UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 26, 2000
----------------------------------
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: 000-17962
-------------
Applebee's International, Inc.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1461763
-------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4551 W. 107th Street, Suite 100, Overland Park, Kansas 66207
-------------------------------------------------------------------------------
(Address of principal executive offices and zip code)
(913) 967-4000
---------------------------------------------------
(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
---- ----
The number of shares of the registrant's common stock outstanding as of April
20, 2000 was 26,633,932.
1
<PAGE>
APPLEBEE'S INTERNATIONAL, INC.
FORM 10-Q
FISCAL QUARTER ENDED MARCH 26, 2000
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of March 26, 2000
and December 26, 1999................................................................ 3
Consolidated Statements of Earnings for the 13 Weeks
Ended March 26, 2000 and March 28, 1999.............................................. 4
Consolidated Statement of Stockholders' Equity for the
13 Weeks Ended March 26, 2000........................................................ 5
Consolidated Statements of Cash Flows for the 13 Weeks
Ended March 26, 2000 and March 28, 1999 ............................................. 6
Notes to Consolidated Financial Statements.............................................. 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................ 11
Part II Other Information
Item 1. Legal Proceedings....................................................................... 19
Item 6. Exhibits and Reports on Form 8-K........................................................ 19
Signatures ................................................................................................. 20
Exhibit Index............................................................................................... 21
</TABLE>
2
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
March 26, December 26,
2000 1999
-------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents...................................................... $ 5,070 $ 1,427
Short-term investments, at market value (cost of $2,476 in 2000 and 1999)...... 2,541 2,555
Receivables (less allowance for bad debts of $2,403 in 2000 and $2,435 in 1999) 16,428 13,563
Inventories.................................................................... 10,387 11,247
Prepaid and other current assets............................................... 5,378 5,419
-------------- -------------
Total current assets........................................................ 39,804 34,211
Property and equipment, net......................................................... 301,701 300,140
Goodwill, net....................................................................... 87,342 88,667
Franchise interest and rights, net.................................................. 3,326 3,449
Other assets........................................................................ 15,821 15,749
-------------- -------------
$ 447,994 $ 442,216
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.............................................. $ 892 $ 1,807
Accounts payable............................................................... 19,066 16,966
Accrued expenses and other current liabilities................................. 50,523 54,962
Accrued dividends.............................................................. -- 2,660
Accrued income taxes........................................................... 7,520 1,267
-------------- -------------
Total current liabilities................................................... 78,001 77,662
-------------- -------------
Non-current liabilities:
Long-term debt - less current portion.......................................... 98,302 106,293
Franchise deposits............................................................. 1,730 1,765
Deferred income taxes.......................................................... 2,630 2,623
-------------- -------------
Total non-current liabilities............................................... 102,662 110,681
-------------- -------------
Total liabilities........................................................... 180,663 188,343
-------------- -------------
Commitments and contingencies (Note 3) Stockholders' equity:
Preferred stock - par value $0.01 per share: authorized - 1,000,000 shares;
no shares issued............................................................ -- --
Common stock - par value $0.01 per share: authorized - 125,000,000 shares;
issued - 32,150,360 shares.................................................. 321 321
Additional paid-in capital..................................................... 169,268 168,584
Retained earnings.............................................................. 248,311 233,548
Unrealized gain on short-term investments, net of income taxes................. 41 50
-------------- -------------
417,941 402,503
Treasury stock- 5,574,074 shares in 2000 and 5,553,213 shares in 1999, at cost. (150,610) (148,630)
-------------- -------------
Total stockholders' equity.................................................. 267,331 253,873
-------------- -------------
$ 447,994 $ 442,216
============== =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
13 Weeks Ended
--------------------------------
March 26, March 28,
2000 1999
------------- -------------
<S> <C> <C>
Revenues:
Company restaurant sales................................ $ 145,451 $ 161,760
Franchise income........................................ 19,799 17,540
------------- -------------
Total operating revenues............................. 165,250 179,300
------------- -------------
Cost of Company restaurant sales:
Food and beverage....................................... 40,058 44,765
Labor................................................... 46,168 51,786
Direct and occupancy.................................... 35,660 41,004
Pre-opening expense..................................... 296 378
------------- -------------
Total cost of Company restaurant sales............... 122,182 137,933
------------- -------------
General and administrative expenses.......................... 16,007 16,133
Amortization of intangible assets............................ 1,451 1,533
Loss on disposition of restaurants and equipment............. 353 9,288
------------- -------------
