UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) October 29, 2003
--------------------------------
Commission File Number: 000-17962
Applebee's International, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 43-1461763
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(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)
None
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(Former name or former address, if changed since last report)
1
Item 12. Results of Operations and Financial Condition
On October 29, 2003, Applebee's International, Inc. (the "Company") issued
a press release entitled "Applebee's International Reports Third Quarter Diluted
Earnings Per Share of $0.45." The release has been provided below.
FOR IMMEDIATE RELEASE
Contact: Carol DiRaimo,
Executive Director of Investor Relations
(913) 967-4109
Applebee's International Reports Third Quarter
Diluted Earnings Per Share of $0.45
Overland Park, Kan., October 29, 2003 -- Applebee's International, Inc.
(Nasdaq:APPB) today reported net earnings of $25.6 million, or $0.45 per diluted
share, for the third quarter ended September 28, 2003. This represents an
increase in diluted earnings per share of 21 percent as compared to 37 cents per
share for the third quarter of 2002.
System-wide comparable sales for the third quarter of 2003 increased 4.8
percent, the 21st consecutive quarter of comparable sales growth. Company and
franchise restaurant comparable sales increased 5.9 percent and 4.4 percent,
respectively, for the quarter. System-wide comparable sales for the year-to-date
period through September increased 3.9 percent, with company and franchise
restaurant comparable sales up 5.2 percent and 3.5 percent, respectively.
The company also reported comparable sales for the September fiscal period,
comprised of the five weeks ended September 28, 2003. Comparable sales for
company restaurants increased 6.7 percent, including the 21 franchise
restaurants in Washington, D.C. acquired in November 2002 as well as the 11
franchise restaurants adjacent to the St. Louis market that were acquired in
March 2003. Excluding the acquired restaurants, comparable sales for company
restaurants increased 7.1 percent, reflecting an increase in guest traffic of
approximately 5.0 to 5.5 percent, combined with a higher average check.
System-wide comparable sales increased 5.9 percent for the September period, and
comparable sales for franchise restaurants increased 5.7 percent.
In addition, the company reported comparable sales for the October fiscal
period, comprised of the four weeks ended October 26, 2003. Comparable sales for
company restaurants increased 7.3 percent, including the 32 franchise
restaurants acquired in November and March. Excluding the acquired restaurants,
comparable sales for company restaurants increased 7.4 percent, reflecting an
increase in guest traffic of approximately 4.5 to 5.0 percent, combined with a
higher
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average check. System-wide comparable sales increased 6.7 percent for the
October period, and comparable sales for franchise restaurants increased 6.6
percent. Comparable sales for company restaurants for the year-to-date period
through October have increased 5.4 percent, with system-wide and franchise
comparable sales up 4.1 percent and 3.7 percent, respectively.
Lloyd L. Hill, chairman and chief executive officer, said, "The Applebee's
system continued to gain momentum during the third quarter by hitting on all
cylinders, resulting in comparable sales growth that substantially exceeded our
own expectations. These results were driven by the execution of the integrated
strategies that we articulated last year, including improved food, compelling
promotions backed by effective advertising, meeting our guests' desires for more
convenience, our focus on operations excellence, and the retention of terrific
people. As a result, earnings per share grew by 21 percent and return on equity
exceeded 23 percent for the quarter, both of which continued to surpass our
long-term targets."
Hill continued, "We are focused on three primary catalysts for future sales and
traffic growth. First, we have been unrelenting in improving our food, and
completed the system-wide introduction of a new menu at the end of September.
Second, we are on target to complete the disciplined rollout of our "Carside To
Go(TM)" program in all company restaurants by Thanksgiving. Our franchisees will
continue implementation throughout the remainder of this year and into 2004."
Hill concluded, "Lastly, in mid-November, we will begin the testing of several
menu items in conjunction with our previously announced alliance with Weight
Watchers. During this test, guests in over 70 restaurants in five different
markets will have more choices and flexibility when they dine with us. We
believe this strategic initiative can be an important driver of our continued
success in the latter half of 2004 and beyond."
