SOURCE: IHOP Corp.

February 21, 2007 07:00 ET

IHOP Corp. Reports Strong Fourth Quarter and Fiscal 2006 Financial Results

GLENDALE, CA -- (MARKET WIRE) -- February 21, 2007 -- IHOP Corp. (NYSE: IHP) today announced financial results for its fourth quarter and fiscal 2006, which include the following performance highlights:

--  EPS for the fourth quarter 2006 of $0.57, including stock based
    compensation expense, was a 7.5% increase versus the same quarter last
    year. EPS for the fourth quarter 2006, excluding pre-tax stock based
    compensation expense of $1.0 million, was $0.61, a 15.1% increase compared
    to the prior year.
--  For fiscal 2006, EPS of $2.43, including stock based compensation
    expense, increased 8.5% versus the same period last year. EPS for fiscal
    2006 increased 14.2% to $2.57, excluding pre-tax stock based compensation
    expense of $3.9 million.
--  IHOP produced its 16th consecutive quarter of same-store sales growth
    with an increase of 0.4% for the fourth quarter 2006, which was entirely
    driven by increases in guest traffic that offset flat guest check average
    results. For fiscal 2006, same-store sales increased 2.5%, which consisted
    of increases in guest traffic and moderate increases in guest check
    average.
--  24 new restaurants were developed and opened by IHOP franchisees and
    its area licensee during the fourth quarter 2006. System-wide restaurants
    grew 4.8% year-over-year to a total of 1,302 IHOPs.
--  Cash Flow from Operating Activities for fiscal 2006 increased 17.2% to
    $64.9 million. Additionally, $17.8 million of cash was provided by the
    collection of the Company's long-term receivables for fiscal 2006.
--  Share repurchases for fiscal 2006 amounted to approximately 889,000
    shares of IHOP stock, totaling $42.7 million.
    
Julia A. Stewart, IHOP's Chairman and Chief Executive Officer, said, "In 2006, we were able to deliver strong results by focusing on driving organic growth throughout the IHOP system with a significant number of new franchise restaurant openings and by delivering positive same-store sales results at existing IHOP restaurants. We also produced operating leverage through expense control and the deployment of our capital in ways that create value for our shareholders through share repurchase and dividend payments. In all, we are pleased with our performance for the year, and look forward to further building upon our successes in 2007."

Fourth Quarter and Fiscal 2006 Performance

IHOP reported an increase of 3.7% in net income to $10.3 million, and a 7.5% increase in diluted net income per share of $0.57 for the fourth quarter 2006 compared to the prior year. Excluding pre-tax stock based compensation expense of $1.0 million, net income increased 9.2% to $10.9 million, and diluted net income per share increased 15.1% to $0.61. The increases in diluted net income per share resulted primarily from a 3.8% increase in Franchise Operations segment profit and a 4.2% reduction in diluted weighted average shares outstanding due to ongoing share repurchases by the Company made throughout the year.

For the twelve months ended December 31, 2006, IHOP reported an increase of 1.4% in net income to $44.6 million, and an increase of 8.5% in diluted net income per share to $2.43. Excluding pre-tax stock based compensation expense of $3.9 million, net income increased 6.4% to $46.9 million, and diluted net income per share increased 14.2% to $2.57. The increases in net income and diluted net income per share resulted primarily from an 8.6% increase in Franchise Operations segment profit due to an increase in effective restaurants as well as higher same-store sales performance for fiscal 2006. This rate of revenue growth exceeded modest expense growth in this segment. Additionally, a 6.7% reduction in diluted weighted average shares outstanding contributed to IHOP's per share earnings performance for fiscal 2006.

Including stock based compensation expense, General & Administrative (G&A) expenses increased 7.5% to $17.0 million for the fourth quarter 2006, and 8.1% to $63.5 million for fiscal 2006 compared to the same periods in 2005. Excluding stock based compensation expense, G&A increased 1.7% to $16.0 million for the fourth quarter 2006, and 1.9% to $59.6 million for fiscal 2006 compared to the same periods in 2005.

Cash Flow from Operating Activities increased for fiscal 2006 to $64.9 million compared with $55.4 million for fiscal 2005. This increase resulted primarily from steps taken to accelerate the depreciation of certain fixed assets for tax purposes as the result of the Company's cost segregation study completed in 2006. Principal receipts from notes and equipment contracts receivable, which are an additional source of cash generation for the Company, amounted to $17.8 million for fiscal 2006. Capital expenditures increased to $9.4 million for fiscal 2006 versus $7.4 million for the same period in 2005. The increase in capital expenditures primarily reflects the cost of restaurant development in IHOP's Company market in Cincinnati, Ohio.

