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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

General

The following discussion provides analyses of our results of operations and reasons for material changes for 2022 as compared to 2021 and should be read together with the financial statements included in this Annual Report on Form 10-K. For a detailed discussion of year-to-year comparisons between fiscal 2021 and fiscal 2020, please refer to the applicable portion of “Management's Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 2, 2022, which is hereby incorporated by reference.

The financial tables appearing in Management's Discussion and Analysis present amounts in millions of dollars that are rounded from our consolidated financial statements presented in thousands of dollars. As a result, the tables may not foot or cross foot due to rounding.

The first International House of Pancakes restaurant opened in 1958 in Toluca Lake, California. Shortly thereafter, the Company's predecessor began developing and franchising additional restaurants. The Company was incorporated under the laws of the State of Delaware in 1976 with the name IHOP Corp. In November 2007, the Company completed the acquisition of Applebee's International, Inc., which became a wholly-owned subsidiary of the Company. Effective June 2, 2008, the name of the Company was changed to DineEquity, Inc. and on February 20, 2018, the name of the Company was changed to Dine Brands Global, Inc.®(“Dine Brands Global,” “we” or “our”). Through various subsidiaries (see Exhibit 21, Subsidiaries of Dine Brands Global, Inc.), we own and franchise the Applebee's Neighborhood Grill + Bar® (“Applebee's”) concept in the American full-service restaurant segment within the casual dining category of the restaurant industry and we own and franchise the International House of Pancakes® (“IHOP”) concept in the midscale full-service restaurant segment within the family dining category of the restaurant industry. In December 2022, we acquired the Fuzzy's Taco Shop® (“Fuzzy's”) concept in the Mexican limited-service restaurant segment within the fast-casual dining category of the restaurant industry and as such, Fuzzy's did not have a significant impact to the fiscal 2022 results of operations. References herein to Applebee's® and IHOP® restaurants are to these two concepts, whether operated by franchisees, area licensees or us.

Domestically, IHOP restaurants are in all 50 states and the District of Columbia, while Applebee's restaurants are located in every state except Hawaii and Fuzzy's restaurants are located in 18 states. Internationally, IHOP restaurants are in two United States territories and nine countries, while Applebee's restaurants are in two United States territories and 11 countries. With over 3,500 franchised restaurants combined, we believe we are one of the largest full-service restaurant companies in the world. The June 2022 issue of Nation's Restaurant News reported that IHOP was the largest restaurant system in the midscale full-service restaurant segment and Applebee's was the second largest restaurant system in the American full-service restaurant segment, in terms of United States system-wide sales during 2021.

We have a 52/53 week fiscal year ending on the Sunday nearest to December 31 of each year. For convenience, in this annual report on Form 10-K, we refer to all fiscal years as ending on December 31 and all interim fiscal quarters as ending on March 31, June 30 and September 30 of the respective fiscal year. There were 52 calendar weeks in our 2022 fiscal year ended January 1, 2023. There were 52 calendar weeks in our 2021 fiscal year ended on January 2, 2022. There were 53 calendar weeks in our 2020 fiscal year ended January 3, 2021, and our fiscal 2020 fourth quarter contained 14 calendar weeks.

Events Impacting Comparability of Financial Information

Comparisons of financial results for the fiscal years ended December 31, 2022 and 2021 were impacted by the extent of restrictions in place on restaurant operations in 2021. In March 2020, the World Health Organization declared a global pandemic related to the outbreak of a novel strain of coronavirus, designated “COVID-19.” Initially, federal, state, local and international governments reacted to the COVID-19 pandemic by implementing restrictions that resulted in, to varying degrees, reduced operating hours, restaurant dine-in and/or indoor dining limitations, capacity limitations or other restrictions.

The operating status of our restaurants was fluid during the year ended December 31, 2021 and subject to change. Restrictions on restaurant operations were relaxed, removed or increased in response to changes in the number of COVID-19 infections, the availability and acceptance of vaccines and an increase in vaccination rates within the respective governmental jurisdictions. Generally speaking, during the second quarter of 2021, many federal, state and local governments began to relax or remove the restrictive protocols noted above, while most international governments maintained the restrictions, the degree of which varied by country.

As of December 31, 2022 and 2021 almost all of our restaurants were operating without government-mandated restrictions, a significant improvement from December 31, 2021, at which time many international restaurants were operating with some restrictions.

Government-mandated restrictions notwithstanding, some IHOP restaurants that operated 24 hours a day for all or parts of a week prior to the pandemic are currently closed during overnight hours. As of December 31, 2022, approximately 545 IHOP restaurants operated 24 hours a day, seven days a week, with approximately 178 additional restaurants operating 24 hours a day for some portion of the week. In comparison, approximately 448 IHOP restaurants operated 24 hours a day, seven days a week, with 68 additional restaurants operating 24 hours a day for some portion of the week as of December 31, 2021.

We have experienced a number of temporary and permanent closures of our restaurants during the COVID-19 pandemic. These closures occurred for a variety of reasons, and all closures were not necessarily related to the impact of the COVID-19 pandemic or related restrictions. We cannot predict the duration of the pandemic, recurrences of the virus (including the emergence of new variants of the virus), the availability and acceptance of vaccines and booster vaccines worldwide, whether any restrictions on in-restaurant dining may be re-imposed, and, in general, what the ultimate impact on consumer discretionary spending the COVID-19 pandemic might have on our operations and the restaurant industry as a whole.

Executive Summary of 2022 Results

Highlights

•We reported net income of $81.1 million, or $4.96 per diluted share, in 2022 compared to $97.9 million, or $5.66 per diluted share, in 2021;

•Applebee's reported system-wide sales grew 4.7% in 2022 driven by a 5.1% increase in domestic same-restaurant sales partially offset by an 1% decrease in domestic effective restaurants;

•IHOP's reported system-wide sales grew 7.7% in 2022 driven by a 5.8% increase in domestic same-restaurant sales and an increase in franchise restaurants due to development;

•We generated cash from operating activities of $89.3 million;

•We returned over $151 million to our stockholders, comprised of $30.8 million in cash dividends and $120.5 million in the form of stock repurchases; and

•We made voluntary repayments of long-term debt of $38.8 million purchased under par which resulted in a $1.4 million gain on debt extinguishment.

Overview of 2022 Performance

Key Performance Indicators

In evaluating the performance of each restaurant concept, we consider the key performance indicators to be the system-wide sales percentage change, the percentage change in domestic system-wide same-restaurant sales (“domestic same-restaurant sales”), net franchise restaurant development/reduction and the change in total effective restaurants. Changes in both domestic same-restaurant sales and in the number of Applebee's and IHOP restaurants will impact our reported retail sales that drive franchise royalty revenues and, where applicable, rental payments under leases that partially may be based on a percentage of their sales. Net franchise restaurant development/reduction also impacts franchise revenues in the form of initial franchise fees and, in the case of IHOP restaurants, sales of proprietary pancake and waffle dry mix.

Our key performance indicators for the year ended December 31, 2022 were as follows:

Applebee's IHOP

System-wide sales percentage increase 4.7 % 7.7 %

Domestic system-wide same-restaurant sales percentage increase 5.1 % 5.8 %

Net franchise restaurant development(1) 67 30

Net (decrease) increase in global effective restaurants(2) (17) 26

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(1) Franchise and area license restaurant openings, net of closings, and includes the 69 former Applebee's company-operated restaurants refranchised in October 2022.

(2) Change in the weighted average number of franchise, area license and company-operated restaurants open during the year ended December 31, 2022, compared to the weighted average number of those open during the prior year referenced.

The change in total effective restaurants for each brand reflects both a net reduction in franchise restaurants due to permanent closures, net of openings, and the weighted effect of restaurants temporarily closed during the course of the years being compared.

A summary of our financial summary for the years ended December 31, 2022 and 2021 is as follows:

Financial Summary Variance 2022 vs 2021 Favorable(Unfavorable)

(In thousands, except per share amounts)

Net income per diluted share $ 4.96 $ (0.70) $ 5.66

Weighted average diluted shares (in millions) 15.9 (1.0) 16.9

The primary reasons for the variances in income before income taxes are summarized as follows:

(In millions)

Increase (decrease) in gross profit:

Franchise operations $ 4.5

Company operations (4.1)

Rental and Financing operations 1.8

Total gross profit increase 2.2

Decrease in closure and impairment charges 2.3

Increase in General & Administrative (“G&A”) expenses (18.9)

Increase in (gain) loss on disposition of assets 4.6

All other 2.7

Decrease in income before income taxes $ (7.1)

The decrease in income before income taxes in fiscal 2022 compared to fiscal 2021 was due to higher G&A expenses including acquisition costs, partially offset by the increase in gross profit. The increase in gross profit in fiscal 2022 compared to fiscal 2021 was primarily due to the increases in Applebee's and IHOP domestic same-restaurant sales and in the number of IHOP effective restaurants, partially offset by the decrease in company operations impacted by the sale of Applebee's company-owned restaurants in October 2022.

Our 2022 effective tax rate of 29.3% applied to pretax book income was different than the statutory Federal income tax rate of 21% due to the state and local income taxes and the non-deductibility of executive compensation. The effective tax rate further increased due to the increase in the effective state tax rate applied to revaluing deferred tax balances. The increase in the effective state tax rate was due to the non-recurring refranchising of 69 Applebee’s company-operated restaurants in the fourth quarter of 2022 and various state legislative changes. See Note 16 - Income Taxes, of the Notes to the Consolidated Financial Statements included in this report, for reconciliations between our effective rates and the statutory Federal income tax rate.

Domestic Same-Restaurant Sales

Restaurant Data - System-wide Sales and Domestic Same-Restaurant Sales

The following table sets forth for each of the past three years the number of Global Effective Restaurants in the Applebee’s and IHOP systems and information regarding the percentage change in sales at those restaurants compared to the same periods in the prior two years. Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company and, as such, the percentage changes in sales presented below are based on non-GAAP internal sales data. However, we believe that presentation of this information is useful in analyzing our revenues because franchisees and area licensees pay us royalties and advertising fees that are generally based on a percentage of their sales, and, where applicable, rental payments under leases that partially may be based on a percentage of their sales. Management also uses this information to make decisions about future plans for the development of additional restaurants as well as evaluation of current operations.

