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) July 30, 2003
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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 July 30, 2003, Applebee's International, Inc. (the "Company") issued a
press release entitled "Applebee's International Reports Second Quarter Diluted
Earnings Per Share of 45 Cents Excluding Chevys Charge; Reported Earnings Per
Share of $0.35." The release has been provided below.
FOR IMMEDIATE RELEASE
Contact: Carol DiRaimo,
Executive Director of Investor Relations
(913) 967-4109
Applebee's International Reports Second Quarter
Diluted Earnings Per Share of $0.45 Excluding Chevys Charge;
Reported Earnings Per Share of $0.35
Overland Park, Kan., July 30, 2003 -- Applebee's International, Inc.
(Nasdaq:APPB) today reported record net earnings of $25.8 million, or $0.45 per
diluted share, for the second quarter ended June 29, 2003, excluding a $5.6
million after-tax or $0.10 per share charge resulting from fully reserving a
note receivable relating to the sale of the Rio Bravo concept to Chevys
Holdings, Inc. ("Chevys") in 1999. Excluding this charge, diluted earnings per
share increased 21 percent as compared to $0.37 per share for the second quarter
of 2002. Including this charge, net earnings were $20.2 million, or $0.35 per
diluted share, for the second quarter of 2003.
The company has recorded a charge of $8.8 million ($5.6 million after-tax or
$0.10 per share) for the quarter ended June 29, 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. In June 2003, Chevys announced the sale of the
majority of its restaurants. Subsequent to the announcement, the company
received Chevys' audited financial statements for the fiscal year ended December
31, 2002. Based upon this information, the company believes that the note is
impaired, and has fully reserved the principal and accrued interest receivable
as of June 29, 2003.
System-wide comparable sales for the second quarter of 2003 increased 3.6
percent, the 20th consecutive quarter of comparable sales growth. Company and
franchise restaurant comparable sales increased 5.1 percent and 3.2 percent,
respectively, for the quarter. System-wide comparable sales for the year-to-date
period through June increased 3.5 percent, with company and franchise restaurant
comparable sales up 4.9 percent and 3.0 percent, respectively.
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July 30, 2003
Page 2
The company also reported comparable sales for the June fiscal period, comprised
of the five weeks ended June 29, 2003. Comparable sales for company restaurants
increased 7.1 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 also increased 7.1
percent, reflecting an increase in guest traffic of approximately 4.0 percent,
combined with a higher average check. System-wide comparable sales increased 5.1
percent for the June period, and comparable sales for franchise restaurants
increased 4.4 percent.
In addition, the company reported comparable sales for the July fiscal period,
comprised of the four weeks ended July 27, 2003. Comparable sales for company
restaurants increased 5.5 percent, including the 32 franchise restaurants
acquired in November and March. Excluding the acquired restaurants, comparable
sales for company restaurants increased 5.9 percent, reflecting an increase in
guest traffic of approximately 2.0 percent, combined with a higher average
check. System-wide comparable sales increased 3.9 percent for the July period,
and comparable sales for franchise restaurants increased 3.3 percent. Comparable
sales for company restaurants for the year-to-date period through July have
increased 4.9 percent, with system-wide and franchise comparable sales up 3.5
percent and 3.1 percent, respectively.
Lloyd L. Hill, chairman and chief executive officer, said, "The solid execution
of our strategies continues to produce outstanding results. Comparable sales
growth exceeded our own expectations, accelerating during the second quarter.
Excluding the charge related to the Chevys' note, earnings per share grew by 21
percent and return on equity exceeded 24 percent for the quarter, both of which
significantly surpassed our long-term targets."
Hill continued, "We continued to improve our food with the successful
system-wide introduction of a new menu at the end of April. In addition, we
began the implementation of our "Carside To Go(TM)" program in company
restaurants during the quarter, and are on target to complete this rollout in
all company restaurants by Thanksgiving. This approach to our To Go initiative
was reviewed with our franchisees last week, and they will continue
implementation throughout the remainder of this year and into 2004. We have also
completed the installation of our kitchen display system ("KDS") in all company
restaurants, and are now commencing the rollout of this technology to our
franchisees."
Hill concluded, "We are excited about last week's announcement of our agreement
to partner with Weight Watchers in the development of menu items that will give
our guests great tasting, healthy choices when they dine with us. This is a
strategic example of how we plan to continue to drive consistent, sustainable
results through our 1,500-plus Applebee's restaurants in the future."
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July 30, 2003
Page 3
Other results for the second quarter and year-to-date periods ended June 29,
2003 included:
o Net earnings for the 26-week period ended June 29, 2003 were $50.4
million, or $0.89 per diluted share, excluding the Chevys charge.
