<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
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 0-8360
---------------------
IHOP CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-3038279
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or No.)
organization)
</TABLE>
525 NORTH BRAND BOULEVARD, GLENDALE, CALIFORNIA 91203-1903
(Address of principal executive offices) (Zip Code)
(818) 240-6055
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AS OF JUNE 30,
CLASS 1999
- ---------------------------------- -----------------------------
<S> <C>
Common Stock, $.01 par value 19,980,516
</TABLE>
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents........................................................... $ 3,677 $ 8,577
Receivables......................................................................... 25,473 28,461
Reacquired franchises and equipment held for sale, net.............................. 2,729 2,284
Inventories......................................................................... 1,228 1,222
Prepaid expenses.................................................................... 3,840 274
------------ ------------
Total current assets.............................................................. 36,947 40,818
------------ ------------
Long-term receivables................................................................. 227,319 217,156
Property and equipment, net........................................................... 179,397 161,689
Reacquired franchises and equipment held for sale, net................................ 15,462 12,943
Excess of costs over net assets acquired, net......................................... 11,840 12,054
Other assets.......................................................................... 1,120 1,239
------------ ------------
Total assets...................................................................... $ 472,085 $ 445,899
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt................................................ $ 5,489 $ 5,386
Accounts payable.................................................................... 19,134 22,589
Accrued employee compensation and benefits.......................................... 5,881 6,017
Other accrued expenses.............................................................. 5,342 5,309
Deferred income taxes............................................................... 2,971 2,560
Capital lease obligations........................................................... 1,489 1,388
------------ ------------
Total current liabilities......................................................... 40,306 43,249
------------ ------------
Long-term debt........................................................................ 49,883 49,765
Deferred income taxes................................................................. 36,118 34,708
Capital lease obligations and other................................................... 140,325 130,309
Shareholders' equity
Preferred stock, $1 par value, 10,000,000 shares authorized; none issued............ -- --
Common stock, $.01 par value, 40,000,000 shares authorized; shares issued and
outstanding: June 30, 1999, 19,980,516 shares; December 31, 1998, 19,763,160
shares (net of 9,240 treasury shares)............................................. 200 199
Additional paid-in capital (net of treasury shares at cost: 1998, $154)............. 63,980 60,100
Retained earnings................................................................... 140,606 126,169
Contribution to ESOP................................................................ 667 1,400
------------ ------------
Total shareholders' equity........................................................ 205,453 187,868
------------ ------------
Total liabilities and shareholders' equity........................................ $ 472,085 $ 445,899
------------ ------------
------------ ------------
</TABLE>
See the accompanying notes to the consolidated financial statements.
2
<PAGE>
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ----------------------
1999 1998 1999 1998
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Franchise operations
Rent........................................................... $ 11,390 $ 9,480 $ 22,442 $ 18,464
Service fees and other......................................... 28,877 25,304 57,429 50,230
--------- --------- ---------- ----------
40,267 34,784 79,871 68,694
Sale of franchises and equipment................................. 9,227 12,029 14,938 16,076
Company operations............................................... 18,020 18,351 34,027 36,036
--------- --------- ---------- ----------
Total revenues............................................... 67,514 65,164 128,836 120,806
--------- --------- ---------- ----------
Costs and Expenses
Franchise operations
Rent........................................................... 5,922 4,884 11,594 9,638
Other direct costs............................................. 10,230 9,085 20,650 18,140
--------- --------- ---------- ----------
16,152 13,969 32,244 27,778
Cost of sales of franchises and equipment........................ 5,343 7,259 9,088 10,282
Company operations............................................... 17,024 17,208 32,207 33,657
Field, corporate and administrative.............................. 8,855 8,398 17,162 15,831
Depreciation and amortization.................................... 3,076 2,815 6,092 5,506
Interest......................................................... 4,389 4,107 8,846 8,216
Other (income) and expense, net.................................. (93) 812 (278) 1,234
--------- --------- ---------- ----------
Total costs and expenses..................................... 54,746 54,568 105,361 102,504
--------- --------- ---------- ----------
Income before income taxes......................................... 12,768 10,596 23,475 18,302
Provision for income taxes......................................... 4,916 4,133 9,038 7,138
--------- --------- ---------- ----------
Net income................................................... $ 7,852 $ 6,463 $ 14,437 $ 11,164
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Net Income Per Share
Basic............................................................ $ .39 $ .33 $ .73 $ .57
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Diluted.......................................................... $ .39 $ .32 $ .71 $ .56
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Weighted Average Shares Outstanding
Basic............................................................ 19,935 19,675 19,876 19,587
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Diluted.......................................................... 20,385 20,093 20,297 19,963
--------- --------- ---------- ----------
--------- --------- ---------- ----------
</TABLE>
See the accompanying notes to the consolidated financial statements.
