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) February 11, 2004
--------------------------------
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 February 11, 2004, Applebee's International, Inc. (the "Company")
issued a press release entitled "Applebee's International Reports Fourth Quarter
2003 Earnings Per Share of $0.41 and Full Year 2003 Earnings Per Share of $1.74
Excluding Chevys Charge; Reported Earnings Per Share of $1.64." The release has
been provided below.
FOR IMMEDIATE RELEASE
Contact: Carol DiRaimo,
Executive Director of Investor Relations
(913) 967-4109
Applebee's International Reports Fourth Quarter 2003
Earnings Per Share of $0.41 and Full Year 2003 Earnings Per Share
of $1.74 Excluding Chevys Charge; Reported Earnings Per Share of $1.64
Overland Park, Kan., February 11, 2004 -- Applebee's International, Inc.
(Nasdaq:APPB) today reported net earnings of $23.2 million, or $0.41 per diluted
share, for the fourth quarter ended December 28, 2003. This represents an
increase in diluted earnings per share of 14 percent as compared to $0.36 per
share for the fourth quarter of 2002.
For the fiscal year ended December 28, 2003, net earnings were a record $99.2
million, or $1.74 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 represents an increase
in diluted earnings per share of 19 percent as compared to fiscal year 2002
earnings of $1.46 per share. Including this charge, reported net earnings were
$93.6 million, or $1.64 per diluted share, for fiscal year 2003.
As previously reported, system-wide comparable sales for the fourth quarter of
2003 increased 4.6 percent, the 22nd consecutive quarter of comparable sales
growth. Company and franchise restaurant comparable sales increased 5.2 percent
and 4.4 percent, respectively, for the quarter. System-wide comparable sales for
the 2003 fiscal year increased 4.1 percent. Company and franchise restaurant
comparable sales increased 5.2 percent and 3.7 percent, respectively, for the
year.
Lloyd L. Hill, chairman and chief executive officer, said, "2003 was clearly one
of the best years in our history. We continued to expand our market share with
system-wide sales growing by 11 percent. For the 11th consecutive year, at least
100 new restaurants were opened. System-wide comparable sales growth of 4.1
percent for the year substantially exceeded the casual dining industry average
as measured by Knapp-Track(TM), despite a weaker economy, and reflected the
highest annual rate of growth experienced since 1993."
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2
Hill continued, "Earnings per share grew 19 percent, exceeding our targeted
growth rate of 14 to 17 percent, and return on equity was over 23 percent for
the year, well above our 20 percent target and one of the highest levels in the
industry. These results were driven by the execution of the integrated
strategies we've been discussing since the middle of 2002, 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 noticeably better people.
"We completed the rollout of our Carside To Go(TM) program in all company
restaurants in November, driving the percentage of company restaurant sales to
8.0 percent in the fourth quarter of 2003 from 5.9 percent in the fourth quarter
of 2002. Our franchisees will continue implementation during 2004, and we
continue to expect this to be a significant driver of sales and traffic growth
as we begin to leverage our marketing muscle behind Carside To Go(TM) in 2004.
"In mid-November, we began testing several menu items in more than 70
restaurants in five different markets in conjunction with our previously
announced alliance with Weight Watchers. We are pleased with the early results
and guest response we've received and believe this strategic initiative can
contribute to our continued success in the latter half of 2004 and beyond."
Hill concluded, "Lastly, 2004 is off to a great start with outstanding January
sales results. Comparable sales for company restaurants increased 8.4 percent,
reflecting an increase in guest traffic of approximately 7.0 to 7.5 percent,
combined with a higher average check, which includes the impact of a menu price
increase of approximately 1.5% taken in early January. System-wide comparable
sales increased 8.4 percent for the January period, and comparable sales for
franchise restaurants also increased 8.4 percent. January comparable sales were
positively impacted by approximately 1.0 percent due to a shift in the timing of
the Super Bowl from the January fiscal period in 2003 to the February fiscal
period in 2004. While we don't expect this level of sales and traffic growth on
an ongoing basis, we believe that our strategies are right on target to drive
future sales and earnings growth."
