APPB Applied Biosciences Corporation (CE)

Applebee�s International, Inc. (Nasdaq:APPB) today reported net earnings of $24.2 million, or $0.32 per diluted share, for the second quarter ended July 1, 2007. Excluding discontinued operations, impairment and other restaurant closure costs, and strategic alternative and proxy contest expenses totaling $2.1 million after-tax or approximately $0.03 per share, net earnings were $26.2 million, or $0.35 per diluted share, for the second quarter of 2007. A reconciliation of non-GAAP measurements to GAAP results is attached to this release. In March 2007, the company announced the decision to close 24 underperforming restaurants in 11 states. In the first quarter of 2007, 19 of these restaurants were closed, and four restaurants were closed in the second quarter of 2007. The company believes that four of the closed restaurants will have significant sales transfer to other existing restaurants, and in accordance with SFAS No.�144, �Accounting for the Impairment or Disposal of Long-Lived Assets,� the results of operations, impairment charges and lease obligations related to these four restaurants have been included in continuing operations. In addition, the write-down of the carrying value of the one restaurant which has not yet been closed is included in impairment charges and other restaurant closure costs in the accompanying consolidated statement of earnings. The results of operations, impairment charges and lease obligations for the remaining 19 closed restaurants are included in discontinued operations in the accompanying consolidated statements of earnings for both 2007 and 2006. As previously reported, system-wide domestic comparable sales for the second quarter of 2007 decreased 0.9 percent. Company and domestic franchise restaurant comparable sales decreased 1.2 percent and 0.8�percent, respectively, for the quarter. System-wide domestic comparable sales for the year-to-date period through June decreased 2.5 percent, with domestic franchise restaurant comparable sales down 2.4 percent and company comparable sales down 2.9 percent. The company also reported comparable sales for the July fiscal period, comprised of the four weeks ended July 29, 2007. System-wide domestic comparable sales decreased 0.8 percent for the July period. Comparable sales for company restaurants increased 0.1 percent, reflecting a decrease in guest traffic of between 3.0 and 3.5 percent, combined with a higher average check, while comparable sales for domestic franchise restaurants decreased 1.2 percent. System-wide domestic comparable sales for the year-to-date period through July have decreased 2.3 percent, with domestic franchise restaurant comparable sales down 2.2 percent and company comparable restaurant sales down 2.5 percent. On July 16, 2007, IHOP Corp. (�IHOP�) and Applebee�s International jointly announced a definitive agreement under which IHOP will acquire Applebee�s for $25.50 per share in cash, representing a total transaction value of approximately $2.1 billion. The all-cash transaction, which is expected to close in the fourth quarter of 2007, is subject to the approval of Applebee�s shareholders, customary closing conditions and regulatory approvals. Dave Goebel, president and chief executive officer, said, �While the difficult macro environment for casual dining continues, we remain committed to improving sales and guest traffic through continued improvement in our food, evolution of our advertising, and a greater emphasis on communicating our value proposition to our guests. In addition, we are pleased with the early results of our new prototype and remodel designs, which represent the culmination of nearly two years of collaboration with our franchisees. At the same time, our management team has begun working with the IHOP management team to facilitate the integration of the two companies. I�d like to thank all of our associates and franchisees for their focus on delivering results during this transition period.