3
<PAGE>
IHOP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities
Net income.............................................................................. $ 14,437 $ 11,164
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization......................................................... 6,092 5,506
Deferred taxes........................................................................ 1,821 1,865
Contribution to ESOP.................................................................. 667 585
Change in current assets and liabilities
Accounts receivable................................................................. 3,766 444
Inventories......................................................................... (6) 131
Prepaid expenses.................................................................... (3,566) 486
Accounts payable.................................................................... (3,455) (3,538)
Accrued employee compensation and benefits.......................................... (136) (322)
Other accrued expenses.............................................................. 33 914
Other, net............................................................................ (184) 3,023
---------- ----------
Cash provided by operating activities............................................. 19,469 20,258
---------- ----------
Cash flows from investing activities
Additions to property and equipment..................................................... (38,367) (36,750)
Proceeds from sale and leaseback arrangements........................................... 12,482 5,570
Additions to notes, equipment contracts and direct financing leases receivable.......... (5,377) (5,437)
Principal receipts from notes, equipment contracts and direct financing leases
receivable............................................................................ 5,584 4,696
Additions to reacquired franchises held for sale........................................ (850) (651)
---------- ----------
Cash used by investing activities................................................. (26,528) (32,572)
---------- ----------
Cash flows from financing activities
Proceeds from issuance of long-term debt................................................ 3,372 6,535
Repayment of long-term debt............................................................. (3,151) (29)
Principal payments on capital lease obligations......................................... (543) (342)
Exercise of stock options............................................................... 2,481 3,208
---------- ----------
Cash provided by financing activities............................................. 2,159 9,372
---------- ----------
Net change in cash and cash equivalents................................................... (4,900) (2,942)
Cash and cash equivalents at beginning of period.......................................... 8,577 5,964
---------- ----------
Cash and cash equivalents at end of period........................................ $ 3,677 $ 3,022
---------- ----------
---------- ----------
Supplemental disclosures
Interest paid, net of capitalized amounts............................................... $ 8,740 $ 8,028
Income taxes paid....................................................................... 5,785 4,597
Capital lease obligations incurred...................................................... 19,102 9,225
</TABLE>
See the accompanying notes to the consolidated financial statements.
4
<PAGE>
IHOP CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
1. GENERAL--The accompanying consolidated financial statements for the six
months ended June 30, 1999 and 1998 have been prepared in accordance with
generally accepted accounting principles ("GAAP"). These financial statements
have not been audited by independent public accountants but include all
adjustments, consisting of normal, recurring accruals, which in the opinion of
management of IHOP Corp. and Subsidiaries ("IHOP") are necessary for a fair
presentation of the financial position and the results of operations for the
periods presented. The accompanying consolidated balance sheet as of December
31, 1998 has been derived from audited financial statements, but does not
include all disclosures required by GAAP. The results of operations for the six
months ended June 30, 1999, are not necessarily indicative of the results to be
expected for the full year ending December 31, 1999.
2. STOCK SPLIT--On April 29, 1999, IHOP Corp.'s Board of Directors
authorized a 2-for-1 split of IHOP's common stock effective May 27, 1999, in the
form of a stock dividend for stockholders of record at the close of business on
May 13, 1999. All share, per-share retained earnings, and common stock amounts
in the accompanying consolidated financial statements have been restated to give
effect to the stock split.
3. SEGMENTS--IHOP identifies its operating segments based on the
organizational units used by management to monitor performance and make
operating decisions. The Franchise Operations segment includes restaurants
operated by franchisees and area licensees in the United States, Canada and
Japan. The Company Operations segment includes company-operated restaurants in
the United States. We measure segment profit as operating income, which is
defined as income before field, corporate and administrative expense, interest
expense, and income taxes. Information on segments and a reconciliation to
income before income taxes are as follows:
<TABLE>
<CAPTION>
SALES OF CONSOLIDATING
FRANCHISE COMPANY FRANCHISES ADJUSTMENTS CONSOLIDATED
OPERATIONS OPERATIONS AND EQUIPMENT AND OTHER TOTAL
----------- ----------- -------------- ------------- ------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED JUNE 30, 1999
Revenues from external customers........... $ 40,290 $ 18,020 $ 9,227 $ (23) $ 67,514
Intercompany real estate charges
(revenues)............................... 1,393 144 -- (1,537) --
Depreciation & amortization................ 932 1,013 -- 1,131 3,076
Operating income (loss).................... 18,524 (667) 3,884 4,271 26,012
Field, corporate and administrative........ 8,855
Interest expense........................... 4,389
Income before income taxes................. 12,768
Additions to long-lived assets............. 20,181 1,002 195 4,709 26,087
Total assets............................... 341,313 45,250 18,191 67,331 472,085
THREE MONTHS ENDED JUNE 30, 1998
Revenues from external customers........... 34,831 18,351 12,029 (47) 65,164
Intercompany real estate charges
(revenues)............................... 1,333 287 -- (1,620) --
Depreciation & amortization................ 775 950 -- 1,090 2,815
Operating income (loss).................... 15,935 (496) 4,770 2,892 23,101
Field, corporate and administrative........ 8,398
Interest expense........................... 4,107
Income before income taxes................. 10,596
Additions to long-lived assets............. 17,060 591 (101) 4,868 22,418
Total assets............................... 285,335 39,816 16,402 69,609 411,162
</TABLE>
5
<PAGE>
IHOP CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS (CONTINUED)
<TABLE>
<CAPTION>
SALES OF CONSOLIDATING
FRANCHISE COMPANY FRANCHISES ADJUSTMENTS CONSOLIDATED
OPERATIONS OPERATIONS AND EQUIPMENT AND OTHER TOTAL
----------- ----------- -------------- ------------- ------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999
Revenues from external customers........... $ 79,914 $ 34,027 $ 14,938 $ (43) $ 128,836
Intercompany real estate charges
(revenues)............................... 2,818 255 -- (3,073) --
Depreciation & amortization................ 1,891 1,929 -- 2,272 6,092
Operating income (loss).................... 36,393 (1,348) 5,850 8,588 49,483
Field, corporate and administrative........ 17,162
Interest expense........................... 8,846
Income before income taxes................. 23,475
