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 September 29, 2002
--------------------------------------------------
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
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(Address of principal executive offices and zip code)
(913) 967-4000
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(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
----- -----
Number of shares of the registrant's common stock outstanding as of November 1,
2002 was 55,250,390.
1
APPLEBEE'S INTERNATIONAL, INC.
FORM 10-Q
FISCAL QUARTER ENDED SEPTEMBER 29, 2002
INDEX
Page
Part I Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of September 29, 2002
and December 30, 2001................................................................ 3
Consolidated Statements of Earnings for the 13 Weeks and 39 Weeks
Ended September 29, 2002 and September 30, 2001...................................... 4
Consolidated Statement of Stockholders' Equity for the
39 Weeks Ended September 29, 2002.................................................... 5
Consolidated Statements of Cash Flows for the 39 Weeks
Ended September 29, 2002 and September 30, 2001...................................... 6
Notes to Consolidated Financial Statements.............................................. 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................ 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................. 20
Item 4. Controls and Procedures................................................................. 20
Part II Other Information
Item 1. Legal Proceedings....................................................................... 21
Item 6. Exhibits and Reports on Form 8-K........................................................ 21
Signatures ................................................................................................. 22
Exhibit Index............................................................................................... 25
2
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
September 29, December 30,
2002 2001
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 7,522 $ 22,048
Short-term investments, at market value (amortized cost of $478 in 2002 and
$677 in 2001)................................................................ 504 699
Receivables (less allowance for bad debts of $5,443 in 2002 and $4,343 in 2001). 25,207 22,827
Inventories..................................................................... 7,070 10,165
Prepaid and other current assets................................................ 13,782 12,260
-------------- -------------
Total current assets......................................................... 54,085 67,999
Property and equipment, net.......................................................... 353,730 330,924
Goodwill, net........................................................................ 78,614 78,614
Franchise interest and rights, net................................................... 1,551 1,800
Other assets......................................................................... 20,864 21,074
-------------- -------------
$ 508,844 $ 500,411
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................................... $ 375 $ 43
Notes payable................................................................... 3,500 --
Accounts payable................................................................ 28,106 22,196
Accrued expenses and other current liabilities.................................. 63,894 71,551
Accrued dividends............................................................... -- 2,977
Accrued income taxes............................................................ 1,919 979
-------------- -------------
Total current liabilities.................................................... 97,794 97,746
-------------- -------------
Non-current liabilities:
Long-term debt - less current portion........................................... 35,192 74,525
Franchise deposits.............................................................. 1,182 1,515
Deferred income taxes........................................................... 2,026 1,442
-------------- -------------
Total non-current liabilities................................................ 38,400 77,482
-------------- -------------
Total liabilities............................................................ 136,194 175,228
-------------- -------------
Commitments and contingencies (Note 2)
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...................................................... 186,055 180,802
Retained earnings............................................................... 417,652 354,950
Accumulated other comprehensive income, net of income taxes .................... 17 14
-------------- -------------
604,447 536,489
Treasury stock - 17,123,011 shares in 2002 and 16,522,099 shares in 2001, at
cost......................................................................... (231,797) (211,306)
-------------- -------------
Total stockholders' equity................................................... 372,650 325,183
-------------- -------------
$ 508,844 $ 500,411
============== =============
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 39 Weeks Ended
------------------------------ ------------------------------
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
------------- -------------- ------------- -------------
Revenues:
Company restaurant sales.................... $ 182,807 $ 164,238 $ 536,673 $ 486,416
Franchise income............................ 26,033 23,787 76,357 69,906
------------- -------------- ------------- -------------
Total operating revenues................. 208,840 188,025 613,030 556,322
------------- -------------- ------------- -------------
Cost of company restaurant sales:
Food and beverage........................... 47,765 44,489 142,245 131,427
Labor....................................... 60,054 52,864 176,392 155,297
Direct and occupancy........................ 47,009 41,459 134,172 123,322
Pre-opening expense......................... 792 632 1,432 899
------------- -------------- ------------- -------------
Total cost of company restaurant sales... 155,620 139,444 454,241 410,945