Applebee's

Year Ended December 31,

System-wide:(b)

Domestic sales percentage change(c) 4.7 % 34.4 % (24.1) %

Domestic same-restaurant sales percentage change(d) 5.1 % 38.2 % (22.4) %

Franchise:(b)

Domestic sales percentage change(c)(e) 5.3 % 34.4 % (24.3) %

Domestic same-restaurant sales percentage change(d) 5.1 % 38.2 % (22.6) %

Domestic average weekly unit sales (in thousands) $ 53.7 $ 50.9 $ 37.1

IHOP

Global Effective Restaurants:(a)

System-wide:(b)

Sales percentage change(c) 7.7 % 38.5 % (34.9) %

Domestic same-restaurant sales percentage change(d) 5.8 % 40.2 % (32.8) %

Franchise:(b)

Sales percentage change(c) 7.7 % 38.1 % (35.0) %

Domestic same-restaurant sales percentage change(d) 5.7 % 39.7 % (32.8) %

Average weekly unit sales (in thousands) $ 37.0 $ 34.9 $ 25.4

Area License:(b)

IHOP sales percentage change(c) 7.9 % 42.4 % (34.2) %

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(a)“Global Effective Restaurants” are the weighted average number of restaurants open in a given fiscal period, adjusted to account for restaurants open for only a portion of the period. Information is presented for all Effective Restaurants in the Applebee’s and IHOP systems, domestic and international, which includes restaurants owned by franchisees and area licensees as well as those owned by the Company.

(b)“System-wide sales” are retail sales at Applebee’s domestic restaurants operated by franchisees and IHOP restaurants operated by franchisees and area licensees, as reported to the Company, in addition to retail sales at company-operated restaurants. Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company. An increase or decrease in franchisees' reported sales will result in a corresponding increase or decrease in our royalty revenue. Sales at company-operated restaurants and unaudited reported sales for Applebee's domestic franchise restaurants, IHOP franchise restaurants and IHOP area license restaurants for the years ended December 31, 2022, 2021 and 2020 were as follows:

Year Ended December 31,

(In millions)

Applebee's domestic franchise restaurant sales $ 4,235.3 $ 4,021.7 $ 2,993.0

(c)“Sales percentage change” reflects, for each category of restaurants, the percentage change in sales in any given fiscal year compared to the prior fiscal year for all restaurants in that category.

(d)“Domestic same-restaurant sales change” reflects the percentage change in sales in any given fiscal year, compared to the same weeks in the prior year, for domestic restaurants that have been operated throughout both fiscal years that are being compared and have been open for at least 18 months. Because of new restaurant openings and restaurant closures, the domestic restaurants open throughout the fiscal years being compared may be different from year to year.

(e)The Applebee's franchise sales percentage change for 2022 was impacted by the refranchising of 69 company-operated restaurants in October 2022 now reported as franchised.

Domestic Same-Restaurant Sales Trends

Applebee’s system-wide domestic same-restaurant sales increased 1.7% for the three months ended December 31, 2022 and increased 5.1% for the year ended December 31, 2022 as compared to the same respective periods of 2021. The increase in both periods was due to an increase in average check. The increase in average check was primarily due to favorable mix shifts related to a reduction in core menu items, successful promotional food and beverage offerings and a larger number of items purchased with off-premise orders, as well as menu price increases by franchisees.

Based on data from Black Box Intelligence, a restaurant sales reporting firm (“Black Box”), Applebee's increase in same- restaurant sales during the three and twelve months ended December 31, 2022 underperformed the casual dining segment of the restaurant industry (excluding Applebee's) as compared to the same respective periods of 2021. The casual dining segment also experienced an increase in average customer check, partially offset by a decline in customer traffic.

(1) Primarily to-go, delivery and catering sales.

Applebee's off-premise sales dollars and percentage of sales mix for the three and twelve months ended December 31, 2022 decreased as compared with the same respective periods of 2021, due to guests returning to in-restaurant dining. While Applebee's off-premise sales for the three and twelve months ended December 31, 2022 declined as compared to the same respective periods of 2021, both off-premise sales dollars and percentage of sales mix have increased significantly compared to the pre-pandemic levels of 2019.

IHOP’s domestic same-restaurant sales increased 2.0% for the three months ended December 31, 2022 and increased 5.8% for the year ended December 31, 2022, as compared to the same respective periods of 2021. Most of the improvement in both periods was due to an increase in average check. The increase in average check was primarily due to an increase in menu prices, as well as a general increase in consumer spending due to larger party sizes and greater spending per person.

Based on data from Black Box, IHOP's increase in same-restaurant sales for the three and twelve months ended December 31, 2022 underperformed the family dining segment of the restaurant industry (excluding IHOP) as compared with the same respective periods of 2021. According to Black Box, the family dining segment also experienced increases in same-restaurant sales resulting from an increase in average customer check, partially offset by a decline in customer traffic.

(1) Primarily to-go, delivery and catering sales.

IHOP's off-premise sales dollars for the three and twelve months ended December 31, 2022 decreased as compared to the same respective periods of 2021, due to guests returning to in-restaurant dining. While IHOP's off-premise sales for the three and twelve months ended December 31, 2022 declined as compared to the same respective periods of 2021, both off-premise sales dollars and percentage of sales mix have increased significantly compared to the pre-pandemic levels of 2019.

Restaurant Development

Year Ended December 31,

Net Restaurant Development Activity

Net restaurant development (reduction) 28 (50) (147)

In response to the impact of the COVID-19 pandemic on our franchisees, in March 2020, we allowed our franchisees to defer their development obligations for up to 15 months. Additionally, in 2020, we and certain of our IHOP franchisees evaluated the long-term viability of certain IHOP restaurants in light of individual restaurant-level economics impacted by the COVID-19 pandemic. The evaluation resulted in the closure of 41 IHOP restaurants in fiscal 2021.

Restaurant closures can occur for a variety of reasons that may differ for each restaurant and for each franchisee. Closures generally fall into one of two categories: restaurants in older locations whose retail, residential and traffic demographics have changed unfavorably over time, and restaurants with non-viable unit economics. Our franchisees are independent businesses and their decisions to close restaurants, both temporarily and permanently, can be impacted by numerous factors that are outside of our control, including but not limited to, the impact of COVID-19 on individual franchisees as well as franchisees' agreements with their lenders and landlords.

The total number of Applebee's restaurants (domestic and international) open at December 31, 2022 declined 0.1% from the number open at December 31, 2021. The total number of IHOP restaurants (domestic and international) open at December 31, 2022 increased 1.7% from the number open at December 31, 2021. Internationally, the number of restaurants of both brands increased 8.7% from the number open at December 31, 2021.

The following tables present Applebee's and IHOP net restaurant development activity over the past three years:

Year Ended December 31,

Applebee's Restaurant Development Activity

Summary - beginning of period:

Total Applebee's restaurants, beginning of period 1,680 1,709 1,787

Franchise restaurants opened:

Total franchise restaurants opened 16 6 4

Franchise restaurants closed:

International (5) (10) (14)

Total franchise restaurants closed (18) (35) (82)

Net franchise restaurant reduction (2) (29) (78)

Refranchised from Company restaurants 69 — —

Net franchise restaurant additions/(reductions) 67 (29) (78)

Summary - end of period:

Company restaurants — 69 69

Total Applebee's restaurants, end of period 1,678 1,680 1,709

Year Ended December 31,

IHOP Restaurant Development Activity

Summary - beginning of period:

Company — 3 —

Total IHOP restaurants, beginning of period 1,751 1,772 1,831

Franchise/area license restaurants opened:

Domestic area license 3 2 3

International franchise 14 3 8

Total franchise/area license restaurants opened 51 40 27

Franchise/area license restaurants closed:

Domestic franchise (14) (47) (56)

Domestic area license (3) (3) (3)

International franchise (4) (10) (34)

International area license — (1) (3)

Total franchise/area license restaurants closed (21) (61) (96)

Net franchise/area license restaurant development (reduction) 30 (21) (69)

Refranchised from Company restaurants — 4 —

Franchise restaurants reacquired by the Company — (1) (3)

Net franchise/area license restaurant additions (reductions) 30 (18) (72)

Summary - end of period:

Company — — 3

The restaurant counts and activity presented above do not include ghost kitchens (small kitchens with no store-front presence, used to fill off-premise orders). As of December 31, 2022, there was a total 64 ghost kitchens. The Applebee's franchise restaurant count of 1,642 restaurants originally reported at the end of the year ended December 31, 2020 was adjusted downward by two restaurants, representing two ghost kitchens that had been included in the total reported count as of December 31, 2020.

The closures presented in the tables above represent permanent closures of restaurants. Temporary closures, which can occur for a variety of reasons, are not reflected as reductions in these tables and temporarily closed restaurants are included in the summary counts at the beginning and end of each period shown. However, temporary closures are reflected in the weighted calculation of Global Effective Restaurants presented in the preceding Restaurant Data tables.

Closures of Applebee's and IHOP restaurants adversely impact our system-wide retail sales that drive our franchise royalty revenues as well as, in the case of IHOP restaurants, sales of proprietary pancake and waffle dry mix. Further, with certain restaurants, we own or lease the underlying property and sublease it to the applicable franchisee. Thus, our rental income also could be adversely affected due to our obligation to make rental or other payments for such properties.

Consolidated Results of Operations - Fiscal2022, 2021 and 2020

The tables in the following section of this Form 10-K present information from our Consolidated Statements of Comprehensive Income (Loss) for our 2022, 2021 and 2020 fiscal years. The discussion of year-to-year comparisons between fiscal 2022 and fiscal 2021 can be found below.

For a detailed discussion of year-to-year comparisons between fiscal 2021 and fiscal 2020 as well as between fiscal 2021 and fiscal 2019, please refer to the applicable portion of “Management's Discussion and Analysis of Financial Condition and Results of Operations” contained in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, which is hereby incorporated by reference.

Financial Review

(In millions)

Our 2022 total revenue increased $13.2 million compared to 2021, primarily due to the increase in franchise operations revenue, offset by the decrease in company restaurant operations revenue. Franchise operations revenue primarily increased due to a 5.8% increase in IHOP domestic same-restaurant sales and a 5.1% increase in Applebee's domestic same-restaurant sales. Company restaurant operations revenue decreased primarily due to the sale of our 69 Applebee's company-operated restaurants to a franchisee in October 2022.

