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 27, 2004
--------------------------------
Applebee's International, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 000-17962 43-1461763
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(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
4551 W. 107th Street, 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)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
On October 27 2004, Applebee's International, Inc. (the "Company") issued a
press release entitled "Applebee's International Reports Third Quarter Diluted
Earnings Per Share of $0.34 and Updates 2004 Outlook." The release contained the
following information.
FOR IMMEDIATE RELEASE
Contact: Carol DiRaimo,
Vice President of Investor Relations
(913) 967-4109
Applebee's International Reports Third Quarter Diluted
Earnings Per Share of $0.34 and Updates 2004 Outlook
Overland Park, Kan., October 27, 2004 -- Applebee's International, Inc.
(Nasdaq:APPB) today reported net earnings of $28.3 million, or $0.34 per diluted
share, for the third quarter ended September 26, 2004. This compares to net
earnings of $25.6 million, or $0.30 per diluted share, for the third quarter of
2003.
System-wide comparable sales for the third quarter of 2004 increased 2.7
percent, the 25th consecutive quarter of comparable sales growth. Company and
franchise restaurant comparable sales increased 1.1 percent and 3.1 percent,
respectively, for the quarter. System-wide comparable sales for the year-to-date
period through September increased 5.6 percent, with company and franchise
restaurant comparable sales up 5.0 percent and 5.9 percent, respectively.
The company also reported comparable sales for the September fiscal period,
comprised of the five weeks ended September 26, 2004. System-wide comparable
sales increased 1.1 percent for the September period, and comparable sales for
franchise restaurants increased 1.5 percent. Comparable sales for company
restaurants decreased 0.1 percent, reflecting a decrease in guest traffic of
approximately 1.0 to 1.5 percent, offset by a higher average check. As
previously noted, the Olympics had a negative impact on sales for the first week
of the September period. Several hurricanes also negatively impacted franchise
comparable sales by approximately 0.5 percent during the month.
In addition, the company reported comparable sales for the October fiscal
period, comprised of the four weeks ended October 24, 2004. System-wide
comparable sales increased 1.7 percent for the October period, and comparable
sales for franchise restaurants increased 2.4 percent. Comparable sales for
company restaurants decreased 0.4 percent, reflecting a decrease in guest
traffic of a similar amount, combined with a flat average check. The company
noted that its Skillet Sensations(TM) promotion, which ran for three weeks
during the October period, had lower price points than the prior year promotion,
resulting in a negative impact on the average
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check. This promotion will run through the first two weeks of the November
period. The October period also had one less week of advertising in comparison
to the prior year. In addition, company restaurant sales were negatively
impacted by the baseball playoffs and World Series as 26 percent of the
company-owned restaurants are in St. Louis and New England. System-wide
comparable sales for the year-to-date period through October have increased 5.3
percent, with company and franchise restaurant comparable sales up 4.5 percent
and 5.5 percent, respectively.
Lloyd L. Hill, chairman and chief executive officer, said, "Consistent with what
we've seen throughout the casual dining segment, our comparable sales and
traffic growth slowed toward the end of the summer. Whether due to rising
gasoline prices, economic uncertainty, or the upcoming election, consumer
spending appears to have been more restrained recently. While we are not immune
to these forces, we believe that our long-term strategies for continued growth
are the right ones. We remain focused on improving operations throughout the
system, as well as optimizing our key strategies for the remainder of the year."
Other results for the third quarter and year-to-date periods ended September 26,
2004 included:
o Net earnings for the 39-week period ended September 26, 2004 were $86.0
million, or $1.02 per diluted share. This compares to net earnings in
the same period of 2003 of $70.4 million, or $0.82 per diluted share,
including an impairment charge of $5.6 million or approximately $0.06
per share in 2003.
o Total system-wide sales for the quarter increased 9 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 1,637 restaurants open system-wide
(413 company and 1,224 franchise restaurants). During the third quarter
of 2004, there were 30 new Applebee's restaurants opened system-wide,
including 9 company and 21 franchised restaurants.
o The company repurchased 1,407,520 shares of common stock in the third
quarter at an average price of $24.87 for an aggregate cost of $35.0
million. Year-to-date, the company has repurchased 3,504,970 shares of
common stock at an average price of $25.17 for an aggregate cost of
$88.2 million. As of September 26, 2004, $11.5 million remains
available under the company's current stock repurchase authorization.
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3
o As of September 26, 2004, the company had total debt outstanding of
$46.7 million, with $97 million available under its revolving credit
facility.
