18
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 30, 2003
-------------------------------------------------
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
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act). Yes X No
----- -----
The number of shares of the registrant's common stock outstanding as of April
24, 2003 was 55,471,691.
1
APPLEBEE'S INTERNATIONAL, INC.
FORM 10-Q
FISCAL QUARTER ENDED MARCH 30, 2003
INDEX
Page
Part I Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of March 30, 2003
and December 29, 2002................................................................ 3
Consolidated Statements of Earnings for the 13 Weeks
Ended March 30, 2003 and March 31, 2002.............................................. 4
Consolidated Statement of Stockholders' Equity for the
13 Weeks Ended March 30, 2003........................................................ 5
Consolidated Statements of Cash Flows for the 13 Weeks
Ended March 30, 2003 and March 31, 2002 ............................................. 6
Notes to Consolidated Financial Statements.............................................. 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................ 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................. 22
Item 4. Controls and Procedures................................................................. 22
Part II Other Information
Item 1. Legal Proceedings....................................................................... 23
Item 6. Exhibits and Reports on Form 8-K........................................................ 23
Signatures ................................................................................................. 25
Certifications ............................................................................................. 26
Exhibit Index............................................................................................... 28
2
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
March 30, December 29,
2003 2002
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 9,805 $ 15,169
Short-term investments, at market value (amortized cost of $428 in 2003 and
$478 in 2002)................................................................. 471 503
Receivables (less allowance for bad debts of $4,309 in 2003 and $4,089 in 2002).. 29,469 26,092
Receivables related to captive insurance subsidiary.............................. 14,031 1,803
Inventories...................................................................... 19,852 11,504
Prepaid income taxes............................................................. -- 5,002
Prepaid and other current assets................................................. 7,489 9,506
-------------- -------------
Total current assets.......................................................... 81,117 69,579
Property and equipment, net........................................................... 390,143 383,002
Goodwill.............................................................................. 105,326 88,715
Franchise interest and rights, net.................................................... 1,385 1,468
Other assets.......................................................................... 25,667 23,350
-------------- -------------
$ 603,638 $ 566,114
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................................ $ 497 $ 377
Accounts payable................................................................. 28,992 27,479
Accrued expenses and other current liabilities................................... 72,836 82,204
Accrued liabilities related to captive insurance subsidiary...................... 14,009 1,803
Accrued dividends................................................................ -- 3,323
Accrued income taxes............................................................. 6,809 --
-------------- -------------
Total current liabilities..................................................... 123,143 115,186
-------------- -------------
Non-current liabilities:
Long-term debt - less current portion............................................ 58,789 52,186
Other non-current liabilities.................................................... 8,163 6,161
-------------- -------------
Total non-current liabilities................................................. 66,952 58,347
-------------- -------------
Total liabilities............................................................. 190,095 173,533
-------------- -------------
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 - 72,336,788 shares.................................................... 723 723
Additional paid-in capital....................................................... 191,830 187,523
Retained earnings................................................................ 459,223 434,621
Accumulated other comprehensive income, net of income taxes...................... 27 16
-------------- -------------
651,803 622,883
Treasury stock - 16,908,555 shares in 2003 and 16,948,371 shares in 2002, at
cost.......................................................................... (238,260) (230,302)
-------------- -------------
Total stockholders' equity.................................................... 413,543 392,581
-------------- -------------
$ 603,638 $ 566,114
============== =============
See notes to consolidated financial statements.
3
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
13 Weeks Ended
--------------------------------
March 30, March 31,
2003 2002
------------- -------------
Revenues:
Company restaurant sales................................ $ 208,410 $ 174,973
Franchise royalties and fees............................ 27,163 24,840
Other franchise income.................................. 2,641 134
------------- -------------
Total operating revenues............................. 238,214 199,947
------------- -------------
Cost of company restaurant sales:
Food and beverage....................................... 54,846 47,407
Labor................................................... 68,364 57,457
Direct and occupancy.................................... 50,561 42,872
Pre-opening expense..................................... 221 335
------------- -------------
Total cost of company restaurant sales............... 173,992 148,071
------------- -------------
Cost of other franchise income............................... 2,500 60
General and administrative expenses.......................... 22,620 19,320
Amortization of intangible assets............................ 99 138
Loss on disposition of restaurants and equipment............. 467 294
------------- -------------
Operating earnings........................................... 38,536 32,064
------------- -------------
Other income (expense):
Investment income....................................... 336 397
Interest expense........................................ (521) (633)
Other income............................................ 205 101
------------- -------------
Total other income (expense)......................... 20 (135)
------------- -------------
Earnings before income taxes................................. 38,556 31,929
Income taxes................................................. 13,954 11,654
------------- -------------
Net earnings................................................. $ 24,602 $ 20,275
============= =============
Basic net earnings per common share.......................... $ 0.45 $ 0.36
============= =============
Diluted net earnings per common share........................ $ 0.43 $ 0.35
============= =============
Basic weighted average shares outstanding.................... 55,272 55,878
============= =============
Diluted weighted average shares outstanding.................. 56,677 57,327
============= =============
See notes to consolidated financial statements.