� Other results for the second quarter ended July 1, 2007 included: Total system-wide sales for the quarter increased by 3.4 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. Applebee�s ended the quarter with 1,943 restaurants open system-wide (508 company and 1,435 franchise restaurants). During the second quarter of 2007, there were 18 new Applebee�s restaurants opened system-wide, including 3 company and 15 franchised restaurants. As of July 1, 2007, the company had total debt outstanding of $144.7 million, with $240.1 million available under its revolving credit facility. A conference call to review the second quarter 2007 results will be held on Thursday morning, August 2, 2007, 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 Investors 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 29, 2007, there were 1,945 Applebee�s restaurants operating system-wide in 49 states, one U.S. territory and 16 international countries. Additional information on Applebee�s International can be found at the company�s website (www.applebees.com). Forward-Looking Statements Certain statements contained in this release 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. These risks include, but are not limited to, our pending merger with IHOP, our ability and the ability of our franchisees to open and operate additional restaurants profitably and generate positive operating cash flows and return on invested capital, the impact of economic and demographic factors on consumer spending, maintaining and growing the value of the Applebee�s brand, the impact of intense competition in the casual dining segment of the restaurant industry, the impact of future leverage on our operations, the failure to open the restaurants anticipated, the impact of increases in capital expenditure costs on future development, our ability to attract and retain qualified franchisees, and the impact of further penetration of restaurants in existing markets. For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read our risk factors in Item 1A of our 2006 Annual Report on Form 10-K. We disclaim any obligation to update forward-looking statements. Additional Information and Where to Find It In connection with the proposed transaction, IHOP Corp. and Applebee�s International will be filing documents with the Securities and Exchange Commission (the �SEC�), and Applebee�s intends to file a related preliminary and definitive proxy statement. Investors and security holders are urged to read the related preliminary and definitive proxy when it becomes available because it will contain important information about the proposed transaction. Investors and security holders may obtain free copies of these documents (when they are available) and other documents filed with the SEC at the SEC�s website at www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC by IHOP Corp. by contacting IHOP Investor Relations at 818-240-6055. Investors and security holders may obtain free copies of the documents filed with the SEC by Applebee�s by contacting Applebee�s Investor Relations at 913-967-4000. In addition, you may also find information about the merger transaction at www.ihopapplebeesacquisition.com. Applebee�s and their directors and executive officers may be deemed participants in the solicitation of proxies from the stockholders of Applebee�s in connection with the proposed transaction. Information regarding the special interests of these directors and executive officers in the proposed transaction will be included in the proxy statement of Applebee�s described above. Additional information regarding the directors and executive officers of Applebee�s is also included in Applebee�s proxy statement for its 2007 Annual Meeting of Stockholders, which was filed with the SEC on April 9, 2007, and the supplemental proxy statement filed on May 1, 2007. These documents are available free of charge at the SEC's website at www.sec.gov and from Investor Relations at IHOP and Applebee�s as described above. APPLEBEE�S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (in thousands, except per share amounts) � 13 Weeks Ended 26 Weeks Ended July 1, 2007 June 25, 2006 July 1, 2007 June 25, 2006 Operating revenues: Company restaurant sales $ 295,650 $ 289,220 $ 594,267 $ 589,892 Franchise royalties and fees 36,235 34,306 73,294 70,241 Other franchise income 271 � 539 � 734 � 984 � Total operating revenues 332,156 � 324,065 � 668,295 � 661,117 � Cost of company restaurant sales: Food and beverage 78,923 76,579 157,955 156,870 Labor 102,119 97,424 203,251 195,610 Direct and occupancy 80,721 77,547 160,040 153,652 Pre-opening