BUSINESS OUTLOOK
The company updated its guidance with respect to its business outlook for the
remainder of 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. At
least 11 company restaurants and 30 to 40 franchise restaurants are
expected to open in the fourth quarter.
o Comparable sales for the fourth quarter are now expected to increase by
zero to two percent for company restaurants and by two to three percent
for franchise restaurants, including the estimated negative impact of
the timing of both Christmas Eve and Christmas Day on December sales.
Company restaurants have implemented an approximate one percent price
increase in conjunction with a new fall menu which rolled out on
October 25, 2004.
o As a result of lower company sales than previously expected, restaurant
margins before pre-opening expense for the fourth quarter are expected
to be approximately 150 to 200 basis points lower than the fourth
quarter of 2003.
o General and administrative expenses, as a percentage of operating
revenues, are expected to be in the low to mid-9 percent range for the
fourth quarter.
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, diluted earnings per share for the
fourth quarter of 2004 are expected to be $0.28 to $0.30. Accordingly,
fiscal year 2004 diluted earnings per share are now expected to be
$1.30 to $1.32, an increase of 12 to 14 percent over fiscal year 2003
earnings per share (excluding an impairment charge of approximately
$0.06 per share in 2003).
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4
The company also announced that its Board of Directors has authorized additional
stock repurchases of up to $150,000,000 beginning in 2005 and has approved a
written plan for repurchases of common stock in the open market in accordance
with Rule 10b5-1 of the Securities Exchange Act of 1934.
A conference call to review the third quarter 2004 results and the current
business outlook will be held on Thursday morning, October 28, 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 October 24,
2004, there were 1,633 Applebee's restaurants operating system-wide in 49 states
and ten 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 39 Weeks Ended
----------------------------------- -----------------------------------
September 26, September 28, September 26, September 28,
2004 2003 2004 2003
--------------- ---------------- ---------------- ---------------
Revenues:
Company restaurant sales ....................... $ 247,173 $ 222,429 $ 738,502 $ 650,946
Franchise royalties and fees.................... 30,105 27,594 91,656 82,088
Other franchise income.......................... 3,913 2,972 10,427 8,881
--------------- ---------------- ---------------- ---------------
Total operating revenues.................... 281,191 252,995 840,585 741,915
--------------- ---------------- ---------------- ---------------
Cost of company restaurant sales:
Food and beverage............................... 65,115 57,200 195,277 169,086
Labor........................................... 79,599 73,018 240,344 213,186
Direct and occupancy............................ 61,642 55,869 180,951 160,816
Pre-opening expense............................. 998 576 1,939 1,131
--------------- ---------------- ---------------- ---------------
Total cost of company restaurant sales...... 207,354 186,663 618,511 544,219
--------------- ---------------- ---------------- ---------------
Cost of other franchise income....................... 3,521 2,837 11,493 8,510
General and administrative expenses.................. 26,669 23,589 77,118 69,096
Amortization of intangible assets.................... 199 87 443 278
Loss on disposition of restaurants and equipment..... 441 116 1,520 1,314
--------------- ---------------- ---------------- ---------------
Operating earnings................................... 43,007 39,703 131,500 118,498
--------------- ---------------- ---------------- ---------------
Other income (expense):
Investment income............................... 325 227 566 1,048
Interest expense................................ (379) (330) (1,139) (1,369)
Impairment of Chevys note receivable............ -- -- -- (8,803)
Other income.................................... 568 395 1,410 601
--------------- ---------------- ---------------- ---------------
Total other income (expense)................ 514 292 837 (8,523)
--------------- ---------------- ---------------- ---------------
Earnings before income taxes......................... 43,521 39,995 132,337 109,975
Income taxes......................................... 15,232 14,398 46,318 39,591
--------------- ---------------- ---------------- ---------------
Net earnings......................................... $ 28,289 $ 25,597 $ 86,019 $ 70,384
=============== ================ ================ ===============
Basic net earnings per common share (a).............. $ 0.35 $ 0.31 $ 1.05 $ 0.85
=============== ================ ================ ===============
Diluted net earnings per common share (a)............ $ 0.34 $ 0.30 $ 1.02 $ 0.82
=============== ================ ================ ===============
Basic weighted average shares outstanding (a)........ 81,511 83,334 81,759 83,132
=============== ================ ================ ===============
Diluted weighted average shares outstanding (a)...... 83,503 85,777 84,079 85,482
=============== ================ ================ ===============
(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 39 Weeks Ended
------------------------------------ ----------------------------------
September 26, September 28, September 26, September 28,
2004 2003 2004 2003
----------------- ---------------- ---------------- -----------------
Revenues:
Company restaurant sales....................... 87.9% 87.9% 87.9% 87.7%
Franchise royalties and fees................... 10.7 10.9 10.9 11.1
Other franchise income......................... 1.4 1.2 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.............................. 26.3% 25.7% 26.4% 26.0%
Labor.......................................... 32.2 32.8 32.5 32.8
Direct and occupancy........................... 24.9 25.1 24.5 24.7
Pre-opening expense............................ 0.4 0.3 0.3 0.2