Other results for the third quarter and year-to-date periods ended September 28,
2003 included:
o Net earnings for the 39-week period ended September 28, 2003 were
$76.0 million, or $1.33 per diluted share, excluding the $8.8 million
charge ($5.6 million after-tax or $0.10 per share) taken in the
second quarter of 2003 to reflect the impairment of a note receivable
that was issued in conjunction with the sale of the Rio Bravo concept
to Chevys in 1999. This compares to net earnings in the same period
of 2002 of $62.7 million, or $1.10 per diluted share. This represents
a 21 percent increase in diluted earnings per share.
o System-wide sales for the Applebee's concept were a record $909.7
million (comprised of $222.4 million for company restaurants and
$687.3 million for franchise restaurants) for the third quarter, an
increase of 11 percent over the prior year. System-wide sales for
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the 39-week period ended September 28, 2003 were $2.7 billion
(comprised of $650.9 million for company restaurants and $2.05
billion for franchise restaurants), also up 11 percent. System-wide
sales are a non-GAAP financial measure that includes sales at all
company and franchise Applebee's restaurants, as reported by
franchisees. The company believes that system-wide sales information
is useful in analyzing the concept's market share and growth, and
because franchisees pay royalties and contribute to the national
advertising pool based on a percentage of their sales.
o Applebee's ended the quarter with 1,543 restaurants system-wide (372
company and 1,171 franchise restaurants). During the third quarter of
2003, there were 20 new Applebee's restaurants opened system-wide,
including 8 company and 12 franchised restaurants.
o The company repurchased 1,134,500 shares of common stock in the third
quarter at an average price of $32.15 for an aggregate cost of $36.5
million. Year-to-date, the company has repurchased 1,679,500 shares
of common stock at an average price of $29.63 for an aggregate cost
of $49.8 million. As of September 28, 2003, $19.8 million remains
available under the company's ongoing stock repurchase authorization.
o As of September 28, 2003, the company had total debt outstanding of
$29 million, with $115 million available under its revolving credit
facility.
BUSINESS OUTLOOK
The company reaffirmed its guidance for the remainder of fiscal year 2003 with
respect to the following:
o Approximately 100 new restaurants are expected to open in 2003,
including 25 company restaurants and 70 to 80 franchise restaurants.
o Overall restaurant margins before pre-opening expense are expected to
increase for the full year as a result of higher sales volumes in
company restaurants and the impact of recent franchise acquisitions.
o General and administrative expenses, as a percentage of operating
revenues, are expected to be in the low to mid-9 percent range,
reflecting leverage from franchise acquisitions and higher sales
volumes in company restaurants.
o The effective income tax rate is currently expected to continue at
36.0 percent for the remainder of 2003.
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4
o Excluding the cost of franchise acquisitions, capital expenditures
are expected to be between $70 and $80 million in 2003.
In addition, the company raised its guidance with respect to the following:
o System-wide comparable sales are now expected to increase by 3.5 to
4.0 percent for fiscal year 2003, although monthly sales results may
be more volatile given the geopolitical environment, current economy,
calendar shifts, prior year comparisons, or other unusual events.
o Based on the foregoing assumptions and its performance through the
first three quarters of the year, the company has raised its guidance
for fiscal year 2003 diluted earnings per share to a range of $1.73
to $1.75; excluding the $0.10 charge relating to the Chevys' note and
the impact of any additional franchise acquisitions or stock
repurchase activity.
A conference call to review the third quarter 2003 results and the current
business outlook will be held on Thursday morning, October 30, 2003, at 10:00
a.m. Central Time (11:00 a.m. Eastern Time). The conference call will be
broadcast live over the Internet and a replay will be available shortly after
the call on the Investor Relations section of the company's website
(www.applebees.com).
Applebee's International, Inc., headquartered in Overland Park, Kan., develops,
franchises and operates restaurants under the Applebee's Neighborhood Grill &
Bar brand, the largest casual dining concept in the world. As of October 26,
2003, there were 1,554 Applebee's restaurants operating system-wide in 49 states
and nine international countries. Additional information on Applebee's
International can be found at the company's website (www.applebees.com).