expense 565 � 1,157 � 1,486 � 1,907 � Total cost of company restaurant sales 262,328 � 252,707 � 522,732 � 508,039 � Cost of other franchise income 370 281 743 1,047 General and administrative expenses 32,205 32,320 64,980 67,926 Amortization of intangible assets 126 204 254 408 Impairment and other restaurant closure costs 69 32 5,756 1,120 Loss on disposition of property and equipment 254 � 422 � 624 � 997 � Operating earnings 36,804 � 38,099 � 73,206 � 81,580 � Other income (expense): Investment income (loss) 1,172 (285 ) 2,007 460 Interest expense (2,119 ) (2,985 ) (4,725 ) (5,539 ) Other income (expense) (32 ) 101 � (92 ) 237 � Total other expense (979 ) (3,169 ) (2,810 ) (4,842 ) Earnings before income taxes and discontinued operations 35,825 34,930 70,396 76,738 Income taxes(a) 11,232 � 12,170 � 23,130 � 26,236 � Earnings before discontinued operations 24,593 22,760 47,266 50,502 Loss from discontinued operations, net of tax (436 ) (2,356 ) (13,642 ) (2,947 ) Net earnings $ 24,157 � $ 20,404 � $ 33,624 � $ 47,555 � � Basic net earnings per common share: Earnings before discontinued operations $ 0.33 $ 0.31 $ 0.64 $ 0.68 Loss from discontinued operations, net of tax (0.01 ) (0.03 ) (0.18 ) (0.04 ) Basic net earnings per common share $ 0.33 � $ 0.28 � $ 0.45 � $ 0.64 � � Diluted net earnings per common share: Earnings before discontinued operations $ 0.33 $ 0.30 $ 0.63 $ 0.67 Loss from discontinued operations, net of tax (0.01 ) (0.03 ) (0.18 ) (0.04 ) Diluted net earnings per common share $ 0.32 � $ 0.27 � $ 0.45 � $ 0.63 � � Basic weighted average shares outstanding 74,104 � 74,112 � 74,029 � 74,113 � Diluted weighted average shares outstanding 75,438 � 75,083 � 75,146 � 75,161 � � (a) The income tax rate for the second quarter of 2007 benefited from higher tax credits related to the construction of our new corporate headquarters. APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIESRECONCILIATION 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 discontinued operations, impairment and other restaurant closure costs and strategic alternative expenses. The company is using earnings before discontinued operations, impairment and other restaurant closure costs, and strategic alternative and proxy contest expenses 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 this presentation provides additional information to facilitate the comparison of past and present operations. 13 Weeks Ended 26 Weeks Ended July 1, 2007 June 25,2006 July 1,2007 June 25,2006 � Discontinued operations $ (870 ) $ (3,658 ) $ (21,183 ) $ (4,576 ) Impairment and other restaurant closure costs (69 ) (32 ) (5,756 ) (1,120 ) Strategic alternative and proxy contest expenses (2,431 ) � (3,614 ) � Income taxes 1,299 � 1,313 � 10,727 � 2,015 � Discontinued operations, impairment and other restaurant closure costs, and strategic alternative and proxy contest expenses, net of tax � $ (2,071 � ) � $ (2,377 � ) � $ (19,826 � ) � $ (3,681 � ) � Diluted weighted average shares outstanding 75,438 � 75,083 � 75,146 � 75,161 � � Diluted earnings per share impact of discontinued operations, impairment and other restaurant closure costs, and strategic alternative and proxy contest expenses � $ (0.03 � ) � $ (0.03 � ) � $ (0.26 � ) � $ (0.05 � ) � Reconciliation of earnings before discontinued operations, impairment and other restaurant closure costs, and strategic alternative and proxy contest expenses to net earnings: Earnings before discontinued operations, impairment and other restaurant closure costs, and strategic alternative and proxy contest expenses � $ 26,228 � $ 22,781 � $ 53,450 � $ 51,236 Discontinued operations, impairment and other restaurant closure costs, and strategic alternative and proxy contest expenses, net of tax � (2,071 � ) � (2,377 � ) � (19,826 � ) � (3,681 � ) Net earnings $ 24,157 � $ 20,404 � $ 33,624 � $ 47,555 � � Reconciliation of earnings per share before discontinued operations, impairment and other restaurant closure costs, and strategic alternative and proxy contest expenses to reported earnings per share: Diluted earnings per share before discontinued operations, impairment and other restaurant closure costs, and strategic alternative and proxy contest expenses � � $ 0.35 � � $ 0.30 � � $ 0.71 � � $ 0.68 Diluted earnings per share impact of discontinued