-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CAtLSOB+Tn0KJwyRNM7CRE3Io5ZfYqRGuC9UZ8pbj0BbhLhi9SYWAV7ZnaqRT5e9 lve1GQNsM6Kxev03y/3h5g== 0000853665-07-000101.txt : 20070503 0000853665-07-000101.hdr.sgml : 20070503 20070502193331 ACCESSION NUMBER: 0000853665-07-000101 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20070401 FILED AS OF DATE: 20070503 DATE AS OF CHANGE: 20070502 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLEBEES INTERNATIONAL INC CENTRAL INDEX KEY: 0000853665 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 431461763 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17962 FILM NUMBER: 07812481 BUSINESS ADDRESS: STREET 1: 4551 W 107TH ST STE 100 CITY: OVERLAND PARK STATE: KS ZIP: 66207 BUSINESS PHONE: 9139674000 MAIL ADDRESS: STREET 1: 4551 W 107TH STREET STREET 2: SUITE 100 CITY: OVERLAND PARK STATE: KS ZIP: 66207 10-Q 1 appbq1tenq.txt Q1 2007 APPB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 1, 2007 ------------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------------- ------------------------ Commission File Number: 000-17962 -------------------------------------------------------- Applebee's International, Inc. -------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 43-1461763 - --------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 4551 W. 107th Street, Overland Park, Kansas 66207 ------------------------------------------------------------------------------- (Address of principal executive offices and zip code) (913) 967-4000 -------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer" in Rule 12b-2 of the Exchange Act. (check one): Large accelerated filer X Accelerated filer Non-accelerated filer ---- ---- ---- Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No X ----- ----- The number of shares of the registrant's common stock outstanding as of April 30, 2007 was 74,652,392. 1 APPLEBEE'S INTERNATIONAL, INC. FORM 10-Q FISCAL QUARTER ENDED APRIL 1, 2007 INDEX Page PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements: Consolidated Balance Sheets as of April 1, 2007 and December 31, 2006....................................... 3 Consolidated Statements of Earnings for the 13 Weeks Ended April 1, 2007 and March 26, 2006...................... 4 Consolidated Statement of Stockholders' Equity for the 13 Weeks Ended April 1, 2007................................ 5 Consolidated Statements of Cash Flows for the 13 Weeks Ended April 1, 2007 and March 26, 2006...................... 6 Notes to Condensed Consolidated Financial Statements.......... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 16 Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 29 Item 4. Controls and Procedures....................................... 29 PART II OTHER INFORMATION Item 1. Legal Proceedings............................................. 30 Item 1A. Risk Factors.................................................. 30 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds... 31 Item 6. Exhibits...................................................... 31 Signatures .............................................................. 32 Exhibit Index............................................................ 33 2 PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
April 1, December 31, 2007 2006 -------------- ------------- ASSETS Current assets: Cash and cash equivalents................................................... $ 15,338 $ 22,309 Short-term investments, at market value..................................... 295 293 Receivables, less allowance of $903 in 2007 and $917 in 2006................ 40,265 48,224 Inventories................................................................. 11,677 11,524 Prepaid and other current assets............................................ 17,815 15,310 Assets held for sale........................................................ 5,388 7,633 Current assets related to discontinued operations........................... 9,494 1,798 -------------- ------------- Total current assets..................................................... 100,272 107,091 Property and equipment, net...................................................... 618,812 619,508 Goodwill......................................................................... 138,950 138,950 Restricted assets related to captive insurance subsidiary........................ 12,900 13,356 Other intangible assets, net..................................................... 6,280 6,408 Other assets, net................................................................ 35,117 34,351 Non-current assets related to discontinued operations............................ 3,203 17,590 -------------- ------------- $ 915,534 $ 937,254 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt........................................... $ 279 $ 265 Accounts payable............................................................ 53,270 43,235 Accrued expenses and other current liabilities.............................. 91,974 113,641 Loss reserve related to captive insurance subsidiary........................ 5,714 6,094 Accrued dividends........................................................... -- 16,299 Accrued income taxes........................................................ 14,034 9,183 Current liabilities related to discontinued operations...................... 1,577 -- -------------- ------------- Total current liabilities................................................ 166,848 188,717 -------------- ------------- Non-current liabilities: Long-term debt, less current portion........................................ 154,846 174,920 Deferred income taxes....................................................... 24,329 24,956 Other non-current liabilities............................................... 62,391 61,837 Non-current liabilities related to discontinued operations.................. 6,362 170 -------------- ------------- Total non-current liabilities............................................ 247,928 261,883 -------------- ------------- Total liabilities........................................................ 414,776 450,600 -------------- ------------- Commitments and contingencies (Note 11) Stockholders' equity: Preferred stock - par value $0.01 per share: authorized - 1,000,000 shares; no shares issued......................................................... -- -- Common stock - par value $0.01 per share: authorized - 125,000,000 shares; issued - 108,503,243 shares.............................................. 1,085 1,085 Additional paid-in capital.................................................. 267,373 265,122 Retained earnings........................................................... 782,801 774,884 -------------- ------------- 1,051,259 1,041,091 Treasury stock - 33,942,484 shares in 2007 and 34,393,331 shares in 2006, at cost.................................................................. (550,501) (554,437) -------------- ------------- Total stockholders' equity............................................... 500,758 486,654 -------------- ------------- $ 915,534 $ 937,254 ============== =============
See notes to condensed consolidated financial statements. 3 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (in thousands, except per share amounts)
13 Weeks Ended -------------------------------- April 1, March 26, 2007 2006 ------------- -------------- Operating revenues: Company restaurant sales................................ $ 300,108 $ 302,326 Franchise royalties and fees............................ 37,059 35,935 Other franchise income.................................. 463 445 ------------- -------------- Total operating revenues............................. 337,630 338,706 ------------- -------------- Cost of company restaurant sales: Food and beverage....................................... 79,435 80,735 Labor................................................... 101,748 98,820 Direct and occupancy.................................... 79,878 76,684 Pre-opening expense..................................... 921 750 ------------- -------------- Total cost of company restaurant sales............... 261,982 256,989 ------------- -------------- Cost of other franchise income............................... 373 766 General and administrative expenses.......................... 32,775 35,606 Amortization of intangible assets............................ 128 204 Impairment and other restaurant closure costs................ 6,636 1,600 Loss on disposition of property and equipment................ 370 577 ------------- -------------- Operating earnings........................................... 35,366 42,964 ------------- -------------- Other income (expense): Investment income ...................................... 835 745 Interest expense........................................ (2,606) (2,554) Other income (expense).................................. (60) 136 ------------- -------------- Total other expense.................................. (1,831) (1,673) ------------- -------------- Earnings before income taxes and discontinued operations..... 33,535 41,291 Income taxes................................................. 11,536 13,874 ------------- -------------- Earnings before discontinued operations...................... 21,999 27,417 Loss from discontinued operations, net of tax................ (12,532) (266) ------------- -------------- Net earnings................................................. $ 9,467 $ 27,151 ============= ============== Basic net earnings per common share: Earnings before discontinued operations................. $ 0.30 $ 0.37 Loss from discontinued operations, net of tax........... (0.17) -- ------------- -------------- Basic net earnings per common share.......................... $ 0.13 $ 0.37 ============= ============== Diluted net earnings per common share: Earnings before discontinued operations................. $ 0.29 $ 0.36 Loss from discontinued operations, net of tax........... (0.17) -- ------------- -------------- Diluted net earnings per common share........................ $ 0.13 $ 0.36 ============= ============== Basic weighted average shares outstanding.................... 73,953 74,147 ============= ============== Diluted weighted average shares outstanding.................. 75,072 75,281 ============= ==============
See notes to condensed consolidated financial statements. 4 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) (in thousands)
Common Stock Additional Total --------------------- Paid-In Retained Treasury Stockholders' Shares Amount Capital Earnings Stock Equity ----------- --------- ------------ ----------- ------------- ------------- Balance, December 31, 2006 ...................... 108,503 $ 1,085 $265,122 $774,884 $ (554,437) $ 486,654 Net earnings.................................. -- -- -- 9,467 -- 9,467 Purchases of treasury stock................... -- -- -- -- (999) (999) Stock options exercised and related tax benefit......................... -- -- 1,386 -- 1,543 2,929 Shares issued under employee benefit plans.... -- -- 408 -- 514 922 Nonvested shares awarded under equity incentive plans............................. -- -- (2,878) -- 2,878 -- Stock-based compensation expense related to employee-based equity awards............. -- -- 3,335 -- -- 3,335 Cumulative impact of change in accounting for uncertainty in income taxes (Note 9).... -- -- -- (1,550) -- (1,550) ----------- --------- ------------ ----------- ------------- ------------- Balance, April 1, 2007........................... 108,503 $ 1,085 $267,373 $782,801 $ (550,501) $ 500,758 ===================== ============ =========== ============= =============
See notes to condensed consolidated financial statements. 5 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