Additions to long-lived assets............. 26,691 2,282 850 9,394 39,217
Total assets............................... 341,313 45,250 18,191 67,331 472,085
SIX MONTHS ENDED JUNE 30, 1998
Revenues from external customers........... 68,779 36,036 16,076 (85) 120,806
Intercompany real estate charges
(revenues)............................... 2,581 509 -- (3,090) --
Depreciation & amortization................ 1,511 1,888 -- 2,107 5,506
Operating income (loss).................... 31,329 (848) 5,794 6,074 42,349
Field, corporate and administrative........ 15,831
Interest expense........................... 8,216
Income before income taxes................. 18,302
Additions to long-lived assets............. 20,890 3,484 651 12,376 37,401
Total assets............................... 285,335 39,816 16,402 69,609 411,162
</TABLE>
For management reporting purposes, we treat all restaurant lease revenues
and expenses as operating lease revenues and expenses, although most of these
leases are direct financing leases (revenues) or capital leases (expenses). The
accounting adjustments required to bring lease revenues and expenses into
conformance with GAAP are included in the Consolidated Adjustments and Other
segment. All of IHOP's owned land and restaurant buildings are included in the
total assets of the Consolidating Adjustments and Other segment and are leased
to the Franchise Operations and Company Operations segments.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain operating data for IHOP restaurants:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Restaurant Data
Effective restaurants(a)
Franchise.................................................. 625 572 622 569
Company.................................................... 75 76 72 75
Area license............................................... 146 146 145 145
---------- ---------- ---------- ----------
Total.................................................... 846 794 839 789
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
System-wide
Sales(b)..................................................... $ 278,463 $ 250,346 $ 548,096 $ 497,758
Percent increase........................................... 11.2% 13.2% 10.1% 13.8%
Average sales per effective restaurant....................... $ 329 $ 315 $ 653 $ 631
Percent increase........................................... 4.4% 5.4% 3.5% 5.9%
Comparable average sales per restaurant(c)................... $ 344 $ 327 $ 679 $ 653
Percent increase........................................... 1.7% 2.5% 0.8% 3.4%
Franchise
Sales........................................................ $ 227,277 $ 198,691 $ 447,073 $ 393,240
Percent increase........................................... 14.4% 14.4% 13.7% 14.9%
Average sales per effective restaurant....................... $ 364 $ 347 $ 719 $ 691
Percent increase........................................... 4.9% 7.1% 4.1% 7.8%
Comparable average sales per restaurant(c)................... $ 356 $ 338 $ 701 $ 675
Percent increase........................................... 1.7% 2.6% 0.8% 3.6%
Company
Sales........................................................ $ 18,020 $ 18,351 $ 34,027 $ 36,036
Percent change............................................. (1.8)% 24.0% (5.6)% 24.9%
Average sales per effective restaurant....................... $ 240 $ 241 $ 473 $ 480
Percent change............................................. (0.4)% 2.6% (1.5)% 3.2%
Area License
Sales........................................................ $ 33,166 $ 33,304 $ 66,996 $ 68,482
Percent change............................................. (0.4)% 2.4% (2.2)% 3.1%
Average sales per effective restaurant....................... $ 227 $ 228 $ 462 $ 472
Percent change............................................. (0.4)% (2.6)% (2.1)% (1.9)%
</TABLE>
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(a) "Effective restaurants" are the number of restaurants in a given fiscal
period adjusted to account for restaurants open only a portion of the
period.
(b) "System-wide sales" are retail sales of franchisees, area licensees and
company-operated restaurants as reported to IHOP.
(c) "Comparable average sales" reflects sales for restaurants that are operated
for the entire fiscal period in which they are being compared. Comparable
average sales do not include data on restaurants located in Florida and
Japan.
7
<PAGE>
The following table summarizes IHOP's restaurant development and franchising
activity:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ ------------------------
1999 1998 1999 1998
----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
RESTAURANT DEVELOPMENT ACTIVITY
IHOP--beginning of period..................................... 844 792 835 787
New openings
IHOP-developed............................................ 17 15 27 22
Investor and conversion program........................... 2 4 4 6
Area license.............................................. 3 1 3 2
--- --- --- ---
Total new openings.......................................... 22 20 34 30
Closings
Company and franchise..................................... (2) (8) (5) (12)
Area license.............................................. -- -- -- (1)
--- --- --- ---
IHOP--end of period........................................... 864 804 864 804
--- --- --- ---
--- --- --- ---
Summary--end of period
Franchise................................................... 640 586 640 586
Company..................................................... 76 72 76 72
Area license................................................ 148 146 148 146
--- --- --- ---
Total IHOP................................................ 864 804 864 804
--- --- --- ---
--- --- --- ---
RESTAURANT FRANCHISING ACTIVITY
IHOP-developed................................................ 15 18 24 24
Investor and conversion program............................... 2 4 4 6
Rehabilitated and refranchised................................ 1 2 1 3
--- --- --- ---
Total restaurants franchised................................ 18 24 29 33
Reacquired by IHOP............................................ (2) (2) (8) (9)
Closed........................................................ (2) (6) (5) (9)
--- --- --- ---
Net addition................................................ 14 16 16 15
--- --- --- ---
--- --- --- ---
</TABLE>
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GENERAL
The following discussion and analysis provides information we believe is
relevant to an assessment and understanding of IHOP's consolidated results of
operations and financial condition. The discussion should be read in conjunction
with the consolidated financial statements and notes thereto contained in IHOP's
Annual Report on Form 10-K for the fiscal year ended December 31, 1998. Certain
forward-looking statements are contained in this quarterly report. They use such
words as "may," "will," "expect," "believe," "plan," or other similar
terminology. These statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results to be materially different than
those expressed or implied in such statements. These factors include, but are
not limited to: availability of suitable locations and terms of the sites
designated for development; legislation and government regulation including the
ability to obtain satisfactory regulatory approvals; conditions beyond IHOP's
control such as weather or natural disasters; availability and cost of materials
and labor; cost and availability of capital; competition; continuing acceptance
of the International House of Pancakes brand and concept by guests and
franchisees; IHOP's overall marketing, operational and financial performance;
IHOP's ability to mitigate the impact of the year 2000 issue successfully;
economic and political conditions; adoption of new,
8
<PAGE>
or changes in, accounting policies and practices; and other factors discussed
from time to time in our filings with the Securities and Exchange Commission.
