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 2024 as compared to 2023 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 2023 and fiscal 2022, 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, 2023, filed with the SEC on February 28, 2024, 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. References herein to Applebee's®, IHOP® and Fuzzy's Taco Shop® restaurants are to these three restaurant concepts, whether operated by franchisees, by area licensees and their sub-licensees (collectively, "area licensees") or by us.
Domestically, IHOP and Applebee's restaurants are located in 49 states and the District of Columbia, while Fuzzy's restaurants are located in 15 states. Internationally, IHOP restaurants are in two United States territories and 14 countries, while Applebee's restaurants are in two United States territories and 15 countries. With over 3,500 restaurants combined, we believe we are one of the largest full-service restaurant companies in the world. The June 2024 issue of Nation's Restaurant News reported that IHOP was the largest restaurant chain in the midscale family-style segment and Applebee's was one of the largest restaurant chains in the casual dining segment, in terms of United States system-wide sales during 2023.
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 2024, 2023, and 2022 fiscal year that ended December 29, 2024, December 31, 2023, and January 1, 2023, respectively.
Executive Summary of 2024 Results
•We reported net income of $64.9 million, or $4.22 per diluted share, in 2024 compared to $97.2 million, or $6.22 per diluted share, in 2023 that was primarily due to lower gross profit;
•Applebee's reported system-wide sales were lower by 5.5% in 2024 driven by a 4.2% decrease in domestic same-restaurant sales and a 2.2% decrease in the number of effective restaurants;
•IHOP's reported system-wide sales were slightly lower by 1.1% in 2024 driven by a 2.0% decrease in domestic same-restaurant sales offset by a 0.9% increase in effective franchise restaurants;
•Fuzzy's reported system-wide sales were lower by 14.7% driven by a 9.3% decrease in domestic same-restaurant sales and a 9.6% decrease in number of effective franchise restaurants;
•The combined system-wide sales of all brands declined to $8.0 billion, a 3.9% decrease compared to 2023;
•We generated cash from operating activities of $108.2 million and adjusted free cash flow (cash provided by operating activities, plus receipts from notes and equipment contract receivables, less additions to property and equipment) of $106.4 million in 2024;
•We returned approximately $43.4 million to our stockholders, comprised of $31.3 million in cash dividends and $12.1 million in the form of stock repurchases;
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•We acquired 56 Applebee's restaurants from franchisees and simultaneously refranchised nine to a different franchisee in November 2024 for a $1.8 million gain on sale of disposition of assets; and
•We incurred impairment charges of $7.1 million related to Fuzzy's goodwill in the fourth quarter of 2024.
Overview of 2024 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, IHOP and Fuzzy's 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 and Fuzzy's restaurants, sales of proprietary products.
Our key performance indicators for the year ended December 31, 2024 were as follows:
Applebee's IHOP Fuzzy's
% Decrease in domestic system-wide same-restaurant sales (4.2) % (2.0) % (9.3) %
Net franchise restaurant (reduction)/addition(1) (28) 10 (15)
Net (decrease) increase in global effective restaurants(2) (37) 16 (13)
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(1) Franchise and area license restaurant closings, net of openings during the year ended December 31, 2024.
(2) Change in the weighted average number of franchise, area license and company-operated restaurants open during the year ended December 31, 2024, compared to the weighted average number of those open during the same period of 2023.
A summary of our financial summary for the years ended December 31, 2024 and 2023 is as follows:
Financial Summary Favorable(Unfavorable)
(In thousands, except per share amounts)
Net income per diluted share $ 4.22 $ (2.00) $ 6.22
Weighted average diluted shares (in millions) 14.9 (0.3) 15.2
The primary reasons for the variances in income before income taxes are summarized as follows:
(In millions)
Decrease in gross profit:
Franchise operations $ (15.9)
Company restaurant operations (0.7)
Rental and financing operations (4.9)
Total gross profit decrease (21.5)
Increase in closure and impairment charges (5.6)
Decrease in General & Administrative (“G&A”) expenses 1.4
Change in (gain) loss on disposition of assets 5.5
Increase in interest expense, net (2.1)
All other 0.1
Decrease in income before income taxes $ (22.2)
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The decrease in income before income taxes in fiscal 2024 compared to fiscal 2023 was due to the decrease in gross profit, the increase in closure and impairment charges and higher net interest expense, partially offset by a favorable change in gain/loss on disposition of assets and lower G&A expenses. The decrease in gross profit in fiscal 2024 compared to fiscal 2023 was primarily due to decreases in restaurant system sales and the number of Applebee's and Fuzzy's effective restaurants, partially offset by the increase in the number of IHOP effective restaurants positively impacting franchise operations; and the decrease in rental operations primarily resulting from lease buyouts in the prior year. The increase in closure and impairment charges was primarily related to the impairment charge to Fuzzy's goodwill incurred in the fourth quarter of 2024. The increase in interest expense, net was primarily related to higher-rate securitized notes. The decrease in G&A expenses was primarily attributable to costs related to the stopping of our IHOP Flip'd initiative in the prior year, a decrease in professional services, and a decrease in occupancy costs, partially offset by an increase in depreciation expense and organization restructuring costs. The favorable change in gain/loss on disposition of assets is due to the gains primarily attributable to the refranchising of nine Applebee's restaurants and the sale of one IHOP property in 2024 as compared to the prior year losses primarily related to the disposition of certain IHOP Flip'd assets.