Other results for the fiscal year ended December 28, 2003 included:
o Total system-wide sales for the 2003 fiscal year increased by 11 percent
over 2002. 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 Applebee's market share and growth, and
because franchisees pay royalties and contribute to the national
advertising pool based on a percentage of their sales.
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3
o Applebee's ended the year with 1,585 restaurants system-wide (383 company
and 1,202 franchise restaurants). There were 100 new Applebee's
restaurants opened system-wide during fiscal year 2003, the 11th
consecutive year of at least 100 new restaurant openings, including 26
company and 74 franchised restaurants.
o During 2003, the company 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
December 28, 2003, $99.8 million was available under the company's ongoing
stock repurchase authorization.
o As of December 28, 2003, the company had total debt outstanding of $21
million, with $123 million available under its revolving credit facility.
BUSINESS OUTLOOK
The company reiterated its previously stated guidance with respect to its
business outlook for fiscal year 2004.
o Approximately 100 new restaurants are expected to open in 2004, including
at least 28 company restaurants and 70 to 80 franchise restaurants. At
least 10 company restaurants are currently expected to open in the first
half of the year, with the balance opening in the second half of the year.
Approximately 20 to 25 franchise restaurants are expected to open in the
first half of the year, with the remainder opening in the second half of
the year.
o System-wide comparable sales are expected to increase by at least 3
percent for the full year, although monthly sales results may be more
volatile given the geopolitical environment, economic conditions, calendar
shifts, prior year comparisons, or other unusual events.
o Overall restaurant margins before pre-opening expense for the full year of
2004 are expected to be similar to fiscal year 2003 results.
o General and administrative expenses, as a percentage of operating
revenues, are expected to be in the low-9 percent range.
o Capital expenditures are expected to be between $80 and $90 million in
2004.
o Based on the foregoing assumptions, diluted earnings per share for fiscal
year 2004 are expected to be in the range of $1.98 to $2.02, including the
impact of potential stock repurchase activity.
- more -
4
February 11, 2004
Page 4
A conference call to review the fourth quarter and fiscal year 2003 results and
the current business outlook will be held on Thursday morning, February 12,
2004, 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. There are currently
1,591 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 fiscal year 2004
guidance as set forth 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 11, 2004. 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 52 Weeks Ended
------------------------------ ------------------------------
December 28, December 29, December 28, December 29,
2003 2002 2003 2002
------------- -------------- ------------- -------------
Revenues:
Company restaurant sales...................... $216,212 $187,943 $867,158 $724,616
Franchise royalties and fees.................. 27,745 25,823 109,833 102,180
Other franchise income (a).................... 4,266 1,923 13,147 2,688
------------- -------------- ------------- -------------
Total operating revenues................... 248,223 215,689 990,138 829,484
------------- -------------- ------------- -------------
Cost of company restaurant sales:
Food and beverage............................. 56,260 50,179 225,346 192,424
Labor......................................... 70,559 61,874 283,745 238,266
Direct and occupancy.......................... 55,861 47,595 216,677 181,767
Pre-opening expense........................... 819 542 1,950 1,974
------------- -------------- ------------- -------------
Total cost of company restaurant sales..... 183,499 160,190 727,718 614,431
------------- -------------- ------------- -------------
Cost of other franchise income (a)................. 4,187 1,921 12,697 2,173
General and administrative expenses (a)............ 25,917 22,292 95,013 81,653
Amortization of intangible assets.................. 86 96 364 381
Loss (gain) on disposition of restaurants and
equipment....................................... (615) (341) 699 1,138
------------- -------------- ------------- -------------
Operating earnings................................. 35,149 31,531 153,647 129,708
------------- -------------- ------------- -------------
Other income (expense):
Investment income............................. 506 374 1,554 1,498
Interest expense.............................. (364) (566) (1,733) (2,168)
Impairment of Chevys note receivable.......... -- -- (8,803) --
Other income (b).............................. 919 2 1,520 1,098
------------- -------------- ------------- -------------
Total other income (expense)............... 1,061 (190) (7,462) 428
------------- -------------- ------------- -------------
Earnings before income taxes....................... 36,210 31,341 146,185 130,136
Income taxes....................................... 13,036 11,049 52,627 47,109
------------- -------------- ------------- -------------
Net earnings....................................... $ 23,174 $ 20,292 $ 93,558 $ 83,027
============= ============== ============= =============
Basic net earnings per common share................ $ 0.42 $ 0.37 $ 1.69 $ 1.49
============= ============== ============= =============
Diluted net earnings per common share.............. $ 0.41 $ 0.36 $ 1.64 $ 1.46
============= ============== ============= =============
Basic weighted average shares outstanding.......... 54,920 55,212 55,296 55,605
============= ============== ============= =============
Diluted weighted average shares outstanding........ 56,675 56,512 56,939 56,922
============= ============== ============= =============
(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.