13 Weeks Ended -------------------------------- April 1, March 26, 2007 2006 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings....................................................... $ 9,467 $ 27,151 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization................................... 17,010 15,361 Amortization of intangible assets............................... 128 204 Stock-based compensation........................................ 3,335 6,165 Other amortization.............................................. 83 45 Deferred income tax provision (benefit)......................... (4,029) 1,278 Impairment and other restaurant closure costs................... 25,500 1,600 Loss on disposition of property and equipment................... 370 577 Income tax benefit from stock-based compensation................ 288 1,005 Changes in assets and liabilities, exclusive of effect of acquisition: Receivables..................................................... 7,959 1,027 Inventories..................................................... (221) 5,104 Prepaid and other current assets................................ (2,474) (7,794) Accounts payable................................................ 10,840 (9,750) Accrued expenses and other current liabilities.................. (22,231) (21,146) Loss reserve and unearned premiums related to captive insurance subsidiary.................................. (380) (1,365) Income taxes.................................................... 1,557 7,624 Other non-current liabilities................................... (2,731) 23 Other........................................................... 236 (191) ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES....................... 44,707 26,918 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment................................ (20,835) (30,968) Change in restricted assets related to captive insurance subsidiary............................................. 456 214 Acquisition of restaurants......................................... -- (7,962) Proceeds from sale of property and equipment....................... 2,496 -- ------------- ------------- NET CASH USED BY INVESTING ACTIVITIES........................... (17,883) (38,716) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchases of treasury stock........................................ (999) (5,171) Dividends paid..................................................... (16,299) (14,840) Issuance of common stock upon exercise of stock options............ 2,421 5,075 Shares issued under employee benefit plans......................... 922 1,020 Excess tax benefits from stock-based compensation.................. 220 680 Net debt proceeds (payments)....................................... (20,060) 19,445 ------------- ------------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES................ (33,795) 6,209 ------------- ------------- NET DECREASE IN CASH AND CASH EQUIVALENTS............................... (6,971) (5,589) CASH AND CASH EQUIVALENTS, beginning of period.......................... 22,309 13,040 ------------- ------------- CASH AND CASH EQUIVALENTS, end of period................................ $ 15,338 $ 7,451 ============= =============
See notes to condensed consolidated financial statements. 6 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) (Unaudited) (in thousands)
13 Weeks Ended ------------------------------------ April 1, March 26, 2007 2006 ---------------- ---------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the 13 week period for: Income taxes........................................................ $ 3,655 $ 3,153 ================ ================ Interest............................................................ $ 2,493 $ 2,472 ================ ================
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: We issued nonvested shares with grant date fair values of $7,164,000 for the 13 weeks ended April 1, 2007 and nonvested shares of $1,499,000 for the 13 weeks ended March 26, 2006. We have entered into a rabbi trust agreement to protect the assets of the nonqualified deferred compensation plan for certain of our associates. The plan investments are included in other assets and the offsetting obligation is included in other non-current liabilities in our consolidated balance sheets. We had a non-cash decrease in this balance of $1,192,000 for the 13 weeks ended April 1, 2007 and a non-cash increase of $1,059,000 for the 13 weeks ended March 26, 2006. We had property and equipment purchases accrued in accounts payable of approximately $9,600,000 and $9,900,000 as of April 1, 2007 and March 26, 2006, respectively. See notes to condensed consolidated financial statements. 7 APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation Our condensed consolidated financial statements included in this Form 10-Q have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). Although certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, we believe that the disclosures are adequate to make the information presented not misleading. The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. We believe that all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the results of the interim periods presented, have been made. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. References to "Applebee's," "we," "us," and "our" in this document are references to Applebee's International, Inc. and its subsidiaries and any predecessor companies of Applebee's International, Inc. As discussed in Note 5, we have presented the closure of 15 restaurants as discontinued operations in our condensed consolidated financial statements and have made certain conforming changes to prior periods. 2. Stock-Based Compensation In 2006, we adopted the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment." SFAS 123(R) requires all stock-based compensation, including grants of employee stock options, to be recognized in the statement of earnings based on fair value. With limited exceptions, the amount of compensation cost is measured based on the fair value on the grant date of the equity or liability instruments issued. Stock-based compensation expense was $3,335,000 and $6,165,000 for the 13 weeks ended April 1, 2007 ("2007 quarter") and the 13 weeks ended March 26, 2006 ("2006 quarter"), respectively. During the 2007 quarter, we granted approximately 80,000 stock options, approximately 100,000 stock appreciation rights ("SARs") and approximately 290,000 nonvested shares which generally vest on March 1, 2011. The nonvested share grants include approximately 50,000 shares issued to certain officers which are performance-based. The valuation for these nonvested shares is based upon a Monte Carlo simulation which better represents the characteristics of these grants. The ultimate number of shares of performance-based nonvested shares, if any, that will vest will be dependent upon our total shareholder return in relation to the total shareholder return of a select group of restaurant companies over a four-year period. 8 3. Net Earnings Per Share We compute basic net earnings per common share by dividing income available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted net earnings per common share reflects the potential dilution that could occur if holders of options or other contracts to issue common stock exercised or converted their holdings into common stock. Outstanding stock options, SARs and other equity-based compensation represent the only dilutive effects on weighted average shares. The table below presents a reconciliation between basic and diluted weighted average shares outstanding and the related net earnings per share. All amounts in the table, except per share amounts, are expressed in thousands.
2007 2006 Quarter Quarter ---------------------- ---------------------- Earnings before discontinued operations........................ $ 21,999 $ 27,417 Loss from discontinued operations, net of tax.................. (12,532) (266) ---------------------- ---------------------- Net earnings................................................... $ 9,467 $ 27,151 ====================== ====================== Basic weighted average shares outstanding...................... 73,953 74,147 Dilutive effect of stock options, SARs and other equity-based compensation................................. 1,119 1,134 ---------------------- ---------------------- Diluted weighted average shares outstanding.................... 75,072 75,281 ====================== ====================== Basic net earnings per common share............................ Earnings before discontinued operations..................... $ 0.30 $ 0.37 Loss from discontinued operations, net of tax............... (0.17) -- ---------------------- ---------------------- Basic net earnings per common share............................ $ 0.13 $ 0.37 ====================== ====================== Diluted net earnings per common share.......................... Earnings before discontinued operations.................... $ 0.29 $ 0.36 Loss from discontinued operations, net of tax.............. (0.17) -- ---------------------- ---------------------- Diluted net earnings per common shares......................... $ 0.13 $ 0.36 ====================== ======================
We excluded stock options and SARs with exercise prices greater than the average market price of our common stock for the applicable periods from the computation of diluted weighted average shares outstanding as the effect would be anti-dilutive. We excluded approximately 4,500,000 and 5,110,000 of these options and SARs from our diluted weighted average share computation for the 2007 quarter and the 2006 quarter, respectively. 4. Acquisition The acquisition discussed below has been accounted for using the purchase method of accounting and, accordingly, our condensed consolidated financial statements reflect the results of operations for the acquisition subsequent to the date of acquisition. The assets acquired and liabilities assumed are recorded at estimates of fair value as determined by management based upon information available. 9 In January 2006, we completed the acquisition of four Applebee's restaurants in the Houston market for approximately $8,100,000 in cash. The purchase price was allocated to the fair value of property and equipment of $7,400,000, goodwill of approximately $500,000, reacquired franchise rights of approximately $100,000, and other net assets of approximately $100,000. The proforma impact on our results of operations was immaterial. We finalize the allocation of purchase price to the fair value of assets acquired and liabilities assumed when we obtain information sufficient to complete the allocation, but in each case, no longer than one year after the acquisition date. 5. Restaurant Closures and Impairments In March 2007, we announced that the Board of Directors had approved management's recommendation to close 24 underperforming restaurants located in 11 states which we determined did not have the potential to deliver acceptable long-term returns on invested capital. In the 2007 quarter, we closed 19 of these 24 restaurants. We believe that four of the closed restaurants will have significant sales transfer to other existing restaurant locations and therefore are not presented as discontinued operations in our condensed consolidated financial statements as required by SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The results of operations, impairment charges and lease obligations related to these four restaurants have been presented within operating earnings in the condensed consolidated statement of earnings. In addition, we have included in Impairment and Other Restaurant Closure Costs in our condensed consolidated financial statements, the write-down of the carrying value of property and equipment and other assets for the five restaurants which have yet to be closed. We anticipate that we will present these restaurants as discontinued operations in the period in which they close. The estimated costs to be incurred for these restaurants still operating will be dependent upon the outcome of negotiations with the landlords, as well as other factors. In the 2007 quarter, we have presented the results of operations for 15 of the closed restaurants as discontinued operations in our condensed consolidated financial statements as required by SFAS No. 144. In addition, we have presented the impairment charge and lease obligations for these restaurants in discontinued operations. Company restaurant sales for the restaurants presented in discontinued operations were $5,243,000 and $5,573,000 in the 2007 quarter and the 2006 quarter, respectively. The charges in the 2007 quarter included the following (in thousands):
Impairment and Other Restaurant Discontinued Closure Costs Operations -------------------- -------------------- Write-down of the carrying value of property and equipment and other assets......................... $ 4,193 $ 10,899 Lease obligation for closed restaurants(1).............. 2,389 7,729 Other costs............................................. 54 236 Loss on operations for discontinued operations.......... -- 413 Income tax benefit for discontinued operations.......... -- (6,745) -------------------- -------------------- Total costs............................................. $ 6,636 $ 12,532 ==================== ==================== - ------------------ (1) As of April 1, 2007, there have been no payments related to lease obligations.