------------- -------------- ------------- -------------
General and administrative expenses.............. 20,049 19,197 58,848 54,448
Amortization of intangible assets................ 95 1,463 285 4,388
Loss on disposition of restaurants and equipment. 458 329 1,479 1,087
------------- -------------- ------------- -------------
Operating earnings............................... 32,618 27,592 98,177 85,454
------------- -------------- ------------- -------------
Other income (expense):
Investment income........................... 346 479 1,124 1,251
Interest expense............................ (414) (1,831) (1,602) (6,231)
Other income................................ 513 322 1,096 797
------------- -------------- ------------- -------------
Total other income (expense)............. 445 (1,030) 618 (4,183)
------------- -------------- ------------- -------------
Earnings before income taxes..................... 33,063 26,562 98,795 81,271
Income taxes..................................... 12,068 9,776 36,060 29,908
------------- -------------- ------------- -------------
Net earnings..................................... $ 20,995 $ 16,786 $ 62,735 $ 51,363
============= ============== ============= =============
Basic net earnings per common share.............. $ 0.38 $ 0.30 $ 1.12 $ 0.93
============= ============== ============= =============
Diluted net earnings per common share............ $ 0.37 $ 0.30 $ 1.10 $ 0.91
============= ============== ============= =============
Basic weighted average shares outstanding........ 55,654 55,366 55,801 55,470
============= ============== ============= =============
Diluted weighted average shares outstanding...... 56,714 56,821 57,119 56,736
============= ============== ============= =============
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 Stock Equity
--------------- -------- ------------ ---------- ------------- ------------ ----------------
Balance, December 30, 2001............. 72,336,788 $ 723 $ 180,802 $ 354,950 $ 14 $(211,306) $ 325,183
Comprehensive income:
Net earnings...................... -- -- -- 62,735 -- -- 62,735
Change in unrealized gain on
short-term investments,
net of income taxes............. -- -- -- -- 3 -- 3
--------------- -------- ------------ ---------- ------------- ------------ ----------------
Total comprehensive income.......... -- -- -- 62,735 3 -- 62,738
--------------- -------- ------------ ---------- ------------- ------------ ----------------
Purchases of treasury stock......... -- -- -- -- -- (26,113) (26,113)
Stock options exercised and
related tax benefit............... -- -- 1,898 -- -- 3,290 5,188
Shares issued under employee
stock and 401(k) plans............ -- -- 2,390 -- -- 1,839 4,229
Restricted shares awarded
under equity incentive plan....... -- -- 8 -- -- 493 501
Unearned compensation relating
to restricted shares.............. -- -- 467 -- -- -- 467
Repayments of notes receivable from
officers for stock sales.......... -- -- 490 -- -- -- 490
Dividends paid for fractional shares -- -- -- (33) -- -- (33)
--------------- -------- ------------ --- ------ ------------- ------------ ----------------
Balance, September 29, 2002............ 72,336,788 $ 723 $ 186,055 $ 417,652 $ 17 $(231,797) $ 372,650
=============== ======== ============ ========== ============= ============ ================
See notes to consolidated financial statements.
5
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
39 Weeks Ended
-----------------------------------
September 29, September 30,
2002 2001
--------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings..................................................... $ 62,735 $ 51,363
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization................................. 25,812 23,544
Amortization of intangible assets............................. 285 4,388
Amortization of deferred financing costs...................... 145 544
Deferred income tax benefit (provision)....................... 635 (3,503)
Loss on disposition of restaurants and equipment.............. 1,479 1,087
Income tax benefit from exercise of options................... 1,397 3,017
Changes in assets and liabilities:
Receivables................................................... (2,380) (209)
Inventories................................................... 3,095 2,668
Prepaid and other current assets.............................. (1,574) (1,205)
Accounts payable.............................................. 5,910 (3,689)
Accrued expenses and other current liabilities................ (5,263) (471)
Accrued income taxes.......................................... 940 9,854
Franchise deposits............................................ (333) (140)
Other......................................................... 1,371 (1,897)
--------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES..................... 94,254 85,351
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.............................. (49,680) (38,181)
Proceeds from sale of restaurants and equipment.................. 3 433
Purchases of short-term investments.............................. (150) (149)
Maturities and sales of short-term investments................... 350 474
--------------- ----------------
NET CASH USED BY INVESTING ACTIVITIES......................... (49,477) (37,423)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock...................................... (26,113) (44,987)
Dividends paid................................................... (3,010) (2,779)
Issuance of common stock upon exercise of stock options.......... 3,791 13,049
Shares sold under employee stock purchase plan................... 1,529 828
Proceeds from issuance of notes payable.......................... 3,500 --
Payments on long-term debt....................................... (39,000) (11,430)
--------------- ----------------
NET CASH USED BY FINANCING ACTIVITIES......................... (59,303) (45,319)
--------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. (14,526) 2,609
CASH AND CASH EQUIVALENTS, beginning of period........................ 22,048 10,763
--------------- ----------------
CASH AND CASH EQUIVALENTS, end of period.............................. $ 7,522 $ 13,372
=============== ================
See notes to consolidated financial statements.