Forward-looking information is provided by us pursuant to the safe harbor
established under the Private Securities Litigation Reform Act of 1995 and
should be evaluated in the context of these factors. In addition, we disclaims
any intent or obligation to update these forward-looking statements.
Our quarterly results are subject to seasonal fluctuation. The mix and
number of restaurants franchised affect revenues from sales of franchises and
equipment and their associated costs of sales. We franchise four kinds of
restaurants: restaurants newly developed by IHOP, restaurants developed by
franchisees, restaurants developed by area licensees and restaurants that have
been previously reacquired from franchisees. Franchise rights for restaurants
newly developed by IHOP normally sell for a franchise fee of $200,000 to
$350,000, have little if any franchise cost of sales and have equipment in
excess of $300,000 that is usually sold at a price that includes little or no
profit margin. Franchise rights for restaurants developed by franchisees
normally sell for a franchise fee of $50,000, have minor associated franchise
cost of sales and do not include an equipment sale. Area license rights are
normally granted in return for a one-time development fee that is recognized
ratably as restaurants are developed in the area. Previously reacquired
franchises normally sell for a franchise fee of $100,000 to $300,000, include an
equipment sale, and may have substantial costs of sales associated with both the
franchise and the equipment. The timing of sales of franchises is affected by
the timing of new restaurant openings and the number of restaurants in our
inventory of restaurants that are available for refranchising. As a consequence
of the foregoing factors, the results of operations for the six months ended
June 30, 1999, are not necessarily indicative of the results to be expected for
the full year ending December 31, 1999.
SYSTEM-WIDE RETAIL SALES
System-wide retail sales include the sales of all IHOP restaurants as
reported to IHOP by its franchisees, area licensees and company-operated
restaurants. System-wide retail sales grew $28,117,000 or 11.2% in the second
quarter of 1999 and $50,338,000 or 10.1% in the first six months of 1999. Growth
in the number of effective restaurants and increases in average per unit sales
caused the growth in system-wide sales. "Effective restaurants" are the number
of restaurants in operation in a given fiscal period adjusted to account for
restaurants in operation for only a portion of the period. Effective restaurants
grew by 52 or 6.5% in the second quarter of 1999 and by 50 or 6.3% in the first
six months of 1999 due to new restaurant development. Newly developed
restaurants generally have seating and sales above the system-wide averages.
System-wide comparable average sales per restaurant (exclusive of area license
restaurants in Florida and Japan) grew 1.7% in the second quarter of 1999 and
0.8% in the first six months of 1999. Management continues to pursue growth in
sales through new restaurant development, advertising and marketing efforts,
improvements in customer service and operations, and remodeling of existing
restaurants.
FRANCHISE OPERATIONS
Franchise operations revenues are the revenues received by IHOP from its
franchisees and include rent, royalties, sales of proprietary products,
advertising fees and interest. Franchise operations revenues were 59.6% of total
revenues in the second quarter of 1999 and 62.0% of total revenues in the first
six months of 1999. Franchise operations revenues grew $5,483,000 or 15.8% in
the second quarter of 1999 and $11,177,000 or 16.3% in the first six months of
1999. An increase in the number of effective franchise restaurants coupled with
higher average sales per franchise restaurant caused the growth in franchise
operations revenues. Effective franchise restaurants grew by 53 or 9.3% in both
the second quarter and first six months of 1999. Average sales per franchise
restaurant grew 4.9% in the second quarter of 1999 and 4.1% in the first six
months of 1999.
Franchise operations costs and expenses include rent, advertising, the cost
of sales of proprietary products and other direct costs associated with
franchise operations. Franchise operations costs and
9
<PAGE>
expenses increased $2,183,000 or 15.6% in the second quarter of 1999 and
$4,466,000 or 16.1% in the first six months of 1999. Increases in franchise
operations costs were generally in line with the growth in franchise operations
revenue.
Franchise operations margin is equal to franchise operations revenues less
franchise operations costs and expenses. Franchise operations margin increased
$3,300,000 to $24,115,000 in the second quarter of 1999 and $6,711,000 to
$47,627,000 in the first six months of 1999. Franchise operations margin was
59.9% and 59.6% of franchise operations revenues in the second quarter and first
six months of 1999 compared with 59.8% and 59.6% in the same periods in the
prior year. Increased interest income associated with IHOP's financing of sales
of franchises and equipment to its franchisees was primarily responsible for the
improvement in franchise operations margin in 1999.
SALES OF FRANCHISES AND EQUIPMENT
Sales of franchises and equipment were 13.7% of total revenues in the second
quarter of 1999 and 11.6% of total revenues in the first six months of 1999.
Sales of franchises and equipment declined $2,802,000 or 23.3% in the second
quarter of 1999 and $1,138,000 or 7.1% in the first six months of 1999. A
decrease in the number of restaurants franchised was the primary cause of the
decline in sales of franchises and equipment. IHOP franchised 18 and 29
restaurants in the second quarter and first six months of 1999 compared with 24
and 33 in the same periods in the prior year.
Cost of sales of franchises and equipment declined $1,916,000 or 26.4% in
the second quarter of 1999 and $1,194,000 or 11.6% in the first six months of
1999. The decline was generally in line with the decrease in the number of
restaurants franchised, although the mix of restaurants franchised also impacted
the cost of sales.