(In millions)

Our 2022 total gross profit grew by $2.1 million compared to 2021, primarily due to the revenue increases cited above, partially offset by a $5.2 million increase in bad debt expense. We recorded a bad debt expense of $0.3 million in 2022 compared to a bad debt recovery of $4.9 million in 2021. Company restaurant gross profit decreased primarily due to the sale of our Applebee's company-operated restaurants as noted above. Rental operations gross profit increased primarily due to a $2.6 million increase in rental income.

(In millions, except number of restaurants)

Global Effective Franchise Restaurants:(1)

Franchise Revenue:

Fuzzy's 0.6 0.6 — — —

Franchise Expenses:

Fuzzy's 0.0 0.0 — — —

Franchise Segment Profit:

Fuzzy's 0.6 0.6 — — —

Gross profit as % of total revenue 51.4 % 53.2 % 49.1 %

Gross profit as % of franchise fees(2) 90.7 % 93.4 % 86.2 %

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(1) Effective Franchise Restaurants are the weighted average number of franchise and area license restaurants open in a given fiscal period, adjusted to account for franchise and area license restaurants open for only a portion of the period.

(2) Total franchise revenue excluding advertising.

Our total franchise revenue increased $30.5 million in 2022 compared to 2021, due to the following changes:

•Applebee's franchise revenue increased $5.6 million, or 3.3%, compared to 2021 primarily due to higher royalty revenues resulting from a 5.1% increase in domestic franchise same-restaurant sales and the refranchising of the former company-operated restaurants. These favorable changes were partially offset by the decrease in the number of effective franchise restaurants and lower franchise fees.

•IHOP franchise revenue increased $9.8 million, or 5.2%, compared to 2021, primarily due to higher royalty and pancake and waffle dry mix revenues resulting from a 5.8% increase in domestic franchise same-restaurant sales and a 1.5% increase in effective franchise restaurants. These favorable changes were partially offset by a $4.0 million decrease in domestic and international termination fees.

•Advertising revenue increased $14.5 million, compared to 2021, as discussed by brand below.

Our 2022 total franchise expenses increased $26.0 million compared to 2021, due to changes in the following components:

•Applebee's franchise expenses increased $1.4 million, primarily due to a $1.3 million increase in bad debt expense. We had a bad debt expense of $0.4 million in 2022 as compared to a bad debt recovery of $0.9 million in 2021.

•IHOP franchise expenses increased $9.8 million, primarily due to a $4.0 million increase in bad debt expense and an increase in purchases of pancake and waffle dry mix. IHOP had a bad debt recovery of $0.1 million in 2022 compared to a bad debt recovery of $4.1 million in 2021.

•Advertising expenses increased $14.8 million, primarily due to a corresponding increase in advertising revenue.

Gross profit as a percentage of total revenue decreased in 2022 compared to 2021, primarily because of the $5.3 million increase in bad debt expense.

Advertising revenue and expense by brand for fiscal 2022, 2021 and 2020 were as follows:

(In millions)

Advertising Revenues

Fuzzy's 0.2 0.2 — — —

Advertising Expenses

Fuzzy's 0.2 (0.2) — — —

Applebee's advertising revenue for 2022 increased 4.6% compared to 2021, primarily due to the increase of 5.1% in domestic franchise same-restaurant sales, partially offset by a $1.1 million decrease to unfavorable collectability. The increase in Applebee's advertising expenses was less than the increase in advertising revenue primarily because of the recovery of an advertising fund deficit that had been recognized in prior years. IHOP's advertising revenue for 2022 increased by 6.2%, compared to 2021, primarily due to the increase of 5.8% in domestic franchise same-restaurant sales, partially offset by an increase in incentive credits that reduce advertising revenue. The increase in IHOP advertising expenses was greater than the increase in advertising revenue due to recognition of a deficit in the international advertising fund.

It is our accounting policy to recognize any deficiency in advertising fee revenue compared to advertising expenditure, or recovery of a previously recognized deficiency in advertising fee revenue compared to advertising expenditures, in the fourth quarter of our fiscal year.

(In millions)

Gross profit as % of revenue(1) 24.5 % 22.9 % 15.5 %

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(1)Percentages calculated on actual amounts, not rounded amounts shown above.

Rental operations relate primarily to IHOP franchise restaurants that were developed under the Previous IHOP Business Model described under Item 1. - Business. Rental income includes revenue from operating leases and interest income from direct financing leases. Rental expenses are costs of prime operating leases and interest expense on prime finance leases on certain franchise restaurants.

Rental segment revenue for the year ended December 31, 2022 increased as compared to the same period of 2021, primarily due to a $2.2 million increase resulting from lease renewals and scheduled rent escalations and a $1.4 million increase in rental income based on a percentage of franchisees' retail sales, offset by a progressive decline of $1.0 million in interest income as real estate leases are repaid.

Rental segment expenses for the year ended December 31, 2022 increased compared to the same period of 2021, primarily due to an $1.2 million increase resulting from lease renewals and scheduled rent escalations offset by a $0.6 million decrease in interest expense as finance lease obligations are repaid and a $0.4 million decrease in depreciation expense.

(In millions)

Financing revenues $ 3.6 $ (0.7) $ 4.3 $ (1.5) $ 5.8

Financing operations segment profit $ 3.2 $ (0.6) $ 3.8 $ (1.5) $ 5.3

Gross profit as % of revenue(1) 88.4 % 89.2 % 90.9 %

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(1) Percentages calculated on actual amounts, not rounded amounts shown above.

Financing operations relate primarily to IHOP franchise restaurants that were developed under the Previous IHOP Business Model described under Item 1. - Business. Financing operations revenue primarily consists of interest income from the financing of IHOP equipment leases and franchise fees, as well as from notes receivable from Applebee's and IHOP franchisees. Financing expenses are the cost of taxes related to IHOP equipment leases.

Financing revenues decreased $0.7 million in 2022 compared to 2021. The change was primarily due to a $0.8 million decrease in IHOP interest income resulting from a decline in interest income from the financing of franchise fees and equipment leases as note balances were repaid offset by an increase in interest income on notes from franchisees.

Effective Company Restaurants:

Average weekly unit sales (in thousands) $ 43.6 $ 3.0 $ 40.6 $ 10.9 $ 29.7

(In millions)

Company restaurant segment profit (loss) $ 5.1 $ (4.2) $ 9.3 $ 12.8 $ (3.5)

Gross profit (loss) as % of revenue(3) 4.0 % 6.4 % (3.2) %

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(1) Related to 69 Applebee's company-operated restaurants. Company restaurant sales are retail sales at company-operated restaurants. Company restaurant expenses are operating expenses at company-operated restaurants and include food, beverage, labor, benefits, utilities, rent, depreciation and other operating costs.

(2) Costs associated with IHOP restaurants in the process of being refranchised.

(3) Calculated for Applebee's company-operated restaurants only. Percentages calculated on actual amounts, not rounded amounts shown above.

From time to time, we may reacquire restaurants from franchisees that we subsequently refranchise. These restaurants may or may not be operated by us on a temporary basis until refranchised. In October 2022, we sold 69 Applebee's restaurants in North Carolina and South Carolina to an Applebee's franchisee. The decrease in effective restaurants (a weighted average calculation) for 2022 reflects the period of time during fiscal 2022 when we no longer operated these Applebee's restaurants.

Applebee's company restaurant sales for the year ended December 31, 2022 decreased 13% compared to the same period of 2021 primarily due to the sale of the 69 Applebee's company-operated restaurants in October 2022, offset by an increase in average check and an increase in traffic prior to the sale.

Company segment restaurant expenses for the years ended December 31, 2021 and 2020 included $0.9 million and $1.9 million, respectively, of costs associated with certain IHOP restaurants incurred while the restaurants were being refranchised. None of the reacquired IHOP restaurants were operated during the years ended December 31, 2021 and 2020, and IHOP recorded no restaurant revenues in this period. We held no reacquired restaurants at or during the year ended December 31, 2022.

(In millions)

G&A expenses for 2022 increased 11.0% compared to 2021, primarily due to increases in professional service fees including acquisition costs, occupancy costs, travel and conference expenses, and software maintenance costs, some of which are non-recurring expenditures, offset by lower personnel-related expenses. The decrease in personnel-related expenses primarily was due to lower costs of bonus and equity-based incentive compensation offset by increased costs of salaries and benefits.

(In millions)

Impairment of goodwill — — — 92.2 92.2

Impairment of tradename — — — 11.0 11.0

Impairment of reacquired franchise rights — — — 3.3 3.3

Impairment of favorable leasehold intangible — — — 0.8 0.8

Closure Charges

The closure charges of $1.7 million for the year ended December 31, 2022 comprised of $1.3 million for revisions to existing closure reserves, including accretion for approximately 40 IHOP restaurants closed prior to 2022 and $0.4 million related to three IHOP restaurants closed in 2022. The closure charges of $3.7 million for the year ended December 31, 2021 comprised $2.1 million related to 20 IHOP restaurants closed in 2021 and $1.6 million for revisions to existing closure reserves, including accretion for 28 IHOP restaurants closed prior to 2021.

Impairment Charges

The Company evaluates its goodwill and the indefinite-lived Applebee's tradename for impairment annually in the fourth quarter of each year or on an interim basis if events or changes in circumstances between annual tests indicate a potential impairment. Definite-lived intangible assets and long-lived tangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on estimated undiscounted future cash flows.

The long-lived asset impairment of $1.4 million for the year ended December 31, 2022 comprised of $1.1 million related to the 69 Applebee's company-owned restaurants in North Carolina and South Carolina that were sold in October 2022 and $0.3 million related to two IHOP franchisee-operated restaurants. The impairment recorded represented the difference between the carrying value and the estimated fair value. The long-lived asset impairment of $1.7 million for the year ended December 31, 2021 related to five IHOP franchisee-operated restaurants for which the carrying amount exceeded the undiscounted cash flows.

(In millions)

(Gain) loss on disposition of assets (2.5) 4.5 2.0 0.1 2.1

Interest Expense, Net

Interest expense, net, decreased $2.6 million in 2022 compared to 2021, primarily due to a $4.3 million increase in interest income offset by a $1.6 million increase in interest expense related to our revolving credit facility (the “Credit Facility”). See the “Liquidity and Capital Resources of the Company” section for additional discussion related to borrowings under our Credit Facility.

Amortization of Intangible Assets

Amortizationof intangible assets primarily relates to franchising rights arising from the November 2007 acquisition of Applebee's and reacquired franchise rights arising from the December 2018 acquisition of 69 Applebee's restaurants from a former franchisee. The decrease in amortization expense in 2022 as compared to 2021 was insignificant.