(b) Other income for the 13 weeks and 52 weeks ended December 28, 2003
includes $650,000 of additional consideration related to the sale of 12
restaurants in Philadelphia in 1999.
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.
52 Weeks Ended
----------------------------------
December 28, December 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........ 56,939 56,922
=============== ===============
Diluted earnings per share impact of charge........ $ (0.10) --
=============== ===============
Reconciliation of earnings before
charge to net earnings:
Earnings before charge........................... $ 99,192 $ 83,027
Impairment, net of tax........................... (5,634) --
--------------- ---------------
Net earnings.................................. $ 93,558 $ 83,027
=============== ===============
Reconciliation of earnings per share before
charge to reported earnings per share:
Diluted earnings per share before charge...... $ 1.74 $ 1.46
Diluted earnings per share impact of charge... (0.10) --
--------------- ---------------
Reported diluted earnings per share......... $ 1.64 $ 1.46
=============== ===============
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 52 Weeks Ended
---------------------------- -------------------------------
December 28, December 29, December 28, December 29,
2003 2002 2003 2002
------------- -------------- ------------- -------------
Revenues:
Company restaurant sales...................... 87.1% 87.1% 87.6% 87.4%
Franchise royalties and fees.................. 11.2 12.0 11.1 12.3
Other franchise income........................ 1.7 0.9 1.3 0.3
------------- -------------- ------------- -------------
Total operating revenues................... 100.0% 100.0% 100.0% 100.0%
============= ============== ============= =============
Cost of sales (as a percentage of
company restaurant sales):
Food and beverage............................. 26.0% 26.7% 26.0% 26.6%
Labor......................................... 32.6 32.9 32.7 32.9
Direct and occupancy.......................... 25.8 25.3 25.0 25.1
Pre-opening expense........................... 0.4 0.3 0.2 0.3
------------- -------------- ------------- -------------
Total cost of sales........................ 84.9% 85.2% 83.9% 84.8%
============= ============== ============= =============
Cost of other franchise income (as a percentage
of other franchise income).................... 98.1% 99.9% 96.6% 80.8%
General and administrative expenses................ 10.4 10.3 9.6 9.8
Amortization of intangible assets.................. -- -- -- --
Loss (gain) on disposition of restaurants
and equipment................................. (0.2) (0.2) 0.1 0.1
------------- -------------- ------------- -------------
Operating earnings................................. 14.2 14.6 15.5 15.6
------------- -------------- ------------- -------------
Other income (expense):
Investment income............................. 0.2 0.2 0.2 0.2
Interest expense.............................. (0.1) (0.3) (0.2) (0.3)
Impairment of Chevys note receivable.......... -- -- (0.9) --
Other income.................................. 0.4 -- 0.2 0.1
------------- -------------- ------------- -------------
Total other income (expense)............... 0.4 (0.1) (0.8) 0.1
------------- -------------- ------------- -------------
Earnings before income taxes....................... 14.6 14.5 14.8 15.7
Income taxes....................................... 5.3 5.1 5.3 5.7
------------- -------------- ------------- -------------
Net earnings....................................... 9.3% 9.4% 9.4% 10.0%
============= ============== ============= =============
8
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
December 28, December 29,
2003 2002
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 17,867 $ 15,169
Short-term investments, at market value..................................... 27 503
Receivables, net of allowance............................................... 31,950 26,092
Receivables related to captive insurance subsidiary......................... 450 1,803
Inventories................................................................. 20,799 11,504
Prepaid income taxes........................................................ 5,800 5,002
Prepaid and other current assets............................................ 9,729 9,506
-------------- -------------
Total current assets..................................................... 86,622 69,579
Property and equipment, net...................................................... 419,802 383,002
Goodwill......................................................................... 105,326 88,715
Restricted assets related to captive insurance subsidiary........................ 10,763 --
Franchise interest and rights, net............................................... 1,137 1,468
Other assets, net................................................................ 20,351 23,350
-------------- -------------
$ 644,001 $ 566,114
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........................................... $ 192 $ 377
Accounts payable............................................................ 37,633 27,479
Accrued expenses and other current liabilities.............................. 96,637 82,204