This compares to net earnings in the same period of 2002 of $41.7
million, or $0.73 per diluted share. This represents a 22 percent
increase in diluted earnings per share.
o System-wide sales for the Applebee's concept were a record $904.2
million for the second quarter, an increase of 11 percent over the
prior year. System-wide sales for the 26-week period ended June 29,
2003 were $1.8 billion, also up 11 percent.
o Applebee's ended the quarter with 1,528 restaurants system-wide (373
company and 1,155 franchise restaurants). During the second quarter
of 2003, there were 17 new Applebee's restaurants opened
system-wide, including 4 company and 13 franchised restaurants.
o Year-to-date, the company has repurchased 545,000 shares of common
stock at an average price of $24.37 for an aggregate cost of $13.3
million. As of June 29, 2003, $56.2 million remains available under
the company's ongoing stock repurchase authorization.
o As of June 29, 2003, the company had total debt outstanding of $35
million, with $109 million available under its revolving credit
facility.
BUSINESS OUTLOOK
The company updated its guidance for the remainder of fiscal year 2003:
o The company continues to expect approximately 100 new restaurants to
open in 2003, including 25 company restaurants and 70 to 80
franchise restaurants.
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, current economy,
calendar shifts, prior year comparisons, or other unusual events.
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July 30, 2003
Page 4
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 now 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.
o Excluding the cost of franchise acquisitions, capital expenditures
are now expected to be between $70 and $80 million in 2003,
reflecting an increase in current year spending relating to fiscal
year 2004 openings.
o On July 20, 2003, the company completed the sale of eight
restaurants in the Atlanta, Georgia market to a franchisee for
$8,000,000. No significant gain or loss on the sale is anticipated.
Based on the foregoing assumptions and its performance through the first half of
the year, the company has raised its guidance for fiscal year 2003 diluted
earnings per share to a range of $1.70 to $1.72, 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 second quarter 2003 results and the current
business outlook will be held on Thursday morning, July 31, 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 July 27, 2003,
there were 1,530 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).
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July 30, 2003
Page 5
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.
# # #
6
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
13 Weeks Ended 26 Weeks Ended
--------------------------- ---------------------------
June 29, June 30, June 29, June 30,
2003 2002 2003 2002
----------- ----------- ------------ -----------
Revenues:
Company restaurant sales.................... $220,107 $178,893 $428,517 $353,866
Franchise royalties and fees................ 27,331 25,484 54,494 50,324
Other franchise income (a).................. 3,268 463 5,909 597
----------- ----------- ------------ -----------
Total operating revenues................. 250,706 204,840 488,920 404,787
----------- ----------- ------------ -----------
Cost of company restaurant sales:
Food and beverage........................... 57,040 47,073 111,886 94,480
Labor....................................... 71,804 58,881 140,168 116,338
Direct and occupancy........................ 54,386 44,291 104,947 87,163
Pre-opening expense......................... 334 305 555 640
----------- ----------- ------------ -----------
Total cost of company restaurant sales... 183,564 150,550 357,556 298,621
----------- ----------- ------------ -----------
Cost of other franchise income (a)............... 3,173 93 5,673 153
General and administrative expenses (a).......... 22,887 19,923 45,507 39,243
Amortization of intangible assets................ 92 52 191 190
Loss on disposition of restaurants and equipment. 731 727 1,198 1,021
----------- ----------- ------------ -----------
Operating earnings............................... 40,259 33,495 78,795 65,559
----------- ----------- ------------ -----------
Other income (expense):
Investment income........................... 485 381 821 778
Interest expense............................ (518) (555) (1,039) (1,188)
Impairment of Chevys note receivable........ (8,803) -- (8,803) --
Other income................................ 1 482 206 583
----------- ----------- ------------ -----------
Total other income (expense)............. (8,835) 308 (8,815) 173
----------- ----------- ------------ -----------
Earnings before income taxes..................... 31,424 33,803 69,980 65,732
Income taxes..................................... 11,239 12,338 25,193 23,992
----------- ----------- ------------ -----------
Net earnings..................................... $ 20,185 $ 21,465 $ 44,787 $ 41,740
=========== =========== ============ ===========
Basic net earnings per common share (b).......... $ 0.36 $ 0.38 $ 0.81 $ 0.75
=========== =========== ============ ===========
Diluted net earnings per common share (b)........ $ 0.35 $ 0.37 $ 0.79 $ 0.73
=========== =========== ============ ===========
Basic weighted average shares outstanding (b).... 55,435 55,872 55,354 55,874
=========== =========== ============ ===========
Diluted weighted average shares outstanding (b).. 57,032 57,374 56,869 57,352
=========== =========== ============ ===========
(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) All earnings per share and weighted average share information reflect a
three-for-two stock split effective at the close of business on June 11,
2002.
7
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 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 our ongoing operations.