10 The current and non-current assets and liabilities of the 15 restaurants that are presented as discontinued operations in the condensed consolidated balance sheet are as follows (in thousands):
April 1, December 31, 2007 2006 ------------------- -------------------- Current assets: Property and equipment, net(1).............................. $ 5,139 $ -- Other assets, net(1)........................................ 813 -- Prepaid income taxes........................................ 3,542 1,798 ------------------- -------------------- Current assets related to discontinued operations............... $ 9,494 1,798 =================== ==================== Non-current assets: Deferred income taxes....................................... $ 3,203 $ -- Property and equipment, net................................. -- 16,523 Other assets, net........................................... -- 1,067 ------------------- -------------------- Non-current assets related to discontinued operations........... $ 3,203 $ 17,590 =================== ==================== Current liabilities: Accrued expenses and other current liabilities............... $ 1,577 $ -- ------------------- -------------------- Current liabilities related to discontinued operations.......... $ 1,577 $ -- =================== ==================== Non-current liabilities: Other non-current liabilities................................ 6,362 $ -- Deferred income taxes........................................ -- 170 ------------------- -------------------- Non-current liabilities related to discontinued operations...... $ 6,362 $ 170 =================== ==================== - ------------------ (1) In the 2007 quarter, we began to actively market property and equipment and other assets. Consequently, we have classified these assets as held for sale as of April 1, 2007.
In the 2006 quarter, we recorded impairment and other restaurant closure costs of $1,600,000 which consisted of an asset impairment charge of approximately $900,000 related to the write-down of the carrying value of property and equipment and $700,000 related to remaining lease obligations. In assessing restaurants for impairment, we use current and historical operating results to estimate future cash flows on a restaurant by restaurant basis. The asset impairment charges for the 2006 quarter and the 2007 quarter were calculated by comparing the carrying value of the restaurants' assets to the estimated future cash flow projections. 6. Assets Held for Sale We classify assets as held for sale and cease amortizing the assets when there is a plan for disposal of assets and those assets meet the held for sale criteria as defined in SFAS No. 144. During 2006, we began to actively market our existing corporate headquarters and a corporate aircraft under a plan approved by our Board of Directors as well as other assets with immaterial carrying values. Consequently, these assets were classified as held for sale as of December 31, 2006. In February 2007, the corporate aircraft was sold and we recognized an immaterial gain. 11 7. Goodwill and Other Intangible Assets Changes in goodwill are summarized below (in thousands):
April 1, December 31, 2007 2006 ----------------- ----------------- Carrying amount, beginning of the year........................... $ 138,950 $ 138,443 Goodwill acquired during the period.............................. -- 507 ----------------- ----------------- Carrying amount, end of the period............................... $ 138,950 $ 138,950 ================= =================
Intangible assets subject to amortization pursuant to SFAS No. 142, "Goodwill and Other Intangible Assets," are summarized below (in thousands):
April 1, 2007 -------------------------------------------------------------- Gross Carrying Accumulated Net Book Amount Amortization Value ------------------ ------------------ ------------------ Amortized intangible assets: Franchise interest and rights....... $ 6,371 $ 6,216 $ 155 Lease acquisition costs............. 3,430 713 2,717 Noncompete agreement................ 350 220 130 ------------------ ------------------ ------------------ Total................................... $ 10,151 $ 7,149 $ 3,002 ================== ================== ==================
December 31, 2006 -------------------------------------------------------------- Gross Carrying Accumulated Net Book Amount Amortization Value ------------------ ------------------ ------------------ Amortized intangible assets: Franchise interest and rights....... $ 6,371 $ 6,172 $ 199 Lease acquisition costs............. 3,430 650 2,780 Noncompete agreement................ 350 199 151 ------------------ ------------------ ------------------ Total................................... $ 10,151 $ 7,021 $ 3,130 ================== ================== ==================
We expect annual amortization expense for amortizable other assets for the next five fiscal years to range from approximately $200,000 to $500,000. Intangible assets not subject to amortization are summarized below (in thousands):
April 1, December 31, 2007 2006 ---------------------- -------------------- Carrying amount, beginning of the year.................. $ 3,278 $ 3,138 Nonamortizable intangible assets acquired during the period.................................. -- 140 ---------------------- -------------------- Nonamortizable intangible assets amount, end of the period.................................. $ 3,278 $ 3,278 ====================== ====================
12 In connection with our acquisition of four Applebee's restaurants in Houston from a franchisee in January 2006, we recorded approximately $100,000 of reacquired franchise rights (Note 4). The amount allocated to reacquired franchise rights is based upon the initial franchise fees received from these franchisees. This intangible asset has an indefinite life and, accordingly, will not be amortized but tested for impairment at least annually. 8. Captive Insurance Subsidiary In 2002, we formed Neighborhood Insurance, Inc., a Vermont corporation and a wholly-owned captive insurance subsidiary to provide Applebee's International, Inc. and qualified franchisees with workers' compensation and general liability insurance. Through 2005, Applebee's International, Inc. and covered franchisees made premium payments to the captive insurance company which pays administrative fees and insurance claims, subject to individual and aggregate maximum claim limits under the captive insurance company's reinsurance policies. Franchisee premium amounts billed by the captive insurance company were established based upon third-party actuarial estimates of settlement costs for incurred and anticipated claims and administrative fees. In 2006, we discontinued writing insurance coverage for new or existing participants. Cost of other franchise income includes costs related to the resolution of claims arising from franchisee participation in our captive insurance program. We do not expect franchisee participation in the captive insurance company to have a material impact on our net earnings. Our consolidated balance sheets include the following balances related to the captive insurance subsidiary: o Franchise premium receivables of approximately $400,000 as of April 1, 2007 and December 31, 2006, included in receivables. o Cash equivalent and other long-term investments restricted for the payment of claims of approximately $12,200,000 and $12,600,000 as of April 1, 2007 and December 31, 2006, respectively, included in restricted assets related to captive insurance subsidiary. o Loss reserve related to captive insurance subsidiary of approximately $11,700,000 and $12,600,000 as of April 1, 2007 and December 31, 2006, respectively. Approximately $6,000,000 and $6,500,000 for April 1, 2007 and December 31, 2006, respectively, is included in other non-current liabilities. 9. Accounting for Uncertainty in Income Taxes On January 1, 2007, we adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes". As a result of the implementation of FIN No. 48, we recognized an increase of $1,550,000 in the liability for unrecognized tax benefits, which was accounted for as a reduction to our retained earnings balance as of the adoption date. We file income tax returns which are periodically audited by various federal, state and foreign jurisdictions. With few exceptions, we are no longer subject to federal, state and foreign tax examinations for years prior to 2003. As of April 1, 2007, we have approximately $7,200,000 of unrecognized tax benefits, including approximately $1,800,000 of interest and penalties which are included in accrued income taxes in the consolidated balance sheet. During the period ended April 1, 2007, we recognized approximately $200,000 in potential interest and penalties associated with uncertain tax positions. The entire balance of unrecognized tax benefits, if recognized, would affect the effective tax rate. 13 We do not anticipate that total unrecognized tax benefits will significantly change due to the settlement of audits and the expiration of statutes of limitations within 12 months of the report date. 10. Treasury Shares As of April 1, 2007, we had approximately 33,942,000 shares held in treasury. A reconciliation of our treasury shares for the 2007 quarter is provided below (shares in thousands):
Treasury Shares --------------- Balance as of December 31, 2006........................ 34,393 Purchases of treasury stock............................ 42 Stock options exercised................................ (153) Shares issued under employee benefit plans............. (52) Nonvested shares awarded under equity incentive plans.............................................. (288) --------------- Balance as of April 1, 2007............................ 33,942 ===============