operations, impairment and other restaurant closure costs, and strategic alternative and proxy contest expenses � � (0.03 � � ) � � (0.03 � � ) � � (0.26 � � ) � � (0.05 � � ) Reported diluted earnings per share $ 0.32 � $ 0.27 � $ 0.45 � $ 0.63 � 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 July 1, 2007 June 25, 2006 July 1, 2007 June 25, 2006 Operating revenues: Company restaurant sales 89.0 % 89.2 % 88.9 % 89.2 % Franchise royalties and fees 10.9 10.6 11.0 10.6 Other franchise income 0.1 � 0.2 � 0.1 � 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 26.7 % 26.5 % 26.6 % 26.6 % Labor 34.5 33.7 34.2 33.2 Direct and occupancy 27.3 26.8 26.9 26.0 Pre-opening expense 0.2 � 0.4 � 0.3 � 0.3 � Total cost of sales 88.7 % 87.4 % 88.0 % 86.1 % � Cost of other franchise income (as a percentage of other franchise income) 136.5 % 52.1 % 101.2 % 106.4 % General and administrative expenses 9.7 10.0 9.7 10.3 Amortization of intangible assets � 0.1 � 0.1 Impairment and other restaurant closure costs � � 0.9 0.2 Loss on disposition of property and equipment 0.1 � 0.1 � 0.1 � 0.2 � Operating earnings 11.1 � 11.8 � 11.0 � 12.3 � Other income (expense): Investment income (loss) 0.4 (0.1 ) 0.3 0.1 Interest expense (0.6 ) (0.9 ) (0.7 ) (0.8 ) Other income � � � � � � � � Total other expense (0.3 ) (1.0 ) (0.4 ) (0.7 ) Earnings before income taxes and discontinued operations 10.8 10.8 10.5 11.6 Income taxes 3.4 � 3.8 � 3.5 � 4.0 � Earnings before discontinued operations 7.4 7.0 7.1 7.6 Loss from discontinued operations, net of tax (0.1 ) (0.7 ) (2.0 ) (0.4 ) Net earnings 7.3 � 6.3 % 5.0 % 7.2 % The following table sets forth certain financial information and other restaurant data relating to company and franchise restaurants, as reported to us by franchisees: 13 Weeks Ended 26 Weeks Ended July 1, 2007 June 25, 2006 July 1, 2007 June 25, 2006 Number of restaurants: Company: Beginning of period 509 497 521 486 Restaurant openings 3 10 10 19 Restaurant closings (4 ) � (23 ) (2 ) Restaurants acquired from franchisees � � � � � � 4 � End of period 508 � 507 � 508 � 507 � Franchise: Beginning of period 1,421 1,332 1,409 1,318 Restaurant openings 15 25 28 45 Restaurant closings (1 ) (4 ) (2 ) (6 ) Restaurants acquired by franchisor � � � � � � (4 ) End of period 1,435 � 1,353 � 1,435 � 1,353 � Total: Beginning of period 1,930 1,829 1,930 1,804 Restaurant openings 18 35 38 64 Restaurant closings (5 ) (4 ) (25 ) (8 ) End of period 1,943 � 1,860 � 1,943 � 1,860 � Weighted average weekly sales per restaurant: Company(1) $ 44,922 $ 45,245 $ 44,886 $ 46,650 Domestic franchise $ 49,217 $ 50,127 $ 50,037 $ 51,863 Domestic total $ 48,033 $ 48,736 $ 48,597 $ 50,383 Change in comparable restaurant sales(2) Company(3) (1.2 )% (2.0 )% (2.9 )% (0.4 )% Domestic franchise (0.8 )% (1.7 )% (2.4 )% 0.7 % Domestic total (0.9 )% (1.8 )% (2.5 )% 0.4 % Total operating revenues (in thousands): Company restaurant sales(4) $ 295,650 $ 289,220 $ 594,267 $ 589,892 Franchise royalties and fees(5) 36,235 34,306 73,294 70,241 Other franchise income(6) 271 � 539 � 734 � 984 � Total $ 332,156 � $ 324,065 � $ 668,295 � $ 661,117 � � (1) Includes restaurants presented as discontinued operations. Excluding the restaurants presented as discontinued operations, company average weekly sales were $45,062 and $45,923 in the 2007 quarter and the 2006 quarter, respectively, and $45,288 and $47,366 in the 2007 year-to-date period and the 2006 year-to-date period, respectively. � (2) When computing comparable restaurant sales, restaurants open for at least 18 months are compared from period to period. � (3) Includes restaurants presented as discontinued operations. Excluding the restaurants presented as discontinued operations, company comparable restaurant sales were (1.2)% and (1.9)% in the 2007 quarter and the 2006 quarter, respectively, and (2.8)% and (0.3)% in the 2007 year-to-date period and the 2006 year-to-date period, respectively. � (4) Excludes restaurants presented as discontinued operations. Sales for these restaurants, in thousands, were $564 and $6,908 in the 2007 quarter and 2006 quarter, respectively, and $7,298 and $14,135 in the 2007 year-to-date period and the 2006 year-to-date period, respectively. � (5) Franchise royalties are generally 4% of each franchise restaurant's reported monthly