Margin on sales of franchises and equipment is equal to sales of franchises
and equipment less the cost of sales of franchises and equipment. Margin on
sales of franchises and equipment decreased $886,000 to $3,884,000 in the second
quarter of 1999 and increased $56,000 to $5,850,000 in the first six months of
1999. Margin on sales of franchises and equipment was 42.1% and 39.2% in the
second quarter and first six months of 1999 compared with 39.7% and 36.0% in the
same periods in the prior year. The change in margin was primarily due to the
mix of restaurants franchised in the respective periods.
COMPANY OPERATIONS
Company operations revenues are sales to customers at restaurants operated
by IHOP. Company operations revenues were 26.7% of total revenues in the second
quarter of 1999 and 26.4% of total revenues in the first six months of 1999.
Company operations revenues declined $331,000 or 1.8% in the second quarter of
1999 and $2,009,000 or 5.6% in the first six months of 1999. Decreases in the
number of effective IHOP operated restaurants and in the average sales per IHOP
operated restaurant caused the revenue decline. Effective IHOP operated
restaurants decreased by one or 1.3% in the second quarter of 1999 and by three
or 4.0% in the first six months of 1999. Average sales per IHOP operated
restaurant decreased by 0.4% in the second quarter of 1999 and by 1.5% in the
first six months of 1999.
Company operations costs and expenses include food, labor and benefits,
utilities and occupancy costs. Company operations costs declined $184,000 or
1.1% in the second quarter of 1999 and $1,450,000 or 4.3% in the first six
months of 1999. IHOP experienced slight increases in the costs of food, labor
and benefits as a percentage of company operations revenues in the second
quarter and first six months of 1999.
Company operations margin is equal to company operations revenues less
company operations costs and expenses. Company operations margin declined
$147,000 to $996,000 in the second quarter of 1999 and $559,000 to $1,820,000 in
the first six months of 1999. Company operations margin was 5.5% and 5.3%
10
<PAGE>
of company operations revenues in the second quarter and first six months of
1999 compared with 6.2% and 6.6% in the same periods in the prior year.
OTHER COSTS AND EXPENSES AND BALANCE SHEET ACCOUNTS
Field, corporate and administrative costs and expenses increased $457,000 or
5.4% and $1,331,000 or 8.4% in the second quarter and first six months of 1999
compared with the same periods in the prior year. The increases were primarily
caused by normal increases in salaries and wages and the addition of employees
to support our growth. Field, corporate and administrative costs were 3.2% and
3.1% of system-wide sales in the second quarter and first six months of 1999
compared with 3.4% and 3.2% in the same periods in the prior year.
Depreciation and amortization expense increased $261,000 or 9.3% and
$586,000 or 10.6% in the second quarter and first six months of 1999. The
increases were caused primarily by the addition of new restaurants to the IHOP
chain from our ongoing restaurant development program.
Interest expense increased $282,000 or 6.9% and $630,000 or 7.7% in the
second quarter and first six months of 1999. The increases were due to interest
associated with capital leases which were partially offset by reductions in
interest on our senior notes due 2002 as the principal balance is paid down.
The balance of long-term receivables at June 30, 1999, increased over that
of the prior year end primarily due to IHOP's financing activities associated
with the sale of franchises and equipment and the leasing of restaurants to its
franchisees.
The balance of long-term reacquired franchises and equipment held for sale,
net at June 30, 1999, increased over that of the prior year end primarily due to
the reacquisition of eight restaurants during the first six months of 1999.
Balances of property and equipment, net and capital lease obligations at
June 30, 1999, increased over those of the prior year end primarily due to new
restaurant development and IHOP's capital lease obligations associated with that
development.
LIQUIDITY AND CAPITAL RESOURCES
We invest in our business primarily through the development of additional
restaurants and, to a lesser extent, through the remodeling of older
company-operated restaurants.
In 1999 IHOP and its franchisees and area licensees forecast developing and
opening approximately 75 to 85 restaurants. Included in that number are the
development of 60 to 65 new restaurants by us and the development of 15 to 20
restaurants by our franchisees and area licensees. This forecast differs from
earlier projections due to a decrease by five in the number of restaurants
projected to be developed and opened by our franchisees and area licensees.
Capital expenditure projections for 1999, which include our portion of the above
development program, are approximately $75 to $85 million. In November 1999 the
fourth annual installment of $4.6 million in principal becomes due on our senior
notes due 2002. We expect that funds from operations, sale and leaseback
arrangements (estimated to be about $30 to 35 million) and our $20 million
revolving line of credit will be sufficient to cover our operating requirements,
our budgeted capital expenditures and our principal repayment on our senior
notes in 1999. At June 30, 1999, $20 million was available to be borrowed under
our unsecured bank revolving credit agreement. In June 1999 IHOP's unsecured
bank revolving credit agreement was extended by one year, through June 30, 2002,
under similar terms and conditions.
YEAR 2000 COMPLIANCE
The Year 2000 issue is primarily a result of computer programs being written
using two digits, e.g. "99," to define a year. Date sensitive hardware and
software may recognize the year "00" as the year 1900
11
<PAGE>
rather than the year 2000. This would result in errors and miscalculations or
even system failure causing disruptions in everyday business activities and
transactions. Software is termed Year 2000 compliant when it is capable of
performing transactions correctly in the year 2000.
IHOP's information technology ("IT") systems include our financial software
for accounting and payroll, our network hardware and software and our restaurant
point-of-sale (POS) systems. In 1996 and 1997 we installed new client-server
software and hardware to perform accounting and payroll functions. In 1998 we
upgraded our network hardware and software to current release versions. The
various vendors of these hardware and software systems have represented to IHOP
that they are Year 2000 compliant. Most of our POS systems have been supplied by
one vendor. That vendor had represented to IHOP in 1997 that these systems were
Year 2000 compliant, but has now informed us that the systems are not Year 2000
compliant. Our vendor has agreed to supply, free of charge, software upgrades to
make our franchise and company operated POS systems Year 2000 compliant. In some
older POS systems, upgraded hardware will be necessary to run the new versions
of the software. Costs to upgrade or replace existing hardware range from $500
to $5,000 per POS system for these older systems. Costs to be incurred in
company-operated restaurants are included in IHOP's estimated future remediation
and testing costs discussed below. We expect to have our POS systems Year 2000
compliant by September 30, 1999.