----------------- ---------------- ---------------- -----------------
Total cost of sales......................... 83.9% 83.9% 83.8% 83.6%
================= ================ ================ =================
Cost of other franchise income (as a percentage
of other franchise income)....................... 90.0% 95.5% 110.2% 95.8%
General and administrative expenses................. 9.5 9.3 9.2 9.3
Amortization of intangible assets................... 0.1 -- 0.1 --
Loss on disposition of restaurants and equipment.... 0.2 -- 0.2 0.2
----------------- ---------------- ---------------- -----------------
Operating earnings.................................. 15.3 15.7 15.6 16.0
----------------- ---------------- ---------------- -----------------
Other income (expense):
Investment income.............................. 0.1 0.1 0.1 0.1
Interest expense............................... (0.1) (0.1) (0.1) (0.2)
Impairment of Chevys note receivable........... -- -- -- (1.2)
Other income................................... 0.2 0.2 0.2 0.1
----------------- ---------------- ---------------- -----------------
Total other income (expense)................ 0.2 0.1 0.1 (1.1)
----------------- ---------------- ---------------- -----------------
Earnings before income taxes........................ 15.5 15.8 15.7 14.8
Income taxes........................................ 5.4 5.7 5.5 5.3
----------------- ---------------- ---------------- -----------------
Net earnings........................................ 10.1% 10.1% 10.2% 9.5%
================= ================ ================ =================
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 39 Weeks Ended
------------------------------- -------------------------------
September 26, September 28, September 26, September 28,
2004 2003 2004 2003
------------- ------------- -------------- -------------
Number of restaurants:
Company:
Beginning of period....................... 405 373 383 357
Restaurant openings....................... 9 8 21 15
Restaurants closed........................ (1) -- (1) (2)
Restaurants acquired from franchisees..... -- -- 10 11
Restaurants acquired by franchisees....... -- (9) -- (9)
------------- ------------- -------------- -------------
End of period............................. 413 372 413 372
------------- ------------- -------------- -------------
Franchise:
Beginning of period....................... 1,207 1,155 1,202 1,139
Restaurant openings....................... 21 12 40 41
Restaurants closed........................ (4) (5) (8) (7)
Restaurants acquired from franchisees..... -- -- (10) (11)
Restaurants acquired by franchisees....... -- 9 -- 9
------------- ------------- -------------- -------------
End of period............................. 1,224 1,171 1,224 1,171
------------- ------------- -------------- -------------
Total:
Beginning of period....................... 1,612 1,528 1,585 1,496
Restaurant openings....................... 30 20 61 56
Restaurants closed........................ (5) (5) (9) (9)
------------- ------------- -------------- -------------
End of period............................. 1,637 1,543 1,637 1,543
============= ============= ============== =============
Weighted average weekly sales per restaurant:
Company....................................... $ 46,365 $ 45,976 $ 47,489 $ 45,356
Franchise..................................... $ 47,253 $ 45,760 $ 48,258 $ 45,637
Total......................................... $ 47,027 $ 45,812 $ 48,067 $ 45,569
Change in comparable restaurant sales:(1)
Company....................................... 1.1% 5.9% 5.0% 5.2%
Franchise..................................... 3.1% 4.4% 5.9% 3.5%
Total......................................... 2.7% 4.8% 5.6% 3.9%
Total operating revenues (in thousands):
Company restaurant sales...................... $ 247,173 $ 222,429 $ 738,502 $ 650,946
Franchise royalties and fees(2)............... 30,105 27,594 91,656 82,088
Other franchise income(3)..................... 3,913 2,972 10,427 8,881
------------- ------------- -------------- -------------
Total......................................... $ 281,191 $ 252,995 $ 840,585 $ 741,915
============= ============= ============== =============
(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 $746,239
and $687,292 in the 2004 quarter and the 2003 quarter, respectively, and
$2,274,777 and $2,047,735 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)
September 26, December 28,
2004 2003
---------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 441 $ 17,867
Short-term investments, at market value........................................ 281 27
Receivables, net of allowance.................................................. 37,079 31,950
Receivables related to captive insurance subsidiary............................ 3,107 450
Inventories.................................................................... 33,950 20,799
Prepaid income taxes........................................................... 7,704 5,800
Other current assets related to captive insurance subsidiary................... 850 657
Prepaid and other current assets............................................... 9,943 9,072
---------------- ---------------
Total current assets....................................................... 93,355 86,622
Property and equipment, net......................................................... 457,071 421,536
Goodwill............................................................................ 116,344 105,326
Restricted assets related to captive insurance subsidiary........................... 18,311 10,763
Other intangible assets, net ....................................................... 5,564 1,137
Other assets ....................................................................... 23,403 18,617
---------------- ---------------
$ 714,048 $ 644,001
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.............................................. $ 213 $ 192
Notes payable ................................................................. 3,000 --
Accounts payable............................................................... 36,870 37,633