Certain statements contained in this release, including those in the Business
Outlook section, 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, including but not limited to the ability of the
company and its franchisees to open and operate additional restaurants
profitably, the ability of its franchisees to obtain financing, the continued
growth of its franchisees, and its ability to attract and retain qualified
franchisees, the impact of intense competition in the casual dining segment of
the restaurant industry, and its ability to control restaurant operating costs
which are impacted by market changes, minimum wage and other employment laws,
food costs and inflation. For additional discussion of the principal factors
that could cause actual results to be materially different, the reader is
referred to the company's current report on Form 8-K filed with the Securities
and Exchange Commission on February 12, 2003. The company disclaims any
obligation to update these forward-looking statements.
# # #
5
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
13 Weeks Ended 39 Weeks Ended
--------------------------------- ----------------------------------
September 28, September 29, September 28, September 29,
2003 2002 2003 2002
-------------- --------------- -------------- ---------------
Revenues:
Company restaurant sales..................... $ 222,429 $ 182,807 $ 650,946 $ 536,673
Franchise royalties and fees................. 27,594 26,033 82,088 76,357
Other franchise income (a)................... 2,972 168 8,881 765
-------------- --------------- -------------- ---------------
Total operating revenues.................. 252,995 209,008 741,915 613,795
-------------- --------------- -------------- ---------------
Cost of company restaurant sales:
Food and beverage............................ 57,200 47,765 169,086 142,245
Labor........................................ 73,018 60,054 213,186 176,392
Direct and occupancy......................... 55,869 47,009 160,816 134,172
Pre-opening expense.......................... 576 792 1,131 1,432
-------------- --------------- -------------- ---------------
Total cost of company restaurant sales.... 186,663 155,620 544,219 454,241
-------------- --------------- -------------- ---------------
Cost of other franchise income (a)................ 2,837 99 8,510 252
General and administrative expenses (a)........... 23,589 20,118 69,096 59,361
Amortization of intangible assets................. 87 95 278 285
Loss on disposition of restaurants and equipment.. 116 458 1,314 1,479
-------------- --------------- -------------- ---------------
Operating earnings................................ 39,703 32,618 118,498 98,177
-------------- --------------- -------------- ---------------
Other income (expense):
Investment income............................ 227 346 1,048 1,124
Interest expense............................. (330) (414) (1,369) (1,602)
Impairment of Chevys note receivable......... -- -- (8,803) --
Other income................................. 395 513 601 1,096
-------------- --------------- -------------- ---------------
Total other income (expense).............. 292 445 (8,523) 618
-------------- --------------- -------------- ---------------
Earnings before income taxes...................... 39,995 33,063 109,975 98,795
Income taxes...................................... 14,398 12,068 39,591 36,060
-------------- --------------- -------------- ---------------
Net earnings...................................... $ 25,597 $ 20,995 $ 70,384 $ 62,735
============== =============== ============== ===============
Basic net earnings per common share............... $ 0.46 $ 0.38 $ 1.27 $ 1.12
============== =============== ============== ===============
Diluted net earnings per common share............. $ 0.45 $ 0.37 $ 1.24 $ 1.10
============== =============== ============== ===============
Basic weighted average shares outstanding......... 55,556 55,654 55,421 55,801
============== =============== ============== ===============
Diluted weighted average shares outstanding....... 57,184 56,714 56,988 57,119
============== =============== ============== ===============
(a) Other franchise income and cost of other franchise income consist
primarily of revenues and expenses relating to the company's wholly-owned
captive insurance subsidiary. Certain amounts previously included in
general and administrative expenses have been reclassified to conform to
the 2003 presentation.
6
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASUREMENTS TO GAAP RESULTS
(Unaudited)
(in thousands, except per share amounts)
In addition to the results provided in accordance with Generally Accepted
Accounting Principles ("GAAP") throughout this document, the company has
provided non-GAAP measurements which present operating results on a basis before
an impairment charge recorded in the second quarter of 2003 resulting from fully
reserving a note receivable from Chevys Holdings, Inc. ("Chevys") relating to
the sale of the Rio Bravo concept in 1999. The company is using earnings before
this charge as a key performance measure of results of operations for purposes
of evaluating performance internally. This non-GAAP measurement is not intended
to replace the presentation of our financial results in accordance with GAAP.
Rather, the company believes that the presentation of earnings before the charge
provides additional information to investors to facilitate the comparison of
past and present operations, excluding an item that the company does not believe
is indicative of ongoing operations.