Loss reserve and unearned premiums related to captive insurance subsidiary.. 11,007 1,803
Accrued dividends........................................................... 3,863 3,323
-------------- -------------
Total current liabilities................................................ 149,332 115,186
-------------- -------------
Non-current liabilities:
Long-term debt - less current portion....................................... 20,670 52,186
Other non-current liabilities............................................... 14,267 6,161
-------------- -------------
Total non-current liabilities............................................ 34,937 58,347
-------------- -------------
Total liabilities........................................................ 184,269 173,533
-------------- -------------
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.................................................. 200,574 187,523
Retained earnings........................................................... 524,316 434,621
Accumulated other comprehensive income, net of income taxes ................ -- 16
-------------- -------------
725,613 622,883
Treasury stock - 17,143,845 shares in 2003 and 16,948,371 shares in 2002,
at cost.................................................................. (265,881) (230,302)
-------------- -------------
Total stockholders' equity............................................... 459,732 392,581
-------------- -------------
$ 644,001 $ 566,114
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9
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Fiscal Year Ended
-----------------------------------
December 28, December 29,
2003 2002
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................................... $ 93,558 $ 83,027
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization........................................... 40,663 35,110
Amortization of intangible assets....................................... 364 381
Amortization of deferred financing costs................................ 195 195
Deferred income tax provision........................................... 1,995 3,296
Gain on sale of investments............................................. (24) --
Loss on disposition of restaurants and equipment........................ 699 1,138
Impairment of Chevys note receivable.................................... 8,803 --
Income tax benefit from exercise of stock options....................... 7,606 1,905
Changes in assets and liabilities (exclusive of effects of acquisitions or
dispositions):
Receivables............................................................. (5,962) (3,158)
Receivables related to captive insurance subsidiary..................... 1,353 --
Inventories............................................................. (9,139) (1,067)
Prepaid income taxes.................................................... (798) --
Prepaid and other current assets........................................ 1,063 (4,358)
Accounts payable........................................................ 10,233 5,283
Accrued expenses and other current liabilities.......................... 15,074 10,795
Loss reserve and unearned premiums related to captive insurance
subsidiary.............................................................. 9,204 --
Accrued income taxes.................................................... -- (979)
Other................................................................... 1,002 1,065
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................... 175,889 132,633
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........................................ (82,562) (64,874)
Acquisition of restaurants................................................. (21,557) (34,250)
Proceeds from sale of restaurants and equipment............................ 9,228 279
Purchases of short-term investments........................................ -- (150)
Maturities and sales of short-term investments............................. 480 350
Restricted assets related to captive insurance subsidiary.................. (10,763) --
--------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES................................... (105,174) (98,645)
--------------- ---------------
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.................... 14,176 5,386
Shares issued under employee benefit plans................................. 4,286 4,870
Net payments on long-term debt............................................. (33,399) (22,000)
--------------- ---------------
NET CASH USED BY FINANCING ACTIVITIES................................... (68,017) (40,867)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ 2,698 (6,879)
CASH AND CASH EQUIVALENTS, beginning of period.................................. 15,169 22,048
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period........................................ $ 17,867 $ 15,169
=============== ===============
Fiscal year 2003 financial statements have not yet been filed with the
Securities and Exchange Commission.
# # #
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: February 11, 2004 By: /s/ Steven K. Lumpkin
--------------------- ------------------------
Steven K. Lumpkin
Executive Vice President and
Chief Financial Officer
11