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 28, 2004
--------------------------------
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, Overland Park, Kansas 66207
-------------------------------------------------------------------------------
(Address of principal executive offices and zip code)
(913) 967-4000
----------------------------------------------------
(Registrant's telephone number, including area code)
None
-------------------------------------------------------------
(Former name or former address, if changed since last report)
1
Item 12. Results of Operations and Financial Condition
On July 28, 2004, Applebee's International, Inc. (the "Company") issued
a press release entitled "Applebee's International Reports Second Quarter
Diluted Earnings Per Share of $0.34." The release has been provided below.
FOR IMMEDIATE RELEASE
Contact: Carol DiRaimo, Vice President of Investor Relations
(913) 967-4109
Applebee's International Reports Second Quarter
Diluted Earnings Per Share of $0.34
Overland Park, Kan., July 28, 2004 -- Applebee's International, Inc.
(Nasdaq:APPB) today reported net earnings of $28.2 million, or $0.34 per diluted
share, for the second quarter ended June 27, 2004, including a previously
disclosed $2.3 million pre-tax ($1.5 million after-tax or approximately $0.02
per share) inventory impairment charge. This compares to net earnings of $20.2
million, or $0.24 per diluted share, for the second quarter of 2003, which
included an $8.8 million pre-tax ($5.6 million after-tax or approximately $0.06
per share) charge resulting from fully reserving a note receivable relating to
the 1999 sale of the Rio Bravo concept to Chevys Holdings, Inc. ("Chevys").
As previously reported, system-wide comparable sales for the second quarter of
2004 increased 6.3 percent, the 24th consecutive quarter of comparable sales
growth. Company and franchise restaurant comparable sales increased 5.5 percent
and 6.5 percent, respectively, for the quarter. System-wide comparable sales for
the year-to-date period through June increased 7.2 percent, with company and
franchise restaurant comparable sales up 7.0 percent and 7.2 percent,
respectively.
The company also reported comparable sales for the July fiscal period, comprised
of the four weeks ended July 25, 2004. System-wide comparable sales increased
5.5 percent for the July period, and comparable sales for franchise restaurants
increased 6.0 percent. Comparable sales for company restaurants increased 3.9
percent, reflecting an increase in guest traffic of approximately 3.0 percent,
combined with a higher average check. The company noted that its Fresh Garden
Classics promotion featuring four salads, which began on June 21st and concludes
on August 15th, has lower price points than either the prior year or recent
promotions. System-wide comparable sales for the year-to-date period through
July have increased 7.0 percent, with company and franchise restaurant
comparable sales up 6.6 percent and 7.1 percent, respectively.
- more -
2
Lloyd L. Hill, chairman and chief executive officer, said, "The first half of
the year produced exceptional results. Comparable sales and traffic growth in
both the first and second quarters were above our own expectations and
substantially exceeded the casual dining industry average as measured by
Knapp-Track(TM), despite some slowing in consumer spending seen in both
restaurants and retail in May and June.
"We continued to improve our food with the successful system-wide introduction
of an updated menu in May featuring the addition of ten Weight Watchers(R) items
as well as the introduction of baby back ribs to our permanent menu. Both our
kitchen display system ("KDS") and Carside To Go(TM) program are now providing
guests with greater convenience in more than 1,000 restaurants throughout the
system. The continued outstanding execution and optimization of these three key
strategies will be our focus for the remainder of the year."
Other results for the second quarter and year-to-date periods ended June 27,
2004 included:
o Net earnings for the 26-week period ended June 27, 2004 were $57.7
million, or $0.68 per diluted share, including the inventory impairment
charge. This compares to net earnings in the same period of 2003 of
$44.8 million, or $0.53 per diluted share, including the Chevys charge.
o Total system-wide sales for the quarter increased 12 percent over the
prior year. 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.
o Applebee's ended the quarter with 1,612 restaurants system-wide (405
company and 1,207 franchise restaurants). During the second quarter of
2004, there were 12 new Applebee's restaurants opened system-wide,
including 4 company and 8 franchised restaurants.
o As previously disclosed, the company recorded a pre-tax charge of $2.3
million for the write-off of excess riblets inventory which it
determined during the second quarter no longer met the company's
quality standards.
- more -
3
o The company repurchased 814,500 shares of common stock in the second
quarter at an average price of $26.01 for an aggregate cost of $21.2
million. Year-to-date, the company has repurchased 2,097,450 shares of
common stock at an average price of $25.38 for an aggregate cost of
$53.2 million. As of June 27, 2004, $46.5 million remains available
under the company's ongoing stock repurchase authorization.
o As of June 27, 2004, the company had total debt outstanding of $43.8
million, with $100 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 More than 100 new restaurants are expected to open in 2004, including
at least 32 company restaurants and 70 to 80 franchise restaurants.