gross sales. Reported unaudited franchise sales, in thousands, were $898,635 and $859,557 in the 2007 quarter and the 2006 quarter, respectively, and $1,815,943 and $1,764,201 in the 2007 year-to-date period and the 2006 year-to-date period, respectively. Franchise fees typically are $35,000 for each restaurant opened. � (6) Other franchise income includes revenue from information technology products and services provided to certain franchisees. APPLEBEE�S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share amounts) � July 1, 2007 December 31, 2006 ASSETS Current assets: Cash and cash equivalents $ 7,666 $ 22,309 Short-term investments, at market value 298 293 Receivables, net of allowance 41,666 48,224 Inventories 11,083 11,524 Prepaid income taxes 4,994 55 Prepaid and other current assets 19,923 15,255 Assets held for sale 5,289 7,633 Current assets related to discontinued operations 4,935 � 2,569 � Total current assets 95,854 107,862 Property and equipment, net 622,348 618,492 Goodwill 138,950 138,950 Restricted assets related to captive insurance subsidiary 12,289 13,356 Other intangible assets, net 6,155 6,408 Other assets, net 35,698 34,351 Non-current assets related to discontinued operations 2,558 � 18,606 � $ 913,852 � $ 938,025 � � � LIABILITIES AND STOCKHOLDERS� EQUITY � Current liabilities: Current portion of long-term debt $ 1,894 $ 265 Accounts payable 36,102 43,235 Accrued expenses and other current liabilities 93,847 113,641 Loss reserve related to captive insurance subsidiary 4,702 6,094 Accrued dividends � 16,299 Accrued income taxes � 9,954 Current liabilities related to discontinued operations 1,022 � � � Total current liabilities 137,567 � 189,488 � Non-current liabilities: Long-term debt, less current portion 142,772 174,920 Deferred income taxes 26,671 24,944 Other non-current liabilities 68,499 61,837 Non-current liabilities related to discontinued operations 6,576 � 182 � Total non-current liabilities 244,518 � 261,883 � Total liabilities 382,085 � 451,371 � 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 270,907 265,122 Retained earnings 806,958 � 774,884 � 1,078,950 1,041,091 Treasury stock � 33,603,728 shares in 2007 and 34,393,331 shares in 2006, at cost (547,183 ) (554,437 ) Total stockholders� equity 531,767 � 486,654 � $ 913,852 � $ 938,025 � APPLEBEE�S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) � 26 Weeks Ended July 1, 2007 June 25, 2006 � CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 33,624 $ 47,555 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 33,989 31,577 Amortization of intangible assets 254 408 Stock-based compensation 7,681 11,412 Other amortization 166 156 Deferred income tax benefit (2,086 ) (1,046 ) Impairment and other restaurant closure costs 25,520 4,600 Loss on disposition of property and equipment 36 1,007 Income tax benefit from stock-based compensation 409 1,403 Changes in assets and liabilities, exclusive of effect of acquisition: Receivables 6,558 1,357 Inventories 351 7,906 Prepaid and other current assets (3,585 ) (7,262 ) Accounts payable (6,422 ) (18,985 ) Accrued expenses and other current liabilities (20,416 ) (17,509 ) Loss reserve and unearned premiums related to � captive insurance subsidiary (1,392 ) (3,132 ) Income taxes (14,204 ) 3,708 Other non-current liabilities 4,694 4,138 Other (1,823 ) (1,461 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 63,354 � 65,832 � CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (41,979 ) (59,976 ) Change in restricted assets related to captive insurance subsidiary 1,067 2,062 Acquisition of restaurants � (8,040 ) Proceeds from sale of property and equipment 4,784 � 242 � NET CASH USED BY INVESTING ACTIVITIES (36,128 ) (65,712 ) CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of treasury stock (999 ) (16,134 ) Dividends paid (16,299 ) (14,840 ) Issuance of common stock upon exercise of stock options 3,473 7,856 Shares issued under employee benefit plans 1,998 2,318 Excess tax benefits from stock-based compensation 477 1,154 Net debt proceeds (payments) (30,519 ) 13,382 � NET CASH USED BY FINANCING ACTIVITIES (41,869 ) (6,264 ) NET DECREASE IN CASH AND CASH EQUIVALENTS (14,643 ) (6,144 ) CASH AND CASH EQUIVALENTS, beginning of period 22,309 � 13,040 � CASH AND CASH EQUIVALENTS, end of period $ 7,666 � $ 6,896 