Operating earnings........................................... 25,257 14,413
------------- -------------
Other income (expense):
Investment income....................................... 349 180
Interest expense........................................ (2,364) (3,055)
Other income............................................ 118 168
------------- -------------
Total other expense.................................. (1,897) (2,707)
------------- -------------
Earnings before income taxes................................. 23,360 11,706
Income taxes................................................. 8,597 4,331
------------- -------------
Net earnings................................................. $ 14,763 $ 7,375
============= =============
Basic net earnings per common share.......................... $ 0.55 $ 0.25
============= =============
Diluted net earnings per common share........................ $ 0.55 $ 0.25
============= =============
Basic weighted average shares outstanding.................... 26,670 29,526
============= =============
Diluted weighted average shares outstanding.................. 26,788 29,648
============= =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Unrealized
Common Stock Additional Gain on Total
------------------------- Paid-In Retained Short-Term Treasury Stockholders'
Shares Amount Capital Earnings Investments Stock Equity
-------------- ---------- ------------ ------------ ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 26, 1999.......... 32,150,360 $ 321 $ 168,584 $ 233,548 $ 50 $(148,630) $ 253,873
Purchases of treasury stock...... -- -- -- -- -- (4,990) (4,990)
Stock options exercised and
related tax benefit............ -- -- 111 -- -- 628 739
Shares issued under employee
stock and 401(k) plans......... -- -- 547 -- -- 1,380 1,927
Restricted stock and performance
shares awarded under equity
incentive plan, net of
cancellations.................. -- -- 473 -- -- 1,002 1,475
Unearned compensation relating
to restricted shares........... -- 83 -- -- -- 83
Notes receivable from officers
for stock sales................ -- -- (530) -- -- -- (530)
Change in unrealized gain on
short-term investments,
net of income taxes............ -- -- -- -- (9) -- (9)
Net earnings..................... -- -- -- 14,763 -- -- 14,763
-------------- ---------- ------------ ------------ ------------ ---------- --------------
Balance, March 26, 2000........... 32,150,360 $ 321 $ 169,268 $ 248,311 $ 41 $(150,610) $ 267,331
============== ========== ============ ============ ============ ========== ==============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
13 Weeks Ended
--------------------------------
March 26, March 28,
2000 1999
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings....................................................... $ 14,763 $ 7,375
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization................................... 7,240 7,639
Amortization of intangible assets............................... 1,451 1,533
Amortization of deferred financing costs........................ 174 158
Deferred income tax provision .................................. 148 274
Loss on disposition of restaurants and equipment................ 353 9,288
Changes in assets and liabilities:
Receivables..................................................... (2,865) (646)
Inventories..................................................... 860 (897)
Prepaid and other current assets................................ (95) (3,550)
Accounts payable................................................ 2,100 3,532
Accrued expenses and other current liabilities.................. (1,531) (5,089)
Accrued income taxes............................................ 6,253 6,913
Franchise deposits.............................................. (35) --
Other........................................................... (690) (626)
-------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES......................................... 28,126 25,904
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................ (8,896) (16,175)
Proceeds from sale of restaurants and equipment.................... 1 --
-------------- -------------
NET CASH USED BY INVESTING ACTIVITIES........................... (8,895) (16,175)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock........................................ (4,990) (5,968)
Dividends paid..................................................... (2,660) (2,659)
Issuance of common stock upon exercise of stock options and
related tax benefit............................................. 739 359
Shares sold under employee stock purchase plan..................... 239 226
Payments on long-term debt......................................... (8,916) (2,385)
-------------- -------------
NET CASH USED BY FINANCING ACTIVITIES........................... (15,588) (10,427)
-------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................... 3,643 (698)
CASH AND CASH EQUIVALENTS, beginning of period.......................... 1,427 1,767
-------------- -------------
CASH AND CASH EQUIVALENTS, end of period................................ $ 5,070 $ 1,069
============== =============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
13 Weeks Ended
------------------------------------
March 26, March 28,
2000 1999
---------------- ----------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the 13 week period for:
Income taxes........................................................ $ 2,601 $ 682
================ ================
Interest............................................................ $ 2,102 $ 3,041
================ ================
</TABLE>
Disclosure of Accounting Policy:
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments purchased with a maturity of three months or less
to be cash equivalents.
See notes to consolidated financial statements.
7
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated financial statements of Applebee's International, Inc. and
subsidiaries (the "Company") included in this Form 10-Q have been prepared
without audit (except that the balance sheet information as of December 26, 1999
has been derived from consolidated financial statements which were audited) in
accordance with the rules and regulations of the Securities and Exchange
Commission. Although certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, the Company believes that
the disclosures are adequate to make the information presented not misleading.
The accompanying consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 26,
1999.