(Gain) Loss on Disposition of Assets

The gain on disposition of assets for the year ended December 31, 2022 primarily related to the gain on sales of the land and buildings on which three IHOP restaurants were located, the 69 Applebee's company-operated restaurants and the termination of two IHOP restaurant leases. The loss on disposition of assets for the year ended 2021 primarily related to the disposition of capitalized software no longer in use.

(In millions)

Income tax provision (benefit) $ 33.7 $ (9.6) $ 24.1 $ (28.7) $ (4.6)

The income tax provision will vary from period to period for two primary reasons: a change in pretax book income and a change in the effective tax rate. Changes in our pretax book income between 2022 and 2021 and are addressed in the preceding sections of “Consolidated Results of Operations - Fiscal 2022, 2021 and 2020.”

The fiscal year 2022 effective tax rate of 29.3% applied to pretax book income was different than the statutory Federal income tax rate of 21% due to the state and local income taxes and the non-deductibility of executive compensation. The effective tax rate further increased due to the increase in the effective state tax rate applied to revaluing deferred tax balances. The increase in the effective state tax rate was due to the non-recurring refranchising of 69 Applebee’s company-operated restaurants in the fourth quarter of 2022 and various state legislative changes.

The fiscal year 2021 effective tax rate of 19.7% applied to pretax book income was different than the statutory Federal income tax rate of 21% primarily due to the recognition of excess tax benefits on stock-based compensation, offset by non-deductibility of executive compensation and state and local income taxes.

As of each reporting date, we consider new evidence, both positive and negative, that could impact our view with regards to future realization of deferred tax assets. During fiscal 2022, we released a valuation allowance of $1.1 million related to state deferred tax assets based on positive evidence which suggests that deferred tax assets will be more likely than not to be realizable in the future. We also believe that the future realizability of benefits arising from foreign tax credit carryforwards and certain state net operating loss carryforwards does not meet the more-likely-than-not threshold. In recognition of this risk, there is a valuation allowance of $3.5 million as of December 31, 2022.

Liquidity and Capital Resources of the Company

Our total cash balances, net of revolving credit facility borrowings, at December 31, 2022, 2021 and 2020 were as follows:

(In millions)

Total cash, restricted cash and cash equivalents 325.0 425.3 456.1

Less: Revolving credit facility borrowing (100.0) — (220.0)

Total cash, restricted cash and cash equivalents, net $ 225.0 $ 425.3 $ 236.1

At December 31, 2022, we had contractual obligations to repay debt, make payments under operating leases, finance leases and financing obligations, and to purchase certain goods and services. Material cash requirements to satisfy these obligations were as follows:

Obligation Due in Fiscal 2023 Due Thereafter Total Reference(1)

(in millions)

Long-term debt (principal) $ 100.0 $ 1,247.0 $ 1,347.0 Note 8 - Long-term Debt

Long-term debt (interest) 64.1 83.8 147.9 Note 8 - Long-term Debt

Financing obligations 4.0 41.1 45.1 Note 9 - Financing Obligations

Purchase commitments 95.2 0.4 95.6 Note 11 - Commitments and Contingencies

_________________________________

(1)See referenced note of Notes to the Consolidated Financial Statements for additional information about the obligation.

See Note 11 - Commitments and Contingencies, of the Notes to the Consolidated Financial Statements, for a description of the Company's lease guarantees.

We believe that our unrestricted cash and cash equivalents on hand, cash flow from operations and the borrowing capacity available under our Credit Facility will provide us with adequate liquidity for at least the next twelve months.

Long-Term Debt

Key provisions of our long-term debt potentially impacting liquidity are summarized below. See Note 8 - Long-term Debt, of the Notes to the Consolidated Financial Statements, for additional detail on long-term debt, including the balances outstanding at December 31, 2022 and 2021.

Instruments

Our long-term debt consists of two tranches of fixed rate senior secured notes, the Series 2019-1 4.194% Fixed Rate Senior Secured Notes, Class A-2-I (“Class A-2-I Notes”) in an initial aggregate principal amount of $700 million and the Series 2019-1 4.723% Fixed Rate Senior Secured Notes in an initial aggregate principal amount of $600 million (the “Class A-2-II Notes” and, together with the Class A-2-I Notes, the “2019 Class A-2 Notes”). In August 2022, Applebee's Funding LLC and IHOP Funding LLC (the “Co-Issuers”) entered into the Credit Facility that allows for drawings up to $325 million of variable funding notes on a revolving basis and the issuance of letters of credit.

Maturity

The legal final maturity of the 2019 Class A-2 Notes is in June 2049, but it is anticipated that, unless repaid earlier, the Class A-2-I Notes will be repaid in June 2024 and the Class A-2-II Notes will be repaid in June 2026.

The renewal date of the Credit Facility is June 2027, subject to two additional one-year extensions at the option of the Company upon the satisfaction of certain conditions.

Payment of Principal and Interest

While the 2019 Class A-2 Notes are outstanding, payment of principal and interest is required to be made on the Class A-2 Notes on a quarterly basis. The payment of principal on the 2019 Class A-2 Notes may be suspended when the leverage ratio for the Company and its subsidiaries is less than or equal to 5.25x. Exceeding the leverage ratio of 5.25x does not violate any covenant related to the Class A-2 Notes. On February 16, 2023, our Company's Board of Directors authorized a debt repurchase program of up to $100 million.

As of December 31, 2022, our leverage ratio was 4.4x. Therefore, quarterly principal payments are not required.

Make-whole Premiums

We may voluntarily repay the Class A-2 Notes at any time; however, if repaid prior to certain dates we would be required to pay make-whole premiums. As of December 31, 2022, the make-whole premium associated with voluntary prepayment of the Class A-2-I Notes was zero and will remain as such. As of December 31, 2022, the make-whole premium associated with voluntary prepayment of the Class A-2-II Notes was approximately $0.5 million; this amount declines each quarter to zero in June 2024. We would also be subject to a make-whole premium in the event of a mandatory prepayment required following certain rapid amortization events or certain asset dispositions. The mandatory make-whole premium requirements are considered embedded derivatives that must be bifurcated for separate valuation. We estimated the fair value of these derivatives to be immaterial as of December 31, 2022, based on the probability-weighted discounted cash flows associated with either event.

Covenants and Restrictions

Our long-term debt is subject to a series of covenants and restrictions customary for transactions of this type, including maintenance of a DSCR. In general, the DSCR ratio is net cash flow for the four quarters preceding the calculation date divided by the total debt service payments of the preceding four quarters. The complete definitions of the DSCR and all calculation elements are contained in the indenture, and subsequent amendments thereto, under which the Class A-2 Notes were issued.

Failure to maintain a prescribed DSCR can trigger the following events:

•DSCR less than 1.75x - Cash Flow Sweeping Event

•DSCR less than 1.20x - Rapid Amortization Event

•Interest-only DSCR less than 1.20x - Manager Termination Event

•Interest-only DSCR less than 1.10x - Default Event

Our DSCR for the reporting period ended December 31, 2022 was approximately 4.1x.

Credit Facility

In August 2022, the Co-Issuers entered into the Credit Facility that allows for drawings up to $325 million of variable funding notes on a revolving basis and the issuance of letters of credit. The applicable interest rate under the Credit Facility depends on the type of borrowing by the Co-Issuers. The applicable interest rate for advances is generally calculated at a per annum rate equal to the commercial paper funding rate or one-, two-, three- or six-month Secured Overnight Financing Rate (“SOFR”), in either case, plus 2.50%. The applicable interest rate for swingline advances and unreimbursed draws on outstanding letters of credit is a per annum base rate equal to the sum of (a) the greatest of (i) the prime rate in effect from time to time; (ii) the federal funds rate in effect from time to time plus 0.50%; and (iii) SOFR for a one-month tenor in effect at such time plus 0.50% plus (b) 2.00%.

In August 2022, the Company borrowed $100 million against the Credit Facility, all of which was outstanding at December 31, 2022. The amount of $3.4 million was pledged against the Credit Facility for outstanding letters of credit, leaving $221.6 million of the Credit Facility available for borrowing at December 31, 2022. It is anticipated that any principal and interest on the Credit Facility outstanding will be repaid in full on or prior to the quarterly payment date in June 2027, subject to two additional one-year extensions at the option of the Company upon the satisfaction of certain conditions. The letters of credit are used primarily to satisfy insurance-related collateral requirements. The weighted average interest rate on Credit Facility borrowings for the period outstanding during the year ended December 31, 2022 was 3.64%.

Cash Flows Variance 2022 vs 2021 Favorable(Unfavorable)

(In millions)

Net cash provided by operating activities $ 89.3 $ (106.5) $ 195.8

Net cash (used in) provided by investing activities (80.9) (84.8) 3.9

Operating Activities

Cash provided by operating activities is primarily driven by revenues earned and collected from our franchisees, and profit from our company-owned restaurants, rental operations and financing operations.

Cash provided by operating activities decreased $106.5 million in 2022 compared to 2021. The components of those changes are as follows:

Variance 2022 vs 2021 Favorable(Unfavorable)

(In millions)

Non-cash reconciling items 46.8 (4.6) 51.4

Cash provided by operating activities $ 89.3 $ (106.5) $ 195.8

The change in net income was primarily due to higher G&A expenses, as discussed in preceding sections of this MD&A. Non-cash reconciling items (primarily closure and impairment charges, depreciation and amortization, deferred income taxes, stock-based compensation and gain/loss on extinguishment of debt) decreased $4.6 million from fiscal 2021. Net changes in working capital used cash of $38.6 million during fiscal 2022 compared to providing cash of $46.5 million during fiscal 2021. This unfavorable change of $85.1 million between years primarily resulted from a decrease in accrued employee incentive compensation and the timing of payments of advertising and marketing accruals as well as a decrease in income taxes paid.

Investing Activities

Investing activities used net cash of $80.9 million for the year ended December 31, 2022, as compared to providing net cash of $3.9 million in 2021. The components of those changes are as follows:

Variance 2022 vs 2021 Favorable(Unfavorable)

(In millions)

Additions to property and equipment (35.3) (18.5) (16.8)

Acquisition of business (78.3) (78.3) —

Additions to long-term receivables (1.1) (1.1) —

Proceeds from sale of assets 17.0 17.0 —

Cash (used in) provided by investing activities $ (80.9) $ (84.8) $ 3.9

The Company acquired Fuzzy's for $80 million in December 2022 (See Note 19 - Business Acquisition of the Notes to the Consolidated Financial Statements) but had no acquisitions in 2021.

