the preceding four quarters. The complete definitions of the DSCR and all calculation elements are contained in the Indenture. Failure to maintain a prescribed DSCR can trigger a Cash Flow Sweeping Event, A Rapid Amortization Event, a Manager Termination Event or a Default Event as described below. In a Cash Flow Sweeping Event, the Trustee is required to retain 50% of excess Cash Flow (as defined in the Indenture) in a restricted account. In a Rapid Amortization Event, all excess Cash Flow is retained and used to retire principal amounts of debt. In a Manager Termination Event, the Companywe may be replaced as manager of the assets securitized under the Indenture. In a Default Event, the outstanding principal amount and any accrued but unpaid interest can be called to become immediately due and payable. Key DSCRs are as follows:
•DSCR less than 1.75x - Cash Flow Sweeping Event
•DSCR less than 1.20x - Rapid Amortization Event
•Interest-only DSCR less than 1.20x - Manager Termination Event
•Interest-only DSCR less than 1.10x - Default Event
Our DSCR for the reporting period ended June 30, 20212022 was approximately 4.6x.4.31x.
During the second quarter of 2020, we voluntarily increased the interest reserve set aside for our securitized debt from the required $16.4 million to $32.8 million, which represented an estimated six months of interest and fees related to the 2019 Class A-2 Notes and the Credit Facility. In April 2021, we reduced the balance of the interest reserve to $16.4 million, the required three months of interest and fees related to the 2019 Class A-2 Notes and the Credit Facility.
Use of Credit Facilities
In March 2020, the Co-Issuers drew down a total of $220.0 million from the Credit Facility. The $220.0 million borrowing was repaid on March 5, 2021.2021, and there have been no borrowings subsequent to that date. The current interest rate for borrowings under the Credit Facility is the three-month LIBOR rate plus 2.15% for 60% of the advances and the commercial paper funding rate of our conduit investor plus 2.15% for 40% of the advances. The weighted average interest rate on Credit Facility borrowings for the period outstanding during the six months ended June 30, 2021 was 2.4%; there were no Credit Facility borrowings outstanding during the three months ended June 30, 2021.
At June 30, 2021,2022, there were no outstanding borrowings under the Credit Facility. At June 30, 2021, $3.32022, $3.5 million was pledged against the Credit Facility for outstanding letters of credit, leaving $221.7$221.5 million available for borrowing. The letters of credit are used primarily to satisfy insurance-related collateral requirements.
Capital Allocation
We evaluateTo maintain financial flexibility in light of the COVID-19 pandemic, we suspended our repurchasing of common stock and the declaration of dividends on our common stock after the first quarter of 2020. After evaluating repurchases of common stock and 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. To maintain financial flexibility in light of the COVID-19 pandemic,factors, we have not declared any dividends after the first quarter of 2020 and have suspendedresumed repurchasing our common stock. We will continue to evaluatestock and the declaration of dividends on our capital allocation strategy in consideration of, among other things, resurgence of COVID-19 infections due to variants of the virus and changescommon stock in the percentagefourth quarter of the population that is fully vaccinated, as well as overall industry conditions.2021.
DividendsAdditionally, on February 17, 2022, the Company's Board of Directors authorized a new share repurchase program, effective April 1, 2022, of up to $250 million (the “2022 Repurchase Program”).
Dividends declared and paid per share forStock Repurchases
During the three and six months ended June 30, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30, | | Six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Dividends declared per common share | $ | — | | | $ | — | | | $ | — | | | $ | 0.76 | |
Dividends paid per common share | $ | — | | | $ | 0.76 | | | $ | — | | | $ | 1.45 | |
Stock Repurchases
In February 2019, the Company’s Board of Directors approved a stock repurchase program authorizing2022, the Company to repurchase up to $200 millionrepurchased 912,992 and 1,501,100 shares of the Company’s common stock (the “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$62.6 million and other considerations.$104.1 million, respectively. 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.
The Company did not repurchase any shares during three and six months ended June 30, 2021. We did not repurchase any shares duringamounts for the three months ended June 30, 2020 and repurchased 459,899 shares during2022 relate to the six months ended June 30, 2020. As of June 30, 2021, cumulative repurchases of stock total 1,697,597 shares at a cost of $129.8 million, with $70.2 million remaining for repurchase under the 20192022 Repurchase Program.