Our 2024 effective tax rate of 27.5% applied to pretax book income was different than the statutory Federal income tax rate of 21% primarily due to state and local taxes and a lower tax deduction related to stock-based compensation. See Note 16 - Income Taxes, of the Notes to the Consolidated Financial Statements included in this report, for reconciliations between our effective rate 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, IHOP and Fuzzy's 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 at Effective Restaurants presented below are based on 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 Restaurant Data
Year Ended December 31,
System-wide:(b)
Domestic sales percentage change(c) (5.5) % (0.1) % 4.7 %
Domestic same-restaurant sales percentage change(d) (4.2) % 0.6 % 5.1 %
Franchise:(b)
Domestic sales percentage change(c)(e) (5.7) % 2.9 % 5.3 %
Domestic same-restaurant sales percentage change(d) (4.1) % 0.6 % 5.1 %
Domestic average weekly unit sales (in thousands) $ 52.3 $ 54.0 $ 53.7
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IHOP Restaurant Data Year Ended December 31,
System-wide:(b)
Sales percentage change(c) (1.1) % 6.0 % 7.7 %
Franchise:(b)
Sales percentage change(c) (0.9) % 6.1 % 7.7 %
Domestic same-restaurant sales percentage change(d) (1.9) % 3.6 % 5.7 %
Average weekly unit sales (in thousands) $ 37.7 $ 38.5 $ 37.0
Area License:(b)
IHOP sales percentage change(c) (2.8) % 4.3 % 7.9 %
Fuzzy's Restaurant Data
Global Effective Restaurants:(a), (f)
Company 1 1 n/a
System-wide:(b)
Sales percentage change(c) (14.7) % (2.4) % n/a
Domestic same-restaurant sales percentage change(d) (9.3) % (4.2) % n/a
Franchise:(b)
Sales percentage change(c) (14.4) % (1.5) % n/a
Domestic same-restaurant sales percentage change(d) (9.2) % (4.2) % n/a
Domestic average weekly unit sales (in thousands) $ 29.1 $ 30.6 n/a
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(a)“Effective Restaurants” are the weighted average number of restaurants open in each 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, IHOP and Fuzzy's systems, which consists of restaurants owned by franchisees and area licensees as well as those owned by the Company. Effective Restaurants do not include units operated as ghost kitchens (small kitchens with no store-front presence, used to fill off-premise orders).
(b)“System-wide sales” are retail sales at Applebee’s and Fuzzy's 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 Applebee's and Fuzzy's restaurants. System-wide sales do not include retail sales of ghost kitchens. Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company. An increase in franchisees' reported sales will result in a corresponding increase in our royalty revenue, while a decrease in franchisees' reported sales will result in a corresponding decrease in our royalty revenue. Unaudited reported sales for Applebee's and Fuzzy's franchise restaurants, Applebee's and Fuzzy's company-operated restaurants, IHOP franchise restaurants and IHOP area license restaurants for the years ended December 31, 2024, 2023 and 2022 were as follows:
Year Ended December 31,
(In millions)
Applebee's company-operated restaurants 8.2 — 126.7
Fuzzy's franchise restaurant sales(f) 184.0 214.8 n/a
Fuzzy's company-operated restaurants(f) 1.1 2.1 n/a
(c)“Sales percentage change” reflects, for each category of restaurants, the percentage change in sales in any given fiscal period compared to the prior period for all restaurants in that category.
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(d)“Domestic same-restaurant sales percentage change” reflects the percentage change in sales in any given fiscal period, compared to the same weeks in the prior period, for domestic restaurants that have been operated during both periods 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 both fiscal periods being compared may be different from period to period.
(e)The franchise sales percentage change for 2024 was impacted by the acquisition of 47 franchise restaurants in November 2024 now reported as company-operated.
(f)The Company acquired Fuzzy's on December 13, 2022; thus, no data is presented for 2022.
Domestic Same-Restaurant Sales Trends
Applebee’s system-wide domestic same-restaurant sales decreased 4.7% for the three months ended December 31, 2024 and decreased 4.2% for the year ended December 31, 2024, as compared to the same respective periods of 2023. The decrease for the three months ended December 31, 2024 was primarily due to a decrease in traffic, offset by an increase in average check. The decrease for the year ended December 31, 2024 was primarily due to a decrease in traffic, offset by an increase in average check resulting from menu price increases by franchisees.
Based on data from Black Box Intelligence, a restaurant sales reporting firm (“Black Box”), Applebee's same-restaurant sales for the three and twelve months ended December 31, 2024 underperformed the casual dining segment of the restaurant industry (excluding Applebee's) as compared with the same respective periods of 2023. The casual dining segment experienced a higher increase in average customer check than Applebee's, contributing to the casual dining segment's stronger comp sales.
(1) Primarily to-go, delivery and catering sales.
Applebee's off-premise sales dollars for the three and twelve months ended December 31, 2024 decreased as compared with the same respective periods of 2023, primarily due to our delivery service partners performing below our native channels.
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IHOP’s domestic same-restaurant sales decreased 2.8% for the three months ended December 31, 2024 and decreased 2.0% for the year ended December 31, 2024, as compared to the same respective periods of 2023. Most of the decline in both periods was due to a decrease in traffic, offset by an increase in average check. The increase in average check was primarily due to an increase in menu prices, partially offset by the introduction of promotional value deals in the fourth quarter.
Based on data from Black Box, IHOP same-restaurant sales underperformed the family dining segment of the restaurant industry (excluding IHOP) for the three and twelve months ended December 31, 2024, as compared with the same respective periods of 2023. 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, 2024 decreased as compared to the same respective periods of 2023.
Domestic Same-Restaurant Sales - Fuzzy's
Fuzzy's system-wide domestic same-restaurant sales decreased 10.3% for the three months ended December 31, 2024 and decreased 9.3% for the year ended December 31, 2024, as compared to the same respective periods of 2023. The decrease for the three months ended December 31, 2024 was primarily due to a decrease in traffic, and a modest decrease in average check. The decrease for the year ended December 31, 2024 was primarily due to a decrease in traffic, offset by an increase in average check resulting from the successful promotional food and beverage offerings and menu price increases by franchisees.