Accrued expenses and other current liabilities................................. 81,678 96,637
Loss reserve and unearned premiums related to captive insurance subsidiary..... 20,864 11,007
Accrued dividends ............................................................. -- 3,863
---------------- ---------------
Total current liabilities.................................................. 142,625 149,332
---------------- ---------------
Non-current liabilities:
Long-term debt - less current portion.......................................... 43,529 20,670
Deferred income taxes ......................................................... 32,141 5,880
Other non-current liabilities.................................................. 11,286 8,387
---------------- ---------------
Total non-current liabilities.............................................. 86,956 34,937
---------------- ---------------
Total liabilities.......................................................... 229,581 184,269
---------------- ---------------
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..................................................... 213,928 200,574
Retained earnings.............................................................. 609,925 523,954
---------------- ---------------
824,938 725,613
Treasury stock - 27,514,031 shares in 2004 and 25,715,767 shares in 2003, at
cost......................................................................... (340,471) (265,881)
---------------- ---------------
Total stockholders' equity................................................. 484,467 459,732
---------------- ---------------
$ 714,048 $ 644,001
================ ===============
9
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
39 Weeks Ended
-----------------------------------
September 26, September 28,
2004 2003
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................................... $ 86,019 $ 70,384
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization............................................... 33,708 30,091
Amortization of intangible assets........................................... 443 278
Amortization of unearned compensation ...................................... 1,073 785
Other amortization ......................................................... 242 146
Inventory impairment ....................................................... 2,100 --
Deferred income tax provision (benefit)..................................... 26,638 (541)
Gain on sale of investments................................................. -- (24)
Loss on disposition of restaurants and equipment............................ 1,520 1,314
Impairment of Chevys note receivable........................................ -- 8,803
Income tax benefit from exercise of options................................. 7,610 5,536
Changes in assets and liabilities (exclusive of effects of acquisitions or
dispositions):
Receivables................................................................. (4,916) (5,890)
Receivables related to captive insurance subsidiary......................... (2,657) (290)
Inventories................................................................. (15,039) (2,454)
Prepaid income taxes........................................................ (1,904) 5,002
Other current assets related to captive insurance subsidiary ............... (193) (1,134)
Prepaid and other current assets............................................ (1,185) 1,554
Accounts payable............................................................ (763) 7,300
Accrued expenses and other current liabilities.............................. (15,275) (1,798)
Loss reserve and unearned premiums related to captive insurance subsidiary.. 9,857 10,073
Accrued income taxes........................................................ -- 457
Other....................................................................... (1,010) 68
--------------- ---------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................... 126,268 129,660
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................ (68,224) (54,893)
Restricted assets related to captive insurance subsidiary ..................... (7,548) (8,830)
Acquisition of restaurants..................................................... (13,817) (21,557)
Lease acquisition costs ....................................................... (4,857) --
Purchases of short-term investments ........................................... (253) --
Proceeds from sale of restaurants and equipment................................ -- 8,579
Maturities and sales of short-term investments................................. -- 480
Other investing activities .................................................... (1,045) --
--------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES....................................... (95,744) (76,221)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of treasury stock.................................................... (88,224) (49,757)
Dividends paid................................................................. (3,911) (3,323)
Issuance of common stock upon exercise of stock options........................ 13,371 11,269
Shares issued under employee benefit plans .................................... 4,934 2,134
Proceeds from issuance of notes payable........................................ 3,000 4,800
Net long-term debt proceeds (payments)......................................... 22,880 (30,372)
--------------- ---------------
NET CASH USED BY FINANCING ACTIVITIES....................................... (47,950) (65,249)
--------------- ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................................... (17,426) (11,810)
CASH AND CASH EQUIVALENTS, beginning of period...................................... 17,867 15,169
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period............................................ $ 441 $ 3,359
=============== ===============
# # #
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 27, 2004 By: /s/ Steven K. Lumpkin
--------------------- ------------------------
Steven K. Lumpkin
Executive Vice President and
Chief Financial Officer
11