13 Weeks Ended 26 Weeks Ended
--------------------------- --------------------------
June 29, June 30, June 29, June 30,
2003 2002 2003 2002
------------ ----------- ------------ ------------
Detail of charge:
Impairment of Chevys note receivable........... $ (8,803) -- $ (8,803) --
Income taxes................................... 3,169 -- 3,169 --
------------ ----------- ------------ ------------
Impairment, net of tax...................... $ (5,634) -- $ (5,634) --
============ =========== ============ ============
Diluted weighted average shares outstanding...... 57,032 57,374 56,869 57,352
============ =========== ============ ============
Diluted earnings per share impact of charge...... $ (0.10) -- $ (0.10) --
============ =========== ============ ============
Reconciliation of earnings before charge to net earnings:
Earnings before charge......................... $ 25,819 $ 21,465 $ 50,421 $ 41,740
Impairment, net of tax......................... (5,634) -- (5,634) --
------------ ----------- ------------ ------------
Net earnings................................ $ 20,185 $ 21,465 $ 44,787 $ 41,740
============ =========== ============ ============
Reconciliation of earnings per share before charge to reported earnings per
share:
Diluted earnings per share before charge.... $ 0.45 $ 0.37 $ 0.89 $ 0.73
Diluted earnings per share impact of charge. (0.10) -- (0.10) --
------------ ----------- ------------ ------------
Reported diluted earnings per share....... $ 0.35 $ 0.37 $ 0.79 $ 0.73
============ =========== ============ ============
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 26 Weeks Ended
------------------------------------------------------
June 29, June 30, June 29, June 30,
2003 2002 2003 2002
------------ ------------ ------------- ------------
Revenues:
Company restaurant sales................................ 87.8% 87.3% 87.7% 87.4%
Franchise royalties and fees............................ 10.9 12.4 11.1 12.4
Other franchise income.................................. 1.3 0.2 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....................................... 25.9% 26.3% 26.1% 26.7%
Labor................................................... 32.6 32.9 32.7 32.9
Direct and occupancy.................................... 24.7 24.8 24.5 24.6
Pre-opening expense..................................... 0.2 0.2 0.1 0.2
------------ ------------ ------------- ------------
Total cost of sales.................................. 83.4% 84.2% 83.4% 84.4%
============ ============ ============= ============
Cost of other franchise income (as a percentage
of other franchise income).............................. 97.1% 20.1% 96.0% 25.6%
General and administrative expenses.......................... 9.1 9.7 9.3 9.7
Amortization of intangible assets............................ -- -- -- --
Loss on disposition of restaurants and equipment............. 0.3 0.4 0.2 0.3
------------ ------------ ------------- ------------
Operating earnings........................................... 16.1 16.4 16.1 16.2
------------ ------------ ------------- ------------
Other income (expense):
Investment income....................................... 0.2 0.2 0.2 0.2
Interest expense........................................ (0.2) (0.3) (0.2) (0.3)
Impairment of Chevys note receivable.................... (3.5) -- (1.8) --
Other income............................................ -- 0.2 -- 0.1
------------ ------------ ------------- ------------
Total other income (expense)......................... (3.5) 0.2 (1.8) --
------------ ------------ ------------- ------------
Earnings before income taxes................................. 12.5 16.5 14.3 16.2
Income taxes................................................. 4.5 6.0 5.2 5.9
------------ ------------ ------------- ------------
Net earnings................................................. 8.1% 10.5% 9.2% 10.3%
============ ============ ============= ============
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
June 29, December 29,
2003 2002
---------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 4,535 $ 15,169
Short-term investments, at market value (amortized cost of $478 in 2002)......... 26 503
Receivables (less allowance for bad debts of $3,955 in 2003 and $4,089 in 2002).. 31,824 26,092
Receivables related to captive insurance subsidiary.............................. 6,162 1,803
Inventories...................................................................... 19,717 11,504
Prepaid income taxes............................................................. 3,122 5,002
Prepaid and other current assets................................................. 8,976 9,506
---------------- ---------------
Total current assets......................................................... 74,362 69,579
Property and equipment, net........................................................... 397,923 383,002
Goodwill.............................................................................. 105,326 88,715
Franchise interest and rights, net.................................................... 1,302 1,468
Other assets, net..................................................................... 18,973 23,350
---------------- ---------------
$ 597,886 $ 566,114
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................................................ $ 501 $ 377
Accounts payable................................................................. 30,026 27,479
Accrued expenses and other current liabilities................................... 74,563 82,204
Loss reserve and unearned premiums related to captive insurance subsidiary....... 10,013 1,803
Accrued dividends................................................................ -- 3,323
---------------- ---------------
Total current liabilities.................................................... 115,103 115,186
---------------- ---------------
Non-current liabilities:
Long-term debt - less current portion............................................ 34,751 52,186
Other non-current liabilities.................................................... 8,380 6,161
---------------- ---------------
Total non-current liabilities................................................ 43,131 58,347
---------------- ---------------
Total liabilities............................................................ 158,234 173,533
---------------- ---------------
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....................................................... 194,628 187,523
Retained earnings................................................................ 479,408 434,621
Accumulated other comprehensive income, net of income taxes...................... -- 16
---------------- ---------------
674,759 622,883
Treasury stock - 16,579,329 shares in 2003 and 16,948,371 shares in 2002, at
cost........................................................................... (235,107) (230,302)
---------------- ---------------
Total stockholders' equity................................................... 439,652 392,581
---------------- ---------------
$ 597,886 $ 566,114
================ ===============
# # #
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: July 30, 2003 By: /s/ Steven K. Lumpkin
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Steven K. Lumpkin
Executive Vice President and
Chief Financial Officer
9