The Company believes that all adjustments, consisting only of normal recurring
adjustments (except for the loss on disposition discussed in Note 2), necessary
for a fair presentation of the results of the interim periods presented have
been made. The results of operations for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
2. Divestitures
On April 12, 1999, the Company completed the sale of its Rio Bravo Cantina
concept, which was comprised of 65 restaurants, including 40 Company restaurants
and 25 franchised restaurants. The Company received $53 million in consideration
($47 million in cash at closing and a $6 million 8% subordinated note due in ten
years). On April 26, 1999, the Company also completed the sale of its four
specialty restaurants for $12 million in cash. Total Company restaurant sales,
franchise income and cost of Company restaurant sales for the quarter ended
March 28, 1999 were $28,340,000, $27,000 and $25,629,000, respectively, for both
the Rio Bravo Cantina and specialty restaurants.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," the Company recorded a loss on disposition of $9,000,000
($5,670,000 net of income taxes) in the first quarter of 1999 to reflect the
difference between the carrying value of the net assets disposed and the
estimated proceeds from the sale transactions. Depreciation and amortization on
the long-lived assets to be disposed was discontinued in February 1999 in
anticipation of the sale of these restaurants.
On December 13, 1999, the Company completed the sale of 12 Applebee's
restaurants in the Philadelphia market for $23,465,000. The operations of the
restaurants and future restaurant development in the market area were assumed by
an existing Applebee's franchisee. The agreement also provides for additional
payments if the franchisee achieves certain future sales levels in the
Philadelphia market. Depreciation and amortization on the long-lived assets to
be disposed was discontinued in August 1999 in anticipation of the sale of these
restaurants. In connection with this transaction, the Company recognized a gain
in the fourth quarter of 1999 of $4,193,000 ($2,650,000 net of income taxes).
Total Company restaurant sales and cost of Company restaurant sales for these
restaurants for the quarter ended March 28, 1999 were $5,510,000 and $4,533,000,
respectively.
8
<PAGE>
3. Commitments and Contingencies
Litigation, claims and disputes: As of March 26, 2000, the Company was using
assets owned by a former franchisee in the operation of one restaurant which
remains under a purchase rights agreement that required the Company to make
certain payments to the franchisee's lender. In 1991, a dispute arose between
the lender and the Company over the amount of the payments due the lender under
that agreement and as to whether the Company had agreed to guarantee the
franchisee's debt. Based upon a then-current independent appraisal, the Company
offered to settle the dispute and purchase the assets of the three then-existing
restaurants for $1,000,000 in 1991. In November 1992, the lender was declared
insolvent by the FDIC and has since been liquidated. The Company closed one of
the three restaurants in 1994 and one of the two remaining restaurants in
February 1996. In the fourth quarter of 1996, the Company received information
indicating that the franchisee's indebtedness to the FDIC had been acquired by a
third party. In June 1997, the third party filed a lawsuit against the Company
seeking approximately $3,800,000. In April 1999, a summary judgment of
$3,833,000 was awarded to the third party. The Company has filed an appeal and
believes it has meritorious defenses. As of March 26, 2000, the Company believes
it has recorded adequate reserves for this matter.
In addition, the Company is involved in various legal actions arising in the
normal course of business. While the resolution of the matter described above
may have an impact on the financial results for the period in which it is
resolved, the Company believes that the ultimate disposition of these matters
will not, in the aggregate, have a material adverse effect upon its business or
consolidated financial position.
Franchise financing: The Company entered into an agreement in 1992 with a
financing source to provide up to $75,000,000 of financing to Company
franchisees to fund development of new franchise restaurants. The Company
provided a limited guaranty of loans made under the agreement. The Company's
maximum recourse obligation of 10% of the amount funded is reduced beginning in
the second year of each long-term loan and thereafter decreases ratably to zero
after the seventh year of each loan. Approximately $49,000,000 was funded
through this financing source, of which $12,000,000 was outstanding at March 26,
2000. This agreement expired on December 31, 1994 and was not renewed, although
some loan commitments as of the termination date were thereafter funded through
December 31, 1995.
Lease guaranties: In connection with the sale of restaurants to franchisees and
other parties, the Company has, in certain cases, remained contingently liable
for the remaining lease payments. As of March 26, 2000, the aggregate amount of
these lease payments totaled approximately $31,200,000. The Company has been
indemnified by the buyers from any losses related to such guaranties.
Philadelphia divestiture: In connection with the sale of the Philadelphia
restaurants, the Company has provided a guarantee to a franchise group totaling
$1,250,000 of which $1,181,000 remains outstanding as of March 26, 2000.