For the twelve months ended December 31, 2006, system-wide same-store sales increased 2.5%, which consisted of increases in guest traffic and moderate increases in guest check average. Compared to an exceptionally strong 5.4% growth in the same quarter last year, system-wide same-store sales increased 0.4% for the quarter ended December 31, 2006. This growth consisted entirely of increases in guest traffic that offset flat guest check average results. Same-store sales growth for the fourth quarter 2006 was supported by the solid performance of limited-time offers French Toast Fantasy and Super Rooty Tooty Fresh 'N Fruity.

Investor Conference Call Today

IHOP will host an investor conference call to discuss its fourth quarter and fiscal 2006 results, along with 2007 performance guidance which was issued in a separate news release, today Wednesday, February 21, 2007 at 11:00 a.m. Eastern Time (8:00 a.m. Pacific Time). To participate on the call, please dial (888) 873-4896 and reference pass code 78773958. A live webcast of the call will be available on IHOP's Web site at www.ihop.com, and may be accessed by visiting Calls & Presentations under the site's Investor Information section. Participants should allow approximately ten minutes prior to the call's start time to visit the site and download any streaming media software needed to listen to the webcast. A telephonic replay of the call may be accessed through February 28, 2007 by dialing 888-286-8010 and referencing pass code 28722975. An online archive of the webcast will also be available on the Investor Information section of IHOP's Web site.

About IHOP Corp.

The IHOP family restaurant chain has been serving a wide variety of breakfast, lunch and dinner selections for more than 45 years. Offering 14 types of pancakes as well as omelettes, breakfast specialties, burgers, sandwiches, salads, chicken and steaks, IHOP's diverse menu appeals to people of all ages. IHOP restaurants are franchised and operated by Glendale, California based IHOP Corp. As of December 31, 2006, the end of IHOP's fourth quarter, there were 1,302 IHOP restaurants in 49 states and Canada. IHOP Corp. common stock is listed and traded on the NYSE under the symbol "IHP." For more information, call the Company's headquarters at (818) 240-6055 or visit the Company's Web site located at www.ihop.com.

Forward-Looking Statements

There are forward-looking statements contained in this news release. They use such words as "may," "will," "expect," "believe," "plan," or other similar terminology. These statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results to be materially different than those expressed or implied in such statements. These factors include, but are not limited to: risks associated with the implementation of the Company's strategic growth plan; the availability of suitable locations and terms for the sites designated for development; the ability of franchise developers to fulfill their commitments to build new IHOP restaurants in the numbers and time frames covered by their development agreements; legislation and government regulation including the ability to obtain satisfactory regulatory approvals; conditions beyond the Company's control such as weather, natural disasters, disease outbreaks, epidemics or pandemics impacting the Company's customer base or food supplies or acts of war or terrorism; availability and cost of materials and labor; cost and availability of capital; competition; continuing acceptance of the IHOP and International House of Pancakes brands and concepts by guests and franchisees; the Company's overall marketing, operational and financial performance; economic and political conditions; adoption of new, or changes in, accounting policies and practices; and other factors discussed from time to time in the Company's news releases, public statements and/or filings with the Securities and Exchange Commission. Forward-looking information is provided by IHOP Corp. pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these factors. In addition, the Company disclaims any intent or obligation to update these forward-looking statements.

References to Non-GAAP Financial Measures

This news release includes references to the non-GAAP financial measure "net income excluding stock based compensation expense." The Company defines "net income excluding stock based compensation expense" for a given period as net income for such period, less any stock based compensation expense incurred in such period. Management believes net income excluding stock based compensation expense and basic and diluted net income per share excluding stock based compensation expense is useful because it provides a more accurate period to period comparison. Net income excluding stock based compensation expense for any given period may be affected by a variety of factors, including but not limited to, changes in assets and liabilities and the timing of purchases and payments. Net income excluding stock based compensation expense is a supplemental non-GAAP financial measure and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles.