11. Commitments and Contingencies Litigation, claims and disputes: We are subject from time to time to lawsuits, claims and governmental inspections or audits arising in the ordinary course of business. Some of these lawsuits purport to be class actions and/or seek substantial damages. In the opinion of management, these matters are adequately covered by insurance, or, if not so covered, are without merit or are of such a nature or involve amounts that would not have a material adverse impact on our business or consolidated financial position. Lease guarantees and contingencies: In connection with the sale of restaurants to franchisees and other parties, we have, in certain cases, remained contingently liable for the remaining lease payments. As of April 1, 2007, we have outstanding lease guarantees of approximately $14,800,000. In addition, we or our subsidiaries are contingently liable for various leases that we have assigned in connection with the sale of restaurants to franchisees and other parties in the potential amount of $11,900,000. These leases expire at various times with the final lease agreement expiring in 2018. We did not record a liability related to these contingent lease liabilities as of April 1, 2007 or December 31, 2006. Franchisee guarantees: In 2004, we arranged for a third-party financing company to provide up to $250,000,000 to qualified franchisees for loans to fund development of new restaurants through October 2007, subject to our approval. We will provide a limited guarantee of 10% of certain loans advanced under this program. We will be released from our guarantee if certain operating results are met after the restaurant has been open for at least two years. As of April 1, 2007, there were loans outstanding to five franchisees for approximately $64,000,000 under this program. The fair value of our guarantees under this financing program is approximately $128,000 and is recorded in non-current liabilities in our consolidated balance sheet as of April 1, 2007. Severance agreements: We have severance and employment agreements with certain officers providing for severance payments to be made in the event the officer resigns or is terminated not related to a change in control, some of which require payments to be made only if we enforce certain terms in the agreements. 14 If the severance payments had been due as of April 1, 2007, we would have been required to make payments totaling approximately $10,700,000. In addition, we have severance and employment agreements with certain officers which contain severance provisions related to a change in control. The agreements define the circumstances which will constitute a change in control. Those provisions would have required additional aggregate payments of approximately $6,500,000 if such officers had been terminated as of April 1, 2007. 12. New Accounting Pronouncements In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This statement defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The statement applies whenever other statements require or permit assets or liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The impact of this adoption will not be material to our consolidated financial statements. In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans." This statement requires companies to recognize a net liability or asset and an offsetting adjustment to accumulated other comprehensive income to report the funded status of defined benefit pension and other postretirement benefit plans. The statement requires prospective application, and the recognition and disclosure requirements are effective for companies with fiscal years ending after December 15, 2006. Additionally, SFAS No. 158 requires companies to measure plan assets and obligations at their year-end balance sheet date. This requirement is effective for fiscal years ending after December 15, 2008. The impact of this adoption was not material to our consolidated financial statements and we are in compliance with the measurement date provisions of this statement as of April 1, 2007. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Liabilities." This statement permits entities to choose to measure many financial instruments and certain other items at fair value. If the fair value option is elected, unrealized gains and losses will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of this adoption on our consolidated financial statements. 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Introductory Note On February 13, 2007, we announced that our Board of Directors had formed a committee of independent directors to explore strategic alternatives for enhancing shareholder value. On April 26, 2007, we announced that the strategic process has yielded several non-binding preliminary proposals to acquire our company. The committee and full Board of Directors have approved entering into detailed due diligence discussions with the potential buyers. These discussions could ultimately result in potential buyers submitting definitive, binding proposals. Concurrently, the committee continues to evaluate a possible recapitalization as well as a potential securitization of our royalty income stream and other assets. A securitization could be used in either a recapitalization or by a potential buyer. There can be no assurance that any transaction will be pursued, or if pursued, that it will be consummated. However, the implementation of certain strategic alternatives could affect our current plans and strategies, and any forward-looking statements in this document are qualified by reference to the committee's ongoing analysis. Forward-Looking Statements The statements contained in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section regarding restaurant development, comparable sales, revenue growth, restaurant margins, commodity costs, general and administrative expenses, capital expenditures, return on invested capital and financial commitments are forward-looking and based on current expectations. There are several risks and uncertainties that could cause actual results to differ materially from those described. These risks include, but are not limited to, our ability and the ability of our franchisees to open and operate additional restaurants profitably and generate positive operating cash flows and return on invested capital, the impact of economic and demographic factors on consumer spending, maintaining and growing the value of the Applebee's brand, the impact of intense competition in the casual dining segment of the restaurant industry, the impact of future leverage on our operations, the failure to open the restaurants anticipated, the impact of increases in capital expenditure costs on future development, our ability to attract and retain qualified franchisees, and the impact of further penetration of restaurants in existing markets. For a more detailed discussion of the principal factors that could cause actual results to be materially different, you should read our risk factors in Item 1A of our 2006 Annual Report on Form 10-K. We disclaim any obligation to update forward-looking statements. 16 General We operate on a 52 or 53 week fiscal year ending on the last Sunday in December. Our fiscal years and fiscal periods are as follows:
Number Fiscal Year Fiscal Year End of Weeks - -------------------------------- -------------------------- ----------------- 2006 December 31, 2006 53 2007 December 30, 2007 52 2008 December 28, 2008 52
Fiscal Number Period Fiscal Period End of Weeks - -------------------------------- -------------------------- ----------------- 2006 Quarter March 26, 2006 13 2007 Quarter April 1, 2007 13
Our operating revenues are generated from two primary sources: o Company restaurant sales (food and beverage sales) o Franchise royalties and fees Beverage sales consist of sales of alcoholic beverages, while non-alcoholic beverages are included in food sales. Franchise royalties are generally 4% of each franchise restaurant's monthly gross sales. Franchise fees typically are $35,000 for each restaurant opened. Other franchise income includes revenue from information technology products and services provided to certain franchisees. Certain expenses relate only to company-owned restaurants. These include: o Food and beverage costs o Labor costs o Direct and occupancy costs o Pre-opening expenses Cost of other franchise income includes costs related to information technology products and services provided to certain franchisees and costs related to the resolution of claims arising from franchisee participation in our captive insurance program. Other expenses relate to both company-owned restaurants and franchise operations. All references to company comparable sales, average weekly sales and guest traffic in all periods contained herein include the restaurants presented in discontinued operations unless noted otherwise. 17 Overview Applebee's International, Inc. and our subsidiaries develop, franchise and operate casual dining restaurants under the name "Applebee's Neighborhood Grill & Bar(R)," which is the largest casual dining concept in the world with over 1,900 system-wide restaurants open as of April 1, 2007(1). The casual dining segment of the restaurant industry is highly competitive and there are many factors that affect our profitability. Our industry is susceptible to changes in economic conditions, trends in lifestyles, fluctuating costs, government regulation, availability of resources and consumer perceptions. When evaluating and assessing our financial performance, we believe there are five key factors: o Development - the number of new company and franchise restaurants opened during the period. Our expansion strategy has been to cluster restaurants in targeted markets, thereby increasing consumer awareness and convenience, and enabling us to take advantage of operational, distribution and advertising efficiencies. We currently expect that the Applebee's system will ultimately encompass at least 3,000 restaurants in the United States, as well as the potential for at least 1,000 restaurants internationally. In the 2007 quarter, we and our franchisees opened 7 and 13 restaurants, respectively. o Comparable restaurant sales - a year-over-year comparison of sales for restaurants open at least 18 months. Changes in comparable restaurant sales are driven by changes in the average guest check and/or changes in guest traffic. Average guest check changes result from menu price changes and/or changes in menu mix. During the 2007 quarter, the impact of menu price increases on company restaurants was approximately 2.8%. Although we may have changes in our average guest check from period to period, our main focus has been increasing guest traffic as we view this component to be more indicative of the long-term health of the Applebee's brand. We are constantly seeking to increase guest traffic by focusing on improving operations and enhancing our menu with new food and beverage offerings including the implementation of programs such as our new lunch menu initiated in February 2007. In the 2007 quarter, company comparable sales decreased 4.5%, while domestic franchise and domestic system-wide comparable sales decreased 3.9% and 4.0%, respectively. We believe our sales and traffic have been negatively impacted by multiple factors. Lower income households, which represent a significant portion of our guests, have been impacted by higher energy costs and interest rates. The bar and grill category of the restaurant industry has been negatively impacted by increased trade-down to quick-service restaurants. In addition, the supply growth of units opened in the category in 2006 and 2005 has outpaced demand contributing to weaker sales trends. o Company restaurant margins - company restaurant sales, less food and beverage, labor, direct and occupancy restaurant costs and pre-opening expenses, expressed as a percentage of company restaurant sales. Company restaurant margins are susceptible to fluctuations in commodity costs, labor costs and other operating costs such as utilities. Company restaurant margins were 12.7%, and 15.0% in the 2007 quarter and in the 2006 quarter, respectively. o General and administrative expenses - general and administrative expenses expressed as a percentage of total operating revenues. General and administrative expenses were 9.7%, and 10.5% in the 2007 quarter and the 2006 quarter, respectively. Stock-based compensation included in general and administrative expenses was 1.0%, and 1.7% in the 2007 quarter and the 2006 quarter, respectively. - ------------------ (1) Source: Nation's Restaurant News, "Special Report: Top 100," June 26, 2006. 