Based on data from Black Box, Fuzzy's same-restaurant sales underperformed the fast casual segment of the restaurant industry (excluding Fuzzy's) for the three and twelve months ended December 31, 2024, as compared with the same respective periods of 2023. According to Black Box, the fast casual 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.
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Fuzzy's off-premise sales dollars and percentage of sales mix for the three and twelve months ended December 31, 2024 decreased as compared to the same respective periods of 2023, primarily due to changing guest behavior.
Restaurant Development
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, franchisees' agreements with their lenders and landlords.
The total number of Applebee's restaurants (domestic and international) open at December 31, 2024 declined 1.7% from the number open at December 31, 2023, as franchisees opened 17 new restaurants but closed 45 restaurants. The total number of IHOP restaurants (domestic and international) open at December 31, 2024 increased 0.6% from the number open at December 31, 2023, as IHOP franchisees and area licensees opened 48 restaurants and closed 38 restaurants, resulting in net development of 10 restaurants. The total number of Fuzzy's restaurants (domestic only) open at December 31, 2024 declined 11.4% from the number open at December 31, 2023, as franchisees opened three new restaurants but closed 18 restaurants.
Internationally, the number of Applebee's and IHOP restaurants increased 8.5% from the number open at December 31, 2023. Franchisees of both brands opened 35 restaurants and closed 16, a net increase of 19 international restaurants. The international development activity is included in the total activity for each brand cited above.
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The following tables present Applebee's, IHOP and Fuzzy's net restaurant development activity over the past three years:
Year Ended December 31,
Applebee's Restaurant Development Activity
Summary - beginning of period:
Company — — 69
Total Applebee's restaurants, beginning of period 1,642 1,678 1,680
Franchise restaurants opened:
Domestic — 3 4
Total franchise restaurants opened 17 10 16
Franchise restaurants permanently closed:
International (10) (10) (5)
Total franchise restaurants permanently closed (45) (46) (18)
Net franchise restaurant reduction (28) (36) (2)
Refranchised from company restaurants 9 — 69
Net franchise restaurant (reduction)/addition (19) (36) 67
Franchise restaurants acquired by the Company (56) — —
Net franchise restaurant (reductions)/additions (75) (36) 67
Summary - end of period:
Company restaurants(a) 47 — —
Total Applebee's restaurants, end of period 1,614 1,642 1,678
Year Ended December 31,
IHOP Restaurant Development Activity
Summary - beginning of period:
Company — — —
Total IHOP restaurants, beginning of period 1,814 1,781 1,751
Franchise/area license restaurants opened:
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Year Ended December 31,
Domestic area license 1 3 3
International franchise 18 16 14
Total franchise/area license restaurants opened 48 62 51
Franchise/area license restaurants permanently closed:
Domestic franchise (28) (25) (14)
Domestic area license (4) (2) (3)
International franchise (6) (2) (4)
Total franchise/area license restaurants permanently closed (38) (29) (21)
Net franchise/area license restaurant addition 10 33 30
Summary - end of period:
Company — — —
% Increase in total IHOP restaurants from prior year 0.6 % 1.9 % 1.7 %
Fuzzy's Restaurant Development Activity(b)
Summary - beginning of period:
Company 1 3 n/a
Total Fuzzy's restaurants, beginning of period 132 137 n/a
Franchise restaurants opened:
Domestic 3 4 n/a
Franchise restaurants permanently closed:
Domestic (18) (9) n/a
Net franchise restaurant reduction (15) (5) n/a
Refranchised from Company restaurants — 2 n/a
Net franchise restaurant reduction (15) (3) n/a
Summary - end of period:
Total Fuzzy's restaurants, end of period 117 132 137
International — — —
% Decrease in total Fuzzy's restaurants from prior year (11.4) % (3.6) % n/a
(a)In November 2024, the Company acquired 56 Applebee's restaurants from franchisees and simultaneously refranchised nine to a different franchisee.
(b)The Company acquired Fuzzy's on December 13, 2022, thus no data is presented for 2022.
The restaurant counts and activity presented above include 18 dual-branded international Applebee's and IHOP restaurants as of December 31, 2024, and seven dual-branded international Applebee's and IHOP restaurants as of December 31, 2023, which are separately counted in each of our brands' restaurant counts and activity. Dual-branded restaurants are defined as
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restaurants that reside in one location and operate two of our concepts under two separate franchise agreements. In addition, 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).
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, IHOP and Fuzzy's restaurants adversely impact our system-wide retail sales that drive our franchise royalty revenues as well as, in the case of IHOP and Fuzzy's restaurants, sales of each brand's proprietary products. 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 - Fiscal2024, 2023 and 2022
The tables in the following section of this Form 10-K present information from our Consolidated Statements of Comprehensive Income for our 2024, 2023 and 2022 fiscal years. The discussion of year-to-year comparisons between fiscal 2024 and fiscal 2023 can be found below.
For a detailed discussion of year-to-year comparisons between fiscal 2023 and fiscal 2022 as well as between fiscal 2022 and fiscal 2021, 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, 2023, which is hereby incorporated by reference.
Events Impacting Comparability of Financial Information
Acquisition of Franchise Restaurants and Refranchising of Company-Operated Restaurants
In November 2024, we acquired 56 Applebee's restaurants across Georgia, Texas, Arkansas, Illinois, Kentucky, Tennessee, Mississippi and Missouri from franchisees, of which nine in Texas were simultaneously refranchised to a different franchisee. We operated these remaining 47 restaurants for approximately six weeks in 2024.