Our non-IT systems consist primarily of our telephone switching equipment
and restaurant operating equipment. We have upgraded our telephone switching
equipment where necessary. Our assessment of our restaurant operating equipment
has indicated that modification or replacement will not be necessary as a result
of the Year 2000 issue. Therefore we are not currently remediating this
operating equipment. However, the existence of non-compliant embedded technology
in this type of equipment is, by nature, more difficult to identify and repair
than in computer hardware and software.
We have developed plans in conjunction with a major IT consulting company to
independently test all of our IT and non-IT systems to ensure that they are Year
2000 compliant. Completion of the testing phase for all significant systems is
expected by September 30, 1999.
IHOP's most significant third-party business partners consist of restaurant
food and supplies vendors who serve the IHOP chain. An inventory of our
significant third-party partners has been completed and letters mailed
requesting information regarding each party's Year 2000 compliance status. To
date we have received responses from about 95% of these vendors, all of which
indicate that the vendor is now or will be Year 2000 compliant prior to January
1,2000. IHOP has developed contingency plans for any vendors that appear to have
substantial Year 2000 operational risks. Such contingency plans include a change
of vendors to minimize our risk.
Information received from our primary bank indicates that the bank will be
Year 2000 compliant prior to January 1, 2000.
A Year 2000 information package has been sent to all franchisees. It
explains the Year 2000 issue and associated business risks and provides
information to assist the franchisees in assessing and remediating their Year
2000 risks. IHOP will continue its efforts to raise awareness and inform
franchisees of the risks posed by the Year 2000 throughout fiscal year 1999.
To date IHOP's costs specifically related to the Year 2000 issue in IT and
non-IT systems have been less than $250,000. Future remediation and testing
costs are currently estimated at $250,000 or less, although these costs could
increase substantially if remediation of restaurant operating equipment becomes
necessary.
We believe that we have an effective plan in place to resolve the Year 2000
issue in a timely manner. However, due to the unusual nature of the problem and
lack of historical experience with Year 2000 issues, it is difficult to predict
with certainty what will happen after December 31, 1999. For example, if there
are general public infrastructure failures, IHOP will not have contingency plans
available to it to operate
12
<PAGE>
restaurants under those conditions. As a result, those restaurants affected will
be unable to operate until the failures are resolved.
Despite our Year 2000 remediation, testing efforts and contingency planning,
there may be disruptions and unexpected business problems caused by IT systems,
non-IT systems or third party vendors during the early months of the year 2000.
IHOP is making diligent efforts to assess the Year 2000 readiness of our
significant business partners and will develop contingency plans for critical
areas where we believe our exposure to Year 2000 risk is the greatest. However,
despite our best efforts, we may encounter unanticipated third party failures or
a failure to have successfully concluded our systems remediation efforts. Any of
these unforeseen events could have a material adverse impact on IHOP's results
of operations, financial condition or cash flows. Additionally, any prolonged
inability of a significant number of our franchisees to operate their
restaurants and remit payments to us could have a material adverse effect on us.
The amount of any potential losses related to these occurrences cannot be
reasonably estimated at this time.
The most likely worst case scenario for IHOP is that a significant number of
our restaurants will be unable to operate for a few days due to public
infrastructure failures and/or food supply problems. Some restaurants may have
longer-term problems lasting a few weeks. The failure of restaurants to operate
would result in reduced revenues and cash flows for IHOP during the period of
disruption. Loss of company-operated restaurant revenues would be partially
mitigated by reduced costs. Loss of revenues from franchise operations would
more directly impact our profitability. The impact to IHOP of one lost day of
operations, on average, for all franchised restaurants is projected to be
approximately $500,000. Our gross profit margin on franchise operations in 1998
was 59.9%.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of shareholders (the "Meeting") was held on May 11, 1999.
Shareholders voted in person or by proxy for the following purposes. Shareholder
votes have been adjusted to give effect to the 2-for-1 split of IHOP's common
stock effective May 27, 1999.
(a) Shareholders voted to elect three Class II directors, each to serve for
a term of three years, as follows:
<TABLE>
<CAPTION>
VOTES VOTES
NOMINEE FOR WITHHELD
- --------------------------------------------------------------------- ------------ ---------
<S> <C> <C>
Michael S. Gordon.................................................... 17,860,576 299,424
Larry Alan Kay....................................................... 17,861,898 298,102
Dennis M. Leifheit................................................... 17,862,498 297,502
</TABLE>
There were no abstentions or broker non-votes. Directors whose terms of
office continued after the Meeting were H. Frederick Christie, Frank Edelstein,
Richard K. Herzer, Neven C. Hulsey, Caroline W. Nahas, and Patrick W. Rose.
(b) Shareholders voted to approve and ratify the amendment of the IHOP Corp.
1994 Stock Option Plan for Non-Employee Directors to provide for annual grants
of options. 17,154,380 shares were voted for this proposal, 955,098 were voted
against, there were 50,532 abstentions and no broker non-votes.
(c) Shareholders voted to approve and ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants for the year
ending December 31, 1999. 15,326,878 shares were voted for this proposal,
2,822,358 were voted against, there were 10,764 abstentions and no broker
non-votes.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibits not incorporated by reference are filed herewith. The remainder of
the exhibits have heretofore been filed with the Commission and are incorporated
herein by reference.