18 o Return on invested capital - net earnings expressed as a percent of average invested capital. We believe this is an important indicator as it allows us to evaluate our ability to create value for our shareholders. Application of Critical Accounting Policies Management's Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which were prepared in accordance with accounting principles generally accepted in the United States of America. These principles require us to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and notes thereto. Actual results may differ from these estimates, and such differences may be material to our condensed consolidated financial statements. We believe that the following accounting policies involve a significant degree of judgment or complexity: Inventory valuation: We state inventories at the lower of cost, using the first-in, first-out method, or market. Market is determined based upon our estimates of the net realizable value. We may periodically purchase and maintain inventories of certain specialty products to ensure sufficient supplies to the system, to ensure continuity of supply, or to control food costs. We review and make quality control inspections of our inventories to determine obsolescence on an ongoing basis. These reviews require management to make certain estimates and judgments regarding projected usage which may change in the future and may require us to record an inventory impairment. Property and equipment: We report property and equipment at historical cost less accumulated depreciation. Depreciation is provided on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful life of the related asset. The useful lives of the assets are based upon management's expectations. We periodically review the assets for changes in circumstances which may impact their useful lives. If there are changes in circumstances that revise an asset's useful life, we will adjust the depreciation expense accordingly for that asset in future periods. Stock-based compensation: We account for stock-based compensation in accordance with Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment". As required by SFAS No. 123(R), stock-based compensation is estimated for equity awards at fair value at the grant date. We determine the fair value of equity awards using a binomial model. The binomial model requires various highly judgmental assumptions including the expected life, stock price volatility and the forfeiture rate. If any of the assumptions used in the model change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. Impairment and other restaurant closure costs: We periodically review restaurant property and equipment for impairment on a restaurant-by-restaurant basis using certain market and restaurant operating indicators including historical cash flows as well as current estimates of future cash flows and/or appraisals. We review other long-lived assets at least annually and when events or circumstances indicate that the carrying value of the asset may not be recoverable. The recoverability is assessed in most instances by comparing the carrying value to its undiscounted cash flows. This assessment process requires the use of estimates and assumptions regarding future cash flows and estimated useful lives, which are subject to a significant degree of judgment. If these assumptions change in the future, we may be required to record impairment charges for these assets. 19 We continually evaluate our restaurant portfolio and may determine to periodically close restaurants. At the time of each restaurant closing, we are required to record expenses and liabilities for the fair value of remaining lease payments less any potential sublease income. The amounts recorded require several estimates in determining the fair value. The actual amounts expensed after settlement with our landlords may be materially different from the amounts recorded. Income taxes: We record valuation allowances against our deferred tax assets, when necessary, in accordance with SFAS No. 109, "Accounting for Income Taxes." Realization of deferred tax assets is dependent on future taxable earnings and is therefore uncertain. We assess the likelihood that our deferred tax assets in each of the jurisdictions in which we operate will be recovered from future taxable income. Deferred tax assets do not include future tax benefits that we deem likely not to be realized. We are periodically audited by foreign and domestic tax authorities for both income and sales and use taxes. In 2006, we recorded accruals when we determined it was probable that we had an exposure in a matter relating to an audit. In July 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxes" which became effective for us beginning in 2007. FIN No. 48 addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN No. 48, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Our estimates of the tax benefit from uncertain tax positions may change in the future due to new developments in each matter. Legal and insurance reserves: We are periodically involved in various legal actions. We are required to assess the probability of any adverse judgments as well as the potential range of loss. We determine the required accruals after a review of the facts of each legal action. We use estimates in the determination of the appropriate liabilities for general liability, workers' compensation and health insurance. The estimated liability is established based upon historical claims data and third-party actuarial estimates of settlement costs for incurred claims. Unanticipated changes in these factors may require us to revise our estimates. We periodically reassess our assumptions and judgments and make adjustments when significant facts and circumstances dictate. A change in any of the above estimates could impact our consolidated statements of earnings, and the related asset or liability recorded in our consolidated balance sheets would be adjusted accordingly. Historically, actual results have not been materially different than the estimates that are described above. Acquisition The acquisition discussed below has been accounted for using the purchase method of accounting and, accordingly, our condensed consolidated financial statements reflect the results of operations for the acquisition subsequent to the date of acquisition. The assets acquired and liabilities assumed are recorded at estimates of fair value as determined by management based upon information available. 20 In January 2006, we completed the acquisition of four Applebee's restaurants in the Houston market for approximately $8,100,000 in cash. The purchase price was allocated to the fair value of property and equipment of $7,400,000, goodwill of approximately $500,000, reacquired franchise rights of approximately $100,000, and other net assets of approximately $100,000. The proforma impact on our results of operations was immaterial. We finalize the allocation of purchase price to the fair value of assets acquired and liabilities assumed when we obtain information sufficient to complete the allocation, but in each case, no longer than one year after the acquisition date. Captive Insurance Subsidiary In 2002, we formed Neighborhood Insurance, Inc., a Vermont corporation and a wholly-owned captive insurance subsidiary to provide Applebee's International, Inc. and qualified franchisees with workers' compensation and general liability insurance. Through 2005, Applebee's International, Inc. and covered franchisees made premium payments to the captive insurance company which pays administrative fees and insurance claims, subject to individual and aggregate maximum claim limits under the captive insurance company's reinsurance policies. Franchisee premium amounts billed by the captive insurance company were established based upon third-party actuarial estimates of settlement costs for incurred and anticipated claims and administrative fees. In 2006, we discontinued writing insurance coverage for new or existing participants. Cost of other franchise income includes costs related to the resolution of claims arising from franchisee participation in our captive insurance program. We do not expect franchisee participation in the captive insurance company to have a material impact on our net earnings. Our consolidated balance sheets include the following balances related to the captive insurance subsidiary: o Franchise premium receivables of approximately $400,000 as of April 1, 2007 and December 31, 2006, included in receivables. o Cash equivalent and other long-term investments restricted for the payment of claims of approximately $12,200,000 and $12,600,000 as of April 1, 2007 and December 31, 2006, respectively, included in restricted assets related to captive insurance subsidiary. o Loss reserve related to captive insurance subsidiary of approximately $11,700,000 and $12,600,000 as of April 1, 2007 and December 31, 2006, respectively. Approximately $6,000,000 and $6,500,000 for April 1, 2007 and December 31, 2006, respectively, is included in other non-current liabilities. 21 Results of Operations The following table contains information derived from our consolidated statements of earnings expressed as a percentage of total operating revenues, except where otherwise noted. Percentages may not add due to rounding.