Severance agreements: The Company has severance and employment agreements with
certain officers providing for severance payments to be made in the event the
employee resigns or is terminated related to a change in control (as defined in
the agreements). If the severance payments had been due as of March 26, 2000,
the Company would have been required to make payments aggregating approximately
$6,100,000. In addition, the Company has severance and employment agreements
with certain officers which contain severance provisions not related to a change
in control, and such provisions would have required aggregate payments of
approximately $4,400,000 if such officers had been terminated as of March 26,
2000.
9
<PAGE>
4. Earnings Per Share
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
reporting period. Diluted earnings per share reflects the potential dilution
that could occur if options or other contracts to issue common stock were
exercised or converted into common stock. Outstanding stock options issued by
the Company represent the only dilutive effect on weighted average shares. A
reconciliation between basic and diluted weighted average shares outstanding and
the related earnings per share calculation is presented below (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
13 Weeks Ended
----------------------------
March 26, March 28,
2000 1999
------------- -------------
<S> <C> <C>
Net earnings...................................... $ 14,763 $ 7,375
============= =============
Basic weighted average shares outstanding......... 26,670 29,526
Dilutive effect of stock options.................. 118 122
------------- -------------
Diluted weighted average shares outstanding....... 26,788 29,648
============= =============
Basic net earnings per common share............... $ 0.55 $ 0.25
============= =============
Diluted net earnings per common share............. $ 0.55 $ 0.25
============= =============
</TABLE>
5. New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended by SFAS No. 137, establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This statement
is effective for the Company beginning in the first quarter of fiscal year 2001.
The Company believes that the adoption of the provisions of SFAS No. 133 will
not have a material effect on its financial statements, based on current
activities.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company's revenues are generated from two primary sources: Company
restaurant sales (food and beverage sales) and franchise income consisting of
franchise restaurant royalties (generally 4% of each franchise restaurant's
monthly gross sales) and franchise fees (which typically range from $30,000 to
$35,000 for each Applebee's restaurant opened). Beverage sales include sales of
alcoholic beverages, while non-alcoholic beverages are included in food sales.
Certain expenses (food and beverage, labor, direct and occupancy costs, and
pre-opening expenses) relate directly to Company restaurants, and other expenses
(general and administrative and amortization expenses) relate to both Company
restaurants and franchise operations.
The Company operates on a 52 or 53 week fiscal year ending on the last Sunday in
December. The Company's fiscal quarters ended March 26, 2000 and March 28, 1999
each contained 13 weeks, and are referred to hereafter as the "2000 quarter" and
the "1999 quarter," respectively.
On April 12, 1999, the Company completed the sale of its Rio Bravo Cantina
concept, which was comprised of 65 restaurants, including 40 Company restaurants
and 25 franchised restaurants. The Company received $53 million in consideration
($47 million in cash at closing and a $6 million 8% subordinated note due in ten
years). On April 26, 1999, the Company also completed the sale of its four
specialty restaurants for $12 million in cash. The two sale transactions and
related expenses resulted in a loss on disposition of $9,000,000 before income
taxes ($5,670,000 net of income taxes), which was recorded in the first quarter
of 1999. Total Company restaurant sales, franchise income and cost of Company
restaurant sales for the 1999 quarter were $28,340,000, $27,000 and $25,629,000,
respectively, for both the Rio Bravo Cantina and specialty restaurants.
On December 13, 1999, the Company completed the sale of 12 Applebee's
restaurants in the Philadelphia market for $23,465,000. The operations of the
restaurants and future restaurant development in the market area were assumed by
an existing Applebee's franchisee. In connection with this transaction, the
Company recognized a gain in the fourth quarter of 1999 of $4,193,000
($2,650,000 net of income taxes). Total Company restaurant sales and cost of
Company restaurant sales for these restaurants for the 1999 quarter were
$5,510,000 and $4,533,000, respectively.
11
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, information derived
from the Company's consolidated statements of earnings expressed as a percentage
of total operating revenues, except where otherwise noted. Percentages may not
add due to rounding.