Additions to property and equipment increased in 2022 as compared to 2021 due to increased capital spending such as investments in consumer-facing technology. Proceeds from the sales of assets in 2022 related to the sales of the land and buildings on which three IHOP restaurants were located and the 69 Applebee's company-operated restaurants. There were no such sales of assets in 2021.

The following table represents the timing of principal receipts from the Company's long-term receivables for equipment, real estate leases receivable, and other notes receivable from franchisees as of December 31, 2022:

Principal Receipts Due By Period

(In millions)

__________________________________________

(1)Equipment leases receivable extend through the year 2029.

(2)Real estate leases receivable extend through the year 2042.

(3)Other notes receivable extend through the year 2028.

Financing Activities

Financing activities used cash of $108.9 million during the year ended December 31, 2022, as compared to using cash of $230.5 million in 2021. The components of the changes are as follows:

Variance 2022 vs 2021 Favorable(Unfavorable)

(In millions)

Repurchase of common stock $ (120.5) $ (116.3) $ (4.2)

Net repayment of long-term debt, including issuance costs (45.1) (35.3) (9.8)

Net borrowing (repayment of) from Credit Facility 100.0 320.0 (220.0)

Cash used in financing activities $ (108.9) $ 121.6 $ (230.5)

Financing activities used net cash of $108.9 million during 2022. The primary uses of cash in financing activities consisted of repurchases of our common stock totaling $120.5 million, voluntary repayments of long-term debt of $38.8 million purchased under par which resulted in a $1.4 million gain on debt extinguishment, dividends paid of $30.8 million and debt issuance costs of $6.3 million. These outflows were partially offset by net borrowings under our Credit Facility of $100.0 million. In March 2021, we repaid $220 million that was drawn on our Credit Facility in March 2020.

Adjusted Free Cash Flow

We define “adjusted free cash flow” for a given period as cash provided by operating activities, plus receipts from notes and equipment contract receivables, less additions to property and equipment. Management uses this liquidity measure in its periodic assessments of, among other things, the amount of cash dividends per share of common stock and repurchases of common stock and we believe it is important for investors to have the same measure used by management for that purpose. Adjusted free cash flow does not represent residual cash flow available for discretionary purposes.

Adjusted free cash flow is a non-U.S. GAAP measure. This non-U.S. GAAP measure is not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-U.S. GAAP measures should be considered in addition to, and not as a substitute for, the U.S. GAAP information contained within our financial statements. Reconciliation of the cash provided by operating activities to adjusted free cash flow is as follows:

Variance 2022 vs 2021 Favorable(Unfavorable)

(In millions)

Cash flows provided by operating activities $ 89.3 $ (106.5) $ 195.8

Net receipts from notes and equipment receivables 10.6 (1.4) 12.0

Additions to property and equipment (35.3) (18.5) (16.8)

The decrease in adjusted free cash flow in 2022 compared to 2021 was primarily due to the decrease in cash provided by operating activities and an increase in capital expenditures, each of which was discussed in preceding sections of this MD&A.

Capital Allocation

We suspended our repurchasing of common stock and the declaration of dividends on our common stock after the first quarter of 2020 due to COVID-19 pandemic. After evaluating repurchases of common stock and dividend payments on common stock within the context of our overall capital allocation strategy, giving consideration to our current and forecast earnings, financial condition, cash requirements and other factors, we resumed repurchasing our common stock and the declaration of dividends in the fourth quarter of 2021.

Dividends

During the year ended December 31, 2022, our Board of Directors declared a fourth quarter 2022 cash dividend of $0.51 per share, paid in January 2023. See Note 12 - Stockholders' Deficit, of the Notes to the Consolidated Financial Statements included in this report for all dividends paid and declared in fiscal 2022, 2021 and 2020.

Share Repurchases

On February 17, 2022, our Board of Directors authorized a new share repurchase program, effective April 1, 2022, of up to $250 million. In connection with the approval of the 2022 Repurchase Program, effective April 1, 2022, the 2019 share repurchase program ended.

A summary of shares repurchased under the 2022 Repurchase Program, during the year ended December 31, 2022 and cumulatively, is as follows:

Shares Cost of shares

(In millions)

2022 Repurchase Program

Cumulative (life-of-program) repurchases 1,149,589 $ 78.7

Remaining dollar value of shares that may be repurchased n/a $ 171.3

See Note 12 - Stockholders' Deficit, of the Notes to the Consolidated Financial Statements included in this report for shares repurchased in fiscal 2022, 2021 and 2020.

From time to time, we also repurchase shares owned and tendered by employees to satisfy tax withholding obligations on the vesting of restricted stock awards. Shares are deemed purchased at the closing price of our common stock on the vesting date. See Part II, Item 5 - Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities for detail on all share repurchase activity during the fourth quarter of 2022.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles (“U.S. GAAP”). Our significant accounting policies are comprehensively described in Note 2 - Basis of Presentation and Significant Accounting Policies, of the Notes to the Consolidated Financial Statementscontained in Part II, Item 8 of this 10-K. We believe the accounting policies discussed below are particularly important to the understanding of our consolidated financial statements and require higher degree of judgment and/or complexity in the preparation of those consolidated financial statements. In exercising those judgments, we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an ongoing basis, we evaluate our estimates based on historical experience, current conditions and various other assumptions that we believe to be reasonable under the circumstances. We adjust such estimates and assumptions when facts and circumstances dictate. Accounting assumptions and estimates are inherently uncertain and actual results may differ materially from our estimates. Changes in estimates and judgments could significantly affect our results of operations, financial condition and cash flow in the future.

Goodwill and Intangible Assets

Goodwill and intangible assets considered to have an indefinite life are evaluated throughout the year to determine if indicators of impairment exist. Such indicators include, but are not limited to, events or circumstances such as a significant adverse change in our business, in the business overall climate, unanticipated competition, a loss of key personnel, adverse legal or regulatory developments or a significant decline in the market price of our common stock.

If no indicators of impairment have been noted during these preliminary assessments, we perform an assessment of goodwill and intangible assets annually in the fourth fiscal quarter. We first assess qualitatively whether it is more-likely-than-

not that an impairment does not exist. Significant factors considered in this assessment include, but are not limited to, macro-economic conditions, market and industry conditions, cost considerations, the competitive environment, share price fluctuations, overall financial performance and results of past impairment tests. If we do not qualitatively determine that it is more-likely-than-not that an impairment does not exist, we perform a quantitative impairment test.

In performing a quantitative test for impairment of goodwill, we primarily use the income approach method of valuation that includes the discounted cash flow method and the market approach that includes the guideline public company method to determine the fair value of goodwill and intangible assets. Significant assumptions made by management in estimating fair value under the discounted cash flow model include future trends in sales, operating expenses, overhead expenses, depreciation, capital expenditures, changes in working capital and an estimated income tax rate, along with an appropriate discount rate based on our estimated cost of equity capital and after-tax cost of debt. Significant assumptions used to determine fair value under the guideline public company method include the selection of guideline companies and the valuation multiples applied.

In the process of a quantitative test, if necessary, of the Applebee's tradename intangible asset, we primarily use the relief of royalty method under the income approach method of valuation. Significant assumptions used to determine fair value under the relief of royalty method include future trends in sales, a royalty rate, an estimated income tax rate and a discount rate to be applied to the forecast revenue stream.

There is an inherent degree of uncertainty in preparing any forecast of future results. Future trends in system-wide sales are dependent to a significant extent on national, regional and local economic conditions, and, to a lesser extent, on global economic conditions, particularly those conditions affecting the demographics of the guests that frequently patronize our restaurants. There are numerous potential events that could reasonably be expected to negatively affect the forecast of system-wide sales, including a decrease in customers' disposable income available for discretionary spending or a decrease in the perceived wealth of customers, as well as unexpected events such as a global pandemic. As a result, our restaurants could experience a decline in sales and/or customer traffic as potential customers choose lower-cost alternatives (such as quick-service restaurants) or other alternatives to dining out. Any decreases in customer traffic or average customer check due to these or other reasons could reduce gross sales at franchise restaurants, resulting in lower royalty and other payments from franchisees. This could reduce the profitability of franchise restaurants, potentially impacting the ability of franchisees to make royalty payments owed to us when due, which could adversely impact our current cash flow from franchise operations, and negatively impacting franchisees’ ability to develop new restaurants, which could adversely impact our future cash flows from franchise operations. Any decreases in customer traffic or average customer check also could reduce the profitability of our company-operated restaurants. Significant increases in either the estimated income tax rate or the discount rate also could adversely impact estimated fair values used in quantitative tests for impairment.

As discussed above under “Events Impacting Comparability of Financial Information - COVID 19 Pandemic,” government-mandated restrictions had a significant adverse impact on industry-wide restaurant operations in 2020. As a result, we performed quantitative impairment tests of our goodwill and intangible that reflected, among other things, a reduction in future system-wide sales and resulted in impairment of the goodwill of the Applebee's franchise unit, Applebee's tradename and other intangible assets during the year ended December 31, 2020. See Note 6 - Goodwill and Note 7 - Intangible Assets, of the Notes to the Consolidated Financial Statements for a detail description of these impairments.

During the year ended December 31, 2022, we qualitatively assessed our goodwill and intangible assets for impairment. One of the primary considerations underlying those assessments was the improvement inour system-wide sales in 2022 compared to the year ended December 31, 2021, as discussed above under “Consolidated Results of Operations - Fiscal 2022, 2021 and 2020,” and the impact that had on future system-wide sales forecasts relative to the sales forecasts that had been used in performing the 2021 quantitative tests for impairment. We concluded it was more likely than not that the fair values of goodwill and intangible assets exceeded their respective carrying amounts and quantitative tests of impairment were not necessary during the year ended December 31, 2022.