4
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands, except share amounts)
Accumulated
Common Stock Additional Other Total
------------------------- Paid-In Retained Comprehensive Treasury Stockholders'
Shares Amount Capital Earnings Income (Loss) Stock Equity
-------------- ---------- ------------ ---------- ------------- ------------ ----------------
Balance, December 29, 2002........ 72,336,788 $ 723 $ 187,523 $434,621 $ 16 $(230,302) $ 392,581
Comprehensive income:
Net earnings................. -- -- -- 24,602 -- -- 24,602
Change in unrealized gain on
short-term investments,
net of income taxes........ -- -- -- -- 11 -- 11
-------------- ---------- ------------ ---------- ------------- ------------ ----------------
Total comprehensive income..... -- -- -- 24,602 11 -- 24,613
-------------- ---------- ------------ ---------- ------------- ------------ ----------------
Purchases of treasury stock.... -- -- -- -- -- (13,282) (13,282)
Stock options exercised and
related tax benefit.......... -- -- 3,477 -- -- 4,019 7,496
Shares issued under employee
stock and 401(k) plans....... -- -- 1,116 -- -- 736 1,852
Restricted shares awarded
under equity incentive plan.. -- -- (540) -- -- 569 29
Unearned compensation relating
to restricted shares......... -- -- 254 -- -- -- 254
-------------- ---------- ------------ ---------- ------------- ------------ ----------------
Balance, March 30, 2003........... 72,336,788 $ 723 $ 191,830 $459,223 $ 27 $(238,260) $ 413,543
============== ========== ============ ========== ============= ============ ================
See notes to consolidated financial statements.
5
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
13 Weeks Ended
--------------------------------
March 30, March 31,
2003 2002
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings....................................................... $ 24,602 $ 20,275
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization................................... 9,940 8,381
Amortization of intangible assets............................... 99 138
Amortization of deferred financing costs........................ 48 48
Deferred income tax provision................................... 287 873
Loss on disposition of restaurants and equipment................ 467 294
Income tax benefit from exercise of stock options............... 2,154 665
Changes in assets and liabilities (exclusive of effects of
acquisition):
Receivables..................................................... (3,022) (254)
Receivables related to captive insurance subsidiary............. (12,228) --
Inventories..................................................... (8,154) (1,846)
Prepaid income taxes............................................ 5,002 --
Prepaid and other current assets................................ 1,201 1,760
Accounts payable................................................ 1,513 1,462
Accrued expenses and other current liabilities.................. (9,082) (11,566)
Accrued liabilities related to captive insurance subsidiary..... 12,206 --
Accrued income taxes............................................ 6,809 7,007
Other........................................................... (610) 157
-------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES....................... 31,232 27,394
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................ (10,215) (10,972)
Acquisition of restaurants......................................... (20,758) --
Purchases of short-term investments................................ -- (50)
Maturities and sales of short-term investments..................... 50 250
-------------- -------------
NET CASH USED BY INVESTING ACTIVITIES........................... (30,923) (10,772)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock........................................ (13,282) (8,324)
Dividends paid..................................................... (3,323) (2,977)
Issuance of common stock upon exercise of stock options............ 5,342 1,967
Shares sold under employee stock purchase plan..................... 590 399
Net proceeds from issuance of long-term debt....................... 5,000 --
Proceeds from issuance of notes payable............................ -- 500
Net payments on long-term debt..................................... -- (20,000)
-------------- -------------
NET CASH USED BY FINANCING ACTIVITIES........................... (5,673) (28,435)
-------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS............................... (5,364) (11,813)
CASH AND CASH EQUIVALENTS, beginning of period.......................... 15,169 22,048
-------------- -------------
CASH AND CASH EQUIVALENTS, end of period................................ $ 9,805 $ 10,235
============== =============
See notes to consolidated financial statements.
6
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
(in thousands)
13 Weeks Ended
------------------------------------
March 30, March 31,
2003 2002
---------------- ----------------
Supplemental disclosures of cash flow information:
Cash paid during the 13 week period for:
Income taxes........................................................ $ 201 $ 203
================ ================
Interest............................................................ $ 306 $ 463
================ ================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
We issued restricted common stock of $1,666,000 and $256,000 for the thirteen
weeks ended March 30, 2003 and March 31, 2002, respectively.
On March 24, 2003, we assumed a loan of approximately $1,400,000 in connection
with the acquisition of 11 restaurants.
Disclosure of Accounting Policy:
For purposes of the consolidated statements of cash flows, we consider all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
See notes to consolidated financial statements.
7
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Our consolidated financial statements included in this Form 10-Q have been
prepared without audit (except that the balance sheet information as of December
29, 2002 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 accounting
principles generally accepted in the United States of America have been
condensed or omitted, we believe 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 our Annual Report on Form 10-K for the fiscal year
ended December 29, 2002.
We believe that all adjustments, consisting only of normal recurring
adjustments, 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.
We have made certain reclassifications to the consolidated financial statements
to conform to the 2003 presentation.
2. Stock-Based Compensation
We have adopted the disclosure provisions of Statement of Financial Accounting
Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure, an amendment of FASB Statement No. 123." The
Statement requires prominent disclosures in both annual and interim financial
statements regarding the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. We account
for stock compensation awards under the intrinsic method of Accounting
Principles Board ("APB") Opinion No. 25. Opinion No. 25 requires compensation
cost to be recognized based on the excess, if any, between the quoted market
price of the stock at the date of grant and the amount an employee must pay to
acquire the stock. All options awarded under all of our plans are granted with
an exercise price equal to the fair market value on the date of the grant. The
following table presents the effect on our net earnings and earnings per share
had we adopted the fair value method of accounting for stock-based compensation
under SFAS No. 123, "Accounting for Stock-Based Compensation" (in thousands,
except for per share amounts).
8
13 Weeks Ended
----------------------------------
March 30, March 31,
2003 2002
---------------- ----------------
Net earnings, as reported........................................ $ 24,602 $ 20,275
Less: Total stock-based employee compensation expense
determined under fair value based methods for all
awards, net of related taxes................................. 2,363 998
---------------- ----------------
Pro forma net earnings........................................... $ 22,239 $ 19,277
================ ================
Basic net earnings per common share, as reported................. $ 0.45 $ 0.36
================ ================
Basic net earnings per common share, pro forma................... $ 0.40 $ 0.34
================ ================
Diluted net earnings per common share, as reported............... $ 0.43 $ 0.35
================ ================
Diluted net earnings per common share, pro forma................. $ 0.39 $ 0.34
================ ================
3. Commitments and Contingencies
Litigation, claims and disputes: We are involved in various legal actions which
include, without limitation, employment law related matters, dram shop claims,
personal injury claims and other such normal restaurant operational matters. In
each instance, we believe that we have meritorious defenses to the allegations
made and we are vigorously defending these claims.