6
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
(in thousands)
39 Weeks Ended
-------------------------------------
September 29, September 30,
2002 2001
---------------- -----------------
Supplemental disclosures of cash flow information:
Cash paid during the 39 week period for:
Income taxes........................................................ $ 30,172 $ 20,483
================ =================
Interest............................................................ $ 1,159 $ 5,676
================ =================
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
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
30, 2001 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 30, 2001.
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 2002 presentation.
2. Commitments and Contingencies
Litigation, claims and disputes: We are involved in various legal actions
arising in the normal course of business. These matters include, without
limitation, such matters as employment law related claims and disputes with two
international franchisees regarding disclosures we allegedly made or omitted. 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 the
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 guaranties: 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 September 29, 2002, the aggregate amount of
these remaining lease payments totaled approximately $25,200,000. The buyers
have indemnified us from any losses related to these guaranties.
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 September 29, 2002, we would have been required to
make payments totaling approximately $7,900,000. 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 $5,900,000 if such officers had
been terminated as of September 29, 2002.
8
3. 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
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 39 Weeks Ended
----------------------------------------------------------------
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Net earnings...................................... $ 20,995 $ 16,786 $ 62,735 $ 51,363
=============== =============== =============== ===============
Basic weighted average shares outstanding......... 55,654 55,366 55,801 55,470
Dilutive effect of stock options and
performance shares........................... 1,060 1,455 1,318 1,266
--------------- --------------- --------------- ---------------
Diluted weighted average shares outstanding....... 56,714 56,821 57,119 56,736
=============== =============== =============== ===============
Basic net earnings per common share............... $ 0.38 $ 0.30 $ 1.12 $ 0.93
=============== =============== =============== ===============
Diluted net earnings per common share............. $ 0.37 $ 0.30 $ 1.10 $ 0.91
=============== =============== =============== ===============
4. Stock Split
On May 9, 2002, we declared a three-for-two stock split, effected in the form of
a 50% stock dividend, to shareholders of record on May 24, 2002, payable on June
11, 2002. We issued approximately 24,100,000 shares of common stock as a result
of the stock split. All references to the number of shares and per share amounts
of common stock have been restated to reflect the stock split. We have
reclassified an amount equal to the par value of the number of shares issued to
common stock from retained earnings.
5. Goodwill and Other Intangible Assets
We adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets", effective December 31, 2001. SFAS No.
142 requires that an intangible asset that is acquired shall be initially
recognized and measured based on its fair value. This Statement also provides
that goodwill should not be amortized, but shall be tested for impairment
annually, or more frequently if circumstances indicate potential impairment,
through a comparison of fair value to its carrying amount. In the first quarter
of fiscal 2002, we completed the first step of the required two-step goodwill
impairment testing and ceased amortization of goodwill. The first step of the
impairment test required us to compare the fair value of each reporting unit to
its carrying value to determine whether there was an indication that an
impairment existed. If there had been an indication of impairment, we would have
allocated the fair value of the reporting unit to its assets and liabilities as
if the reporting unit had been acquired in a business combination. No impairment
losses were recorded upon the initial adoption of SFAS No. 142.