                       IHOP CORP. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF INCOME
                 (In thousands, except per share amounts)
                                (Unaudited)


                                    Three Months Ended  Twelve Months Ended
                                       December 31,        December 31,
                                    --------- --------- --------- ---------
                                      2006      2005      2006      2005
                                    --------- --------- --------- ---------
Revenues
Franchise revenues                  $  45,625 $  43,308 $ 179,331 $ 167,384
Rental income                          33,069    32,543   132,101   131,626
Company restaurant sales                3,936     2,598    13,585    13,964
Financing revenues                      5,302     9,541    24,543    35,049
                                    --------- --------- --------- ---------
  Total revenues                       87,932    87,990   349,560   348,023
                                    --------- --------- --------- ---------
Costs and Expenses
Franchise expenses                     21,835    20,397    83,079    78,768
Rental expenses                        24,378    24,742    97,904    98,391
Company restaurant expenses             4,660     2,942    15,601    15,095
Financing expenses                      1,920     6,660    11,881    20,336
General and administrative expenses    17,035    15,843    63,543    58,801
Other expense, net                        984     1,336     4,702     5,766
                                    --------- --------- --------- ---------
  Total costs and expenses             70,812    71,920   276,710   277,157
                                    --------- --------- --------- ---------
Income before income taxes             17,120    16,070    72,850    70,866
Provision for income taxes              6,790     6,109    28,297    26,929
                                    --------- --------- --------- ---------
Net income                          $  10,330 $   9,961 $  44,553 $  43,937
                                    ========= ========= ========= =========

Net Income Per Share
  Basic                             $    0.58 $    0.53 $    2.46 $    2.26
                                    ========= ========= ========= =========
  Diluted                           $    0.57 $    0.53 $    2.43 $    2.24
                                    ========= ========= ========= =========

Weighted Average Shares Outstanding
  Basic                                17,839    18,642    18,085    19,405
                                    ========= ========= ========= =========
  Diluted                              18,051    18,837    18,298    19,603
                                    ========= ========= ========= =========

Dividends Declared Per Share        $    0.25 $    0.25 $    1.00 $    1.00
                                    ========= ========= ========= =========

Dividends Paid Per Share            $    0.25 $    0.25 $    1.00 $    1.00
                                    ========= ========= ========= =========


                        IHOP CORP. AND SUBSIDIARIES
                              RESTAURANT DATA
                                (Unaudited)


                                Three Months Ended    Twelve Months Ended
                                    December 31,          December 31,
                                -------------------   -------------------
                                  2006       2005       2006       2005
                                ---------  --------   --------   --------
Restaurant Data
  Effective restaurants (a)
    Franchise                       1,116     1,063      1,095      1,047
    Company                            10         5          8          7
    Area license                      159       153        156        151
                                ---------  --------   --------   --------
      Total                         1,285     1,221      1,259      1,205
                                =========  ========   ========   ========

System-wide (b)
  Sales percentage change (c)         6.2%      1.9%       7.4%       5.4%
  Same-store sales percentage
   change (d)                         0.4%      5.4%       2.5%       2.9%

Franchise (b)
  Sales percentage change (c)         5.9%      2.5%       7.5%       6.2%
  Same-store sales percentage
   change (d)                         0.5%      5.4%       2.5%       2.9%

Company
  Sales percentage change (c)        51.5%    (49.9)%     (2.7)%    (55.8)%

Area License (b)
  Sales percentage change (c)         6.1%      1.6%       6.5%       8.7%


(a) "Effective restaurants" are the number of restaurants in a given fiscal
    period adjusted to account for restaurants open for only a portion of
    the period. Information is presented for all effective restaurants in
    the IHOP system, which includes IHOP restaurants owned by the Company
    as well as those owned by franchisees and area licensees.

(b) System-wide sales are retail sales at IHOP restaurants operated by
    franchisees, area licensees and the Company, as reported to the
    Company.  Franchise restaurant sales were $482.0 million and $1.9
    billion for the fourth quarter and fiscal year ended December 31, 2006,
    respectively, and sales at area license restaurants were $50.0 million
    and $203.3 million for the fourth quarter and fiscal year ended
    December 31, 2006, respectively.  Sales at restaurants that are owned
    by franchisees and area licensees are not attributable to the Company.

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

(d) "Same-store sales percentage change" reflects the percentage change in
    sales, in any given fiscal period compared to the prior fiscal period,
    for restaurants that have been operated throughout both fiscal periods
    that are being compared and have been open for at least 18 months.
    Because of new unit openings and store closures, the restaurants open
    throughout both fiscal periods being compared will be different from
    period to period.  Same-store sales percentage change does not include
    data on restaurants located in Florida.