<TABLE>
<CAPTION>
13 Weeks Ended
----------------------------------
March 26, March 28,
2000 1999
--------------- ---------------
<S> <C> <C>
Revenues:
Company restaurant sales.................................... 88.0% 90.2%
Franchise income............................................ 12.0 9.8
--------------- ---------------
Total operating revenues................................. 100.0% 100.0%
=============== ===============
Cost of sales (as a percentage of Company restaurant sales):
Food and beverage........................................... 27.5% 27.7%
Labor....................................................... 31.7 32.0
Direct and occupancy........................................ 24.5 25.3
Pre-opening expense......................................... 0.2 0.2
--------------- ---------------
Total cost of sales...................................... 84.0% 85.3%
=============== ===============
General and administrative expenses.............................. 9.7% 9.0%
Amortization of intangible assets................................ 0.9 0.9
Loss on disposition of restaurants and equipment................. 0.2 5.2
--------------- ---------------
Operating earnings............................................... 15.3 8.0
--------------- ---------------
Other income (expense):
Investment income........................................... 0.2 0.1
Interest expense............................................ (1.4) (1.7)
Other income................................................ 0.1 0.1
--------------- ---------------
Total other expense...................................... (1.1) (1.5)
--------------- ---------------
Earnings before income taxes..................................... 14.1 6.5
Income taxes..................................................... 5.2 2.4
--------------- ---------------
Net earnings..................................................... 8.9% 4.1%
=============== ===============
</TABLE>
12
<PAGE>
The following table sets forth certain unaudited financial information and other
restaurant data relating to Company and franchise restaurants, as reported to
the Company by franchisees.
<TABLE>
<CAPTION>
13 Weeks Ended
-----------------------------------------
March 26, March 28,
2000 1999
------------------- -------------------
<S> <C> <C>
Number of restaurants:
Applebee's:
Company(1):
Beginning of period........................................ 262 247
Restaurant openings........................................ 5 7
Restaurant closings........................................ (1) --
------------------- -------------------
End of period.............................................. 266 254
------------------- -------------------
Franchise:
Beginning of period........................................ 906 817
Restaurant openings........................................ 14 20
Restaurant closings........................................ (1) --
------------------- -------------------
End of period.............................................. 919 837
------------------- -------------------
Total Applebee's:
Beginning of period........................................ 1,168 1,064
Restaurant openings........................................ 19 27
Restaurant closings........................................ (2) --
------------------- -------------------
End of period.............................................. 1,185 1,091
=================== ===================
Rio Bravo Cantinas:
Company:
Beginning of period........................................ -- 40
Restaurant openings........................................ -- --
------------------- -------------------
End of period.............................................. -- 40
------------------- -------------------
Franchise:
Beginning of period........................................ -- 26
Restaurant openings........................................ -- --
Restaurant closings........................................ -- (1)
------------------- -------------------
End of period.............................................. -- 25
------------------- -------------------
Total Rio Bravo Cantinas:
Beginning of period........................................ -- 66
Restaurant openings........................................ -- --
Restaurant closings........................................ -- (1)
------------------- -------------------
End of period.............................................. -- 65
=================== ===================
Specialty Restaurants............................................... -- 4
=================== ===================
Total number of restaurants:
Beginning of period........................................ 1,168 1,134
Restaurant openings........................................ 19 27
Restaurant closings........................................ (2) (1)
------------------- -------------------
End of period.............................................. 1,185 1,160
=================== ===================
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
13 Weeks Ended
-----------------------------------------
March 26, March 28,
2000 1999
------------------- -------------------
<S> <C> <C>
Weighted average weekly sales per restaurant:
Applebee's:
Company(1)................................................. $ 42,369 $ 40,889
Franchise.................................................. $ 41,475 $ 39,916
Total Applebee's........................................... $ 41,676 $ 40,142
Rio Bravo Cantinas:
Company(2)................................................. -- $ 47,373
Franchise.................................................. -- $ 36,547
Total Rio Bravo Cantinas................................... -- $ 43,097
Change in comparable restaurant sales:(3)
Applebee's:
Company(1)................................................. 5.0 % 1.3 %
Franchise.................................................. 3.8 % 0.4 %
Total Applebee's........................................... 4.1 % 0.6 %
Rio Bravo Cantinas (Company)................................... -- (10.0)%
Total system sales (in thousands):
Applebee's..................................................... $ 637,220 $ 562,751
Rio Bravo Cantinas............................................. -- 36,771
Specialty restaurants.......................................... -- 3,666
------------------- -------------------
Total system sales......................................... $ 637,220 $ 603,188
=================== ===================
</TABLE>
- --------
(1) Includes one Texas restaurant operated by the Company under a management
agreement since July 1990.
(2) Excludes one restaurant which was open for dinner only.
(3) When computing comparable restaurant sales, restaurants open for at least
18 months are compared from period to period.