9
The effect of the adoption of SFAS No. 142 on net income and earnings per share
is as follows (in thousands, except per share amounts. May not add due to
rounding):
13 Weeks Ended 39 Weeks Ended
----------------------------------------------------------------
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
Net earnings, as reported......................... $ 20,995 $ 16,786 $ 62,735 $ 51,363
Goodwill amortization (net of income taxes)....... -- 837 -- 2,512
--------------- --------------- --------------- ---------------
Net earnings, as adjusted......................... $ 20,995 $ 17,623 $ 62,735 $ 53,875
=============== =============== =============== ===============
Basic net earnings per common share,
as reported................................... $ 0.38 $ 0.30 $ 1.12 $ 0.93
Goodwill amortization (net of income taxes)....... -- 0.02 -- 0.05
--------------- --------------- --------------- ---------------
Basic net earnings per common share,
as reported................................... $ 0.38 $ 0.32 $ 1.12 $ 0.97
=============== =============== =============== ===============
Diluted net earnings per common share,
as reported................................... $ 0.37 $ 0.30 $ 1.10 $ 0.91
Goodwill amortization (net of income taxes)....... -- 0.01 -- 0.04
--------------- --------------- --------------- ---------------
Diluted net earnings per common share,
as reported $ 0.37 $ 0.31 $ 1.10 $ 0.95
=============== =============== =============== ===============
Intangible assets subject to amortization pursuant to SFAS No. 142 consist
primarily of franchise interest and rights and are summarized below (in
thousands):
September 29, December 30,
2002 2001
------------------ ------------------
Gross carrying amount $6,371 $6,371
Less, accumulated amortization 4,820 4,571
------------------ ------------------
Net $1,551 $1,800
================== ==================
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. New Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets", which
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" and the accounting and reporting
provisions of APB No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." SFAS No. 144 retains many of
the provisions of SFAS No. 121, but addresses certain implementation issues
associated with that Statement. We adopted SFAS No. 144 effective December 31,
2001. The adoption of SFAS No. 144 did not have a material impact on our
consolidated financial statements.
10
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS Nos. 4 and 64 required gains and losses from extinguishment of debt to be
classified as extraordinary items. SFAS No. 145 rescinds this requirement and
stipulates that gains or losses on extinguishment of debt would have to meet the
criteria of APB Opinion No. 30 to be classified as an extraordinary item. In
addition, any extraordinary gains or losses on extinguishment of debt in prior
periods presented would require reclassification. SFAS No. 145 is effective for
fiscal years beginning after May 15, 2002. We are currently evaluating the
impact of this Statement.
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. We do
not expect the initial adoption of this Statement to have a material impact on
our results of operations or financial position.
7. Subsequent Event
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 $34.3 million, subject
to adjustment. The agreement also provides for additional payments if the
restaurants achieve cash flows in excess of historical levels in the first 18
months after the closing of the acquisition. Our financial statements will
reflect the results of operations for these restaurants subsequent to the date
of acquisition.
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Our revenues are generated from two primary sources:
o Company restaurant sales (food and beverage sales)
o Franchise income
Franchise income consists 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 restaurant opened). Beverage
sales represent sales of alcoholic beverages, while non-alcoholic beverages are
included in food sales.
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
Other expenses, such as general and administrative and amortization expenses,
relate to both company operated restaurants and franchise operations.
We operate on a 52 or 53 week fiscal year ending on the last Sunday in December.
Our fiscal quarters ended September 29, 2002 and September 30, 2001 each
contained 13 weeks and are referred to hereafter as the "2002 quarter" and the
"2001 quarter", respectively. Our 39 week periods ended September 29, 2002 and
September 30, 2001 are referred to hereafter as the "2002 year-to-date period"
and the "2001 year-to-date period," 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 have identified the following accounting policies as critical to the
understanding of our consolidated financial statements (see Note 2 of our
Consolidated Financial Statements in our Annual Report on Form 10-K for the
fiscal year ended December 30, 2001 for a complete discussion of our significant
accounting policies).
Franchise income: Franchise income consists of franchise royalties and franchise
fees. 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. This franchise fee is recognized as income when the restaurant
opens.
12
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 best 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 arising in the normal course of business. We are required to assess the
probability of any adverse judgements as well as the potential ranges of any
losses. We determine the required accruals after a careful review of the facts
of each legal action. Our accruals may change in the future due to new
developments in these matters.
We use estimates in the determination of the required accruals for general
liability, workers' compensation and health insurance. These estimates are based
upon a third party's detailed examination of historical and industry claims
experience. These estimates may change in the future and may require us to
revise these accruals.