2007 2006 Quarter Quarter ------------- ------------ Operating revenues: Company restaurant sales.............................. 88.9% 89.3% Franchise royalties and fees.......................... 11.0 10.6 Other franchise income................................ 0.1 0.1 ------------- ------------ Total operating revenues........................... 100.0% 100.0% ============= ============ Cost of sales (as a percentage of company restaurant sales): Food and beverage..................................... 26.5% 26.7% Labor................................................. 33.9 32.7 Direct and occupancy.................................. 26.6 25.4 Pre-opening expense................................... 0.3 0.2 ------------- ------------ Total cost of sales................................ 87.3% 85.0% ============= ============ Cost of other franchise income (as a percentage of other franchise income)............................... 80.6% 172.1% General and administrative expenses........................ 9.7 10.5 Amortization of intangible assets.......................... -- 0.1 Impairment and other restaurant closure costs.............. 2.0 0.5 Loss on disposition of property and equipment.............. 0.1 0.2 ------------- ------------ Operating earnings......................................... 10.5 12.7 ------------- ------------ Other income (expense): Investment income..................................... 0.2 0.2 Interest expense...................................... (0.8) (0.8) Other income ......................................... -- -- ------------- ------------ Total other expense................................ (0.5) (0.5) ------------- ------------ Earnings before income taxes and discontinued operations............................................ 9.9 12.2 Income taxes............................................... 3.4 4.1 ------------- ------------ Earnings before discontinued operations.................... 6.5 8.1 Loss on discontinued operations, net of tax................ (3.7) (0.1) ------------- ------------ Net earnings............................................... 2.8% 8.0% ============= ============
22 The following table sets forth certain financial information and other restaurant data relating to company and franchise restaurants, as reported to us by franchisees:
2007 2006 Quarter Quarter ------------------- ------------------- Number of restaurants: Company: Beginning of period........................................ 521 486 Restaurant openings........................................ 7 9 Restaurant closings........................................ (19) (2) Restaurants acquired from franchisees...................... -- 4 ------------------- ------------------- End of period.............................................. 509 497 ------------------- ------------------- Franchise: Beginning of period........................................ 1,409 1,318 Restaurant openings........................................ 13 20 Restaurant closings........................................ (1) (2) Restaurants acquired by franchisor......................... -- (4) ------------------- ------------------- End of period.............................................. 1,421 1,332 ------------------- ------------------- Total: Beginning of period........................................ 1,930 1,804 Restaurant openings........................................ 20 29 Restaurant closings........................................ (20) (4) ------------------- ------------------- End of period.............................................. 1,930 1,829 =================== =================== Weighted average weekly sales per restaurant: Company(1)................................................. $ 44,852 $ 48,087 Domestic franchise......................................... $ 50,864 $ 53,622 Domestic total............................................. $ 49,159 $ 52,055 Change in comparable restaurant sales:(2) Company(3)................................................. (4.5)% 1.2% Domestic franchise......................................... (3.9)% 3.1% Domestic total............................................. (4.0)% 2.6% Total operating revenues (in thousands): Company restaurant sales(4)................................ $ 300,108 $ 302,326 Franchise royalties and fees(5)............................ 37,059 35,935 Other franchise income(6).................................. 463 445 ------------------- ------------------- Total...................................................... $ 337,630 $ 338,706 =================== =================== - ------------ (1) Includes restaurants presented as discontinued operations. Excluding the restaurants presented as discontinued operations, company average weekly sales were $45,382 and $48,699 in the 2007 quarter and the 2006 quarter, respectively. (2) When computing comparable restaurant sales, restaurants open for at least 18 months are compared from period to period. (3) Includes restaurants presented as discontinued operations. Excluding the restaurants presented as discontinued operations, company comparable restaurant sales were (4.5)% and 1.3% in the 2007 quarter and the 2006 quarter, respectively. (4) Excludes restaurants presented as discontinued operations. Sales for these restaurants, in thousands, were $5,243 and $5,573 in the 2007 quarter and the 2006 quarter. (5) Franchise royalties are generally 4% of each franchise restaurant's reported monthly gross sales. Reported unaudited franchise sales, in thousands, were $917,308 and $904,644 in the 2007 quarter and the 2006 quarter, respectively. Franchise fees typically are $35,000 for each restaurant opened. (6) Other franchise income includes revenue from information technology products and services provided to certain franchisees.
23 2007 Quarter Compared With 2006 Quarter Company Restaurant Sales. Total company restaurant sales decreased $2,218,000 (1%) from $302,326,000 in the 2006 quarter to $300,108,000 in the 2007 quarter. The percentage decrease in total company restaurant sales was due to a decline in average weekly sales of 6.7% which was partially offset by an increase in the number of restaurant weeks open of approximately 6%. Comparable restaurant sales at company restaurants decreased by 4.5% in the 2007 quarter. Weighted average weekly sales at company restaurants decreased 6.7% from $48,087 in the 2006 quarter to $44,852 in the 2007 quarter. The decrease in average weekly sales was due to a decline in guest traffic in the 2007 quarter of 5.4% as well as the underperformance of restaurants open less than 18 months. We took a price increase of approximately 1.4% in January 2007. Franchise Royalties and Fees. Franchise royalties and fees increased $1,124,000 (3%) from $35,935,000 in the 2006 quarter to $37,059,000 in the 2007 quarter due primarily to the increased number of franchise restaurants operating during the 2007 quarter as compared to the 2006 quarter. Domestic franchise weighted average weekly sales and comparable restaurant sales decreased 5.1% and 3.9%, respectively. Cost of Company Restaurant Sales. Food and beverage costs decreased from 26.7% in the 2006 quarter to 26.5% in the 2007 quarter. Food and beverage costs decreased in the 2007 quarter due to the impact of menu price increases of approximately 2.8%, which were partially offset by a shift in menu mix, higher food costs related to our menu promotions and higher alcoholic beverage costs, as a percentage of sales, related to a late-night value strategy. We currently expect net commodity costs to increase by approximately 1% in 2007. Labor costs increased from 32.7% in the 2006 quarter to 33.9% in the 2007 quarter due primarily to higher restaurant management salaries and hourly wage rates including the impact of state minimum wage rate increases, which were partially offset by lower restaurant management incentive compensation. We currently expect labor costs to be negatively impacted by recently enacted state hourly minimum wage increases in 2007. Direct and occupancy costs increased from 25.4% in the 2006 quarter to 26.6% in the 2007 quarter due primarily to higher utilities and lower sales volumes at company restaurants which resulted in unfavorable year-over-year comparisons for depreciation and rent, as a percentage of sales, due to their relatively fixed nature. These increases were partially offset by favorable impact of a change in accounting convention for smallwares that was implemented in the second quarter of 2006. Cost of Other Franchise Income. Cost of other franchise income decreased $393,000 (51%) from $766,000 in the 2006 quarter to $373,000 in the 2007 quarter due primarily to an expense of $500,000 recorded for estimated insurance losses from franchise participants in our captive insurance company. General and Administrative Expenses. General and administrative expenses decreased from 10.5% in the 2006 quarter to 9.7% in the 2007 quarter due primarily to lower stock-based compensation. The decrease was partially offset by expenses related to the exploration of strategic alternatives for enhancing shareholder value. Impairment and Other Restaurant Closure Costs. In March 2007, we announced that the Board of Directors had approved management's recommendation to close 24 underperforming restaurants located in 11 states which we determined did not have the potential to deliver acceptable long-term returns on invested capital. In the 2007 quarter, we closed 19 of these 24 restaurants. The impairment and lease obligation charges related to four restaurants that have significant sales transfers to other existing restaurants have been presented within operating earnings in the condensed consolidated statement of earnings. In addition, we recorded a write-down of the carrying value of property and equipment and other assets for the five restaurants which have yet to be closed. The total charges in the 2007 quarter included a write-down of the carrying value of property and equipment and other assets of approximately $4,200,000 and lease obligations for closed restaurants of $2,400,000. 