14
<PAGE>
Company Restaurant Sales. Company restaurant sales for the 2000 and 1999
quarters were as follows (in thousands):
<TABLE>
<CAPTION>
13 Weeks Ended
---------------------------------------------
March 26, March 28, Increase
2000 1999 (Decrease)
------------- ------------- --------------
<S> <C> <C> <C>
Applebee's........................ $ 145,451 $ 133,420 $ 12,031
Rio Bravo Cantinas................ -- 24,674 (24,674)
Specialty restaurants............. -- 3,666 (3,666)
------------- ------------- --------------
Total........................ $ 145,451 $ 161,760 $ (16,309)
============= ============= ==============
</TABLE>
Total Company restaurant sales decreased 10% in the 2000 quarter due to the sale
of the Rio Bravo Cantina and specialty restaurants in April 1999. Sales in the
2000 quarter increased 9% for Applebee's restaurants due primarily to Company
restaurant openings and increases in comparable restaurant sales which were
partially offset by the sale of the Philadelphia restaurants in December 1999.
Comparable restaurant sales at Company Applebee's restaurants increased by 5.0%
in the 2000 quarter. Weighted average weekly sales at Company Applebee's
restaurants increased 3.6% from $40,889 in the 1999 quarter to $42,369 in the
2000 quarter. These increases were due to increased customer traffic as a result
of the success of the Company's food promotions, an increase in network
television advertising during the 2000 quarter and increased sales of
appetizers, drinks and desserts.
Franchise Income. Overall franchise income increased $2,259,000 (13%) from
$17,540,000 in the 1999 quarter to $19,799,000 in the 2000 quarter. This
increase was due primarily to the increased number of franchise Applebee's
restaurants operating during the 2000 quarter as compared to the 1999 quarter.
Successful system-wide food promotions also contributed to increases of 3.9% in
weighted average weekly sales and 3.8% in comparable franchise restaurant sales
in the 2000 quarter.
Cost of Company Restaurant Sales. Food and beverage costs decreased from 27.7%
in the 1999 quarter to 27.5% in the 2000 quarter, due primarily to the impact of
the sale of the Rio Bravo restaurants. Beverage sales, as a percentage of
Company restaurant sales, declined from 16.1% in the 1999 quarter to 14.0% in
the 2000 quarter, which had a negative impact on overall food and beverage
costs, as a percentage of Company restaurant sales. This decrease was due
primarily to the sale of the Rio Bravo restaurants, which had a higher
proportion of beverage sales. Management also believes that the reduction in
beverage sales was due, in part, to the continuation of the overall trend toward
increased awareness of responsible alcohol consumption as well as higher rate of
growth in food sales resulting from successful food promotions.
Labor costs decreased from 32.0% in the 1999 quarter to 31.7% in the 2000
quarter due primarily to the impact of the sale of the Rio Bravo restaurants.
This decrease was partially offset by higher management incentive compensation
expense, as well as continued pressure on both hourly labor and management costs
due to low unemployment and the highly competitive nature of the restaurant
industry.
Direct and occupancy costs decreased from 25.3% in the 1999 quarter to 24.5% in
the 2000 quarter due primarily to the sale of the Rio Bravo restaurants, a
decrease in advertising costs, as a percentage of sales, and leverage resulting
from the sales increases at Applebee's restaurants during the 2000 quarter.
15
<PAGE>
General and Administrative Expenses. General and administrative expenses
increased in the 2000 quarter to 9.7% from 9.0% in the 1999 quarter, due
primarily to the absorption of general and administrative expenses over a lower
revenue base as a result of the divestiture of the Rio Bravo, specialty and
Philadelphia restaurants. In addition, incentive compensation expense increased
as a result of the Company's performance.
Loss on Disposition of Restaurants and Equipment. Loss on disposition of
restaurants and equipment decreased from $9,288,000 in the 1999 quarter to
$353,000 in the 2000 quarter due primarily to a loss on the disposition of the
Rio Bravo Cantina and specialty restaurants of $9,000,000 which was recorded in
the 1999 quarter.
Interest Expense. Interest expense decreased in the 2000 quarter as a result of
a reduction in debt related to the sale of the Rio Bravo Cantina, specialty and
Philadelphia restaurants in 1999.
Income Taxes. The effective income tax rate, as a percentage of earnings before
income taxes, was 36.8% in the 2000 quarter compared to 37.0% in the 1999
quarter. The decrease in the Company's effective tax rate in the 2000 quarter
was due primarily to an increase in credits resulting from FICA taxes on tips
and Work Opportunity Tax Credits.
Liquidity and Capital Resources
The Company's need for capital resources historically has resulted from, and for
the foreseeable future is expected to relate primarily to, the construction and
acquisition of restaurants. Such capital has been provided by public stock
offerings, debt financing, and ongoing Company operations, including cash
generated from Company and franchise operations, credit from trade suppliers,
real estate lease financing, and landlord contributions to leasehold
improvements. The Company has also used its common stock as consideration in the
acquisition of restaurants. In addition, the Company assumed debt or issued new
debt in connection with certain mergers and acquisitions.