While the resolution of the matters described above may have an impact on our
financial results for the period in which they are resolved, we believe that the
ultimate disposition of these matters will not, individually or in the
aggregate, have a material adverse effect upon our business or consolidated
financial position.
Lease guarantees: In connection with the sale of restaurants to franchisees and
other parties, we have, in certain cases, remained contingently liable for the
remaining lease payments. As of March 30, 2003, the aggregate amount of these
lease payments totaled approximately $23,900,000. These leases expire at various
times throughout the next several years with the final lease agreement expiring
in 2018. The buyers have indemnified us from any losses related to these
guarantees. We have not recorded a liability as of March 30, 2003 or December
29, 2002.
Severance agreements: We have 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. The agreements define
the circumstances which will constitute a change in control. If the severance
payments had been due as of March 30, 2003, we would have been required to make
payments totaling approximately $9,400,000. In addition, we have severance and
employment agreements with certain officers which contain severance provisions
not related to a change in control. Those provisions would have required
aggregate payments of approximately $5,800,000 if such officers had been
terminated as of March 30, 2003.
4. Earnings Per Share
We compute basic earnings per share 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
9
that could occur if holders of options or other contracts to issue common stock
exercised or converted their holdings into common stock. Outstanding stock
options and equity-based compensation represent the only dilutive effects on
weighted average shares. The chart below presents a reconciliation between basic
and diluted weighted average shares outstanding and the related earnings per
share. All amounts in the chart, except per share amounts, are expressed in
thousands.
13 Weeks Ended
----------------------------------------------
March 30, March 31,
2003 2002
---------------------- ----------------------
Net earnings............................................ $ 24,602 $ 20,275
====================== ======================
Basic weighted average shares outstanding............... 55,272 55,878
Dilutive effect of stock options and
equity-based compensation.......................... 1,405 1,449
---------------------- ----------------------
Diluted weighted average shares outstanding............. 56,677 57,327
====================== ======================
Basic net earnings per common share..................... $ 0.45 $ 0.36
====================== ======================
Diluted net earnings per common share................... $ 0.43 $ 0.35
====================== ======================
5. Goodwill and Other Intangible Assets
Changes in goodwill are summarized below (in thousands):
March 30, December 29,
2003 2002
---------------------- ----------------------
Carrying amount, beginning of the year.................. $ 88,715 $ 78,614
Goodwill acquired during the period..................... 16,611 10,101
---------------------- ----------------------
$ 105,326 $ 88,715
====================== ======================
Intangible assets subject to amortization pursuant to SFAS No. 142 consist of
franchise interest and rights and are summarized below (in thousands):
March 30, December 29,
2003 2002
-------------------- -------------------
Gross carrying amount.................................. $ 6,371 $ 6,371
Less, accumulated amortization......................... 4,986 4,903
-------------------- -------------------
Net.................................................... $ 1,385 $ 1,468
==================== ===================
We expect annual amortization expense for all intangible assets for the next
five fiscal years to range from approximately $280,000 to $380,000.
6. Captive Insurance Subsidiary
On September 20, 2002, we formed Neighborhood Insurance, Inc., a Vermont
corporation and a wholly-owned subsidiary, as a captive insurance company.
Neighborhood Insurance, Inc. was established to provide Applebee's
International, Inc. and qualified franchisees with workers' compensation and
general liability insurance. Applebee's International, Inc. and covered
franchisees make premium payments to the captive insurance company which pays
10
administrative fees and insurance claims, subject to individual and aggregate
maximum claim limits under the captive insurance company's reinsurance policies.
Franchisee premium amounts billed by the captive insurance company were
established based upon third-party actuarial estimates of settlement costs for
incurred claims and administrative fees. The franchisee premiums are included in
other franchise income ratably over the policy year. The related offsetting
expenses are included in cost of other franchise income. Accordingly, we do not
expect franchisee participation in the captive insurance company to have an
impact on our net earnings. We have recognized approximately $2,400,000 in both
revenues and expenses in the consolidated statements of earnings for the
thirteen weeks ended March 30, 2003. Our third-party administrator is currently
holding the cash received from franchisees and will remit the cash to our
captive insurance company, as collected, once certain agreements have been
finalized. A portion of these cash receipts will be restricted to the payment of
insurance claims and fees.
7. New Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities." This
Statement requires that a liability for a cost associated with an exit or
disposal activity be recognized only when the liability is incurred and measured
at fair value. SFAS No. 146 is effective for exit or disposal activities that
are initiated after December 31, 2002. The initial adoption of this Statement
did not have a material impact on our results of operations or financial
position.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others." Interpretation No. 45 supersedes Interpretation No. 34,
"Disclosure of Indirect Guarantees of Indebtedness of Others," and provides
guidance to guarantors on the recognition and disclosure concerning obligations
under certain guarantees in interim and annual financial statements. The initial
recognition and measurement provisions of Interpretation No. 45 are effective
for guarantees issued or modified after December 31, 2002, and are to be applied
prospectively. The disclosure requirements were effective for financial
statements for interim or annual periods ending after December 15, 2002. We
adopted the initial recognition provisions of Interpretation No. 45 in January
of 2003. The initial adoption of Interpretation No. 45 did not have a material
impact on our results of operations or financial position.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. This Statement also amends the disclosure
requirements of SFAS No. 123 to require prominent disclosure in annual and
interim financial statements about the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of SFAS No. 148 are
effective for financial statements issued for fiscal years ending after December
15, 2002. The interim disclosure provisions of this Statement were effective for
financial reports containing financial statements for interim periods beginning
after December 15, 2002. We have adopted the disclosure provisions of SFAS No.