39 Weeks Ended
----------------------------------
September 28, September 29,
2003 2002
--------------- ---------------
Detail of charge:
Impairment of Chevys note receivable........... $ (8,803) --
Income taxes................................... 3,169 --
--------------- ---------------
Impairment, net of tax...................... $ (5,634) --
=============== ===============
Diluted weighted average shares outstanding...... 56,988 57,119
=============== ===============
Diluted earnings per share impact of charge...... $ (0.10) --
=============== ===============
Reconciliation of earnings before charge to net earnings:
Earnings before charge......................... $ 76,018 $ 62,735
Impairment, net of tax......................... (5,634) --
--------------- ---------------
Net earnings................................ $ 70,384 $ 62,735
=============== ===============
Reconciliation of earnings per share before charge to reported earnings per
share:
Diluted earnings per share before charge.... $ 1.33 $ 1.10
Diluted earnings per share impact of charge. (0.10) --
--------------- ---------------
Reported diluted earnings per share....... $ 1.24 $ 1.10
=============== ===============
7
The following table sets forth, for the periods indicated, information derived
from the Company's consolidated statements of earnings expressed as a percentage
of total operating revenues, except where otherwise noted. Percentages may not
add due to rounding.
13 Weeks Ended 39 Weeks Ended
---------------------------------- --------------------------------
September 28, September 29, September 28, September 29,
2003 2002 2003 2002
---------------- ---------------- ---------------- ---------------
Revenues:
Company restaurant sales................................ 87.9% 87.5% 87.7% 87.4%
Franchise royalties and fees............................ 10.9 12.5 11.1 12.4
Other franchise income.................................. 1.2 0.1 1.2 0.1
---------------- ---------------- ---------------- ---------------
Total operating revenues............................. 100.0% 100.0% 100.0% 100.0%
================ ================ ================ ===============
Cost of sales (as a percentage of company restaurant sales):
Food and beverage....................................... 25.7% 26.1% 26.0% 26.5%
Labor................................................... 32.8 32.9 32.8 32.9
Direct and occupancy.................................... 25.1 25.7 24.7 25.0
Pre-opening expense..................................... 0.3 0.4 0.2 0.3
---------------- ---------------- ---------------- ---------------
Total cost of sales.................................. 83.9% 85.1% 83.6% 84.6%
================ ================ ================ ===============
Cost of other franchise income (as a percentage
of other franchise income).............................. 95.5% 58.9% 95.8% 32.9%
General and administrative expenses.......................... 9.3 9.6 9.3 9.7
Amortization of intangible assets............................ -- -- -- --
Loss on disposition of restaurants and equipment............. -- 0.2 0.2 0.2
---------------- ---------------- ---------------- ---------------
Operating earnings........................................... 15.7 15.6 16.0 16.0
---------------- ---------------- ---------------- ---------------
Other income (expense):
Investment income....................................... 0.1 0.2 0.1 0.2
Interest expense........................................ (0.1) (0.2) (0.2) (0.3)
Impairment of Chevys note receivable.................... -- -- (1.2) --
Other income............................................ 0.2 0.2 0.1 0.2
---------------- ---------------- ---------------- ---------------
Total other income (expense)......................... 0.1 0.2 (1.1) 0.1
---------------- ---------------- ---------------- ---------------
Earnings before income taxes................................. 15.8 15.8 14.8 16.1
Income taxes................................................. 5.7 5.8 5.3 5.9
---------------- ---------------- ---------------- ---------------
Net earnings................................................. 10.1% 10.1% 9.5% 10.2%
================ ================ ================ ===============
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APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
September 28, December 29,
2003 2002
---------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 3,359 $ 15,169
Short-term investments, at market value (amortized cost of $478 in 2002)......... 26 503
Receivables (less allowance for bad debts of $4,096 in 2003 and $4,089 in 2002).. 31,778 26,092
Receivables related to captive insurance subsidiary.............................. 2,093 1,803
Inventories...................................................................... 14,114 11,504
Prepaid income taxes............................................................. -- 5,002
Prepaid and other current assets................................................. 9,729 9,506
---------------- ---------------
Total current assets......................................................... 61,099 69,579
Property and equipment, net........................................................... 405,141 383,002
Goodwill.............................................................................. 105,326 88,715
Franchise interest and rights, net.................................................... 1,220 1,468
Restricted assets related to captive insurance subsidiary............................. 8,830 --
Other assets, net..................................................................... 18,201 23,350
---------------- ---------------
$ 599,817 $ 566,114
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................................ $ 186 $ 377
Notes payable.................................................................... 4,800 --