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of IHOP Corp. Exhibit 3.1 to IHOP Corp.'s Form 10-K for
the fiscal year ended December 31, 1997, (the "1997 Form 10-K") is hereby incorporated
by reference.
3.2 Bylaws of IHOP Corp. Exhibit 3.2 to IHOP Corp.'s 1997 Form 10-K is hereby incorporated
by reference.
4.0 Sixth Amendment to Letter Agreement, dated as of June 30, 1999, among International
House of Pancakes, Inc., IHOP Corp. and Bank of America National Trust and Savings
Association (successor by merger to Bank of America Illinois).
10.0 IHOP Corp. 1994 Stock Option Plan for Non-Employee Directors as Amended and Restated
February 23, 1999. Annex "A" to the IHOP Corp. Proxy Statement for Annual Meeting of
Shareholders to be Held on Tuesday, May 11, 1999, is hereby incorporated by reference.
11.0 Statement Regarding Computation of Per Share Earnings
27.0 Financial Data Schedule
</TABLE>
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1999.
14
<PAGE>
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.
IHOP CORP.
(Registrant)
July 29, 1999 BY: /s/ RICHARD K. HERZER
----------- ----------------------------------------
(Date) Richard K. Herzer
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER (PRINCIPAL
EXECUTIVE OFFICER)
July 29, 1999 BY: /s/ GENE A. SCOTT
----------- ----------------------------------------
(Date) Gene A. Scott
CONTROLLER, ACTING CHIEF FINANCIAL
OFFICER (PRINCIPAL ACCOUNTING OFFICER)
15
<PAGE>
EXHIBIT 4.0
SIXTH AMENDMENT TO LETTER AGREEMENT
THIS SIXTH AMENDMENT TO LETTER AGREEMENT (this "Sixth Amendment") is
made and dated as of June 30, 1999 among INTERNATIONAL HOUSE OF PANCAKES,
INC. (the "Borrower"), IHOP CORP., as Guarantor (the "Guarantor"), and BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (successor by merger to
Bank of America Illinois) (the "Bank"), and amends that certain Letter
Agreement between the parties dated as of June 30, 1993, as amended by a
letter dated July 15, 1993 from Continental Bank to the Borrower, a First
Amendment to Letter Agreement dated as of December 31, 1994, a Second
Amendment to Letter Agreement dated as of March 11, 1996, a Third Amendment
to Letter Agreement dated as of September 3, 1996, a Fourth Amendment to
Letter Agreement dated as of November 1, 1996, a letter from the Bank to the
Borrower dated June 25, 1997 and a Fifth Amendment to Letter Agreement dated
as of June 30, 1998 (as so amended, the "Agreement").
RECITAL
The Borrower has requested that the Bank agree to certain amendments to
the Agreement, and the Bank is willing to do so on the terms and conditions
set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as
follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings, if any, assigned to them in the
Agreement.
2. AMENDMENTS TO AGREEMENT. The parties hereto agree that the
Agreement is hereby amended as follows:
(a) Section 1 of the Agreement is hereby amended by deleting "June
30, 2001" and inserting "June 30, 2002" in lieu thereof.
(b) Section 14.12(a) of the Agreement is amended and restated in
its entirety as follows:
"(a) incur capital expenditures in excess of $55,000,000
per fiscal year, net of all proceeds relating to sale leaseback transactions
in such fiscal year; PROVIDED, HOWEVER, that in the fiscal year ending
December 31, 2000 only, the Borrower may incur capital expenditures up to
$70,000,000, net of all proceeds relating to sale leaseback transactions in
such fiscal year;"
3. REAFFIRMATION OF IHOP GUARANTY. IHOP does hereby reaffirm that the
terms and provisions of Section 17 of the Agreement continue in full force
and effect and are ratified and confirmed in all respects on and as of the
date hereof, after giving effect to this Sixth Amendment. IHOP agrees that
any references to the Note in the Agreement, including without limitation
Section 17 of the Agreement, shall be deemed a reference to the Agreement and
amounts owing thereunder, as evidenced by the loan accounts referred to in
Section 3 of the Agreement, as amended hereby.
4. REPRESENTATIONS AND WARRANTIES. IHOP and the Borrower do hereby
represent and warrant as follows:
<PAGE>
(a) AUTHORITY. Each of the Borrower and IHOP has been duly
incorporated and is a validly existing corporation under the laws of the
State of Delaware, has full legal right, power and authority to enter into
this Sixth Amendment and to carry out and consummate all transactions
contemplated by the Agreement and this Sixth Amendment.
(b) ENFORCEABILITY. This Sixth Amendment has been duly authorized
and is a valid and binding obligation of the Borrower and IHOP, enforceable
in accordance with its terms.
(c) NO CONFLICT. This Sixth Amendment will not conflict with or
constitute a breach of or a default under their respective articles of
incorporation or bylaws, or any material agreement to which the Borrower or
IHOP is a party or by which the Borrower or IHOP or any of their respective
properties are bound, or any rule or regulation of any court or governmental
agency or body having jurisdiction over the Borrower or IHOP or any of their
respective activities or properties.
(d) NO EVENT OF DEFAULT. No event of Default under the Agreement
has occurred and is continuing.
(e) REPRESENTATIONS AND WARRANTIES. The representations and
warranties in Section 11 of the Agreement are true and correct in all
respects on and as of the date hereof as though made on and as of the date
hereof.