148.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51." This
Interpretation provides clarification on the consolidation of certain entities
in which equity investors do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated financial support from
other parties. Such entities are defined as variable interest entities ("VIEs").
This Interpretation requires that VIEs be consolidated by the entity considered
to be the primary beneficiary of the VIE. The Interpretation is effective
immediately for newly created VIEs after January 31, 2003 and effective in the
second quarter 2003 for any VIEs created prior to February 1, 2003. We have
11
evaluated our relationships with potential unconsolidated entities which may
meet the consolidation requirements of this Interpretation, and we do not
believe the adoption will have a material impact on our consolidated financial
statements.
8. Acquisitions
On November 7, 2002, we acquired the operations and assets of 21 Applebee's
restaurants located in the Washington, D.C. area from a franchisee. Under the
terms of the purchase agreement and the agreement with the franchisee's secured
lender, the total purchase price of the acquisition was $34,250,000. The
agreement also provides for additional consideration in July 2004 if the
restaurants achieve cash flows in excess of historical levels. Our financial
statements reflect the results of operations for these restaurants subsequent to
the date of acquisition. The purchase price of $34,250,000 has been allocated to
the fair value of property and equipment of $25,200,000, goodwill of $10,100,000
and other net current liabilities of $1,050,000.
On March 24, 2003, we acquired the operations and assets of 11 Applebee's
restaurants located in Illinois, Indiana, Kentucky and Missouri for $21,800,000
in cash and $1,400,000 in assumed debt from a franchisee. The total cash payment
includes $20,800,000 paid at closing, approximately $200,000 paid as a deposit
in fiscal 2002 and approximately $800,000 to be paid when certain contractual
conditions have been met. Our financial statements reflect the results of
operations for these restaurants subsequent to the date of acquisition. The
purchase price of $23,200,000 has been allocated to the fair value of property
and equipment of $7,900,000, goodwill of $16,600,000, and other net liabilities
of $1,300,000.
Actual company restaurant sales included in our consolidated financial
statements for these restaurants were approximately $12,000,000 for the thirteen
weeks ended March 30, 2003. Company restaurant sales for these restaurants would
have been approximately $18,000,000 and $16,700,000 for the thirteen weeks ended
March 30, 2003 and March 31, 2002, respectively, had the acquisitions occurred
at the beginning of each respective period.
9. Subsequent Event
On April 8, 2003, we announced that we have entered into an agreement to sell
eight company-owned restaurants in the Atlanta, Georgia market to an affiliate
of an existing franchisee for $8,000,000, subject to adjustment. The sale of
these restaurants is expected to close late in the second quarter of 2003,
subject to customary due diligence and third party approvals. We do not expect
this transaction to have a significant impact on our net earnings for fiscal
2003, and no significant gain or loss on the sale is anticipated.
12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Our revenues are generated from three primary sources:
o Company restaurant sales (food and beverage sales)
o Franchise royalties and fees
o Other franchise income
Beverage sales include sales of alcoholic beverages, while non-alcoholic
beverages are included in food sales. Franchise royalties are generally 4% of
each franchise restaurant's monthly gross sales. Franchise fees typically range
from $30,000 to $35,000 for each restaurant opened. Other franchise income
includes insurance premiums from franchisee participation in our captive
insurance company and revenue from information technology products and services
provided to certain franchisees.
Certain expenses relate only to company operated restaurants. These include:
o Food and beverage costs
o Labor costs
o Direct and occupancy costs
o Pre-opening expenses
Cost of other franchise income includes the costs related to franchisee
participation in our captive insurance company and costs related to information
technology products and services provided to certain franchisees.
Other expenses, such as general and administrative and amortization expenses,
relate to both company operated restaurants and franchise operations.
On September 20, 2002, we formed Neighborhood Insurance, Inc., a Vermont
corporation and a wholly-owned subsidiary, as a captive insurance company.
Neighborhood Insurance, Inc. was established to provide Applebee's
International, Inc. and qualified franchisees with workers' compensation and
general liability insurance. Applebee's International, Inc. and covered
franchisees make premium payments to the captive insurance company which pays
administrative fees and insurance claims, subject to individual and aggregate
maximum claim limits under the captive insurance company's reinsurance policies.
Franchisee premium amounts billed by the captive insurance company were
established based upon third-party actuarial estimates of settlement costs for
incurred claims and administrative fees. The franchisee premiums are included in
other franchise income ratably over the policy year. The related offsetting
expenses are included in cost of other franchise income. Accordingly, we do not
expect franchisee participation in the captive insurance company to have an
impact on our net earnings. We have recognized approximately $2,400,000 in both
revenues and expenses in the consolidated statements of earnings for the
thirteen weeks ended March 30, 2003. Our third-party administrator is currently
holding the cash received from franchisees and will remit the cash to our
captive insurance company, as collected, once certain agreements have been
finalized. A portion of these cash receipts will be restricted to the payment of
insurance claims and fees.
13
We operate on a 52 or 53 week fiscal year ending on the last Sunday in December.
Our fiscal quarters ended March 30, 2003 and March 31, 2002 each contained 13
weeks and are referred to hereafter as the "2003 quarter" and the "2002
quarter," respectively.
Application of Critical Accounting Policies
Management's Discussion and Analysis of Financial Condition and Results of
Operations is based upon our consolidated financial statements, which were
prepared in accordance with accounting principles generally accepted in the
United States of America. These principles require us to make estimates and
assumptions that affect the reported amounts in the consolidated financial
statements and notes thereto. Actual results may differ from these estimates,
and such differences may be material to the consolidated financial statements.
