DineEquity, Inc. (NYSE: DIN), the parent company of Applebee’s Neighborhood Grill & Bar and IHOP Restaurants, today updated financial guidance for fiscal 2012, reflecting significant one-time effects from the Company’s completion of its Applebee’s refranchising program earlier this month. DineEquity provided fiscal 2012 guidance on the following key financial performance metrics:
- Reiterated Applebee’s domestic system-wide same-restaurant sales performance to range between 0.5% and 2.5%.
- Reiterated IHOP’s domestic system-wide same-restaurant sales performance to trend toward the low end of the range between negative 1.5% and positive 1.5%.
- Reiterated Applebee’s franchisees to develop between 30 and 40 new restaurants, approximately half of which are expected to be opened in the U.S.
- Reiterated IHOP franchisees and its area licensees to develop between 45 and 55 new restaurants, the majority of which are expected to be opened in the U.S.
- Revised consolidated cash from operations, significantly due to the one-time impact of the completed sales of 137 Applebee’s company-operated restaurants, to range between $43 and $55 million. This reflects a reduction from previous expectations of $110 to $122 million. The reduction in consolidated cash from operations relates primarily to the increase in cash taxes to be paid on refranchising proceeds, the net working capital impact from the sale of 137 Applebee’s company-operated restaurants as discussed in our previously issued press releases, a non-recurring litigation settlement, and, as expected, lower segment profit due to refranchising. ( See “Non-GAAP Financial Measures” and 2012 Financial Performance Guidance Tables below.)
- Reiterated consolidated capital expenditures to range between $18 and $20 million.
- Revised consolidated free cash flow, significantly due to the one-time impact of the completed sales of 137 Applebee’s company-operated restaurants, to range between $36 and $50 million. This reflects a reduction from previous expectations of $103 to $117 million. The reduction in consolidated free cash flow relates primarily to the increase in cash taxes to be paid on refranchising proceeds, the net working capital impact from the sale of 137 Applebee’s company-operated restaurants as discussed in our previously issued press releases, a non-recurring litigation settlement, and, as expected, lower segment profit due to refranchising. ( See “Non-GAAP Financial Measures” and 2012 Financial Performance Guidance Tables below.)
- Reiterated approximately $13 million is expected to be generated from the structural run-off of the Company’s long-term receivables.
- Revised consolidated general and administrative expense, due to a significant non-recurring litigation settlement, to range between $164 and $167 million, including non-cash stock-based compensation expense and depreciation of approximately $18 million. This reflects an increase from previous expectations of $155 and $158 million. The increase in consolidated general & administrative expense is primarily due to a non-recurring litigation settlement accrued for in the third quarter of 2012 that commenced prior to the acquisition of Applebee’s in 2007.
- Revised consolidated interest expense to range between $115 and $118 million, of which approximately $6 million is expected to be non-cash interest expense. This reflects a reduction from previous expectations of $120 to $124 million. The reduction in consolidated interest expense is primarily due to the reduction of long-term debt and the decrease of financing obligations as a result of refranchising.
- Revised Federal income tax rate to be approximately 35%. This reflects a reduction from previous expectations of approximately 36% due to favorable state tax benefits as a result of the refranchising of 137 Applebee’s company-operated restaurants in the third and fourth quarters of 2012.
- Reiterated weighted average diluted shares outstanding to be approximately 18.5 million shares.
Non-GAAP Financial MeasuresThis news release includes references to the Company's non-GAAP financial measures "adjusted net income available to common stockholders (adjusted EPS)," "EBITDA," "free cash flow," and "segment EBITDA." "Adjusted EPS" is computed for a given period by deducting from net income (loss) available to common stockholders for such period the effect of any impairment and closure charges, any gain or loss related to debt extinguishment, any intangible asset amortization, any non-cash interest expense, any debt modification costs, any one-time litigation settlement charges, any general and administrative restructuring costs, net of savings, any gain or loss related to the disposition of assets, and any state income tax impact of deferred taxes due to refranchising incurred in such period. This is presented on an aggregate basis and a per share (diluted) basis. The Company defines "EBITDA" for a given period is defined as income before income taxes less interest expense, loss on retirement of debt, depreciation and amortization, impairment and closure charges, non-cash stock-based compensation, gain/loss on disposition of assets and other charge backs as defined by its credit agreement. "Free cash flow" for a given period is defined as cash provided by operating activities, plus receipts from notes and equipment contracts receivable ("long-term notes receivable"), less dividends paid and capital expenditures. "Segment EBITDA" for a given period is defined as gross segment profit plus depreciation and amortization as well as interest charges related to the segment. Management utilizes EBITDA for debt covenant purposes and free cash flow to determine the amount of cash remaining for general corporate and strategic purposes after the receipts from long-term notes receivable, and the funding of operating activities, capital expenditures and preferred dividends. Management believes this information is helpful to investors to determine the Company's adherence to debt covenants and the Company's cash available for these purposes. Adjusted EPS, EBITDA, free cash flow and segment EBITDA are supplemental non-GAAP financial measures and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with United States generally accepted accounting principles.
(See the following 2012 Financial Performance Guidance Tables below)
|2012 Financial Performance Guidance Tables|
|Previous cash flows from operating activities||$||110-122|
|One-time impact from refranchising 137 restaurants:|
|Cash taxes to be paid on the gain on sale (1)||(39||)|
|Impact from net working capital (2)||(16||)|
|Non-recurring litigation settlement (3)||(9||)|
|Other net working capital reduction||(3||)|
|Revised cash flows from operating activities||43-55|
|Revised free cash flow||$||36-50|
|(1)||The cash income taxes to be paid on these restaurant sales are required to be reflected in the “Cash Flows from Operating Activities” section in the GAAP Statement of Cash Flows. However, the related gross cash proceeds from these sales are required to be reflected in the “Cash Flows from Investing Activities” section.|
|(2)||Total combined net working capital and deal costs as previously disclosed in our press releases dated May 1, 2012, May 29, 2012, and July 25, 2012; aggregated approximately $20 million. This amount is reduced by deal costs of approximately $4 million, resulting in a net working capital adjustment of $16 million. Deal costs are not included in cash flows from operating activities.|
|(3)||Non-recurring litigation settlement expected to be paid in the fourth quarter of 2012.|