Nine company restaurants are expected to open in the third quarter,
with the balance opening in the fourth quarter of the year.
Approximately 20 to 25 franchise restaurants are expected to open in
the third quarter, with the remainder opening in the fourth quarter.
o The company continues to expect system-wide comparable sales to
increase by at least 5 percent for the full year, although monthly
sales results may be more volatile given economic conditions, calendar
shifts, prior year comparisons, or unusual events.
o Overall restaurant margins before pre-opening expense for the full year
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 The effective income tax rate is currently expected to continue at 35.0
percent for the remainder of the year.
o Excluding the cost of franchise acquisitions, capital expenditures are
expected to be between $95 and $105 million in 2004.
o Based on the foregoing assumptions and the company's performance
through the first half of the year, diluted earnings per share for
fiscal year 2004 are expected to be $1.34 to $1.36, including the
inventory impairment charge of approximately $0.02 per share.
- more -
4
A conference call to review the second quarter 2004 results and the current
business outlook will be held on Thursday morning, July 29, 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. As of July 28, 2004,
there were 1,620 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 26 Weeks Ended
----------------------------------- -----------------------------------
June 27, June 29, June 27, June 29,
2004 2003 2004 2003
---------------- ---------------- ---------------- ----------------
Revenues:
Company restaurant sales ....................... $ 247,769 $ 220,107 $ 491,329 $ 428,517
Franchise royalties and fees.................... 30,779 27,331 61,551 54,494
Other franchise income.......................... 3,399 3,268 6,514 5,909
---------------- ---------------- ---------------- ----------------
Total operating revenues................... 281,947 250,706 559,394 488,920
---------------- ---------------- ---------------- ----------------
Cost of company restaurant sales:
Food and beverage............................... 66,647 57,040 130,162 111,886
Labor........................................... 81,086 71,804 160,745 140,168
Direct and occupancy............................ 60,240 54,386 119,309 104,947
Pre-opening expense............................. 391 334 941 555
---------------- ---------------- ---------------- ----------------
Total cost of company restaurant sales..... 208,364 183,564 411,157 357,556
---------------- ---------------- ---------------- ----------------
Cost of other franchise income...................... 5,035 3,173 7,972 5,673
General and administrative expenses................. 24,932 22,887 50,449 45,507
Amortization of intangible assets................... 158 92 244 191
Loss on disposition of restaurants and equipment.... 584 731 1,079 1,198
---------------- ---------------- ---------------- ----------------
Operating earnings.................................. 42,874 40,259 88,493 78,795
---------------- ---------------- ---------------- ----------------
Other income (expense):
Investment income............................... 18 485 241 821
Interest expense................................ (416) (518) (760) (1,039)
Impairment of Chevys note receivable............ -- (8,803) -- (8,803)
Other income.................................... 951 1 842 206
---------------- ---------------- ---------------- ----------------
Total other income (expense)............... 553 (8,835) 323 (8,815)
---------------- ---------------- ---------------- ----------------
Earnings before income taxes........................ 43,427 31,424 88,816 69,980
Income taxes........................................ 15,200 11,239 31,086 25,193
---------------- ---------------- ---------------- ----------------
Net earnings........................................ $ 28,227 $ 20,185 $ 57,730 $ 44,787
================ ================ ================ ================
Basic net earnings per common share (a)............. $ 0.35 $ 0.24 $ 0.71 $ 0.54
================ ================ ================ ================
Diluted net earnings per common share (a)........... $ 0.34 $ 0.24 $ 0.68 $ 0.53
================ ================ ================ ================
Basic weighted average shares outstanding (a)....... 81,781 83,153 81,883 83,031
================ ================ ================ ================
Diluted weighted average shares outstanding (a)..... 84,098 85,548 84,371 85,303
================ ================ ================ ================
(a) All earnings per share and weighted average share information reflects a
three-for-two stock split effective at the close of business on June 15,
2004.