While we currently intend to own and operate these restaurants for the near term, we will assess and monitor opportunities to refranchise these restaurants under favorable circumstances. From time to time, we may acquire a small number of restaurants from franchisees for a variety of reasons which is consistent with and should not be considered a change in our business strategy to operate as a highly franchised company.
Impairment of Fuzzy's Goodwill and Tradename
We performed a quantitative test for impairment of Fuzzy's goodwill and indefinite-lived intangible assets in the fourth quarter of 2024. As a result of performing the quantitative test, we recognized an impairment of Fuzzy's goodwill of $7.1 million.
Refer to additional discussion of these impairments under the heading "Financial Review - Impairment of Goodwill and Intangible Assets."
Financial Review
Favorable(Unfavorable) Favorable(Unfavorable)
(In millions)
% Increase (2.3) % (8.6) %
Our 2024 total revenue decreased $18.8 million compared to 2023, primarily due to the decrease in franchise and rental operations revenue, partially offset by an increase in company restaurant operations revenue. The decrease in franchise
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operations revenue was primarily attributable to the decrease in domestic same-restaurant sales and the decrease in the number of Applebee's and Fuzzy's effective restaurants, partially offset by increases in the number of effective restaurants and proprietary product sales at IHOP. The decrease in rental operations revenue was primarily attributable to prior year lease buyouts and operating lease terminations. Company restaurant operations revenue increased primarily due to the operation of 47 Applebee's restaurants, as discussed above under Events Impacting Comparability of Financial Information.
Favorable(Unfavorable) Favorable(Unfavorable)
(In millions)
Company restaurant operations (0.7) (0.7) 0.0 (5.1) 5.1
% Increase (5.4) % 5.1 %
Our 2024 total gross profit decreased $21.4 million compared to 2023, primarily due to the decreases in franchise and rental operations gross profit resulting from the related revenue decreases cited above. In addition, franchise operations gross profit was partially impacted by the recognition of an advertising fund deficit.
Franchise Operations Favorable(Unfavorable) Favorable(Unfavorable)
(In millions, except number of restaurants)
Global Effective Franchise Restaurants:(1)
Fuzzy's 1 — 1 n/a n/a
Franchise Revenue:
Franchise Expenses:
Franchise Gross Profit:
Gross profit as % of total revenue 50.5 % 51.3 % 51.4 %
Gross profit as % of franchise fees(2)(3) 88.7 % 89.3 % 90.7 %
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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.
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(2) Total franchise revenue excluding advertising.
(3) From time to time, advertising fee revenue may be different from advertising expenses in a given accounting period. Over the long term, advertising activity should not generate gross profit or loss.
Our total franchise revenue decreased $20.4 million in 2024 compared to 2023, due to the following changes:
•Advertising revenue decreased $10.4 million compared to 2023, due to the decreases in domestic same-restaurant sales and development activity as noted above.
•Applebee's franchise revenue decreased $7.3 million compared to 2023 primarily due to the unfavorable impact on royalties of a 4.2% decrease in domestic same-restaurant sales and a decrease in the number of effective franchise restaurants, partially offset by an increase in accelerated franchise fee revenue recognition due to restaurant closures.
•Fuzzy's franchise revenue decreased $1.5 million compared to 2023 due to 9.3% decrease in same-restaurant sales and a decrease in the number of effective franchise restaurants, partially offset by an increase in termination fees.
•IHOP franchise revenue decreased $1.3 million, or 0.6%, compared to 2023, primarily due to a 2.0% decrease in domestic franchise same-restaurant sales and a decrease in licensing and virtual brand revenue, partially offset by an increase in proprietary product sales and an increase in the number of effective franchise restaurants.
Our 2024 total franchise expenses decreased $4.5 million compared to 2023 due to changes in the following components:
•Advertising expenses decreased $5.7 million, primarily due to a corresponding decrease in advertising revenue partially offset the recognition of an advertising fund deficit in 2024.
•IHOP franchise expenses decreased $1.3 million compared to 2023, primarily due to a decrease in franchise IT support costs, a decrease in cost of proprietary sales, a decrease in virtual brand expense and a decrease in bad debt expense, partially offset by an increase in franchisor advertising contribution.
•Applebee's franchise expenses decreased $0.3 million compared to 2023 primarily due to a decrease in bad debt expense, partially offset by an increase in franchisor advertising contribution.
•Fuzzy's franchise expenses increased $2.8 million compared to 2023 primarily due to an increase in franchisor advertising contribution and an increase in bad debt expense.
Advertising revenue and expense by brand for fiscal 2024, 2023 and 2022 were as follows:
Favorable(Unfavorable) Favorable(Unfavorable)
(In millions)
Advertising Revenues
Advertising Expenses
Applebee's advertising revenue for 2024 decreased 4.9% compared to 2023, primarily due to a decrease of 4.1% in domestic franchise same-restaurant sales and a decrease in the number of effective franchise restaurants (note that advertising contributions to the NAF by company-operated restaurants are not reflected in this financial statement line item), partially offset by a $1.6 million increase due to favorable collectability. The decrease in Applebee's advertising expenses was lower than the decrease in advertising revenue primarily because of the recognition of an advertising fund deficit in 2024. IHOP's advertising revenue for 2024 decreased by 1.2%, compared to 2023, primarily due to the decrease of 2.0% in domestic franchise same-restaurant sales offset by an increase in the number of effective franchise restaurants. The increase in IHOP advertising expenses was greater than the increase in advertising revenue due to a prior year 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
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recovery of a previously recognized deficiency in advertising fee revenue compared to advertising expenditures, in the fourth quarter of our fiscal year.