Employee incentive compensation plans: We have various long-term employee
incentive compensation plans which require us to make estimates to determine our
liability. If performance against the criteria in each plan differs from our
estimates in the future, we will be required to adjust our liability
accordingly.
Receivables: We continually assess the collectibility of our franchise
receivables based on several factors, using estimates based upon specific
information available to us at the time. The allowance for bad debts may change
in the future due to 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.
13
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 39 Weeks Ended
----------------------------------- ------------------------------------
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
---------------- --------------- ---------------- ----------------
Revenues:
Company restaurant sales..................... 87.5% 87.3% 87.5% 87.4%
Franchise income............................. 12.5 12.7 12.5 12.6
---------------- --------------- ---------------- ----------------
Total operating revenues.................. 100.0% 100.0% 100.0% 100.0%
================ =============== ================ ================
Cost of sales (as a percentage of
company restaurant sales):
Food and beverage............................ 26.1% 27.1% 26.5% 27.0%
Labor........................................ 32.9 32.2 32.9 31.9
Direct and occupancy......................... 25.7 25.2 25.0 25.4
Pre-opening expense.......................... 0.4 0.4 0.3 0.2
---------------- --------------- ---------------- ----------------
Total cost of sales....................... 85.1% 84.9% 84.6% 84.5%
================ =============== ================ ================
General and administrative expenses............... 9.6% 10.2% 9.6% 9.8%
Amortization of intangible assets................. -- 0.8 -- 0.8
Loss on disposition of restaurants and equipment.. 0.2 0.2 0.2 0.2
---------------- --------------- ---------------- ----------------
Operating earnings................................ 15.6 14.7 16.0 15.4
---------------- --------------- ---------------- ----------------
Other income (expense):
Investment income............................ 0.2 0.3 0.2 0.2
Interest expense............................. (0.2) (1.0) (0.3) (1.1)
Other income................................. 0.2 0.2 0.2 0.1
---------------- --------------- ---------------- ----------------
Total other income (expense).............. 0.2 (0.5) 0.1 (0.8)
---------------- --------------- ---------------- ----------------
Earnings before income taxes...................... 15.8 14.1 16.1 14.6
Income taxes...................................... 5.8 5.2 5.9 5.4
---------------- --------------- ---------------- ----------------
Net earnings...................................... 10.1% 8.9% 10.2% 9.2%
================ =============== ================ ================
14
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 39 Weeks Ended
------------------------------- -------------------------------
September 29, September 30, September 29, September 30,
2002 2001 2002 2001
--------------- --------------- --------------- --------------
Number of restaurants:
Company:
Beginning of period..................... 318 289 310 285
Restaurant openings..................... 11 9 19 13
Restaurant closings..................... -- -- -- --
--------------- --------------- --------------- --------------
End of period........................... 329 298 329 298
--------------- --------------- --------------- --------------
Franchise:
Beginning of period..................... 1,103 1,035 1,082 1,001
Restaurant openings..................... 26 25 50 61
Restaurant closings..................... -- -- (3) (2)
--------------- --------------- --------------- --------------
End of period........................... 1,129 1,060 1,129 1,060
--------------- --------------- --------------- --------------
Total:
Beginning of period..................... 1,421 1,324 1,392 1,286
Restaurant openings..................... 37 34 69 74
Restaurant closings..................... -- -- (3) (2)
--------------- --------------- --------------- --------------
End of period........................... 1,458 1,358 1,458 1,358
=============== =============== =============== ==============
Weighted average weekly sales per restaurant:
Company................................. $ 43,474 $ 43,118 $ 43,424 $ 43,126
Franchise............................... $ 44,105 $ 42,680 $ 44,252 $ 42,646
Total................................... $ 43,963 $ 42,776 $ 44,067 $ 42,752
Change in comparable restaurant sales:(1)
Company................................. 1.7 % 1.9 % 1.5 % 2.9 %
Franchise............................... 3.1 % 2.9 % 3.6 % 3.0 %
Total................................... 2.8 % 2.7 % 3.1 % 3.0 %
Total system sales (in thousands)................ $ 822,640 $ 745,887 $2,430,412 $2,191,326
--------
(1) When computing comparable restaurant sales, restaurants open for at least
18 months are compared from period to period.