From time to time, we may 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, of this Quarterly Report for detail on this stock repurchase activity during the six months ended June 30, 2022.
Dividends
Dividends declared and paid per share for the six months ended June 30, 2022 and 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Dividends declared per common share | $ | 0.51 | | | $ | — | | | $ | 0.97 | | | $ | — | |
Dividends paid per common share | $ | — | | | $ | — | | | $ | 0.86 | | | $ | — | |
On October 28, 2021, the Board of Directors declared a fourth quarter 2021 cash dividend of $0.40 per share of common
stock, paid on January 7, 2022 to the stockholders of record as of the close of business on December 17, 2021.
On February 17, 2022, the Company's Board of Directors declared a first quarter 2022 cash dividend of $0.46 per share of
common stock, paid on April 1, 2022 to the stockholders of record as of the close of business on March 21, 2022.
On May 12, 2022, the Company's Board of Directors declared a second quarter 2022 cash dividend of 2021.$0.51 per share of
common stock, paid on July 8, 2022 to the stockholders of record as of the close of business on June 20, 2022.
Cash Flows
In summary, our cash flows for the six months ended June 30, 20212022 and June 30, 20202021 were as follows:
| | | | | | | | | | | | | | | | | |
| Six months ended June 30, | | |
| 2021 | | 2020 | | Variance |
| (In millions) |
Net cash provided by (used in) operating activities | $ | 106.0 | | | $ | (10.5) | | | $ | 116.5 | |
Net cash provided by investing activities | 6.3 | | | 2.1 | | | 4.2 | |
Net cash (used in) provided by financing activities | (220.4) | | | 178.4 | | | (398.8) | |
Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (108.1) | | | $ | 170.0 | | | $ | (278.1) | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | |
| 2022 | | 2021 | | Variance |
| (In millions) |
Net cash provided by operating activities | $ | 29.9 | | | $ | 106.0 | | | $ | (76.1) | |
Net cash (used in) provided by investing activities | (0.8) | | | 6.3 | | | (7.1) | |
Net cash used in financing activities | (124.7) | | | (220.4) | | | 95.7 | |
Net decrease in cash, cash equivalents and restricted cash | $ | (95.6) | | | $ | (108.1) | | | $ | 12.5 | |
Operating Activities
Cash provided by operating activities increased $116.5decreased $76.1 million during the six months ended June 30, 20212022 compared to the same period of the prior year. Our net income plus the non-cash reconciling items shown in our statements of cash flows (primarily depreciation, impairment and closure charges, stock-based compensation and impairment charges, depreciation, deferred taxes and stock-based compensation) increased $41.5taxes) decreased $1.5 million from 2020.2021. This was primarily due to an increase in gross profit, partially offset by an increase in G&A expenses and the recognition of excess tax benefits on stock-based compensation partially offset by an increase in G&A expenses,2021 that did not recur in 2022, each of which was discussed in preceding sections of the MD&A. Net changes in working capital providedused cash of $37.7$42.7 million during the six months ended June 30, 20212022 compared to usingproviding cash of $37.4$31.9 million during the same period of the prior year, a favorablean unfavorable change of $75.1$74.6 million. The favorableunfavorable change in working capital was primarily due to an increase in cash from trade receivablespayments for corporate bonuses and other employee compensation and the timing of marketing disbursements. As discussed under “Update on COVID-19 Pandemic Actions,” during the first six month ended June 30, 2020, we allowed our Applebee's and IHOP franchisees to defer approximately $58 million of payments for royalty, advertising and other fees, adversely impacting our net change in working capital for that period. During the six months ended June 30, 2021, we collected approximately $25 million in repayments of those deferrals.disbursements.
Investing Activities
Investing activities used net cash of $0.8 million for the six months ended June 30, 2022 compared to investing activities provided net cash of $6.3 million for the six months ended June 30, 2021. Principal receipts from notes, equipment contracts and other long-term receivables2021, an unfavorable change of $9.7$7.1 million. The variance of $7.1 million and proceeds from asset salesin investing activities was primarily related to an increase in capital expenditures of $0.9$8.7 million, were partially offset by capital expendituresan increase in proceeds from the sale of $4.1property and equipment of $2.7 million. Investing
Financing Activities
Financing activities providedused net cash of $2.1$124.7 million for the six months ended June 30, 2020.2022. We repurchased common stock in the amount of $102.4 million, paid dividends of $14.6 million and made payments on finance lease obligations of $4.7 million. The variance between the two periods primarilydecrease in cash used by financing activities was due to a decrease in capital expenditures during the six months ended June 30, 2021 compared to the same period$220 million repayment of the prior year.