Rental Operations Favorable(Unfavorable) Favorable(Unfavorable)
(In millions)
Rental operations segment profit $ 28.4 $ (4.1) $ 32.5 $ 4.0 $ 28.5
Gross profit as % of revenue(1) 24.6 % 27.1 % 24.5 %
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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 real estate leases. Rental expenses are costs of prime operating leases and interest expense on prime finance leases on certain franchise restaurants.
Rental operations segment profit for the year ended December 31, 2024 decreased compared to the same period of the prior year primarily due to lease buyouts during the prior year and operating lease terminations.
(In millions)
Effective Company Restaurants
Average weekly unit sales (in thousands) $ 27.5 27.5 $ — (43.6) $ 43.6
Fuzzy's(1) 1 — 1 n/a n/a
Average weekly unit sales (in thousands)(1) $ 20.8 (4.9) $ 25.7 n/a n/a
(In millions)
Company Restaurant Operations
Total company restaurants operations $ (0.6) $ (0.6) $ 0.0 $ (5.2) $ 5.2
(In millions)
Financing Operations
Financing revenues $ 1.8 $ (0.8) $ 2.6 $ (1.0) $ 3.6
Total financing operations $ 1.5 $ (0.7) $ 2.2 $ (1.0) $ 3.2
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(1) The Company acquired Fuzzy's on December 13, 2022, thus no data is presented for 2022.
(2) 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.
From time to time, we may acquire restaurants from franchisees that we subsequently refranchise. These restaurants may or may not be operated by us on a temporary basis until refranchised.
As discussed above under “Events Impacting Comparability of Financial Information,” over the past two years we have entered into transactions impacting the company-operated restaurants of both brands. In October 2022, we sold 69 Applebee's restaurants in North Carolina and South Carolina to an Applebee's franchisee. In December 2022, we acquired Fuzzy's Taco Shop including three company-operated restaurants. In April 2023, we refranchised two of the three company-operated Fuzzy's restaurants. In November 2024, we acquired 56 Applebee's restaurants and simultaneously refranchised nine resulting in the operations of the 47 Applebee's company-operated restaurants across Georgia, Arkansas, Illinois, Kentucky, Tennessee,
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Mississippi and Missouri. The table above reflects our operation of 47 Applebee's restaurants for six weeks in 2024, the operations of one Fuzzy's restaurant in 2024 and 2023, the operations of two additional Fuzzy's restaurants for four months in 2023, the operations of three Fuzzy's restaurants for two weeks in 2022 and the operations of 69 Applebee's restaurants for approximately ten months in 2022. As a result, comparisons of revenues and expenses between those years are not meaningful and the amount of gross profit and loss generated in any year was not significant.
We held no acquired IHOP restaurants at or during the years ended December 31, 2024, 2023 and 2022.
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 franchisees. Financing expenses are the cost of taxes related to IHOP equipment leases.
Financing revenues decreased $0.8 million in 2024 compared to 2023. The decrease was primarily attributable to the continued amortization of the IHOP franchise fees and equipment lease portfolios.
(In millions)
G&A expenses for 2024 decreased 0.7% compared to 2023, primarily due to the stopping of the IHOP Flip'd initiative in the prior year as well as decreases in professional services fees and occupancy costs. This was partially offset by an increase in depreciation expense and organization restructuring costs in 2024.
Closure and Impairment Charges Favorable(Unfavorable) Favorable(Unfavorable)
(In millions)
Goodwill impairment 7.1 (7.1) — — —
Closure Charges
The closure charges of $2.2 million for the year ended December 31, 2024 comprised of $1.5 million for revisions to existing closure reserves, including accretion, for approximately 21 IHOP restaurants closed prior to 2023, and $0.6 million related to the conversion of approximately 20,000 square feet of office space in the Leawood, Kansas restaurant support center to a remote work model in February 2024. The closure charges of $1.6 million for the year ended December 31, 2023 primarily comprised of revisions to existing closure reserves, including accretion, for approximately 40 IHOP restaurants closed prior to 2022.
Impairment Charges
The Company evaluates its goodwill and the indefinite-lived assets 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 Company performed a quantitative assessment of the Fuzzy’s goodwill and tradename as of December 31, 2024, the annual testing date. For additional details regarding the methodology and assumptions utilized refer to Note 6 - Goodwill and Note 7 - Other Intangible Assets of the Notes to the Consolidated Financial Statementsfor additional information. As a result of the quantitative assessment performed, the Company recognized a goodwill impairment of $7.1 million for the year ended December 31, 2024 was related to Fuzzy's goodwill. The long-lived asset impairment of $2.0 million for the year ended December 31, 2023 was comprised of $1.7 million related to the four IHOP subleased restaurants for which the carrying amount exceeded the undiscounted cash flows, $0.2 million related to the stopping of the IHOP Flip'd initiative, and $0.1 million related to two Fuzzy's company restaurants in Texas that were refranchised in April 2023.
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Other Income and Expense Items Favorable(Unfavorable) Favorable(Unfavorable)
(In millions)
(Gain) loss on disposition of assets (3.2) 5.6 2.4 (4.9) (2.5)
Loss on extinguishment of debt — 0.0 0.0 (0.2) (0.2)
Interest expense, net and loss on extinguishment of debt
Interest expense, net, increased $2.1 million in 2024 compared to 2023, primarily due to the higher interest rate on our refinanced securitized notes as well as on our 2022-1 Variable Funding Senior Notes, Class A-1 (the "Credit Facility"), partially offset by the increase in interest income from improved yields. See the “Liquidity and Capital Resources of the Company” section for additional discussion related to borrowings under our Credit Facility.
On August 12, 2022, the Company established a new revolving financing facility and the debt financing costs related to the previous credit facility were expensed for the year ended December 31, 2022. For additional details, please refer to Note 7, Long-Term Debt, in the Notes to the Consolidated Financial Statements.