Capital expenditures were $53,945,000 in fiscal year 1999 and $8,896,000 in the
2000 quarter. Capital expenditures are expected to be between $55,000,000 and
$60,000,000 in fiscal 2000 primarily for the development of new restaurants,
refurbishments of and capital replacements for existing restaurants, and
enhancements to information systems. The Company currently expects to open 25 to
27 Applebee's restaurants in 2000. The amount of actual capital expenditures
will be dependent upon, among other things, the proportion of leased versus
owned properties as the Company expects to continue to purchase a portion of its
sites. In addition, if the Company opens more restaurants than it currently
anticipates or acquires additional restaurants, its capital requirements will
increase accordingly.
The Company's senior term loan and working capital facilities are subject to
various covenants and restrictions which, among other things, require the
maintenance of stipulated fixed charge, interest coverage and leverage ratios,
as defined, and limit additional indebtedness and capital expenditures in excess
of specified amounts. As of March 26, 2000, the credit agreement permits annual
cash dividends of the greater of $5,000,000 or 50% of consolidated net income.
The Company is currently in compliance with the covenants contained in its
credit agreement.
In December 1999, the Company's Board of Directors authorized the repurchase of
up to $32,500,000 of its common stock through the year 2000, subject to market
conditions and pursuant to applicable restrictions under the Company's credit
agreement. The Company repurchased 185,000 shares of its common stock at an
aggregate cost of $4,990,000 in the 2000 quarter.
16
<PAGE>
As of March 26, 2000, the Company held liquid assets totaling $7,611,000,
consisting of cash and cash equivalents of $5,070,000 and short-term investments
of $2,541,000. The working capital deficit decreased from $43,451,000 at
December 26, 1999 to $38,197,000 at March 26, 2000. This decrease was due
primarily to the redemption of gift certificates sold in 1999, the payment of
accrued bonuses and the payment of the Company's annual dividend in January
2000. As of March 26, 2000, the Company had $10,000,000 outstanding under its
$86,500,000 working capital facility, standby letters of credit totaling
$4,406,000 outstanding under its $10,000,000 letter of credit facilities, and no
borrowings outstanding under its $5,000,000 line of credit facility.
The Company believes that its liquid assets and cash generated from operations,
combined with borrowings available under its credit facilities, will provide
sufficient funds for its operating, capital and other requirements for the
foreseeable future.
Inflation
Substantial increases in costs and expenses, particularly food, supplies, labor
and operating expenses, could have a significant impact on the Company's
operating results to the extent that such increases cannot be passed along to
customers. The Company does not believe that inflation has materially affected
its operating results during the past three years.
A majority of the Company's employees are paid hourly rates related to federal
and state minimum wage laws and various laws that allow for credits to that
wage. An increase in the minimum wage has been recently proposed by the Federal
government and is also being discussed by various state governments. Although
the Company has been able to and will continue to attempt to pass along
increases in costs through food and beverage price increases, there can be no
assurance that all such increases can be reflected in its prices or that
increased prices will be absorbed by customers without diminishing, to some
degree, customer spending at its restaurants.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended by SFAS No. 137, establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This statement
is effective for the Company beginning in the first quarter of fiscal year 2001.
The Company believes that the adoption of the provisions of SFAS No. 133 will
not have a material effect on its financial statements, based on current
activities.
Impact of the Year 2000
As of the filing date of this report, the impact of the Year 2000 has not had a
material adverse impact on the Company's business or results of operations. The
total cost of the Company's Year 2000 efforts was approximately $1,300,000.
These amounts included the costs of external consultants, the purchase of
software and hardware, and the compensation of internal employees working on
Year 2000 projects. All costs were funded from cash flows from operations.
17
<PAGE>
Forward-Looking Statements
The statements contained herein regarding restaurant development and capital
expenditures are forward-looking and based on current expectations. There are
several risks and uncertainties that could cause actual results to differ
materially from those described. For a discussion of the principal factors that
could cause actual results to be materially different, refer to the Company's
current report on Form 8-K filed with the Securities and Exchange Commission on
February 9, 2000. The Company disclaims any obligation to update forward-looking
statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company's senior term loan bears interest at either the bank's prime rate
plus 1.25% or LIBOR plus 2.25%, at the Company's option. The Company's working
capital facility bears interest at either the bank's prime rate plus 0.125% or
LIBOR plus 1.125%, at the Company's option. The interest rate on the working
capital facility is subject to change based upon the Company's leverage ratio.