15
Company Restaurant Sales. Total company restaurant sales increased $18,569,000
(11%) from $164,238,000 in the 2001 quarter to $182,807,000 in the 2002 quarter
and increased $50,257,000 (10%) from $486,416,000 in the 2001 year-to-date
period to $536,673,000 in the 2002 year-to-date period due primarily to company
restaurant openings and increases in comparable restaurant sales.
Comparable restaurant sales at company restaurants increased by 1.7% and 1.5% in
the 2002 quarter and the 2002 year-to-date period, respectively. Weighted
average weekly sales at company restaurants increased 0.8% from $43,118 in the
2001 quarter to $43,474 in the 2002 quarter and also increased 0.7% from $43,126
in the 2001 year-to-date period to $43,424 in the 2002 year-to-date period.
These increases were due primarily to an increase in guest traffic in both
periods and an increase in the average guest check in the 2002 year-to-date
period resulting from the company's food promotions. In addition, a portion of
the increase in both periods resulted from the implementation of our To Go
initiative in 2002 and a menu price increase of approximately 1.0% in early
August 2002.
Franchise Income. Overall franchise income increased $2,246,000 (9%) from
$23,787,000 in the 2001 quarter to $26,033,000 in the 2002 quarter and increased
$6,451,000 (9%) from $69,906,000 in the 2001 year-to-date period to $76,357,000
in the 2002 year-to-date period. These increases were due primarily to the
increased number of franchise Applebee's restaurants operating during the 2002
quarter and 2002 year-to-date period and increases in comparable restaurant
sales. Weighted average weekly sales at franchise restaurants increased 3.3% and
3.8% in the 2002 quarter and 2002 year-to-date period, respectively and
franchise comparable restaurant sales increased 3.1% and 3.6% in the 2002
quarter and 2002 year-to-date periods, respectively.
Cost of Company Restaurant Sales. Food and beverage costs decreased from 27.1%
in the 2001 quarter to 26.1% in the 2002 quarter and decreased from 27.0% in the
2001 year-to-date period to 26.5% in the 2002 year-to-date period. The decreases
in both the 2002 quarter and the 2002 year-to-date period were due to lower
commodity costs relating to our food promotions and the benefit of certain
supply chain management initiatives implemented in 2001.
Labor costs increased from 32.2% and 31.9% in the 2001 quarter and the 2001
year-to-date period, respectively, to 32.9% in both the 2002 quarter and 2002
year-to-date period. These increases were due primarily to higher costs related
to wage rates, management incentive compensation relating to a new restaurant
management bonus program and workers compensation and group insurance costs.
Direct and occupancy costs increased from 25.2% in the 2001 quarter to 25.7% in
the 2002 quarter and decreased from 25.4% in the 2001 year-to-date period to
25.0% in the 2002 year-to-date period. Direct and occupancy costs were impacted
in both periods by lower utility costs, higher packaging costs relating to our
To Go initiative and higher insurance costs. Advertising costs, as a percentage
of sales, also decreased in the 2002 year-to-date period.
General and Administrative Expenses. General and administrative expenses
decreased from 10.2% in the 2001 quarter and 9.8% in the 2001 year-to-date
period to 9.6% in both the 2002 quarter and 2002 year-to-date period. General
and administrative expenses were lower in both the 2002 quarter and 2002
year-to-date period as a result of costs incurred in 2001 associated with our
purchasing supply chain and strategic brand assessment projects and the
absorption of general and administrative expenses over a larger revenue base.
These decreases were partially offset by higher legal fees and expenses related
to certain litigation and higher incentive compensation.
16
Amortization of Intangible Assets: Amortization of intangible assets decreased
from $1,463,000 in the 2001 quarter to $95,000 in the 2002 quarter and decreased
from $4,388,000 in the 2001 year-to date period to $285,000 in the 2002
year-to-date period. These decreases were due to the elimination of goodwill
amortization in accordance with SFAS No. 142.
Interest Expense: Interest expense decreased in both the 2002 quarter and the
2002 year-to-date period due primarily to a reduction in our debt levels and
lower interest rates in both periods.