We believe that the following significant accounting policies involve a higher
degree of judgement or complexity (see Note 2 of our Consolidated Financial
Statements in our Annual Report on Form 10-K for the fiscal year ended December
29, 2002 for a complete discussion of our significant accounting policies).
Franchise revenues: Franchise revenues consist of franchise royalties, franchise
fees and other franchise income. We recognize royalties on a franchisee's sales
in the period in which the sales occur. We also receive a franchise fee for each
restaurant that a franchisee opens. Franchise fees are deferred until we have
performed substantially all of our related obligations as franchisor, typically
when the restaurant opens. Other franchise income includes insurance premiums
from franchisee participation in our captive insurance company and revenue from
information technology products and services provided to certain franchisees.
Property and equipment: Property and equipment are depreciated on a
straight-line basis over the estimated useful lives of the assets. The useful
lives of the assets are based upon management's expectations. We periodically
review the assets for changes in circumstances which may impact their useful
lives.
Impairment of long-lived assets: We periodically review property and equipment
for impairment using historical cash flows as well as current estimates of
future cash flows and/or appraisals. This assessment process requires the use of
estimates and assumptions which are subject to a significant degree of
judgement. In addition, we periodically assess the recoverability of goodwill
and other intangible assets, which requires us to make assumptions regarding the
future cash flows and other factors to determine the fair value of the assets.
If these assumptions change in the future, we may be required to record
impairment charges for these assets.
Legal and insurance reserves: We are periodically involved in various legal
actions. We are required to assess the probability of any adverse judgments as
well as the potential range of loss. We determine the required accruals after a
review of the facts of each legal action.
We use estimates in the determination of the appropriate liabilities for general
liability, workers' compensation and health insurance. The estimated liability
is established based upon historical claims data and third-party actuarial
estimates of settlement costs for incurred claims. Unanticipated changes in
these factors may require us to revise our estimates.
Employee incentive compensation plans: We have various long-term employee
incentive compensation plans which require us to make estimates to determine our
liability based upon projected performance of plan criteria. If actual
performance against the criteria differs from our estimates in the future, we
will be required to adjust our liability accordingly.
14
Receivables: We continually assess the collectibility of our franchise
receivables. We establish our allowance for bad debts based on several factors,
including historical collection experience, the current economic environment and
other specific information available to us at the time. The allowance for bad
debts may change in the future due to changes in the factors above or other new
developments.
We periodically reassess our assumptions and judgements and make adjustments
when significant facts and circumstances dictate. A change in any of the above
estimates could impact our consolidated statements of earnings and the related
asset or liability recorded in the consolidated balance sheets would be adjusted
accordingly. Historically, actual results have not been materially different
than the estimates that are described above.
Acquisitions
On November 7, 2002, we acquired the operations and assets of 21 Applebee's
restaurants located in the Washington, D.C. area from a franchisee. Under the
terms of the purchase agreement and the agreement with the franchisee's secured
lender, the total purchase price of the acquisition was $34,250,000. The
agreement also provides for additional consideration in July 2004 if the
restaurants achieve cash flows in excess of historical levels. Our financial
statements reflect the results of operations for these restaurants subsequent to
the date of acquisition.
On March 24, 2003, we acquired the operations and assets of 11 Applebee's
restaurants located in Illinois, Indiana, Kentucky and Missouri for $21,800,000
in cash and $1,400,000 in assumed debt from a franchisee. Our financial
statements reflect the results of operations for these restaurants subsequent to
the date of acquisition.
Actual company restaurant sales included in our consolidated financial
statements for these restaurants were approximately $12,000,000 for the thirteen
weeks ended March 30, 2003. Company restaurant sales for these restaurants would
have been approximately $18,000,000 and $16,700,000 for the thirteen weeks ended
March 30, 2003 and March 31, 2002, respectively, had the acquisitions occurred
at the beginning of each respective period.
15
Results of Operations
The following table contains information derived from our consolidated
statements of earnings expressed as a percentage of total operating revenues,
except where otherwise noted. Percentages may not add due to rounding.
13 Weeks Ended
----------------------------------
March 30, March 31,
2003 2002
--------------- ---------------
Revenues:
Company restaurant sales.................................... 87.5% 87.5%
Franchise royalties and fees................................ 11.4 12.4
Other franchise income...................................... 1.1 0.1
--------------- ---------------
Total operating revenues................................. 100.0% 100.0%
=============== ===============
Cost of sales (as a percentage of company restaurant sales):
Food and beverage........................................... 26.3% 27.1%
Labor....................................................... 32.8 32.8
Direct and occupancy........................................ 24.3 24.5
Pre-opening expense......................................... 0.1 0.2
--------------- ---------------
Total cost of sales...................................... 83.5% 84.6%
=============== ===============
Cost of other franchise income (as a percentage of other
franchise income)........................................... 94.7% 44.8%
General and administrative expenses.............................. 9.5 9.7
Amortization of intangible assets................................ -- 0.1
Loss on disposition of restaurants and equipment................. 0.2 0.1
--------------- ---------------
Operating earnings............................................... 16.2 16.0
--------------- ---------------
Other income (expense):
Investment income........................................... 0.1 0.2
Interest expense............................................ (0.2) (0.3)
Other income................................................ 0.1 0.1
--------------- ---------------
Total other income (expense)............................. -- (0.1)
--------------- ---------------
Earnings before income taxes..................................... 16.2 16.0
Income taxes..................................................... 5.9 5.8
--------------- ---------------
Net earnings..................................................... 10.3% 10.1%
=============== ===============
16
The following table sets forth certain unaudited financial information and other
restaurant data relating to company and franchise restaurants, as reported to us
by franchisees:
13 Weeks Ended
-----------------------------------------
March 30, March 31,
2003 2002
------------------- -------------------
Number of restaurants:
Company:
Beginning of period........................................ 357 310
Restaurant openings........................................ 3 4
Restaurants acquired from franchisees...................... 11 --
------------------- -------------------
End of period.............................................. 371 314
------------------- -------------------
Franchise:
Beginning of period........................................ 1,139 1,082
Restaurant openings........................................ 16 9
Restaurant closings........................................ (2) (1)
Restaurants acquired from franchisees...................... (11) --
------------------- -------------------
End of period.............................................. 1,142 1,090
------------------- -------------------
Total:
Beginning of period........................................ 1,496 1,392
Restaurant openings........................................ 19 13
Restaurant closings........................................ (2) (1)
------------------- -------------------
End of period.............................................. 1,513 1,404
=================== ===================
Weighted average weekly sales per restaurant:
Company.................................................... $ 44,666 $ 43,235
Franchise.................................................. $ 45,424 $ 44,088
Total...................................................... $ 45,243 $ 43,897
Change in comparable restaurant sales:(1)
Company.................................................... 4.6% 1.5%
Franchise.................................................. 2.9% 4.1%
Total...................................................... 3.3% 3.5%
Total system sales (in thousands)................................... $ 884,722 $ 795,065
--------
(1) When computing comparable restaurant sales, restaurants open for at least
18 months are compared from period to period.