Financing Activities
Financing activities used net cash of $220.4 million for the six months ended June 30, 2021. As discussed above under “Use of Credit Facilities,” we repaid $220.0 million borrowed from our Credit Facility. We also made payments totaling $11.7 million on long-term debt and capital lease obligations and paid $9.7 million for taxes withheld for vesting of restricted stock units. We had a net cash inflow of approximately $21.1 million related to equity compensation awards.
Financing activities provided net cash of $178.4 million for the six months ended June 30, 2020, primarily due to borrowing of $220.0 million from our Credit Facility to increase our financial flexibility in light of current market conditions and uncertainty due to the COVID-19 outbreak. We also had a net cash inflow of approximately $18.2 million related to equity
compensation awards. These financing inflows were2021 that did not recur in 2022, partially offset by cash dividends paid on our common stock totaling $23.9 million,the resumption of dividend repurchases of our common stock totaling $29.9 million and repayments of finance lease obligations of $6.0 million.
dividend payments in 2022 that had been suspended in 2021.
Cash and Cash Equivalents
Our total cash balances as of June 30, 20212022 and December 31, 20202021 were areas follows:
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| | (In millions) | | (In millions) |
Cash and cash equivalents | Cash and cash equivalents | | $ | 259.5 | | | $ | 383.4 | | Cash and cash equivalents | | $ | 263.5 | | | $ | 361.4 | |
Restricted cash, current | Restricted cash, current | | 72.1 | | | 39.9 | | Restricted cash, current | | 49.8 | | | 47.5 | |
Restricted cash, non-current | Restricted cash, non-current | | 16.4 | | | 32.8 | | Restricted cash, non-current | | 16.4 | | | 16.4 | |
Total | Total | | $ | 348.0 | | | $ | 456.1 | | Total | | $ | 329.7 | | | $ | 425.3 | |
Cash and cash equivalents include $76.2$82.1 million and $71.6$101.5 million of cash held for gift card programs and advertising funds as of June 30, 20212022 and December 31, 2020,2021, respectively. The decrease in cash and cash equivalents between June 30, 2022 and December 31, 2020 and June 30, 2021 was primarily due to the repayment of $220.0 million discussed above under “Use of Credit Facilities,” offset by cash provided by operating activities during the six months ended June 30, 2021.payments to repurchase common stock, dividend payments and other payments including employee bonuses and advertising.
We believe that our unrestricted cash and cash equivalents on hand, cash flow from operations, and the $221.7$221.5 million of borrowing capacity available under our Credit Facility will provide us with adequate liquidity for at least 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, payment of cash dividends on 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. 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 (negative) free cash flow is as follows:
| | | Six months ended June 30, | | | Six Months Ended June 30, | |
| | 2021 | | 2020 | | Variance | | 2022 | | 2021 | | Variance |
| | (In millions) | | (In millions) |
Cash flows provided by (used in) operating activities | $ | 106.0 | | | $ | (10.5) | | | $ | 116.5 | | |
Cash flows provided by operating activities | | Cash flows provided by operating activities | $ | 29.9 | | | $ | 106.0 | | | $ | (76.1) | |
Receipts from notes and equipment contracts receivable | Receipts from notes and equipment contracts receivable | 5.4 | | | 5.5 | | | (0.1) | | Receipts from notes and equipment contracts receivable | 5.9 | | | 5.4 | | | 0.5 | |
Additions to property and equipment | Additions to property and equipment | (4.1) | | | (7.4) | | | 3.3 | | Additions to property and equipment | (12.7) | | | (4.1) | | | (8.6) | |
Adjusted free cash flow | Adjusted free cash flow | $ | 107.3 | | | $ | (12.4) | | | $ | 119.7 | | Adjusted free cash flow | $ | 23.1 | | | $ | 107.3 | | | $ | (84.2) | |
Off-Balance Sheet Arrangements
We have obligationsAdjusted free cash flow for guarantees on certain franchisee lease agreements, as disclosedthe six months ended June 30, 2022 declined compared to the same period of the prior year due to the decrease in Note 15 - Commitmentscash flows provided by operating activities and Contingencies,the increase in capital expenditures, partially offset by an increase in receipts from notes and equipment contracts receivable, each of Notes to Consolidated Financial Statements of Part I, Item 1which was discussed in preceding sections 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 June 30, 2021.MD&A.