                        IHOP CORP. AND SUBSIDIARIES
              RESTAURANT DEVELOPMENT AND FRANCHISING ACTIVITY
                                (Unaudited)


                                 Three Months Ended   Twelve Months Ended
                                    December 31,          December 31,
                                --------------------  --------------------
                                  2006       2005       2006       2005
                                ---------  ---------  ---------  ---------
Restaurant Development Activity
Beginning of period                 1,278      1,218      1,242      1,186
  New openings
    Company-developed                   1          2          4          4
    Franchisee-developed               22         24         57         58
    Area license                        2          1          8          5
                                ---------  ---------  ---------  ---------
      Total new openings               25         27         69         67
  Closings
    Company and franchise              (1)        (3)        (8)       (11)
    Area license                        —          —         (1)         —
                                ---------  ---------  ---------  ---------
End of period                       1,302      1,242      1,302      1,242
                                =========  =========  =========  =========

Summary-end of period
    Franchise                       1,132      1,082      1,132      1,082
    Company                            10          7         10          7
    Area license                      160        153        160        153
                                ---------  ---------  ---------  ---------
      Total                         1,302      1,242      1,302      1,242
                                =========  =========  =========  =========

Restaurant Franchising Activity
Company-developed                       —          —          —          3
Franchisee-developed                   22         24         57         58
Rehabilitated and refranchised          1          8          9         26
                                ---------  ---------  ---------  ---------
      Total restaurants
       franchised                      23         32         66         87
Reacquired by the Company              (1)        (9)        (8)       (23)
Closed                                 (1)        (3)        (8)       (10)
                                ---------  ---------  ---------  ---------
      Net addition                     21         20         50         54
                                =========  =========  =========  =========


                        IHOP CORP. AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS
                   (In thousands, except share amounts)


                                                 December 31, December 31,
                                                     2006         2005
                                                 ------------ ------------
                                                 (Unaudited)
Assets
Current assets
  Cash and cash equivalents                      $     19,516 $     23,111
  Receivables, net                                     45,571       43,690
  Reacquired franchises and equipment held for
   sale, net                                                —          273
  Inventories                                             396          537
  Prepaid expenses                                      7,493        2,899
  Deferred income taxes                                 5,417            —
                                                 ------------ ------------
    Total current assets                               78,393       70,510
                                                 ------------ ------------
Long-term receivables                                 302,088      319,335
Property and equipment, net                           309,737      317,959
Excess of costs over net assets acquired               10,767       10,767
Other assets                                           67,885       52,509
                                                 ------------ ------------
    Total assets                                 $    768,870 $    771,080
                                                 ============ ============
Liabilities and Stockholders’ Equity
Current liabilities
  Current maturities of long-term debt           $     19,738 $     19,564
  Accounts payable                                     14,689       15,083
  Accrued employee compensation and benefits           13,359       10,745
  Other accrued expenses                               11,317        9,030
  Deferred income taxes                                     —        2,882
  Capital lease obligations                             5,002        4,491
                                                 ------------ ------------
    Total current liabilities                          64,105       61,795
                                                 ------------ ------------
Long-term debt, less current maturities                94,468      114,210
Deferred income taxes                                  76,017       61,414
Capital lease obligations                             170,412      172,681
Other liabilities                                      74,655       67,134
Commitments and contingencies
Stockholders’ equity
  Preferred stock, $1 par value, 10,000,000
   shares authorized; none issued and outstanding           —            —
  Common stock, $.01 par value, 40,000,000 shares
   authorized; December 31, 2006: 22,818,007
   shares issued and 17,873,548 shares
   outstanding; December 31, 2005: 22,464,760
   shares issued and 18,409,587 shares
   outstanding                                            227          225
Additional paid-in capital                            131,748      120,922
Retained earnings                                     358,975      332,560
Deferred compensation                                       —         (747)
Accumulated other comprehensive loss                     (133)        (205)
Treasury stock, at cost (4,944,459 shares and
 4,055,173 shares at December 31, 2006 and
 December 31, 2005, respectively)                    (201,604)    (158,909)
                                                 ------------ ------------
  Total stockholders’ equity                          289,213      293,846
                                                 ------------ ------------
  Total liabilities and stockholders’ equity     $    768,870 $    771,080
                                                 ============ ============


                        IHOP CORP. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (In thousands)
                                (Unaudited)