17
Company Restaurant Sales. Total company restaurant sales increased $33,437,000
(19%) from $174,973,000 in the 2002 quarter to $208,410,000 in the 2003 quarter.
Company restaurant openings contributed approximately 8% of the 19% increase in
total company restaurant sales. The remaining increase was due to the
acquisitions of 21 franchise restaurants in the Washington, D.C. area in
November 2002 and 11 restaurants in Illinois, Indiana, Kentucky and Missouri in
late March 2003 as well as increases in weighted average weekly sales.
Comparable restaurant sales at company restaurants increased by 4.6% in the 2003
quarter. Weighted average weekly sales at company restaurants increased 3.3%
from $43,235 in the 2002 quarter to $44,666 in the 2003 quarter. These increases
were due primarily to increases in guest traffic and in the average guest check
resulting from our food promotions. In addition, a portion of the increase
resulted from the implementation of our To Go initiative and menu price
increases of approximately 1.5% in the 2003 quarter. To Go sales mix increased
from 4.5% of company restaurant sales in the 2002 quarter to 6.8% of company
restaurant sales in the 2003 quarter.
Franchise Royalties and Fees. Franchise royalties and fees increased $2,323,000
(9%) from $24,840,000 in the 2002 quarter to $27,163,000 in the 2003 quarter.
The increased number of franchise restaurants operating during the 2003 quarter
as compared to the 2002 quarter contributed approximately 6% of the 9% total
increase in franchise royalties and fees, net of our restaurant acquisitions.
The remaining increase was due primarily to increases in weighted average weekly
sales. Comparable restaurant sales and weighted average weekly sales for
franchise restaurants increased 2.9% and 3.0%, respectively, in the 2003
quarter.
Other Franchise Income. Other franchise income increased from $134,000 in the
2002 quarter to $2,641,000 in the 2003 quarter due primarily to revenues
recognized related to the franchisee premium amounts billed by the captive
insurance company which was formed in September 2002. Franchisee premiums are
included in other franchise income ratably over the policy year.
Cost of Company Restaurant Sales. Food and beverage costs decreased from 27.1%
in the 2002 quarter to 26.3% in the 2003 quarter, due primarily to lower beef
usage related to our menu promotions and operational improvements resulting from
our supply chain management initiatives.
Labor costs were 32.8% in both the 2002 quarter and the 2003 quarter. The 2003
quarter was favorably impacted by lower incentive compensation which was offset
by higher workers' compensation and health insurance costs.
Direct and occupancy costs decreased from 24.5% in the 2002 quarter to 24.3% in
the 2003 quarter due primarily to a decrease in advertising costs, as a
percentage of sales, which was partially offset by higher packaging costs
relating to our To Go initiative.
Cost of Other Franchise Income. Cost of other franchise income increased from
$60,000 in the 2002 quarter to $2,500,000 in the 2003 quarter due primarily to
the costs related to the operation of our captive insurance company which was
formed in September 2002.
General and Administrative Expenses. General and administrative expenses
decreased in the 2003 quarter to 9.5% from 9.7% in the 2002 quarter, due
primarily to lower legal fees and expenses during the 2003 quarter and the
absorption of general and administrative expenses over a larger revenue base.
Income Taxes. The effective income tax rate, as a percentage of earnings before
income taxes, decreased from 36.5% in the 2002 quarter to 36.2% in the 2003
quarter due to lower state and local income taxes.
18
Liquidity and Capital Resources
Our need for capital historically has resulted from the construction and
acquisition of restaurants, investment in information technology systems and the
repurchase of our common shares. In the past, we have obtained capital through
public stock offerings, debt financing, and our ongoing operations. Cash flows
from our ongoing operations include cash generated from company and franchise
operations, credit from trade suppliers, real estate lease financing, and
landlord contributions to leasehold improvements. We have also used our common
stock as consideration in the acquisition of restaurants. In addition, we have
assumed debt or issued new debt in connection with certain mergers and
acquisitions.
Capital expenditures were $64,874,000 in fiscal year 2002 (excluding $34,250,000
related to the acquisition of 21 restaurants in the Washington, D.C. area) and
$10,215,000 in the 2003 quarter (excluding the acquisition of 11 restaurants on
March 24, 2003). We currently expect to open approximately 25 company
restaurants, and capital expenditures excluding acquisitions are expected to be
between $65,000,000 and $75,000,000 in 2003. These expenditures will primarily
be for the development of new restaurants, refurbishment and capital replacement
for existing restaurants, and the enhancement of information systems. Because we
expect to continue to purchase a portion of our sites, the amount of actual
capital expenditures will be dependent upon, among other things, the proportion
of leased versus owned properties. In addition, if we open more restaurants than
we currently anticipate or acquire additional restaurants, our capital
requirements will increase accordingly.