5. CONDITIONS EFFECTIVENESS. The effectiveness of this Sixth Amendment
shall be subject to:
(a) the compliance by the Borrower with its agreements herein
contained;
(b) the delivery to the Bank of copies of this Sixth Amendment
signed by the Company and IHOP and a Guarantor Acknowledgement
and Consent (in the form attached to this Sixth Amendment)
executed by IHOP Restaurants, Inc.; IHOP Properties, Inc.;
and IHOP Realty Corp;
(c) the delivery of such other evidence with respect to the
Company, IHOP, and any other person as the Bank may reasonably
request in connection with this Amendment and the compliance
with the conditions set forth herein; and
(d) payment by the Borrower to the Bank of an amendment fee of
$10,000.00.
6. MISCELLANEOUS
(a) Except as hereby expressly amended, all terms, covenants and
provisions of the Agreement shall remain in full force and effect and all
references to the Agreement therein and in any agreement, contract, indenture,
document or instrument mentioned in the Agreement shall henceforth refer to
the Agreement as amended by this Sixth Amendment. This Sixth Amendment shall
be deemed incorporated into, and a part of, the Agreement.
(b) This Sixth Amendment is specific in time and in intent and does
not constitute, nor shall it be construed as, a waiver of any other right,
power or privilege under the Agreement, or under any agreement, contract,
indenture, document or instrument mentioned in the Agreement; nor does it
preclude other or further exercise hereof or the exercise of any other right,
power or privilege, nor shall any waiver of any right, power, privilege or
default hereunder, or under any agreement, contract,
2
<PAGE>
indenture, document or instrument mentioned in the Agreement, constitute a
waiver of any other default of the same or of any other term or provision.
(c) This Sixth Amendment shall be a contract made under and governed
by the internal laws of the state of Illinois.
(d) This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document and any other document required
herein) may be delivered by any party thereto either in the form of an
executed original or an executed original sent by facsimile transmission to
be followed promptly by mailing of a hard copy original, and that receipt by
the Bank of a facsimile transmitted document purportedly bearing the
signature of the Borrower and IHOP shall bind the Borrower and IHOP with the
same force and effect as the delivery of a hard copy original. Any failure by
the Bank to receive the hard copy executed original of such document shall
not diminish the binding effect of receipt of the facsimile transmitted
executed original of such document which hard copy page was not received by
the Bank.
IN WITNESS WHEREOF, each of the parties hereto has caused its respective
duly authorized officer to execute and deliver this Sixth Amendment as of the
date first written above.
INTERNATIONAL HOUSE OF PANCAKES, INC.
By: /s/ RICHARD K. HERZER
---------------------------------
Title: PRESIDENT
------------------------------
IHOP CORP.
By: /s/ RICHARD K. HERZER
---------------------------------
Title: PRESIDENT
------------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
(SUCCESSOR BY MERGER OF BANK OF AMERICA ILLINOIS)
By: /s/ RICHARD G. PARKHURST
---------------------------------
Title: MANAGING DIRECTOR
------------------------------
3
<PAGE>
GUARANTOR ACKNOWLEDGMENT AND CONSENT
The undersigned, each a guarantor with respect to the Borrower's obligations
to the Bank under the Agreement, each hereby:
(1) acknowledges and consents to the execution, delivery and performance by
the Borrower and the Guarantor of the foregoing Sixth Amendment to Letter
Agreement (the "AMENDMENT"), and
(2) Reaffirms and agrees that the respective guaranty to which the
undersigned is party and all other documents and agreements executed and
delivered by the undersigned to the Bank in connection with the
Agreement are in full force and effect, without defense, offset or
counterclaim.
IHOP REALTY CORP.
By: /s/ RICHARD K. HERZER
---------------------------------
Title: PRESIDENT
------------------------------
IHOP RESTAURANTS, INC.
By: /s/ RICHARD K. HERZER
---------------------------------
Title: PRESIDENT
------------------------------
IHOP PROPERTIES,INC.
By: /s/ RICHARD K. HERZER
---------------------------------
Title: PRESIDENT
------------------------------
4
<PAGE>
EXHIBIT 11.0
IHOP CORP. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE--BASIC
Weighted average shares outstanding................................. 19,935 19,675 19,876 19,587
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income available to common shareholders......................... $ 7,852 $ 6,463 $ 14,437 $ 11,164
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share--basic......................................... $ .39 $ .33 $ .73 $ .57
--------- --------- --------- ---------
--------- --------- --------- ---------
NET INCOME PER COMMON SHARE--DILUTED
Weighted average shares outstanding................................. 19,935 19,675 19,876 19,587
Net effect of dilutive stock options based on the treasury stock
method using the average market price............................. 450 418 421 376
--------- --------- --------- ---------
Total............................................................. 20,385 20,093 20,297 19,963
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income available to common shareholders......................... $ 7,852 $ 6,463 $ 14,437 $ 11,164
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per share--diluted....................................... $ .39 $ .32 $ .71 $ .56
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF IHOP CORP. AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,677
<SECURITIES> 0
<RECEIVABLES> 25,473
<ALLOWANCES> 0
<INVENTORY> 1,228
<CURRENT-ASSETS> 36,947
<PP&E> 179,397
<DEPRECIATION> 0
<TOTAL-ASSETS> 472,085
<CURRENT-LIABILITIES> 40,306
<BONDS> 190,208
0
0
<COMMON> 200
<OTHER-SE> 205,253
<TOTAL-LIABILITY-AND-EQUITY> 472,085
<SALES> 48,965
<TOTAL-REVENUES> 128,836
<CGS> 41,295
<TOTAL-COSTS> 73,539
<OTHER-EXPENSES> 6,092
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,846
<INCOME-PRETAX> 23,475
<INCOME-TAX> 9,038
<INCOME-CONTINUING> 14,437
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,437
<EPS-BASIC> .73<F1>
<EPS-DILUTED> .71
<FN>
<F1>REPRESENTS BASIC EARNINGS PER SHARE
</FN>
</TABLE>