Income Taxes. The effective income tax rate, as a percentage of earnings before
income taxes, decreased from 36.8% in both the 2001 quarter and 2001
year-to-date period to 36.5% in both the 2002 quarter and the 2002 year-to-date
period.
Liquidity and Capital Resources
Our need for capital historically has resulted from the construction and
acquisition of restaurants and the repurchase of our common shares. In 2002 and
for the foreseeable future, we will also use our capital resources to invest in
information technology systems. 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 $50,086,000 in fiscal year 2001 and $49,680,000 in the
2002 year-to-date period. We currently expect to open at least 25 company
restaurants in 2002, and capital expenditures are expected to be between
$63,000,000 and $68,000,000 in fiscal 2002, excluding the purchase price of the
franchise acquisition discussed below. These expenditures will primarily be for
the development of new restaurants, refurbishment and capital replacement for
existing restaurants, and the enhancement of information systems including a new
accounting and human resource information system. 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 $34.3 million, subject
to adjustment. The agreement also provides for additional payments if the
restaurants achieve cash flows in excess of historical levels in the first 18
months after the closing of the acquisition. Our financial statements will
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.
17
In February 2001, our Board of Directors authorized the repurchase of up to
$55,000,000 of our common stock through 2001, subject to market conditions and
applicable restrictions imposed by our then-current credit agreement. As of
December 30, 2001, we had $20,600,000 remaining on this authorization. In
February 2002, our Board of Directors extended the 2001 authorization through
2002. In May 2002, our Board of Directors authorized an additional repurchase of
$75,000,000 of our common stock through May 2005. During the 2002 year-to-date
period, we repurchased 1,210,000 shares of our common stock at an average price
of $21.58 for an aggregate cost of $26,100,000. As of September 29, 2002, we had
$69,500,000 remaining under these authorizations.
As of September 29, 2002, our liquid assets totaled $8,026,000. These assets
consisted of cash and cash equivalents in the amount of $7,522,000 and
short-term investments in the amount of $504,000. The working capital deficit
increased from $29,747,000 as of December 30, 2001 to $43,709,000 as of
September 29, 2002. This increase was due primarily to decreases in cash and
cash equivalents due to payments on long-term debt and an increase in accrued
insurance which were partially offset by the redemption of gift certificates in
2002 sold in 2001. As of September 29, 2002, we had borrowings of $34,500,000
and standby letters of credit of $5,291,000 outstanding under our $150,000,000
revolving credit facility. We also had a standby letter of credit for $827,000
outstanding with another financial institution.
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 our franchisees with workers compensation and general
liability insurance. Applebee's International, Inc. and our franchisees will
make premium payments to the captive insurance company which will pay
administrative fees and insurance claims, subject to individual and aggregate
maximum claim limits under the captive insurance company's reinsurance policies.
As a result, our cash and cash equivalents and accrued liabilities may increase
in future periods due to the operation of the captive insurance company.
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 bank debt amortization schedule, our future
capital lease commitments (including principal and interest payments) and other
obligations and our future operating lease commitments as of September 29, 2002:
----------------------------------------------------------------------------------------------------------------
Financial Commitments (in thousands)
----------------------------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter
------------ ------------ ------------ ------------ ------------ -------------
Bank Debt...................... $ 3,500 $ -- $ 31,000 $ -- $ -- $ --
Capital Lease and Other
Obligations.............. $ 176 $ 1,040 $ 741 $ 767 $ 794 $ 7,536
Operating Leases............... $ 3,913 $ 15,373 $ 14,501 $ 13,841 $ 13,297 $ 119,859
18
Financial commitments for 2002 include only payments to be made for the
remaining 13 weeks of fiscal 2002. In addition, we have lease guarantees of
approximately $25,200,000 as of September 29, 2002 (see Note 2 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.
New Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Long-Lived Assets", which supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and
the accounting and reporting provisions of APB No. 30, "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
No. 144 retains many of the provisions of SFAS No. 121, but addresses certain
implementation issues associated with that Statement. We adopted SFAS No. 144
effective December 31, 2001. The adoption of SFAS No. 144 did not have a
material impact on our consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS Nos. 4 and 64 required gains and losses from extinguishment of debt to be
classified as extraordinary items. SFAS No. 145 rescinds this requirement and
stipulates that gains or losses on extinguishment of debt would have to meet the
criteria of APB Opinion No. 30 to be classified as an extraordinary item. In
addition, any extraordinary gains or losses on extinguishment of debt in prior
periods presented would require reclassification. SFAS No. 145 is effective for
fiscal years beginning after May 15, 2002. We are currently evaluating the
impact of this Statement.