On November 7, 2002, we acquired the operations and assets of 21 Applebee's
restaurants located in the Washington, D.C. area from a franchisee. Under the
terms of the purchase agreement and the agreement with the franchisee's secured
lender, the total purchase price of the acquisition was $34,250,000. The
agreement also provides for additional consideration in July 2004 if the
restaurants achieve cash flows in excess of historical levels. Our financial
statements reflect the results of operations for these restaurants subsequent to
the date of acquisition.
On March 24, 2003, we acquired the operations and assets of 11 Applebee's
restaurants located in Illinois, Indiana, Kentucky and Missouri for $21,800,000
in cash and $1,400,000 in assumed debt from a franchisee. The total cash payment
includes $20,800,000 paid at closing, approximately $200,000 paid as a deposit
in fiscal 2002 and approximately $800,000 to be paid when certain contractual
conditions have been met. Our financial statements reflect the results of
operations for these restaurants subsequent to the date of acquisition.
Our bank credit agreement provides for a $150,000,000 three-year unsecured
revolving credit facility, of which $25,000,000 may be used for the issuance of
letters of credit. The facility is subject to various covenants and restrictions
which, among other things, require the maintenance of stipulated fixed charge,
leverage and indebtedness to capitalization ratios, as defined, and limit
additional indebtedness and capital expenditures in excess of specified amounts.
Cash dividends are limited to $10,000,000 annually. The facility is subject to
standard other terms, conditions, covenants, and fees. We are currently in
compliance with the covenants contained in our credit agreement. As of March 30,
2003, we had borrowings of $53,000,000 and standby letters of credit of
$9,116,000 outstanding under our revolving credit facility. We also had a
standby letter of credit for $827,000 outstanding with another financial
institution.
In May 2002, our Board of Directors authorized an additional repurchase of
$75,000,000 of our common stock through May 2005. During the 2003 quarter, we
repurchased 545,000 shares at an average cost of $24.37 for an aggregate cost of
$13,300,000. As of March 30, 2003, we had $56,200,000 remaining under the 2002
authorization.
19
As of March 30, 2003, our liquid assets totaled $10,276,000. These assets
consisted of cash and cash equivalents in the amount of $9,805,000 and
short-term investments in the amount of $471,000. The working capital deficit
decreased from $45,607,000 as of December 29, 2002 to $42,026,000 as of March
30, 2003. This decrease was due primarily to the redemption of gift certificates
in the 2003 quarter sold in 2002 and were partially offset by decreases in cash
and cash equivalents due to the acquisition of 11 restaurants in Illinois,
Indiana, Kentucky and Missouri and repurchases of our common stock.
We believe that our liquid assets and cash generated from operations, combined
with borrowings available under our credit facilities, will provide sufficient
funds for our operating, capital and other requirements for the foreseeable
future.
The following table shows our debt amortization schedule, our future capital
lease commitments (including principal and interest payments) and our future
operating lease commitments as of March 30, 2003 (in thousands):
Payments due by period
-----------------------------------------------------------------------
Certain Less than 1 1-3 3-5 More than 5
Contractual Obligations Total year years years years
------------------------------------------- -------------- ------------- ------------- ----------- ----------------
Long-term Debt (excluding capital
lease obligations)................ $ 55,053 $ 441 $ 53,235 $ 173 $ 1,204
Capital Lease Obligations................ $ 10,363 $ 722 $ 1,542 $ 1,625 $ 6,474
Operating Leases......................... $ 216,362 $ 18,292 $ 34,411 $ 32,874 $ 130,785
In addition, we have outstanding lease guarantees of approximately $23,900,000
as of March 30, 2003 (see Note 3 to our Consolidated Financial Statements).
Inflation
Substantial increases in costs and expenses could impact our operating results
to the extent such increases cannot be passed along to customers. In particular,
increases in food, supplies, labor and operating expenses could have a
significant impact on our operating results. We do not believe that inflation
has materially affected our operating results during the past three years.
A majority of our employees are paid hourly rates related to federal and state
minimum wage laws and various laws that allow for credits to that wage. The
Federal government continues to consider an increase in the minimum wage.
Several state governments have increased the minimum wage and other state
governments are also considering an increased minimum wage. In the past, we have
been able to pass along cost increases to customers through food and beverage
price increases, and we will attempt to do so in the future. We cannot
guarantee, however, that all future cost increases can be reflected in our
prices or that increased prices will be absorbed by customers without at least
somewhat diminishing customer spending in our restaurants.
20
New Accounting Pronouncements
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement requires that a liability for
a cost associated with an exit or disposal activity be recognized only when the
liability is incurred and measured at fair value. SFAS No. 146 is effective for
exit or disposal activities that are initiated after December 31, 2002. The
initial adoption of this Statement did not have a material impact on our results
of operations or financial position.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others." Interpretation No. 45 supersedes Interpretation No. 34,
"Disclosure of Indirect Guarantees of Indebtedness of Others," and provides
guidance to guarantors on the recognition and disclosure concerning obligations
under certain guarantees in interim and annual financial statements. The initial
recognition and measurement provisions of Interpretation No. 45 are effective
for guarantees issued or modified after December 31, 2002, and are to be applied
prospectively. The disclosure requirements were effective for financial
statements for interim or annual periods ending after December 15, 2002. We
adopted the initial recognition provisions of Interpretation No. 45 in January
of 2003. The initial adoption of Interpretation No. 45 did not have a material
impact on our results of operations or financial position.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," and provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. This Statement also amends the disclosure
requirements of SFAS No. 123 to require prominent disclosure in annual and
interim financial statements about the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of SFAS No. 148 are
effective for financial statements issued for fiscal years ending after December
15, 2002. The interim disclosure provisions of this Statement were effective for
financial reports containing financial statements for interim periods beginning
after December 15, 2002. We have adopted the disclosure provisions of SFAS No.