Long-Lived Assets

On a regular basis, we assess whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived tangible assets (primarily assets related to properties and equipment leased or subleased to franchisees, including operating lease right-of-use assets recorded upon adoption of ASC 842) may not be recoverable. We test impairment using historical cash flows and other relevant facts and circumstances as the primary basis for our estimates of future cash flows. Significant factors considered include, but are not limited to, current and forecast sales, current and forecast cash flows, the number of years the franchisee's restaurant has been in operation, its remaining lease life, and other factors which apply on a case-by-case basis. The analysis is performed at the individual restaurant level for indicators of permanent impairment. Recoverability of the Company's assets is measured by comparing the assets' carrying value to the undiscounted cash flows expected to be generated over the assets' remaining useful life or remaining lease term, whichever is less. This assessment requires the use of estimates and assumptions as to future cash flows of individual restaurants and properties, which are subject to a high degree of judgment and are unique to each property. If assumptions as to future cash flows decrease in the future, we may be required to record impairment charges for these assets. See Note 13 - Closure and Long-lived Tangible Asset Impairment Charges, of the Notes to the Consolidated Financial Statements for additional information on impairments of long-lived tangible assets.

On a regular basis, we assess whether events or changes in circumstances have occurred that potentially indicate the carrying value of intangible assets with finite lives, primarily assets related to Applebee's franchise rights. Recoverability of the asset is measured by comparing the assets' carrying value to the discounted future cash flows expected to be generated over the asset's remaining useful life. Significant factors considered include, but are not limited to, current and forecast sales, current and forecast cash flows and a discount rate to be applied to the forecast revenue stream.

Current Expected Credit Losses (“CECL”)

The CECL reserve methodology requires companies to measure expected credit losses on financial instruments based on the total estimated amount to be collected over the lifetime of the instrument. Under the CECL model, reserves may be established against financial asset balances even if the risk of loss is remote or has not yet manifested itself.

We estimate credit loss reserves in the following manner. We record specific reserves against account balances of franchisees deemed “at-risk” when a potential loss is likely or imminent as a result of prolonged payment delinquency (greater than 90 days past due) and where notable credit deterioration has become evident. For financial assets that are not currently deemed “at-risk,” an allowance is recorded based on expected loss rates that consider four components - historical losses, current conditions, reasonable and supportable forecasts and a reversion to history, if applicable.

The majority of our allowance for credit losses is comprised of specific reserves related to individual franchisees. These reserves are subject to a high degree of judgment and are unique to each franchisee. Changes in circumstances relating to each franchisee may result in increases or decreases to the allowance for credit losses in the future. Since adoption of the CECL methodology, the portion of the allowance based on expected loss rates has not been a material component of the total allowance for credit losses.

Income Taxes

We provide for income taxes based on our estimate of federal and state income tax liabilities. We make certain estimates and judgments in the calculation of tax expense and the resulting tax liabilities and in the recoverability of deferred tax assets that arise from temporary differences between the tax and financial statement recognition of revenue and expense. Tax laws are complex and subject to different interpretations by the taxpayers and respective governmental authorities. We review our tax positions quarterly and adjust the balances as new information becomes available.

We recognize deferred tax assets and liabilities using the enacted tax rates for the effect of temporary differences between the financial reporting basis and the tax basis of recorded assets and liabilities. Deferred tax accounting requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portions or all the net deferred tax assets will not be realized. This test requires projection of our taxable income into future years to determine if there will be taxable income sufficient to realize the tax assets. The preparation of the projections requires considerable judgment and is subject to change to reflect future events and changes in the tax laws. When we establish or reduce the valuation allowance against our deferred tax assets, our income tax expense will increase or decrease, respectively, in the period such determination is made.

FASB ASC Topic 740-10 requires that a position taken or expected to be taken in a tax return be recognized in the financial statement when it is more likely than not (i.e. a likelihood of more than 50 percent) that the position would be sustained upon examination by taxing authorities including all appeals or litigation processes, based on its technical merits. A recognized tax position is then measured on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. For each reporting period, management applies a consistent methodology to measure and adjust all uncertain tax positions based on the available information.

Business Acquisitions

We allocate the purchase price of acquired companies to the assets acquired and liabilities assumed based on estimated fair values at the acquisition date, with the excess of purchase price over the estimated fair value of the identifiable net assets acquired recorded as goodwill. The allocation of the purchase price requires us to make significant estimates and assumptions to determine the fair value of assets acquired and liabilities assumed and the related useful lives of the acquired assets, when applicable, as of the acquisition date.

Examples of assets we have acquired or may acquire in the future that required the use of critical estimates in valuations include, but are not limited to, tradenames and franchising rights. We engage third-party valuation specialists to assist in determining the fair value associated with our business combinations and related identifiable intangible assets. These estimates are inherently uncertain and unpredictable due to the sensitivity of the assumptions used, which may include, among others, the future expected cash flows and discount rates.

Changes in the judgments, assumptions and estimates that are used in our acquisition valuations and intangible asset and goodwill impairment testing, including discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future. An increase in discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year.

Accounting Standards Adopted in the Current Fiscal Year

See Note 2 - Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements included in this report for a description of accounting standards we adopted in fiscal 2022.

Newly Issued Accounting Standards Not Yet Adopted

See Note 2 - Basis of Presentation and Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements included in this report, for a description of newly issued accounting standards that may impact us in the future.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to financial market risk, including interest rates and commodity prices. We address these risks through controlled risk management that may include the use of derivative financial instruments to economically hedge or reduce these exposures. We do not enter into financial instruments for trading or speculative purposes.

Interest Rate Risk

The significant majority of our long-term debt outstanding at December 31, 2022 was issued at fixed interest rates (see Note 8 - Long-Term Debt, of the Notes to Consolidated Financial Statements). We are only exposed to interest rate risk on borrowings we make under our 2022 Class A-1 Notes, a revolving credit facility (the “Credit Facility”), borrowings from which are subject to variable interest rates. In August 2022, we borrowed $100 million against the Credit Facility, all of which was outstanding at December 31, 2022. A 1% increase or decrease in interest rates would not have a material impact on any fees associated with the Credit Facility.

We do not engage in speculative transactions nor do we hold or issue financial instruments for trading purposes. We had no material amounts of derivative instruments at December 31, 2022 and did not hold any material amount of derivative instruments during the year ended December 31, 2022.

Investments in instruments earning a fixed rate of interest carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates. We currently do not hold any fixed rate investments.

Based on our interest-earning cash, cash equivalents and restricted cash balances as of December 31, 2022, a 1% change in interest rates would change our annual interest income by approximately $3.1 million.

Many of the food products purchased by our franchisees and area licensees are affected by commodity pricing and are therefore subject to unpredictable price volatility. Extreme increases in commodity prices and/or long-term changes could affect our franchisees, area licensees and company-operated restaurants adversely. We expect that, in most cases, the IHOP and Applebee's systems would be able to pass increased commodity prices through to their customers via increases in menu prices. From time to time, competitive circumstances could limit short-term menu price flexibility, and in those cases, franchisees' margins would be negatively impacted by increased commodity prices. Since the significant majority of our restaurants are franchised, we believe that any changes in commodity pricing that cannot be adjusted for by changes in menu pricing or other strategies would not be material to our financial condition, results of operations or cash flows.

The Company and owners of Applebee's and IHOP franchise restaurants are members of CSCS, a Co-op that manages procurement activities for the Applebee's and IHOP restaurants that belong to the Co-op. We believe the larger scale created by combining the supply chain requirements of both brands under one organization can provide cost savings and efficiency in the purchasing function. As of December 31, 2022, 100% of Applebee's domestic franchise restaurants and 99.5% of IHOP domestic franchise restaurants are members of CSCS. In some instances, IHOP and Applebee's may be required to guarantee their purchase of any remaining inventory of certain food and other items purchased by CSCS for the purpose of supplying limited time promotions on behalf of the Applebee's and IHOP systems as a whole. None of these food product guarantees is a derivative instrument. At December 31, 2022, our outstanding guarantees for food product purchases were $0.1 million.

International Currency Exchange Rate Risk

We have minimal exposure to international currency exchange rate fluctuations. Revenue derived from all international country operations comprised less than 2% of total consolidated revenue for the year ended December 31, 2022, such that a hypothetical concurrent 10% adverse change in the currency of every international country in which our franchisees operate restaurants would have a negative impact of less than 0.2% of our consolidated revenue. We do not hold a material amount of cash and cash equivalents in currencies other than the U.S. Dollar.

Item 8. Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements

PageReference

Report of Independent Registered Public Accounting Firm (PCAOB ID:42) 56

Consolidated Balance Sheets as of December 31, 2022 and 2021 58

Notes to the Consolidated Financial Statements 62

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Dine Brands Global, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Dine Brands Global, Inc. and Subsidiaries (the Company) as of January 1, 2023 and January 2, 2022, the related consolidated statements of comprehensive income (loss), stockholders’ deficit and cash flows for each of the three years in the period ended January 1, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 1, 2023 and January 2, 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 1, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 1, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Acquisition of Fuzzy’s Taco Shop

/s/ ERNST & YOUNG LLP

We have served as the Company’s auditor since 2004.

Los Angeles, California

March 1, 2023

Dine Brands Global, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share amounts)

December 31,

Current assets:

Liabilities and Stockholders' Deficit

Current liabilities:

Current maturities of long-term debt $ 100,000 $ —

Current maturities of operating lease obligations 59,071 72,079

Current maturities of finance lease and financing obligations 7,542 10,693

Accrued employee compensation and benefits 23,456 40,785

Operating lease obligations, less current maturities 275,120 320,848

Finance lease obligations, less current maturities 30,377 59,625

Financing obligations, less current maturities 28,358 31,967

Deferred franchise revenue, long-term 42,343 46,100

Commitments and contingencies

Stockholders' deficit:

Accumulated other comprehensive loss (65) (59)

See the accompanying notes to the consolidated financial statements.

Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(In thousands, except per share amounts)

Year Ended December 31,

Revenues:

Franchise revenues:

Cost of revenues:

Franchise expenses:

Rental expenses:

Other comprehensive (loss) income, net of tax:

Foreign currency translation adjustment (6) (4) 3

Net income (loss) available to common stockholders:

Net income (loss) available to common stockholders per share:

Weighted average shares outstanding:

See the accompanying notes to the consolidated financial statements.

Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Deficit

(In thousands)

SharesOutstanding Amount Shares Cost Total

Adoption of credit loss accounting guidance — — — (497) — — — (497)

Other comprehensive gain — — — — 3 — — 3

Net use of shares for stock plans (8) — — — — — — —

Repurchase of restricted shares for taxes (36) — (2,479) — — — — (2,479)

Other comprehensive loss — — — — (4) — — (4)

Net use of shares for stock plans 132 — — — — — — —

Repurchase of restricted shares for taxes (22) — (1,771) — — — — (1,771)

Dividends on common stock — — — (6,896) — — — (6,896)

Other comprehensive loss — — — — (6) — — (6)

Net use of shares for stock plans 7 — — — — — — —

Repurchase of restricted shares for taxes (39) — (2,867) — — — — (2,867)

See the accompanying notes to the consolidated financial statements.