The Company repaid the entire outstanding balance of approximately $585.1 million of its 2019 Class A-2-I Notes during the year ended December 31, 2023 and recognized a $1.7 million loss on extinguishment of debt from the write-off of the related remaining issuance costs. This loss was offset by a $1.7 million gain on extinguishment of debt from the purchase of $67.9 million of its 2019 Class A-2-I Notes under par value during the year ended December 31, 2023.
Amortization of Intangible Assets
Amortizationof intangible assets primarily relates to franchising rights arising from the November 2007 acquisition of Applebee's, acquired franchise rights arising from the December 2018 acquisition of 69 Applebee's restaurants from a former franchisee, franchising rights arising from the December 2022 acquisition of Fuzzy's, and acquired franchise rights arising from the November 2024 acquisition of 47 Applebee's restaurants from franchisees as discussed under Events Impacting Comparability of Financial Information. See Note 7 - Other Intangible Assets, in the Notes to the Consolidated Financial Statements for additional information.
Loss (Gain) on Disposition of Assets
The gain on disposition of assets for the year ended December 31, 2024 primarily related to the refranchising of nine Applebee's restaurants simultaneously acquired with 47 Applebee's restaurants from a franchisee and the sale of one IHOP property. The loss on disposition of assets for the year ended December 31, 2023 primarily related to the disposition of certain IHOP Flip'd assets.
Income Tax Provision Favorable(Unfavorable) Favorable(Unfavorable)
(In millions)
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 2024 and 2023 are addressed in the preceding sections of “Consolidated Results of Operations - Fiscal 2024, 2023 and 2022.”
The fiscal year 2024 effective tax rate of 27.5% applied to pretax book income was different than the statutory Federal income tax rate of 21% primarily due to state and local taxes and a lower tax deduction related to stock-based compensation.
The fiscal year 2023 effective tax rate of 13.0% applied to pretax book income was different than the statutory Federal income tax rate of 21% primarily due to the conclusion of a state income tax audit settlement, resulting in an income tax benefit of $15.1 million.
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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. We 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 $5.0 million as of December 31, 2024.
Liquidity and Capital Resources of the Company
Our total cash balances, net of revolving credit facility borrowings, at December 31, 2024, 2023 and 2022 were as follows:
(In millions)
Total cash, restricted cash and cash equivalents 248.6 200.6 325.0
Less: Revolving credit facility borrowing (100.0) (100.0) (100.0)
Total cash, restricted cash and cash equivalents, net $ 148.6 $ 100.6 $ 225.0
At December 31, 2024, 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 2025 Due Thereafter Total Reference(1)
(in millions)
Long-term debt (principal) $ 100.0 $ 1,094.0 $ 1,194.0 Note 8 - Long-term Debt
Long-term debt (interest) 71.5 150.9 222.4 Note 8 - Long-term Debt
Financing obligations 4.1 29.3 33.4 Note 9 - Financing Obligations
Purchase commitments 94.7 34.6 129.3 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, 2024 and 2023.
Instruments
Our long-term debt includes two series of fixed rate senior secured notes, the Series 2019-1 4.723% Fixed Rate Senior Secured Notes in an initial aggregate principal amount of $600 million (the “2019 Class A-2-II Notes”) and the Series 2023-1 7.824% Fixed Rate Senior Secured Notes, Class A-2 in an initial aggregate principal amount of $500 million (the “2023 Class A-2 Notes” and, together with the 2019 Class A-2-II Notes, the “Class A-2 Notes”). The Series 2019-1 4.194% Fixed Rate Senior Secured Notes, Class A-2-I (the “Class A-2-I Notes”) were voluntarily repaid in full on April 17, 2023. For a description of the 2019 Class A-2-I Notes, refer to Note 8 - Long-Term Debt of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Our long-term debt also includes a revolving financing facility, 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.
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Maturity
The final maturity of the 2019 Class A-2-II Notes is in June 2049, but it is anticipated that, unless repaid earlier, the 2019 Class A-2-II Notes will be repaid in June 2026.
The final maturity of the 2023 Class A-2 Notes is in March 2053, but it is anticipated that, unless repaid earlier, to the extent permitted under the Indenture, the 2023 Class A-2 Notes will be repaid in June 2029.
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 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 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. As of December 31, 2024, our leverage ratio was approximately 4.1x. Therefore, quarterly principal payments are not required.
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. Repurchases of the Company's debt, if any, are expected to reduce future cash interest payments, as well as future amounts due at maturity or upon redemption. Under the authorization, the Company may make repurchases of the Company's debt from time to time in the open market or in privately negotiated transactions upon such terms and at such prices as management may determine.
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, 2024, there was no make-whole premium associated with voluntary prepayment of the 2019 Class A-2-II Notes. As of December 31, 2024, the make-whole premium associated with voluntary prepayment of the 2023 Class A-2 Notes was approximately $28.0 million. We also would 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, 2024, 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 debt service coverage ratio ("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, 2024 was approximately 3.4x.
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
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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, 2024. The amount of $0.6 million was pledged against the Credit Facility for outstanding letters of credit, leaving $224.4 million of the Credit Facility available for borrowing at December 31, 2024. 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, 2024 was 7.78%.
Cash Flows
In summary, our cash flows for the years ended December 31, 2024 and 2023 were as follows:
Year Ended December 31,
(In millions)
Net cash provided by operating activities $ 108.2 $ 131.1 $ (23.0)
Net cash used in investing activities (8.5) (30.1) 21.6
Net cash used in financing activities (51.7) (225.4) 173.7
Operating Activities
Cash provided by operating activities is primarily driven by revenues earned and collected from our franchisees, and profit from our rental operations, financing operations and our company restaurants. Cash provided by operating activities decreased $23.0 million during the year ended December 31, 2024 compared to the same period of the prior year. This decrease was primarily attributable to the decrease in gross segment profit, partially offset by a decrease in G&A expenses as discussed in the preceding sections of this MD&A, as well as a decrease in working capital primarily due to tenant improvement reimbursements received in 2023 offset by timing of rental and other payments impacted by our fiscal year end dates.