6
The following table contains 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 27, June 29, June 27, June 29,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues:
Company restaurant sales.................................... 87.9% 87.8% 87.8% 87.6%
Franchise royalties and fees................................ 10.9 10.9 11.0 11.1
Other franchise income...................................... 1.2 1.3 1.2 1.2
------------ ------------ ------------ ------------
Total operating revenues............................... 100.0% 100.0% 100.0% 100.0%
============ ============ ============ ============
Cost of sales (as a percentage of company restaurant sales):
Food and beverage........................................... 26.9% 25.9% 26.5% 26.1%
Labor....................................................... 32.7 32.6 32.7 32.7
Direct and occupancy........................................ 24.3 24.7 24.3 24.5
Pre-opening expense......................................... 0.2 0.2 0.2 0.1
------------ ------------ ------------ ------------
Total cost of sales.................................... 84.1% 83.4% 83.7% 83.4%
============ ============ ============ ============
Cost of other franchise income (as a percentage of other
franchise income)........................................... 148.1% 97.1% 122.4% 96.0%
General and administrative expenses............................. 8.8 9.1 9.0 9.3
Amortization of intangible assets............................... -- -- -- --
Loss on disposition of restaurants and equipment................ 0.2 0.3 0.2 0.2
------------ ------------ ------------ ------------
Operating earnings.............................................. 15.2 16.1 15.8 16.1
------------ ------------ ------------ ------------
Other income (expense):
Investment income........................................... -- 0.2 -- 0.2
Interest expense............................................ (0.1) (0.2) (0.1) (0.2)
Impairment of Chevys note receivable........................ -- (3.5) -- (1.8)
Other income................................................ 0.3 -- 0.2 --
------------ ------------ ------------ ------------
Total other income (expense)........................... 0.2 (3.5) 0.1 (1.8)
------------ ------------ ------------ ------------
Earnings before income taxes.................................... 15.4 12.5 15.9 14.3
Income taxes.................................................... 5.4 4.5 5.6 5.2
------------ ------------ ------------ ------------
Net earnings.................................................... 10.0% 8.1% 10.3% 9.2%
============ ============ ============ ============
7
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 26 Weeks Ended
------------------------------- -------------------------------
June 27, June 29, June 27, June 29,
2004 2003 2004 2003
------------- ------------- ------------- -------------
Number of restaurants:
Company:
Beginning of period.......................... 391 371 383 357
Restaurant openings.......................... 4 4 12 7
Restaurants closed........................... -- (2) -- (2)
Restaurants acquired from franchisees........ 10 -- 10 11
------------- ------------- ------------- -------------
End of period................................ 405 373 405 373
------------- ------------- ------------- -------------
Franchise:
Beginning of period.......................... 1,212 1,142 1,202 1,139
Restaurant openings.......................... 8 13 19 29
Restaurants closed........................... (3) -- (4) (2)
Restaurants acquired from franchisees........ (10) -- (10) (11)
------------- ------------- ------------- -------------
End of period................................ 1,207 1,155 1,207 1,155
------------- ------------- ------------- -------------
Total:
Beginning of period.......................... 1,603 1,513 1,585 1,496
Restaurant openings.......................... 12 17 31 36
Restaurants closed........................... (3) (2) (4) (4)
------------- ------------- ------------- -------------
End of period................................ 1,612 1,528 1,612 1,528
============= ============= ============= =============
Weighted average weekly sales per restaurant:
Company........................................... $ 47,758 $ 45,402 $ 48,075 $ 45,041
Franchise......................................... $ 48,759 $ 45,940 $ 48,763 $ 45,682
Total............................................. $ 48,510 $ 45,807 $ 48,593 $ 45,526
Change in comparable restaurant sales:(1)
Company........................................... 5.5% 5.1% 7.0% 4.9%
Franchise......................................... 6.5% 3.2% 7.2% 3.0%
Total............................................. 6.3% 3.6% 7.2% 3.5%
Total operating revenues (in thousands):
Company restaurant sales.......................... $ 247,769 $ 220,107 $ 491,329 $ 428,517
Franchise royalties and fees(2)................... 30,779 27,331 61,551 54,494
Other franchise income(3)......................... 3,399 3,268 6,514 5,909
------------- ------------- ------------- -------------
Total............................................. $ 281,947 $ 250,706 $ 559,394 $ 488,920
============= ============= ============= =============
(1) When computing comparable restaurant sales, restaurants open for at least 18
months are compared from period to period.
(2) Franchise royalties are generally 4% of each franchise restaurant's reported
monthly gross sales. Reported franchise sales, in thousands, were $764,422
and $684,131 in the 2004 quarter and the 2003 quarter, respectively, and
$1,528,538 and $1,360,443 in the 2004 year-to-date and 2003 year-to-date
period, respectively. Franchise fees typically range from $30,000 to $35,000
for each restaurant opened.
(3) Other franchise income includes insurance premiums from franchisee
participation in our captive insurance company and revenue from information
technology products and services provided to certain franchisees.