Dine Brands Global, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

Year Ended December 31,

Cash flows from operating activities

Changes in operating assets and liabilities:

Cash flows from investing activities

Proceeds from sale of property and equipment 17,028 946 537

Additions to long-term receivables (1,069) — (1,475)

Acquisition of business, net of cash acquired (78,264) — —

Cash flows (used in) provided by investing activities (80,904) 3,861 18,725

Cash flows from financing activities

Repayments of revolving credit facility — (220,000) —

Payment of debt issuance costs (6,289) — —

Principal payments of finance lease obligations (8,946) (10,238) (12,451)

Tax payments for share settlement of restricted stock units (955) (9,783) (205)

Supplemental disclosures

See the accompanying notes to the consolidated financial statements.

Dine Brands Global, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

1. The Company

The first International House of Pancakes® (“IHOP”) restaurant opened in 1958 in Toluca Lake, California. Shortly thereafter, the Company began developing and franchising additional restaurants. The Company was incorporated as IHOP Corp. under the laws of the State of Delaware in 1976. In November 2007, the Company acquired Applebee's International, Inc., which became a wholly-owned subsidiary of the Company. Effective June 2, 2008, the name of the Company was changed to DineEquity, Inc. and on February 20, 2018, the name of the Company was changed to Dine Brands Global, Inc.® (“Dine Brands Global”). In December 2022, the Company acquired FTO Holding Company, LLC (“Fuzzy's”), which owns the Fuzzy's Taco Shop® concept and became a wholly-owned subsidiary of the Company.

The Company owns, franchises and operates three restaurant concepts: Applebee's Neighborhood Grill + Bar® (“Applebee's”), in the American full-service restaurant segment within the casual dining category of the restaurant industry; IHOP®, in the family dining mid-scale full-service category of the restaurant industry; and Fuzzy’s Taco Shop®, in the Mexican food segment within the fast-casual dining category of the restaurant industry.

As of December 31, 2022, there were 1,781 IHOP restaurants, of which 1,625 were subject to franchise agreements and 156 were subject to area license agreements. These IHOP restaurants were located in all 50 states of the United States, the District of Columbia, two United States territories and nine countries outside the United States. As of December 31, 2022, there were 1,678 Applebee's® restaurants, all of which were subject to franchise agreements. These Applebee's restaurants were located in 49 states of the United States, two United States territories and 11 countries outside the United States. As of December 31, 2022, the Company had 137 Fuzzy restaurants in 18 states of the United States, of which 134 were subject to franchise agreements and three were company-operated.

References herein to Applebee's, IHOP, and Fuzzy's restaurants are to these restaurant concepts, whether operated by franchisees, area licensees or the Company. Retail sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company.

2. Basis of Presentation and Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Dine Brands Global, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Fiscal Periods

The Company has a 52/53 week fiscal year that ends on the Sunday nearest to December 31 of each year. In a 52-week fiscal year, each fiscal quarter contains 13 weeks, comprised of two, four-week fiscal months followed by a five-week fiscal month. In a 53-week fiscal year, the last month of the fourth fiscal quarter contains six weeks. For convenience, the Company refers to its fiscal years as ending on December 31 and its fiscal quarters as ending on March 31, June 30 and September 30. The December 31, 2022 fiscal year ended January 1, 2023 and contained 52 weeks. The 2021 fiscal year ended January 2, 2022 contained 52 weeks. The 2020 fiscal year ended January 3, 2021 contained 53 weeks.

Use of Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles (“U.S. GAAP”) requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, if any, at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates are made in the calculation and assessment of the following: impairment of tangible and intangible assets and goodwill; income taxes; allowance for doubtful accounts and notes receivables; lease accounting estimates; contingencies; and stock-based compensation. On an ongoing basis, the Company evaluates its estimates based on historical experience, current conditions and various other assumptions that are believed to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

Dine Brands Global, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Risks and Uncertainties

The Company is subject to risks and uncertainties as a result of the outbreak of a novel strain of coronavirus, designated “COVID-19” and declared to be a pandemic in March 2020. The Company first began to experience impacts from COVID-19 in March 2020, as federal, state and local governments reacted to the public health crisis by encouraging and/or requiring social distancing, instituting shelter-in-place orders, and requiring, in varying degrees, restaurant dine-in limitations and other restrictions that largely limited the restaurants of the Company's franchisees and its company-operated restaurants to take-out and delivery sales during the initial stages of the pandemic. Subsequently, government-imposed dine-in restrictions have been relaxed, removed and reinstated as incidents of infection decrease or increase within the respective governmental jurisdictions. As of December 31, 2022, almost all of the restaurants were open and operating without government-mandated restriction.

We cannot predict how long the pandemic will last, whether/when recurrences of the virus and its variants may arise, what restrictions on in-restaurant dining may be enacted or re-enacted, the availability and acceptance of vaccines, the timing and extent of customer re-engagement with the Company's brands and, in general, what the short- and long-term impact on consumer discretionary spending the COVID-19 pandemic might have on the Company and the restaurant industry as a whole, all of which are uncertain and cannot be predicted. As such, the extent to which the COVID-19 pandemic may continue to materially impact the Company's financial condition, liquidity, or results of operations remains highly uncertain.

Concentration of Credit Risk

The Company's cash, cash equivalents, restricted cash and accounts receivable are potentially subject to concentration of credit risk. Cash and cash equivalents are placed with financial institutions that management believes are creditworthy. The Company does not believe that it is exposed to any significant credit risk on cash, cash equivalents and restricted cash. At times, cash, cash equivalents and restricted cash balances may be in excess of FDIC insurance limits.

Accounts receivable are derived from revenues earned from franchisees and area licensees located primarily in the United States. Financing receivables arise from the financing of restaurant equipment, real estate leases or franchise fees with the Company by IHOP franchisees. The Company is subject to a concentration of credit risk with respect to receivables from franchisees that own a large number of Applebee's or IHOP restaurants. As of December 31, 2022, two franchisees (one Applebee's franchisee and one franchisee with cross-brand ownership) operated a combined total of 825 Applebee's and IHOP restaurants in the United States, which comprised 25.4% of the total Applebee's and IHOP franchise and area license restaurants in the United States. Revenues from these two franchisees represented 18.8%, 18.0%, and 17.1% of total consolidated revenue for the years ended December 31, 2022, 2021 and 2020, respectively. One franchisee represented 12.5%, 11.8%, and 11.0% of total consolidated revenue for the years ended December 31, 2022, 2021 and 2020, respectively. Receivables from these franchisees totaled $20.9 million and $19.7 million at December 31, 2022 and 2021, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid investment securities with remaining maturities at the date of purchase of three months or less to be cash equivalents. These cash equivalents are stated at cost which approximates market value. Cash held related to IHOP advertising funds and the Company's gift card programs is not considered to be restricted cash as there are no restrictions on the use of these funds.The components of cash and cash equivalents were as follows:

December 31,

(In millions)

Money market funds $ 75.0 $ 30.0

IHOP advertising funds and gift card programs 96.7 101.5

Other depository accounts 98.0 229.9

Total cash and cash equivalents $ 269.7 $ 361.4

Dine Brands Global, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Restricted Cash

Current

Current restricted cash primarily consisted of funds required to be held in trust in connection with the Company's securitized debt and funds from Applebee's and Fuzzy's franchisees pursuant to franchise agreements, usage of which was restricted to advertising activities. The components of current restricted cash were as follows:

December 31,

(In millions)

Securitized debt reserves $ 32.4 $ 29.9

Applebee's advertising funds 5.4 17.5

Total current restricted cash $ 38.9 $ 47.5

Non-current

Non-current restricted cash of $16.4 million and $16.4 million at December 31, 2022 and 2021, respectively, represents interest reserves set aside for the duration of the securitized debt. The required reserve is approximately one quarter's interest payment on the Company's securitized debt. The Company voluntarily increased the amount held in non-current cash to twice the required amount during the year ended December 31, 2020 and reduced the reserve back to the minimum amount during the year ended December 31, 2021.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Properties under finance leases are stated at the present value of the minimum lease payments. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or remaining useful lives. Leasehold improvements and properties under finance leases are amortized on a straight-line basis over their estimated useful lives or the lease term, if less. The general ranges of depreciable and amortizable lives are as follows:

Category Depreciable Life

Buildings and improvements 25 to 40 years

Equipment and fixtures Three to five years

Internal-use software Three to 10 years

Long-Lived Assets

On a regular basis, the Company assesses whether events or changes in circumstances have occurred that potentially indicate the carrying value of long-lived assets (primarily assets related to property and equipment leased or subleased to franchisees) may not be recoverable. The analysis is performed at the restaurant level for indicators of impairment. The Company tests for impairment using current and historical operating results and cash flows as well as other relevant facts and circumstances as the primary basis for estimates of future cash flows. The Company considers factors such as the number of years the franchisee's restaurant has been in operation, sales trends, cash flow trends, remaining lease life and other factors which apply on a case-by-case basis. Continuing losses associated with an asset are an indicator of impairment.

If it is decided that there has been an impairment, the carrying amount of the asset is written down to the estimated fair value as determined in accordance with U.S. GAAP governing fair value measurements. The primary method of estimating fair value is based on a discounted cash flow analysis. Any loss resulting from impairment is recognized as a charge against operations.

See Note 13 - Closure and Long-lived Tangible Asset Impairment Charges, of the Notes to the Consolidated Financial Statements for additional information.

Dine Brands Global, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Goodwill and Intangible Assets

Goodwill is recorded when the aggregate purchase price of an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired. Intangible assets resulting from an acquisition are accounted for using the purchase method of accounting and are estimated by management based on the fair value of the assets received. The Company's identifiable intangible assets are comprised primarily of the Applebee's tradename and Applebee's franchise agreements and as of December 2022, the Fuzzy's tradename and Fuzzy's franchise agreements. Identifiable intangible assets with finite lives (franchise agreements) are amortized over the period of estimated benefit using the straight-line method and estimated useful lives. Goodwill and intangible assets considered to have an indefinite life (primarily the tradenames) are not subject to amortization. The determination of indefinite life is subject to reassessment if changes in facts and circumstances indicate the period of benefit has become finite.