Investing Activities
Investing activities used net cash of $8.5 million for the year ended December 31, 2024 compared to using net cash of $30.1 million for the year ended December 31, 2023, a favorable change of $21.6 million. Net cash used in investing activities in the current year included the Company's acquisition of 56 Applebee's restaurants (see Note 19 - Business Acquisition of the Notes to the Consolidated Financial Statements) and the simultaneous refranchising and sale of nine of those Applebee's restaurants (see Note 20 - Refranchising of Company-Operated Restaurants of the Notes to the Consolidated Financial Statements) as well as proceeds from the sale of one IHOP property. In addition, capital expenditures compared to the same period of the prior year decreased $23.1 million and principal receipts from notes and equipment contracts receivables increased $2.9 million. The Company increased spending in information technology and other projects in fiscal year 2023.
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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, 2024:
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 2045.
(3)Other notes receivable extend through the year 2031.
Financing Activities
Financing activities used net cash of $51.7 million for the year ended December 31, 2024. The decrease in cash used by financing activities of $173.7 million was primarily due to the repayment and issuance of long-term debt of $159.8 million including payment of debt issuance costs during the year ended December 31, 2023 and a $14.1 million decrease in repurchases of common stock. There were no repayment or issuance of long-term debt during the year ended December 31, 2024.
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:
Favorable(Unfavorable)
(In millions)
Cash flows provided by operating activities $ 108.2 $ (22.9) $ 131.1
Net receipts from notes and equipment receivables 12.3 3.0 9.3
Additions to property and equipment (14.1) 23.1 (37.2)
The increase in adjusted free cash flow in 2024 compared to 2023 was primarily due to the decrease in additions to property and equipment and the decrease in cash provided by operating activities which was discussed in preceding section of this MD&A.
Capital Allocation
Dividends
During the fiscal years ended December 31, 2024, 2023 and 2022, we declared and paid dividends on common stock as shown in Note 12 - Stockholders' Deficit, of the Notes to the Consolidated Financial Statements included in this report. On February 20, 2025, our Board of Directors declared a first quarter 2025 cash dividend of $0.51 per share of common stock, payable on April 4, 2025 to the stockholders of record as of the close of business on March 17, 2025.
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 (the "2022 Repurchase Program"). In connection with the approval of the 2022 Repurchase Program, the 2019 Share Repurchase Program terminated effective April 1, 2022.
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A summary of shares repurchased under the 2022 Repurchase Program, during the year ended December 31, 2024 and cumulatively, is as follows:
Shares Cost of shares
(In millions)
2022 Repurchase Program
Cumulative (life-of-program) repurchases 1,865,399 $ 116.8
Remaining dollar value of shares that may be repurchased n/a $ 133.2
See Note 12 - Stockholders' Deficit, of the Notes to the Consolidated Financial Statements included in this report for shares repurchased in fiscal 2024, 2023 and 2022.
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 this stock repurchase activity during the twelve months ended December 31, 2024.
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 overall climate of the business, 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. Additionally, in any given year, we may elect to perform a quantitative assessment of impairment.
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 restaurant sales trends, future development plans, restaurant closures, cost of revenues, operating expenses, and 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 and Fuzzy'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, 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
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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 the discount rate also could adversely impact estimated fair values used in quantitative tests for impairment.
During the year ended December 31, 2024, we performed a quantitative test on Fuzzy's goodwill using the approach described above. We concluded it was more likely than not that the fair value of Fuzzy's goodwill did not exceed its respective carrying amount and recorded an impairment charge of $7.1 million during the year ended December 31, 2024.
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, 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 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, may not be recoverable. 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.
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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 2024.
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, 2024 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 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, 2024. 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, 2024 and did not hold any material amount of derivative instruments during the year ended December 31, 2024.
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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, 2024, a 1% change in interest rates would change our annual interest income by approximately $2.5 million.
Commodity Prices
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 brand 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, 2024, 100% of Applebee's domestic franchise restaurants and 100% 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, 2024, our outstanding guarantees for food product purchases were $2.8 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 3% of total consolidated revenue for the year ended December 31, 2024, 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 0.3% of our consolidated revenue. We do not hold a material amount of cash and cash equivalents in currencies other than the U.S. Dollar.
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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, 2024 and 2023 59
Notes to the Consolidated Financial Statements 63
55
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 December 29, 2024 and December 31, 2023, the related consolidated statements of comprehensive income, stockholders’ deficit and cash flows for each of the three years in the period ended December 29, 2024, 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 December 29, 2024 and December 31, 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2024, 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 December 29, 2024, 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 5, 2025 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 Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
56
Goodwill and Indefinite Lived Intangible Assets Impairment Assessment
57
Measurement and Valuation of Allowance for Credit Losses
/s/ ERNST & YOUNG LLP
We have served as the Company’s auditor since 2004.
Los Angeles, California
March 5, 2025
58
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 operating lease obligations 65,336 63,498
Current maturities of finance lease and financing obligations 6,387 7,243
Accrued employee compensation and benefits 16,674 23,211
Operating lease obligations, less current maturities 310,476 269,097
Finance lease obligations, less current maturities 34,286 34,389
Financing obligations, less current maturities 23,251 26,984
Deferred franchise revenue, long-term 36,700 38,658
Commitments and contingencies
Stockholders' deficit:
Accumulated other comprehensive loss (76) (64)
See the accompanying notes to the consolidated financial statements.