24 In the 2006 quarter, we recorded impairment and other restaurant closure costs of approximately $900,000 consisting of the write-down of the carrying value of the property and equipment of two restaurants that were not performing as expected. In addition, we closed two restaurants and recognized expense of $700,000 relating to remaining lease obligations. Income Taxes. The effective income tax rate, as a percentage of earnings before income taxes, increased from 33.6% in the 2006 quarter to 34.4% in the 2007 quarter due to the impact of discontinued operations. Earnings before Discontinued Operations. Net earnings before discontinued operations decreased $5,418,000 (20%) from $27,417,000 in the 2006 quarter to $21,999,000 in the 2007 quarter due primarily to impairment and other restaurant closure costs of approximately $6,600,000 incurred in the 2007 quarter related to the decision to close 24 restaurants. Discontinued Operations, net of tax. The loss from discontinued operations increased $12,266,000 from a loss of $266,000 in the 2006 quarter to a loss of $12,532,000 in the 2007 quarter due to the write-down of the carrying value of property and equipment and other assets of approximately $10,900,000, lease obligations for closed restaurants and other costs of approximately $8,000,000 and loss from restaurant operations of approximately $400,000 (approximately $12,500,000 net of tax for all items) which are related to the 15 restaurants presented as discontinued operations. Net Earnings. Net earnings decreased $17,684,000 (65%) from $27,151,000 in the 2006 quarter to $9,467,000 in the 2007 quarter due primarily to discontinued operations of approximately $12,500,000, net of tax and impairment and other restaurant closure costs of approximately $6,600,000 incurred related to the decision to close 24 restaurants. Liquidity and Capital Resources Our primary sources of liquidity are cash provided by operations and borrowings under our credit facility. Our need for capital resources historically has resulted from the construction and acquisition of restaurants, refurbishment and capital replacement for existing restaurants, the repurchase of our common stock and investment in information technology systems. We obtain capital through our ongoing operations and debt financing. Cash flows from our operating activities primarily include the net cash generated from company and franchise operations and management of credit from trade suppliers. Cash flows provided or used by investing activities include capital expenditures for restaurant construction, refurbishment, information technology, acquisitions of franchise restaurants, sale-leaseback transactions and asset sales. Cash flows provided or used by financing activities include borrowings and repayments of debt, repurchases of our common stock, dividends to shareholders and the cash received from the exercise of employee stock options. The following table presents a summary of our cash flows for the 2007 quarter and the 2006 quarter (in thousands): 25
2007 2006 Quarter Quarter ------------------- ------------------ Net cash provided by operating activities.......... $ 44,707 $ 26,918 Net cash used by investing activities.............. (17,883) (38,716) Net cash provided (used) by financing activities...................................... (33,795) 6,209 ------------------- ------------------ Net decrease in cash and cash equivalents.......... $ (6,971) $ (5,589) =================== ==================
Capital expenditures were $20,835,000 in the 2007 quarter and $30,968,000 in the 2006 quarter. Excluding costs related to the construction of our new corporate headquarters, capital expenditures are expected to be between $70,000,000 and $80,000,000 in 2007 and will primarily be for the development of new restaurants, refurbishment and capital replacement for existing restaurants and the enhancement of information systems. Costs for the new corporate headquarters are expected to be approximately $30,000,000 in 2007. We intend to enter into a sale-leaseback transaction with respect to the new headquarters upon its completion or thereafter, depending upon market conditions. We currently expect to open between 10 and 15 company restaurants in 2007. We expect to continue to purchase a portion of our restaurant sites; however the amount of actual capital expenditures will be dependent upon, among other things, the proportion of leased versus owned properties. If we construct more or fewer restaurants than we currently anticipate, or acquire additional restaurants, our capital requirements will increase or decrease accordingly. In January 2006, we completed the acquisition of four Applebee's restaurants in the Houston area for approximately $8,100,000 in cash. In December 2006, we entered into a five-year revolving credit facility. The terms of the bank credit agreement provide for $400,000,000 in unsecured revolving credit as well as an additional $200,000,000 of revolving credit upon satisfaction of the conditions set forth in the credit facility. The facility is subject to various covenants and restrictions which, among other things, require the maintenance of stipulated fixed charge and leverage ratios, as defined. There is no limit on cash dividends or repurchases of our common stock provided the declaration and payment of such dividend or repurchase of stock does not cause a default of any other covenant contained in the agreement. The facility is subject to other standard terms, conditions, covenants and fees. As of April 1, 2007, we were in compliance with the covenants contained in our credit agreement. We had borrowings of $150,000,000, standby letters of credit of approximately $20,800,000 outstanding and approximately $229,200,000 available under our revolving credit facility as of April 1, 2007. In November 2006, with approximately $100,000,000 of a previous authorization remaining, our Board of Directors authorized additional repurchases of our common stock of up to $150,000,000, subject to market conditions, for a total of approximately $250,000,000 in authorized repurchases. During the 2007 quarter, we repurchased 42,000 shares of our common stock at an average price of $23.93 for an aggregate cost of approximately $1,000,000. As of April 1, 2007, we had approximately $239,400,000 remaining under our repurchase authorizations. In December 2006, the Board of Directors declared an annual dividend of $0.22 per share payable to shareholders of record on December 22, 2006. We paid approximately $16,300,000 in January 2007 related to this dividend. 26 As of April 1, 2007, our liquid assets totaled $15,633,000. These assets consisted of cash and cash equivalents in the amount of $15,338,000 and short-term investments in the amount of $295,000. The working capital deficit decreased from $81,626,000 as of December 31, 2006 to $66,576,000 as of April 1, 2007. This decrease resulted primarily from a combination of factors which included decreases in receivables and accrued dividends, an increase in accounts payable, payments on debt, the reclassification of certain property and equipment to assets held for sale, and higher redemption of gift cards as compared to the sales of gift cards. We believe that our liquid assets and cash generated from operations, combined with available borrowings, will provide sufficient funds for operating activities, capital expenditures, currently approved repurchases of our common stock and the payment of dividends for at least the next 12 months and thereafter for the foreseeable future. The following table shows our debt amortization schedule, future capital lease commitments (including principal and interest payments), future operating lease commitments and future purchase obligations as of April 1, 2007 (in thousands):
Payments due by period ---------------------------------------------------------------------- Certain Less than 1 1-3 3-5 More than 5 Contractual Obligations(1) Total year years years years -------------------------------------------- ------------- ------------- ------------- ------------ ------------- Long-term Debt (excluding capital lease obligations) (2).................. $ 151,250 $ 63 $ 93 $ 150,110 $ 984 Capital Lease Obligations.................. 7,335 829 1,746 1,799 2,961 Operating Leases (3)....................... 409,113 30,237 59,654 58,385 260,837 Purchase Obligations - Company(4).......... 220,966 173,587 18,708 28,671 -- Purchase Obligations - Franchise(5)........ 511,082 378,811 52,227 80,044 -- - ------------------ (1) This amount excludes approximately $7,200,000 of unrecognized tax benefits due to the uncertainty related to the timing of any payments. (2) The amounts for long-term debt are primarily borrowings under our revolving credit facility and exclude interest payments which are variable in nature. (3) The amounts for operating leases include option periods where failure to exercise such options would result in an economic penalty such that the renewal appears reasonably assured. (4) The amounts for company purchase obligations include commitments for food items, energy, supplies, and other miscellaneous commitments. (5) The amounts for franchise purchase obligations include commitments for food items and supplies made by us for our franchisees. We contract with certain suppliers to ensure competitive pricing. These amounts will only be payable by us if our franchisees do not meet certain minimum contractual requirements.
