Segments

The Company identifies its reporting segments based on the organizational units used by management to monitor performance and make operating decisions. The Company currently has four operating segments: Applebee's franchise operations, IHOP franchise operations, rental operations and financing operations. During one or more of the comparative periods presented herein, the Company operated a small number of IHOP restaurants and those operations were considered to be a fifth operating segment. Including these historically company-operated restaurants, the Company has four reportable segments: franchise operations, (an aggregation of Applebee's and IHOP franchise operations), rental operations, financing operations and company-operated restaurant operations. The Company considers these to be its reportable segments, regardless of whether any segment exceeds 10% of consolidated revenues, income before income tax provision or total assets.

As of June 30, 2018, the franchise operations segment consisted of (i) 1,883 restaurants operated by Applebee’s franchisees in the United States, two U.S. territories and 13 countries outside the United States and (ii) 1,805 restaurants operated by IHOP franchisees and area licensees in the United States, three U.S. territories and 12 countries outside the United States. Franchise operations revenue consists primarily of franchise royalty revenues, franchise advertising revenue, sales of proprietary products to franchisees (primarily pancake and waffle dry mixes for the IHOP restaurants), and franchise fees. Franchise operations expenses include advertising expenses, the cost of IHOP proprietary products, bad debt expense, franchisor contributions to marketing funds, pre-opening training expenses and other franchise-related costs.

Rental operations revenue includes revenue from operating leases and interest income from direct financing leases. Rental operations expenses are costs of operating leases and interest expense from capital leases on franchisee-operated restaurants.

Financing operations revenue primarily consists of interest income from the financing of franchise fees and equipment leases and sales of equipment associated with refranchised IHOP restaurants. Financing expenses are primarily the cost of restaurant equipment associated with refranchised IHOP restaurants.

Company restaurant sales were retail sales at company-operated restaurants. Company restaurant expenses were operating expenses at company-operated restaurants and include food, labor, utilities, rent and other restaurant operating costs. In June 2017, the Company refranchised nine of ten IHOP company-operated restaurants in the Cincinnati, Ohio market area; the one restaurant not refranchised was closed. As a result, the Company no longer operates any restaurants on a permanent basis. The Company has not presented these restaurants as discontinued operations as defined by U.S. GAAP because the refranchising of nine restaurants out of a total of approximately 3,700 restaurants did not represent a strategic shift that had a major effect on the Company's operations.

From time to time, the Company may operate restaurants reacquired from franchisees on a temporary basis until those restaurants are refranchised. There were no restaurants under temporary company operation at June 30, 2018.

Information on segments is as follows:



	Three months ended June 30,						Six months ended June 30,
	2018			2017 (as adjusted)			2018			2017 (as adjusted)
	(In millions)
Revenues from external customers:
Franchise operations	$	151.9		$	153.1		$	307.2		$	307.8
Rental operations	30.4			30.1			61.2			60.6
Company restaurants	—			3.4			—			7.5
Financing operations	2.2			2.1			4.2			4.2
Total	$	184.5		$	188.7		$	372.6		$	380.1

Interest expense:
Rental operations	$	2.3		$	2.6		$	4.8		$	5.4
Company restaurants	—			0.1			—			0.2
Corporate	15.5			15.8			30.7			31.1
Total	$	17.8		$	18.5		$	35.5		$	36.7

Depreciation and amortization:
Franchise operations	$	2.7		$	2.7		$	5.3		$	5.4
Rental operations	2.9			3.0			5.8			6.0
Company restaurants	—			—			—			0.1
Corporate	2.3			2.0			4.7			3.9
Total	$	7.9		$	7.7		$	15.8		$	15.4

Gross profit, by segment:
Franchise operations	$	69.0		$	83.6		$	142.4		$	168.1
Rental operations	7.6			7.5			15.8			15.3
Company restaurants	—			(0.1		)	—			(0.3		)
Financing operations	2.0			2.0			3.9			4.2
Total gross profit	78.6			93.0			162.1			187.3
Corporate and unallocated expenses, net	(54.0		)	(52.1		)	(114.8		)	(120.4		)
Income before income tax provision	$	24.6		$	40.9		$	47.3		$	66.9