Contractual Obligations and Commitments
As discussed above, in March 2021, we repaid $220 million of borrowings outstanding under our Credit Facility. Other than this transaction, thereThere 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, 2020.2021.
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, 2020.2021. During the six months ended June 30, 2021,2022, there were no significant changes in our critical accounting policies or in our critical accounting estimates.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
The following changeThere were no material changes from the information contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 took place during the six months ended June 30, 2021:2021.
Interest Rate Risk
We are only exposed to interest rate risk on borrowings we make under our Credit Facility, borrowings from which are subject to variable interest rates. As of June 30, 2021, we have no borrowings outstanding under the Credit Facility and currently are not exposed to interest rate risk.
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, 2020.2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases of Equity Securities by the Company |
Period | | Total number of shares purchased (a) | | 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) |
April 5, 2021 - May 2, 2021 | | 402 | | | $ | 92.34 | | | — | | | $ | 70,200,000 | |
May 3, 2021 - May 30, 2021 | | 840 | | | 97.05 | | | — | | | $ | 70,200,000 | |
May 31, 2021 - July 4, 2021 | | 697 | | | 90.94 | | | — | | | $ | 70,200,000 | |
| | 1,939 | | | $ | 93.88 | | | — | | | $ | 70,200,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases of Equity Securities by the Company |
Period | | Total number of shares purchased (a) | | 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) |
April 4, 2022 - May 1, 2022 | | 118 | | | $ | 74.42 | | | — | | | $ | 250,000,000 | |
May 2, 2022 - May 29, 2022 | | 536,089 | | | 69.37 | | | 535,240 | | | $ | 212,872,000 | |
May 30, 2022 - July 3, 2022 | | 385,580 | | | 67.47 | | | 377,752 | | | $ | 187,392,000 | |
| | 921,787 | | | $ | 68.58 | | | 912,992 | | | $ | 187,392,000 | |
(a) These amounts representTotal number of shares purchased include 118 shares owned and tendered by employees at an average price of $74.42 per share during the fiscal month ended May 1, 2022, and 849 shares owned and tendered by employees at an average price of $73.17 per share during the fiscal month ended May 29, 2022, and 7,828 shares owned and tendered by employees at an average price of $68.55 per share during the fiscal month ended July 3, 2022 to satisfy tax withholding obligations arising upon vesting of restricted stock awards. Shares so surrendered by the participants are repurchased by usthe Company pursuant to the terms of the plan and the applicable individual award agreements under which the shares were issued and not pursuant to publicly announced repurchase authorizations.
(b) In February 2019, the Company’s Board of Directors approved the 2019 Repurchase Program authorizing the Company to repurchase up to $200 million of the Company's common stock. On February 17, 2022, the Board of Directors authorized a new share repurchase program, effective April 1, 2022, of up to $250 million. In connection with the approval of the 2022 Repurchase Program, the 2019 Repurchase Program terminated effective April 1, 2022. The 20192022 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.
| | | | | | | | |
*†10.1 | | |
*†10.2 | | |
*31.1 | | |
*31.2 | | |
*32.1 | | |
*32.2 | | |
101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | | Inline XBRL Schema Document.*** |
101.CAL | | Inline XBRL Calculation Linkbase Document.*** |
101.DEF | | Inline XBRL Definition Linkbase Document.*** |
101.LAB | | Inline XBRL Label Linkbase Document.*** |
101.PRE | | Inline XBRL Presentation Linkbase Document.*** |
104 | | | Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* 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 and 104 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.
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: | 5th9th day of August, 20212022 | By: | /s/ John W. Peyton |
| | | John W. Peyton Chief Executive Officer (Principal Executive Officer) |
| | | |
Dated: | 5th9th day of August, 20212022 | By: | /s/ Vance Y. Chang |
| | | Vance Y. Chang Chief Financial Officer (Principal Financial Officer) |
| | | |
Dated: | 5th9th day of August, 20212022 | By: | /s/ Allison Hall |
| | | Allison Hall Chief Accounting Officer (Principal Accounting Officer) |