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. We do
not expect the initial adoption of this Statement to have a material impact on
our results of operations or financial position.
In October 2002, the FASB issued an Exposure Draft relating to the transitional
methods for the accounting for stock-based compensation. Under the provisions of
this proposed Statement, the FASB provides for alternative methods of transition
for voluntary changes to the fair value method of accounting. We are currently
evaluating the adoption of the fair value method of accounting for stock-based
compensation. In fiscal 2001, the impact on diluted earnings per share of
adopting the fair value method of accounting excluding any potential cumulative
effect of stock-based compensation prior to fiscal 2001 would have been $0.08.
We are waiting further clarification from the FASB on this issue before we make
our final decision.
19
Forward-Looking Statements
The statements contained in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section regarding restaurant
development, costs and expenses, 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 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 from our estimates, you should read our
current report on Form 8-K which we filed with the Securities and Exchange
Commission on July 16, 2002. 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 September 29, 2002,
the total amount of debt subject to interest rate fluctuations was $34,500,000
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 $345,000
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.
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.
20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are involved in various legal actions arising in the normal course of
business. These matters include, without limitation, such matters as employment
law related claims and disputes with two international franchisees regarding
disclosures we allegedly made or omitted. 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 the
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 furnished a report on Form 8-K on July 8, 2002 announcing
our presentation at the CIBC World Markets Consumer Growth
Conference.
We filed a report on Form 8-K on July 16, 2002 announcing our
agreement to acquire 21 franchise restaurants.
We filed a report on Form 8-K on July 16, 2002 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 July 26, 2002 announcing
our broadcast of the second quarter 2002 earnings conference
call over the Internet.
We filed a report on Form 8-K on August 1, 2002 reporting
second quarter earnings.
We filed a report on Form 8-K on August 28, 2002 reporting
August comparable sales.
We filed a report on Form 8-K on September 6, 2002 announcing
a court extension of the approval date for the sale of the
Apple Capitol restaurants.
We furnished a report on Form 8-K on September 18, 2002
announcing our presentation at the Banc of America Securities
Investment Conference.
We furnished a report on Form 8-K on September 27, 2002
announcing our presentation at the RBC Capital Markets
Consumer Conference.
21
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: November 8, 2002 By: /s/ Lloyd L. Hill
------------------ ---------------------------------------------
Lloyd L. Hill
Chairman and Chief Executive Officer
(principal executive officer)
Date: November 8, 2002 By: /s/ Steven K. Lumpkin
------------------ ---------------------------------------------
Steven K. Lumpkin
Executive Vice President and
Chief Financial Officer
(principal financial and accounting officer)
22
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 officers 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 officers 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 officers 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: November 8, 2002 By: /s/ Lloyd L. Hill
-------------------- ---------------------------------------
Lloyd L. Hill
Chairman and Chief Executive Officer
(principal executive officer)
23
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 officers 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 officers 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 officers 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: November 8, 2002 By: /s/ Steven K. Lumpkin
-------------------- ---------------------------------------
Steven K. Lumpkin
Executive Vice President and
Chief Financial Officer
(principal financial and accounting officer)
24
APPLEBEE'S INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------- ------------------------------------------------------------------
4.1 Certificate of Adjustment of Shareholder Rights Plan contained in
Rights Agreement dated as of September 7, 1994, between
Applebee's International, Inc. and Chemical Bank, as Rights
Agent, as amended.
10.1 Employment Agreement dated August 7, 2002, with Steven K.
Lumpkin.
10.2 Asset Purchase Agreement between Applebee's International, Inc.
and Apple Capitol Group, LLC dated as of July 16, 2002.
10.3 Assignment Agreement between Lehman Brothers Holdings, Inc. and
Applebee's International, Inc. dated as of October 1, 2002.
99.1 Certifications of Chairman and Chief Executive Officer and
Executive Vice President and Chief Financial Officer.
25