8
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)
June 27, December 28,
2004 2003
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 14,890 $ 17,867
Short-term investments, at market value..................................... 280 27
Receivables, net of allowance............................................... 41,166 31,950
Receivables related to captive insurance subsidiary......................... 4,775 450
Inventories................................................................. 31,814 20,799
Prepaid income taxes........................................................ -- 5,800
Other current assets related to captive insurance subsidiary................ 1,706 657
Prepaid and other current assets............................................ 11,448 9,072
---------------- ----------------
Total current assets................................................... 106,079 86,622
Property and equipment, net..................................................... 435,647 419,802
Goodwill........................................................................ 116,344 105,326
Restricted assets related to captive insurance subsidiary....................... 16,251 10,763
Other intangible assets, net.................................................... 5,819 1,137
Other assets.................................................................... 26,125 20,351
---------------- ----------------
$ 706,265 $ 644,001
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........................................... $ 212 $ 192
Accounts payable............................................................ 39,507 37,633
Accrued expenses and other current liabilities.............................. 81,026 96,637
Loss reserve and unearned premiums related to captive insurance subsidiary.. 20,758 11,007
Accrued income taxes........................................................ 20,697 --
Accrued dividends........................................................... -- 3,863
---------------- ----------------
Total current liabilities.............................................. 162,200 149,332
---------------- ----------------
Non-current liabilities:
Long-term debt - less current portion....................................... 43,584 20,670
Other non-current liabilities............................................... 17,656 14,267
---------------- ----------------
Total non-current liabilities.......................................... 61,240 34,937
---------------- ----------------
Total liabilities...................................................... 223,440 184,269
---------------- ----------------
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 - 108,503,243 shares.............................................. 1,085 1,085
Additional paid-in capital.................................................. 210,064 200,574
Retained earnings........................................................... 581,636 523,954
---------------- ----------------
792,785 725,613
Treasury stock - 26,631,822 shares in 2004 and 25,715,767 shares in 2003, at
cost..................................................................... (309,960) (265,881)
---------------- ----------------
Total stockholders' equity............................................. 482,825 459,732
---------------- ----------------
$ 706,265 $ 644,001
================ ================
9
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
26 Weeks Ended
------------------------------------
June 27, June 29,
2004 2003
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................................ $ 57,730 $ 44,787
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization.......................................... 22,167 19,943
Amortization of intangible assets...................................... 244 191
Amortization of unearned compensation.................................. 695 539
Other amortization..................................................... 175 97
Inventory impairment................................................... 2,300 --
Deferred income tax benefit............................................ (245) (734)
Gain on sale of investments............................................ -- (24)
Loss on disposition of restaurants and equipment....................... 1,079 1,198
Impairment of Chevys note receivable................................... -- 8,803
Income tax benefit from exercise of stock options...................... 5,169 3,879
Changes in assets and liabilities (exclusive of effects of acquisitions):
Receivables............................................................ (9,003) (5,377)
Receivables related to captive insurance subsidiary.................... (4,325) (4,359)
Inventories............................................................ (13,103) (8,019)
Prepaid income taxes................................................... 5,800 1,880
Other current assets related to captive insurance subsidiary........... (1,049) (2,031)
Prepaid and other current assets....................................... (923) 2,347
Accounts payable....................................................... 1,874 2,547
Accrued expenses and other current liabilities......................... (15,927) (6,693)
Loss reserve and unearned premiums related to captive insurance
subsidiary.......................................................... 9,751 8,210
Accrued income taxes................................................... 20,697 --
Other.................................................................. (2,667) 608
---------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............................. 80,439 67,792
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................................... (36,543) (28,964)
Restricted assets related to captive insurance subsidiary................... (5,488) (2,512)
Acquisition of restaurants.................................................. (13,817) (21,557)
Lease acquisition costs..................................................... (4,919) --
Purchases of short-term investments......................................... (253) --
Proceeds from sale of restaurants and equipment............................. -- 35
Maturities and sales of short-term investments.............................. -- 480
Other investing activities.................................................. (966) --
---------------- ----------------
NET CASH USED BY INVESTING ACTIVITIES.................................. (61,986) (52,518)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock................................................. (53,223) (13,282)
Dividends paid.............................................................. (3,911) (3,323)
Issuance of common stock upon exercise of stock options..................... 8,789 8,318
Shares issued under employee benefit plans.................................. 3,981 1,418
Net long-term debt proceeds (payments)...................................... 22,934 (19,039)
---------------- ----------------
NET CASH USED BY FINANCING ACTIVITIES.................................. (21,430) (25,908)
---------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS....................................... (2,977) (10,634)
CASH AND CASH EQUIVALENTS, beginning of period.................................. 17,867 15,169
---------------- ----------------
CASH AND CASH EQUIVALENTS, end of period........................................ $ 14,890 $ 4,535
================ ================
10
# # #