59
Dine Brands Global, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands, except per share amounts)
Year Ended December 31,
Revenues:
Franchise revenues:
Cost of revenues:
Franchise expenses:
Rental expenses:
Loss (gain) on extinguishment of debt — 10 (210)
Other comprehensive income, net of tax:
Foreign currency translation adjustment (12) 1 (6)
Net income available to common stockholders:
Net income available to common stockholders per share:
Weighted average shares outstanding:
See the accompanying notes to the consolidated financial statements.
60
Dine Brands Global, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
(In thousands except share amounts)
SharesOutstanding Amount Shares Cost Total
Other comprehensive loss — — — — (6) — — (6)
Net issuance of shares for stock plans 6,886 — — — — — — —
Repurchase of restricted shares for taxes (39,189) — (2,867) — — — — (2,867)
Other comprehensive income — — — — 1 — — 1
Net issuance of shares for stock plans (28,069) — — — — — — —
Repurchase of restricted shares for taxes (61,374) — (4,355) — — — — (4,355)
Other comprehensive loss — — — — (12) — — (12)
Net issuance of shares for stock plans (56,246) — — — — — — —
Repurchase of restricted shares for taxes (57,646) — (2,667) — — — — (2,667)
See the accompanying notes to the consolidated financial statements.
61
Dine Brands Global, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
Cash flows from operating activities
Loss (gain) on extinguishment of debt — 10 (210)
Changes in operating assets and liabilities:
Accrued employee compensation and benefits (6,368) (1,748) (16,264)
Cash flows from investing activities
Proceeds from sale of property and equipment 3,021 10 17,028
Additions to long-term receivables (718) (1,069) (1,069)
Acquisition of business, net of cash acquired (8,452) (101) (78,264)
Cash flows from financing activities
Borrowings from revolving credit facility
Repayments of revolving credit facility — (30,000) —
Payment of debt issuance costs — (8,044) (6,289)
Proceeds from stock options exercised — 3,812 241
Tax payments for share settlement of restricted stock units (30) (859) (955)
Supplemental disclosures
See the accompanying notes to the consolidated financial statements.
62
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, 2024, there were 1,824 IHOP restaurants, of which 1,670 were subject to franchise agreements and 154 were subject to area license agreements. These IHOP restaurants were located in 49 states of the United States, the District of Columbia, two United States territories and 14 countries outside the United States. As of December 31, 2024, there were 1,614 Applebee's® restaurants, of which 1,567 were subject to franchise agreements and 47 were company-operated. These Applebee's restaurants were located in 49 states of the United States, two United States territories and 15 countries outside the United States. As of December 31, 2024, the Company had 117 Fuzzy restaurants in 15 states of the United States, of which 116 were subject to franchise agreements and one was 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. Certain amounts in the Consolidated Financial Statements and associated notes may not foot due to rounding.
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. There were 52 calendar weeks in our 2024, 2023, and 2022 fiscal year that ended December 29, 2024, December 31, 2023, and January 1, 2023, respectively.
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; purchase price allocation of acquired companies to the assets acquired and liabilities assumed; 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.
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Dine Brands Global, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
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, IHOP or Fuzzy's restaurants. As of December 31, 2024, two franchisees (one Applebee's franchisee and one franchisee with cross-brand ownership) operated a combined total of 790 Applebee's and IHOP restaurants in the United States, which comprised 23.9% of the total Applebee's, IHOP and Fuzzy's franchise and area license restaurants in the United States. Revenues from these two franchisees represented 22.2%, 21.1%, and 18.8% of total consolidated revenue for the years ended December 31, 2024, 2023 and 2022, respectively. One franchisee represented 14.4%, 13.9%, and 12.5% of total consolidated revenue for the years ended December 31, 2024, 2023 and 2022, respectively. Receivables from these franchisees totaled $20.1 million and $19.7 million at December 31, 2024 and 2023, 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 $ 35.0 $ 42.0
IHOP advertising funds and gift card programs 73.1 82.8
Other depository accounts 78.6 21.2
Total cash and cash equivalents $ 186.7 $ 146.0
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 $ 40.0 $ 31.2
Applebee's advertising funds 1.6 2.0
Total current restricted cash $ 42.4 $ 35.1
Non-current
Non-current restricted cash of $19.5 million at December 31, 2024 and 2023, 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.
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
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Dine Brands Global, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
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.
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, Applebee's franchising rights, Fuzzy's tradename and Fuzzy's franchising rights. Identifiable intangible assets with finite lives are amortized over the estimated useful lives using the straight-line method. Goodwill and intangible assets considered to have an indefinite life (primarily 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 two reporting segments. The significant majority of the Company's goodwill resulted from the November 29, 2007 acquisition of Applebee's and was allocated between the franchise operations segment (“franchise segment”) and company restaurants operations segment (“company restaurants segment”). Smaller amounts of goodwill arising from other business combinations has been allocated to the franchise segment. In November 2024, the Company acquired 47 Applebee's restaurants and the goodwill arising from the acquisition have been allocated to the company restaurants segment. See Note 6 - Goodwill and Note 19 - Business Acquisition, of the Notes to the Consolidated Financial Statements for additional information.
The Company evaluates the majority of its goodwill for impairment as of October 31 and the remaining 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. Additionally, in any given year, the Company can elect to perform a quantitative assessment of impairment.
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Dine Brands Global, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
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 restaurant sales trends, future development plans, restaurant closures, cost of revenues, operating expenses, and 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, the Company 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 of 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 transaction costs associated with business combinations are expensed in the period incurred which is included in the General and administrative expenses line item of the Consolidated Statements of Comprehensive Income.
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, domestic franchise agreements require franchisees to purchase proprietary products, if applicable, 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;