Goodwill has been allocated to four reporting units. The significant majority of the Company's goodwill resulted from the November 29, 2007 acquisition of Applebee's and was allocated to the Applebee's franchised restaurants unit (“Applebee's franchise unit”). Smaller amounts of goodwill arising from other business combinations have been allocated to the Fuzzy's franchised restaurants unit (“Fuzzy's franchise unit”), the IHOP franchised restaurants unit (“IHOP franchise unit”) and the Applebee's company restaurants unit (“Applebee's company unit”). See Note 6 - Goodwill, of the Notes to the Consolidated Financial Statements for additional information.

The Company evaluates the goodwill of the Applebee's franchise and company units and the indefinite-lived Applebee's tradename for impairment as of October 31 of each year. The Company evaluates the goodwill of the IHOP franchise unit and the Fuzzy's franchise unit for impairment as of December 31 of each year. In addition to the annual evaluation for impairment, goodwill and indefinite-lived intangible assets are evaluated more frequently if the Company believes indicators of impairment exist.

When evaluating goodwill and indefinite-lived intangible assets for impairment, under U.S. GAAP, the Company may first perform an assessment of qualitative factors to determine if the fair value of the reporting unit or the intangible asset is more-likely-than-not greater than the carrying amount. Such qualitative factors include, but are not limited to, macro-economic conditions, market and industry conditions, cost considerations, current and future income tax rates, the competitive environment, fluctuations in the market value of the Company's common stock, absolute and relative to peers, overall financial performance and results of past impairment tests. If, based on a review of the qualitative factors, the Company determines it is more-likely-than-not that the fair value is greater than the carrying value, the Company may bypass a quantitative test for impairment.

In performing the quantitative test for impairment of goodwill, the Company primarily uses the income approach method of valuation that includes the discounted cash flow method and the market approach that includes the guideline public company method. Significant assumptions used to determine fair value under the discounted cash flow method include expected future trends in sales, operating expenses, overhead expenses, capital expenditures and changes in working capital, along with an appropriate discount rate based on the Company's estimated cost of equity capital and after-tax cost of debt. Significant assumptions used to determine fair value under the guideline public company method include the selection of guideline companies and the valuation multiples applied. The Company measures impairment as the excess of a reporting unit's carrying amount over its fair value as determined by the quantitative test described above.

In the process of performing its quantitative impairment review of intangible assets considered to have an indefinite life, the Company primarily uses the relief of royalty method under the income approach method of valuation. Significant assumptions used to determine fair value under the relief of royalty method include future trends in sales, a royalty rate and an appropriate discount rate based on the Company's estimated cost of equity capital and after-tax cost of debt to be applied to the forecast revenue stream.

Business Combinations

From time to time, we may enter into business combinations. In accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, the Company applies the acquisition method for acquisitions that meet the definition of a business combination. Under the acquisition method, the Company estimates the fair value of the identifiable assets and liabilities of the acquired entity on the acquisition date. Acquired intangible assets are valued using different methods under the income approach, including but not limited to, the multi-period excess earnings method for tradenames and franchising rights and the relief-from-royalty method for recipes. The Company measures goodwill as the excess of consideration transferred over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed. Goodwill is assigned to each reporting unit that is expected to benefit from the synergies of the business combination. Acquisition-related expenses and

Dine Brands Global, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

transaction costs associated with business combinations are expensed in the period incurred which is included in the transaction-related expenses line item of the Consolidated Statements of Comprehensive Income (Loss).

Revenue Recognition

The Company's revenues are recorded in four categories: franchise operations, company restaurant operations, rental operations and financing operations. Franchise revenue (which comprises most of the Company's revenues) and revenue from company-operated restaurants are recognized in accordance with ASC 606 -Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, revenue is recognized upon transfer of control of promised services or goods to customers in an amount that reflects the consideration the Company expects to receive for those services or goods. The Company's rental and financing revenues are recognized in accordance with other U.S. GAAP accounting standards and are not subject to ASC 606.

Franchise Revenues

The Company franchises the Applebee’s, IHOP and Fuzzy's restaurant concepts. The franchise arrangement for the brands is documented in the form of a franchise agreement and, in most cases, a development agreement. The franchise arrangement between the Company as the franchisor and the franchisee as the customer requires the Company to perform various activities to support the brand that do not directly transfer goods and services to the franchisee, but instead represent a single performance obligation, which is the transfer of the franchise license. The intellectual property subject to the franchise license is symbolic intellectual property as it does not have significant standalone functionality, and substantially all the utility is derived from its association with the Company’s past or ongoing activities. The nature of the Company’s promise in granting the franchise license is to provide the franchisee with access to the brand’s symbolic intellectual property over the term of the license. The services provided by the Company are highly interrelated with the franchise license and as such are considered to represent a single performance obligation.

The transaction price in a standard franchise arrangement for the brands primarily consists of (a) initial franchise/development fees; (b) continuing franchise fees (royalties); and (c) advertising fees. Since the Company considers the licensing of the franchising right to be a single performance obligation, no allocation of the transaction price is required. Additionally, all domestic IHOP franchise agreements require franchisees to purchase proprietary pancake and waffle dry mix from the Company.

The Company recognizes the primary components of the transaction price as follows:

•Franchise and development fees are recognized as revenues ratably on a straight-line basis over the term of the franchise agreement commencing with the restaurant opening date. As these fees are typically received in cash at or near the beginning of the franchise term, the cash received is initially recorded as a contract liability until recognized as revenue over time;

•The Company is entitled to royalties and advertising fees based on a percentage of the franchisee's gross sales as defined in the franchise agreement. Royalty and advertising revenues are recognized when the franchisee's reported sales occur. Depending on timing within a fiscal period, the recognition of revenue results in either a contract asset (unbilled receivable) or, once billed, accounts receivable, on the balance sheet;

•Revenue from the sales of proprietary pancake and waffle dry mix is recognized in the period in which distributors ship the franchisee's order; recognition of revenue results in accounts receivable on the balance sheet.

In determining the amount and timing of revenue from contracts with customers, the Company exercises judgment with respect to collectibility of the amount; however, the timing of recognition does not require significant judgment as it is based on either the franchise term, the month of sale as reported by the franchisee or the date of product shipment, none of which require estimation.

The Company does not incur a significant amount of contract acquisition costs in conducting its franchising activities. The Company believes its franchising arrangements do not contain a significant financing component.

Company Restaurant Revenues

Company restaurant revenues comprise retail sales at company-operated restaurants. Sales by company-operated restaurants are recognized when food and beverage items are sold. Company restaurant sales are reported net of sales taxes collected from guests that are remitted to the appropriate taxing authorities, with no significant judgments required.

Dine Brands Global, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)

Rental Revenues

Rental operations revenues include revenues from operating leases and interest income from real estate leases. See Basis of Presentation and Summary of Significant Accounting Policies - Leases.

Financing Revenues

Financing operations revenues consist primarily of interest income from the financing of franchise fees and equipment leases, other notes receivable from franchisees and sales of equipment associated with refranchised IHOP restaurants. Interest income is recorded as earned.

Gift Card

The Company administers gift card programs for each restaurant concept. The Company records a liability in the period in which a gift card is sold and recognizes costs associated with its administration of the gift card programs as prepaid assets when the costs are incurred. The liability and prepaid asset recorded on the Company's books are relieved when gift cards are redeemed. If redemption occurs at a franchisee-operated restaurant, the gift card revenue, net of costs, is remitted to the franchisee. The Company receives gift card breakage revenue only from gift cards redeemed at company-operated restaurants. Breakage revenue for gift cards estimated to be redeemable at company-operated restaurants for the years ended December 31, 2022, 2021 and 2020 was $0.3 million in each year.

Allowance for Credit Losses

The allowance for credit losses is the Company's best estimate of the amount of probable credit losses incurred on existing receivables; however, changes in circumstances relating to receivables may result in changes to the allowance in the future. The Company determines the allowance based on historical losses, current conditions, and reasonable and supportable forecasts used in assessing the franchisee's or area licensee's ability to pay outstanding balances. The primary indicator of credit quality is delinquency, which is considered to be a receivable balance greater than 90 days past due. The Company continually reviews the allowance for credit losses. Past due balances and future obligations are reviewed individually for collectability. Account balances are charged against the allowance after all collection efforts have been exhausted and the potential for recovery is considered remote. See Note 4, Current Expected Credit Losses, of the Notes to the Consolidated Financial Statements for additional information.

Leases

The Company accounts for its leasing activities in accordance with accounting guidance for leases, as codified in Accounting Standards Topic 842 (“ASC 842”), adopted as of the beginning of its 2019 fiscal year. In adopting ASC 842, the Company utilized expedients that allowed it to retain the classification, as either an operating lease or a finance lease, that was previously determined under prior accounting guidance for leases.The Company reassesses this classification upon renewal, extension or the modification of an existing lease agreement. The Company determines the appropriate classification upon entering into a new contract determined to contain a lease.

Operating lease assets and liabilities are recognized at the lease commencement date, or were recognized upon adoption of ASC 842. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent the Company's right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives and impairment of operating lease assets.

The Company's lease agreements generally do not provide information to determine the implicit interest rate in the agreements. This requires the Company to estimate an incremental borrowing rate to be used in calculating operating lease liabilities as of the adoption or commencement date. The Company estimates the incremental borrowing rate primarily by reference to (i) yield rates on debt issuances by companies of a similar credit rating as the Company; (ii) U.S. Treasury rates as of the adoption or commencement date; and (iii) adjustments for differences between these rates and the lease term.

The cost of an operating lease is recognized over the lease term on a straight-line basis. The lease term commences on the date the Company has the right to control the use of the leased property. Certain leases may contain provisions for rent holidays and fixed-step escalations in payments over the base lease term, as well as renewal periods. The effects of the holidays and fixed-step escalations are reflected in rent expense on a straight-line basis over the expected lease term. Differences between amounts paid and amounts expensed are recorded as deferred rent. Certain leases may include rent escalations based on inflation indexes and fair market value adjustments. Certain leases may contain contingent rental provisions that include a fixed

Dine Brands Global, Inc. and Subsidiaries

DIN US Equity

DIN · 10-K · period ended 2022-12-31

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Item 8. Financial Statements and Supplementary Data.

DIN US Equity☆

DIN · 10-K · period ended 2022-12-31

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Item 8. Financial Statements and Supplementary Data.

DIN US Equity