148.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51." This
Interpretation provides clarification on the consolidation of certain entities
in which equity investors do not have sufficient equity at risk for the entity
to finance its activities without additional subordinated financial support from
other parties. Such entities are defined as variable interest entities ("VIEs").
This Interpretation requires that VIEs be consolidated by the entity considered
to be the primary beneficiary of the VIE. The Interpretation is effective
immediately for newly created VIEs after January 31, 2003 and effective in the
second quarter 2003 for any VIEs created prior to February 1, 2003. We have
evaluated our relationships with potential unconsolidated entities which may
meet the consolidation requirements of this Interpretation, and we do not
believe the adoption will have a material impact on our consolidated financial
statements.
21
Forward-Looking Statements
The statements contained in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section regarding restaurant
development, capital expenditures and financial commitments 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. These
risks include but are not limited to our ability and the ability of our
franchisees to open and operate additional restaurants profitably, the ability
of our franchisees to obtain financing, the continued growth of our franchisees,
our ability to attract and retain qualified franchisees, the impact of intense
competition in the casual dining segment of the restaurant industry, and our
ability to control restaurant operating costs which are impacted by market
changes, minimum wage and other employment laws, food costs and inflation. For a
more detailed discussion of the principal factors that could cause actual
results to be materially different, you should read our current report on Form
8-K which we filed with the Securities and Exchange Commission on February 12,
2003. We disclaim any obligation to update forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from fluctuations in interest rates and changes in
commodity prices. Our revolving credit facility bears interest at either the
bank's prime rate or LIBOR plus 1.0%, at our option. As of March 30, 2003, the
total amount of debt subject to interest rate fluctuations was $53,000,000 which
was outstanding on our revolving credit facility. A 1% change in interest rates
would result in an increase or decrease in interest expense of $530,000 per
year. We may from time to time enter into interest rate swap agreements to
manage the impact of interest rate changes on our earnings. Many of the food
products we purchase are subject to price volatility due to factors that are
outside of our control such as weather and seasonality. As part of our strategy
to moderate this volatility, we have entered into fixed price purchase
commitments.
Item 4. Controls and Procedures
Within ninety days prior to the filing of this report, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures under the supervision and with the participation of the Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"). Based on this
evaluation, our management, including the CEO and CFO, concluded that our
disclosure controls and procedures were effective. There have been no
significant changes in our internal controls or in other factors that could
significantly affect internal controls subsequent to the date of their
evaluation.
22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in various legal actions which include, without limitation,
employment law related matters, dram shop claims, personal injury claims and
other such normal restaurant operational matters. In each instance, we believe
that we have meritorious defenses to the allegations made and we are vigorously
defending these claims.
While the resolution of the matters described above may have an impact on our
financial results for the period in which they are resolved, we believe that the
ultimate disposition of these matters will not, individually or in the
aggregate, have a material adverse effect upon our business or consolidated
financial position.
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) We filed a report on Form 8-K on January 8, 2003 announcing
the approval by our Board of Directors of an amendment of our
Shareholder Rights Plan.
We furnished a report on Form 8-K on January 10, 2003
announcing our presentation at the SG Cowen Consumer
Conference.
We filed a report on Form 8-K on January 13, 2003 reporting
December comparable sales and updating fourth quarter earnings
guidance and our 2003 outlook.
We filed a report on Form 8-K on January 23, 2003 announcing
an agreement to acquire 11 franchise restaurants.
We filed a report on Form 8-K on January 28, 2003 reporting
January comparable sales and announcing the webcast of our
fourth quarter earnings conference call over the Internet.
We filed a report on Form 8-K on February 12, 2003 reporting
fourth quarter earnings per share and full year 2002 earnings
per share.
We filed a report on Form 8-K on February 12, 2003 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 we project in forward-looking
statements.
We furnished a report on Form 8-K on February 21, 2003
announcing our presentation at the Bear Stearns Ninth Annual
Retail, Restaurants & Apparel Conference.
We filed a report on Form 8-K on February 25, 2003 reporting
February comparable sales.
23
We furnished a report on Form 8-K on February 28, 2003
announcing our presentation at the Raymond James Institutional
Investors Conference.
We filed a report on Form 8-K on March 25, 2003 announcing the
completion of our acquisition of 11 franchise restaurants.
We furnished a report on Form 8-K on March 28, 2003 announcing
our presentation at the Banc of America Securities Consumer
Conference.
24
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 30, 2003 By: /s/ Lloyd L. Hill
-------------------- ---------------------------------------
Lloyd L. Hill
Chairman and Chief Executive Officer
(principal executive officer)
Date: April 30, 2003 By: /s/ Steven K. Lumpkin
-------------------- ---------------------------------------
Steven K. Lumpkin
Executive Vice President and
Chief Financial Officer
(principal financial officer)
Date: April 30, 2003 By: /s/ Beverly O. Elving
-------------------- ---------------------------------------
Beverly O. Elving
Vice President, Accounting
(principal accounting officer)
25
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lloyd L. Hill, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Applebee's
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 30, 2003 By: /s/ Lloyd L. Hill
-------------------- ---------------------------------------
Lloyd L. Hill
Chairman and Chief Executive Officer
(principal executive officer)
26
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven K. Lumpkin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Applebee's
International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 30, 2003 By: /s/ Steven K. Lumpkin
--------------------- ---------------------------------------
Steven K. Lumpkin
Executive Vice President and
Chief Financial Officer
(principal financial officer)
27
APPLEBEE'S INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------- ------------------------------------------------------------------
10.1 Amendment to 1995 Equity Incentive Plan.
99.1 Certifications of Chairman and Chief Executive Officer and
Executive Vice President and Chief Financial Officer.
28