Accounts payable................................................................. 34,700 27,479
Accrued expenses and other current liabilities................................... 79,478 82,204
Loss reserve and unearned premiums related to captive insurance subsidiary....... 11,876 1,803
Accrued dividends................................................................ -- 3,323
Accrued income taxes............................................................. 457 --
---------------- ---------------
Total current liabilities.................................................... 131,497 115,186
---------------- ---------------
Non-current liabilities:
Long-term debt - less current portion............................................ 23,714 52,186
Other non-current liabilities.................................................... 10,188 6,161
---------------- ---------------
Total non-current liabilities................................................ 33,902 58,347
---------------- ---------------
Total liabilities............................................................ 165,399 173,533
---------------- ---------------
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....................................................... 197,611 187,523
Retained earnings................................................................ 505,005 434,621
Accumulated other comprehensive income, net of income taxes...................... -- 16
---------------- ---------------
703,339 622,883
Treasury stock - 17,432,947 shares in 2003 and 16,948,371 shares in 2002, at
cost............................................................................. (268,921) (230,302)
---------------- ---------------
Total stockholders' equity................................................... 434,418 392,581
---------------- ---------------
$ 599,817 $ 566,114
================ ===============
9
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
39 Weeks Ended
-----------------------------------
September 28, September 29,
2003 2002
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................................... $ 70,384 $ 62,735
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization........................................... 30,091 25,812
Amortization of intangible assets....................................... 278 285
Amortization of deferred financing costs................................ 146 145
Deferred income tax provision (benefit)................................. (541) 635
Gain on sale of investments............................................. (24) --
Loss on disposition of restaurants and equipment........................ 1,314 1,479
Impairment of Chevys note receivable.................................... 8,803 --
Income tax benefit from exercise of options............................. 5,536 1,397
Changes in assets and liabilities (exclusive of effects of acquisitions or
dispositions):
Receivables............................................................. (5,890) (2,380)
Receivables related to captive insurance subsidiary..................... (290) --
Inventories............................................................. (2,454) 3,095
Prepaid income taxes.................................................... 5,002 --
Prepaid and other current assets........................................ 420 (1,574)
Restricted assets related to captive insurance subsidiary............... (8,830) --
Accounts payable........................................................ 7,300 5,910
Accrued expenses and other current liabilities.......................... (1,798) (5,263)
Loss reserve and unearned premiums related to captive insurance subsidiary 10,073 --
Accrued income taxes.................................................... 457 940
Other................................................................... 853 1,038
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................... 120,830 94,254
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........................................ (54,893) (49,680)
Acquisition of restaurants................................................. (21,557) --
Proceeds from sale of restaurants and equipment............................ 8,579 3
Purchases of short-term investments........................................ -- (150)
Maturities and sales of short-term investments............................. 480 350
--------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES................................... (67,391) (49,477)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock................................................ (49,757) (26,113)
Dividends paid............................................................. (3,323) (3,010)
Issuance of common stock upon exercise of stock options.................... 11,269 3,791
Shares sold under employee stock purchase plan............................. 2,134 1,529
Proceeds from issuance of notes payable.................................... 4,800 3,500
Net payments on long-term debt............................................. (30,372) (39,000)
--------------- ---------------
NET CASH USED BY FINANCING ACTIVITIES................................... (65,249) (59,303)
--------------- ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS....................................... (11,810) (14,526)
CASH AND CASH EQUIVALENTS, beginning of period.................................. 15,169 22,048
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period........................................ $ 3,359 $ 7,522
=============== ===============
# # #
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
APPLEBEE'S INTERNATIONAL, INC.
(Registrant)
Date: October 29, 2003 By: /s/ Steven K. Lumpkin
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Steven K. Lumpkin
Executive Vice President and
Chief Financial Officer
11