The Company has entered into interest rate swap agreements to manage its
exposure to interest rate fluctuations. The swap agreements effectively fix the
underlying three-month LIBOR interest rate on $75,000,000 of the senior credit
facilities to rates ranging from 5.91% to 6.05%.
As of March 26, 2000, the total amount of debt subject to interest rate
fluctuations was $19,661,000 ($9,661,000 under the term loan and $10,000,000
under revolving credit and unsecured line of credit facilities). A 1% change in
interest rates would result in an increase or decrease in interest expense of
$197,000 per year.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As of March 26, 2000, the Company was using assets owned by a former franchisee
in the operation of one restaurant which remains under a purchase rights
agreement that required the Company to make certain payments to the franchisee's
lender. In 1991, a dispute arose between the lender and the Company over the
amount of the payments due the lender under that agreement and as to whether the
Company had agreed to guarantee the franchisee's debt. Based upon a then-current
independent appraisal, the Company offered to settle the dispute and purchase
the assets of the three then-existing restaurants for $1,000,000 in 1991. In
November 1992, the lender was declared insolvent by the FDIC and has since been
liquidated. The Company closed one of the three restaurants in 1994 and one of
the two remaining restaurants in February 1996. In the fourth quarter of 1996,
the Company received information indicating that the franchisee's indebtedness
to the FDIC had been acquired by a third party. In June 1997, the third party
filed a lawsuit against the Company seeking approximately $3,800,000. In April
1999, a summary judgment of $3,833,000 was awarded to the third party. The
Company has filed an appeal and believes it has meritorious defenses. As of
March 26, 2000, the Company believes it has recorded adequate reserves for this
matter.
In addition, the Company is involved in various legal actions arising in the
normal course of business. While the resolution of the matter described above
may have an impact on the financial results for the period in which it is
resolved, the Company believes that the ultimate disposition of these matters
will not, in the aggregate, have a material adverse effect upon its business or
consolidated financial position.
The Company has reached an agreement to settle a dispute with the Company's
franchisee for Germany regarding disclosures allegedly made or omitted by the
Company. This agreement did not have a material impact on the Company's results
of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) The Exhibits listed on the accompanying Exhibit Index are
filed as part of this report.
(b) The Company filed a report on Form 8-K on December 29, 1999
announcing a new stock repurchase program and an annual
dividend declaration on its common stock of ten cents per
common share.
(c) The Company filed a report on Form 8-K on February 9, 2000 in
accordance with the Private Securities Litigation Reform Act
of 1995 as it relates to a safe harbor for companies making
forward-looking statements. The factors listed in the report
are important factors that could cause actual results to
differ materially from those projected in forward-looking
statements made by the Company.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
APPLEBEE'S INTERNATIONAL, INC.
(Registrant)
Date: April 26, 2000 By: /s/ Lloyd L. Hill
----------------------- ------------------------
Lloyd L. Hill
Chief Executive Officer
(principal executive officer)
Date: April 26, 2000 By: /s/ George D. Shadid
----------------------- ------------------------
George D. Shadid
Executive Vice President and
Chief Financial Officer
(principal financial officer)
Date: April 26, 2000 By: /s/ Mark A. Peterson
----------------------- ------------------------
Mark A. Peterson
Vice President and Controller
(principal accounting officer)
20
<PAGE>
APPLEBEE'S INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------------- ------------------------------------------------------------------
27 Financial Data Schedule.
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 26, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-26-1999
<PERIOD-END> MAR-26-2000 MAR-28-1999
<CASH> 5,070 1,069
<SECURITIES> 2,541 4,854
<RECEIVABLES> 18,831 19,574
<ALLOWANCES> 2,403 1,939
<INVENTORY> 10,387 6,549
<CURRENT-ASSETS> 39,804 103,639
<PP&E> 401,224 375,930
<DEPRECIATION> 99,523 77,852
<TOTAL-ASSETS> 447,994 510,561
<CURRENT-LIABILITIES> 78,001 101,653
<BONDS> 98,302 107,066
0 0
0 0
<COMMON> 321 321
<OTHER-SE> 267,331 298,190
<TOTAL-LIABILITY-AND-EQUITY> 447,994 510,561
<SALES> 145,451 161,760
<TOTAL-REVENUES> 165,250 179,300
<CGS> 122,182 137,933
<TOTAL-COSTS> 138,189 154,066
<OTHER-EXPENSES> 1,804 10,821
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,364 3,055
<INCOME-PRETAX> 23,360 11,706
<INCOME-TAX> 8,597 4,331
<INCOME-CONTINUING> 14,763 7,375
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 14,763 7,375
<EPS-BASIC> 0.55 0.25
<EPS-DILUTED> 0.55 0.25
</TABLE>