                                                      Twelve Months Ended
                                                          December 31,
                                                     ---------------------
                                                        2006       2005
                                                     ---------- ----------
Cash flows from operating activities
  Net income                                         $   44,553 $   43,937
  Adjustments to reconcile net income to cash flows
   provided by operating activities
    Depreciation and amortization                        20,050     19,866
    Impairment and closure charges                           43        896
    Deferred income taxes                                 6,304     (3,689)
    Stock-based compensation expense                      3,911        287
    Excess tax benefit from stock-based compensation     (1,720)         —
    Tax benefit from stock options exercised                  —      1,578
    Changes in operating assets and liabilities
      Receivables                                        (2,524)      (148)
      Inventories                                           141       (389)
      Prepaid expenses                                   (4,594)      (487)
      Accounts payable                                     (394)    (2,050)
      Accrued employee compensation and benefits          2,614      1,560
      Other accrued expenses                               (802)    (2,336)
      Other                                              (2,723)    (3,672)
                                                     ---------- ----------
        Cash flows provided by operating activities      64,859     55,353
                                                     ---------- ----------
Cash flows from investing activities
  Additions to property and equipment                    (9,426)    (7,365)
  Additions to long-term receivables                       (159)       (36)
  Purchase and redemption of marketable securities,
   net                                                        —     13,843
  Proceeds from sale of land and building                     —        890
  Principal receipts from notes and equipment
   contracts receivable                                  17,781     19,403
  Additions to reacquired franchises and equipment
   held for sale                                           (594)    (2,387)
  Property insurance proceeds                             1,694          —
                                                     ---------- ----------
        Cash flows provided by investing activities       9,296     24,348
                                                     ---------- ----------
Cash flows from financing activities
  Proceeds from landlords                                     —      1,000
  Repayment of long-term debt                           (19,568)    (5,838)
  Principal payments on capital lease obligations        (4,088)    (3,844)
  Dividends paid                                        (18,138)   (19,550)
  Purchase of treasury stock                            (42,695)   (77,474)
  Proceeds from stock options exercised                   5,944      5,085
  Excess tax benefit from stock-based compensation        1,720          —
  Deferred financing costs                                 (925)         —
                                                     ---------- ----------
        Cash flows used in financing activities         (77,750)  (100,621)
                                                     ---------- ----------
  Net change in cash and cash equivalents                (3,595)   (20,920)
  Cash and cash equivalents at beginning of period       23,111     44,031
                                                     ---------- ----------
  Cash and cash equivalents at end of period         $   19,516 $   23,111
                                                     ========== ==========


                        IHOP CORP. AND SUBSIDIARIES
                        NON-GAAP FINANCIAL MEASURES
                 (In thousands, except per share amounts)
                                (Unaudited)


Reconciliation of net income to net income excluding impact of stock based
 compensation expense:
                                 Three Months Ended   Twelve Months Ended
                                    December 31,          December 31,
                                --------------------  --------------------
                                  2006       2005       2006       2005
                                ---------  ---------  ---------  ---------

Net income, as reported         $  10,330  $   9,961  $  44,553  $  43,937
Stock option expense                  390          —      1,905          —
Restricted stock                      620         86      2,006        287
Income tax benefit                   (401)       (33)    (1,519)      (109)
                                ---------  ---------  ---------  ---------
Net income excluding stock
 based compensation expense     $  10,939  $  10,014  $  46,945  $  44,115
                                =========  =========  =========  =========

Basic net income per share:
Net income, as reported per
 share                          $    0.58  $    0.53  $    2.46  $    2.26
Stock option expense per share       0.02          —       0.11          —
Restricted stock per share           0.03       0.01       0.11       0.02
Income tax benefit per share        (0.02)         —      (0.08)     (0.01)
                                ---------  ---------  ---------  ---------
Net income excluding stock
 based compensation expense
 per share                      $    0.61  $    0.54  $    2.60  $    2.27
                                =========  =========  =========  =========

Diluted net income per share:
Net income, as reported per
 share                          $    0.57  $    0.53  $    2.43  $    2.24
Stock option expense per share       0.02          —       0.11          —
Restricted stock per share           0.04          —       0.11       0.02
Income tax benefit per share        (0.02)         —      (0.08)     (0.01)
                                ---------  ---------  ---------  ---------
Net income excluding stock
 based compensation expense
 per share                      $    0.61  $    0.53  $    2.57  $    2.25
                                =========  =========  =========  =========

Contact Information

  • Contact:
    Stacy Roughan
    Director, Investor Relations
    IHOP Corp.
    818-637-3632