Other Contractual Obligations In connection with the sale of restaurants to franchisees and other parties, we have, in certain cases, remained contingently liable for the remaining lease payments. As of April 1, 2007, we have outstanding lease guarantees of approximately $14,800,000. In addition, we or our subsidiaries are contingently liable for various leases that we have assigned in connection with the sale of restaurants to franchisees and other parties in the potential amount of $11,900,000. These leases expire at various times with the final lease agreement expiring in 2018. We did not record a liability related to these contingent lease liabilities as of April 1, 2007 or December 31, 2006. 27 In 2004, we arranged for a third-party financing company to provide up to $250,000,000 to qualified franchisees for loans to fund development of new restaurants through October 2007, subject to our approval. We will provide a limited guarantee of 10% of certain loans advanced under this program. We will be released from our guarantee if certain operating results are met after the restaurant has been open for at least two years. As of April 1, 2007, there were loans outstanding to five franchisees for approximately $64,000,000 under this program. The fair value of our guarantees under this financing program is approximately $128,000 and is recorded in non-current liabilities in our consolidated balance sheet as of April 1, 2007. We have severance and employment agreements with certain officers providing for severance payments to be made in the event the officer resigns or is terminated not related to a change in control, some of which require payments to be made only if we enforce certain terms in the agreements. If the severance payments had been due as of April 1, 2007, we would have been required to make payments totaling approximately $10,700,000. In addition, we have severance and employment agreements with certain officers which contain severance provisions related to a change in control. The agreements define the circumstances which will constitute a change in control. Those provisions would have required additional aggregate payments of approximately $6,500,000 if such officers had been terminated as of April 1, 2007. New Accounting Pronouncements In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This statement defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements. The statement applies whenever other statements require or permit assets or liabilities to be measured at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The impact of this adoption will not be material to our consolidated financial statements. In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans." This statement requires companies to recognize a net liability or asset and an offsetting adjustment to accumulated other comprehensive income to report the funded status of defined benefit pension and other postretirement benefit plans. The statement requires prospective application, and the recognition and disclosure requirements are effective for companies with fiscal years ending after December 15, 2006. Additionally, SFAS No. 158 requires companies to measure plan assets and obligations at their year-end balance sheet date. This requirement is effective for fiscal years ending after December 15, 2008. The impact of this adoption was not material to our consolidated financial statements and we are in compliance with the measurement date provisions of this statement as of April 1, 2007. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Liabilities." This statement permits entities to choose to measure many financial instruments and certain other items at fair value. If the fair value option is elected, unrealized gains and losses will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of this adoption on our consolidated financial statements. 28 Item 3. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risk from fluctuations in interest rates and changes in commodity prices. Our revolving credit facility bears interest at either the bank's prime rate or LIBOR plus 0.45%, at our option. As of April 1, 2007, the total amount of debt subject to interest rate fluctuations was $150,000,000, which was outstanding on our revolving credit facility. A 1% change in interest rates would result in an increase or decrease in interest expense of approximately $1,500,000 per year. We may from time to time enter into interest rate swap agreements to manage the impact of interest rate changes on our earnings. A substantial portion of the food products and utilities we purchase are subject to price volatility due to factors that are outside of our control such as weather, seasonality and fuel costs. As part of our strategy to moderate this volatility, we have entered into fixed price purchase commitments. Item 4. Controls and Procedures As of April 1, 2007, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, under the supervision and with the participation of the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"). Based on this evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures are effective. During the 2007 quarter, there have been no changes in our internal control over financial reporting that occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 29 PART II. OTHER INFORMATION Item 1. Legal Proceedings We are subject from time to time to lawsuits, claims and governmental inspections or audits arising in the ordinary course of business. Some of these lawsuits purport to be class actions and/or seek substantial damages. In the opinion of management, these matters are adequately covered by insurance, or if not so covered, are without merit or are of such a nature or involve amounts that would not have a material adverse impact on our business or consolidated financial position. Item 1A. Risk Factors There have been no material changes in our risk factors from those disclosed in our 2006 Annual Report on Form 10-K. 30 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (c) Issuer Purchases of Equity Securities.
- ------------------------------------------------------------------------------------------------------------------- Purchases of Equity Securities(1) - ------------------------------------------------------------------------------------------------------------------- (a) (b) (c) (d) - ---------------------------------- -------------- ----------- ------------------------- --------------------------- Maximum Dollar Value of Average Total Number of Shares Shares that May Yet Be Total Number Price Purchased as Part of Purchased Under the Plans of Shares Paid Per Publicly Announced or Programs Period Purchased Share Plans or Programs (in thousands) - ---------------------------------- -------------- ----------- ------------------------- --------------------------- January 1, 2007 through January 28, 2007 41,763 $23.93 41,763 $239,446 - ---------------------------------- -------------- ----------- ------------------------- --------------------------- January 29, 2007 through February 25, 2007 -- -- -- $239,446 - ---------------------------------- -------------- ----------- ------------------------- --------------------------- February 26, 2007 through April 1, 2007 -- -- -- $239,446 - ---------------------------------- -------------- ----------- ------------------------- --------------------------- Total 41,763 41,763 ================================== ============== =========== ========================= =========================== - ------------------ (1) In November 2006, with approximately $100,000,000 of the previous authorization remaining, our Board of Directors authorized additional repurchases of our common stock of up to $150,000,000, subject to market conditions, for a total of approximately $250,000,000 in authorized repurchases.
Item 6. Exhibits The Exhibits listed on the accompanying Exhibit Index are filed as part of this report. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. APPLEBEE'S INTERNATIONAL, INC. (Registrant)
Date: May 2, 2007 By: /s/ David L. Goebel ---------------------- ------------------------------------- David L. Goebel Director, President and Chief Executive Officer (principal executive officer) Date: May 2, 2007 By: /s/ Steven K. Lumpkin ---------------------- ------------------------------------- Steven K. Lumpkin Director, Executive Vice President, Chief Financial and Strategy Officer (principal financial officer) Date: May 2, 2007 By: /s/ Beverly O. Elving ---------------------- ------------------------------------- Beverly O. Elving Vice President and Controller (principal accounting officer)
32 APPLEBEE'S INTERNATIONAL, INC. EXHIBIT INDEX Exhibit Number Description of Exhibit - ------------ ----------------------------------------------------------------- 3.1 Amended and Restated Bylaws of Applebee's International, Inc. dated April 26, 2007, as amended. 10.1 Revised Personal Use of Corporate Aircraft Policy (incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K filed on March 20, 2007). 10.2 Form of Performance Vested Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.2 of the Registrant's Form 8-K filed on March 20, 2007). 10.3 Settlement Agreement among Applebee's International, Inc. and Breeden Capital Management LLC and its affiliated funds dated April 25, 2007 (incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K filed on April 30, 2007). 10.4 Sixth Amendment to the Employee Stock Purchase Plan. 31.1 Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a). 31.2 Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a). 32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 33 EX-3 3 bylaws042607.txt AMENDED BYLAWS AS OF 04/26/2007 APPLEBEE'S INTERNATIONAL, INC. * * * * B Y L A W S AS AMENDED AND RESTATED AUGUST 25, 2006 * * * * * Table of Contents Page ARTICLE I OFFICES..............................................................1 Section 1. Registered Office............................................1 Section 2. Other Offices.................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS............................................1 Section 1. Place of Meetings.............................................1 Section 2. Annual Meeting................................................1 Section 3. Notice of Annual Meeting......................................1 Section 4. Stock List....................................................2 Section 5. Special Meetings..............................................2 Section 6. Notice of Special Meetings....................................2 Section 7. Nominations and Stockholder Business..........................3 Section 8. Quorum........................................................4 Section 9. Voting........................................................5 Section 10. Proxies.......................................................5 Section 11. Action by Written Consent.....................................5 Section 12. Conduct of Meeting............................................5 ARTICLE III DIRECTORS..........................................................6 Section 1. Number; Election; Terms.......................................6 Section 2. Vacancies and Resignations....................................7 Section 3. Powers........................................................7 Section 4. Place of Meetings.............................................7 Section 5. Organizational Meeting........................................7 Section 6. Regular Meetings..............................................7 Section 7. Special Meetings..............................................7 Section 8. Quorum........................................................8 Section 9. Action Without Meetings.......................................8 Section 10. Presence at Meetings..........................................8 Section 11. Committees of Directors.......................................8 Section 12. Minutes of Meetings...........................................9 Section 13. Compensation of Directors.....................................9 ARTICLE IV NOTICES.............................................................9 Section 1. Manner of Giving Notice; Affidavit of Notice..................9 Section 2. Waiver of Notice.............................................10 ARTICLE V OFFICERS............................................................11 Section 1. Appointment of Officers......................................11 Section 2. Required Officers............................................11 Section 3. Other Officers...............................................11 Section 4. Compensation of Officers.....................................11 Section 5. Removal and Vacancies........................................11 Section 6. Chairman of the Board........................................11 Section 7. Chief Executive Officer......................................12 Section 8. President....................................................12 Section 9. Vice-Presidents..............................................12 Section 10. Secretary....................................................12 Section 11. Assistant Secretary..........................................12 Section 12. Treasurer....................................................13 Section 13. Assistant Treasurer..........................................13 ARTICLE VI CERTIFICATES FOR SHARES; RECORD DATE; REGISTERED STOCKHOLDERS....13 Section 1. Stock........................................................13 Section 2. Signatures on Certificate....................................13 Section 3. Lost Certificates............................................13 Section 4. Transfer of Stock............................................14 Section 5. Fixing Record Date...........................................14 Section 6. Registered Stockholders......................................15 ARTICLE VII GENERAL PROVISIONS................................................15 Section 1. Dividends....................................................15 Section 2. Reserves.....................................................15 Section 3. Checks.......................................................15 Section 4. Fiscal Year..................................................15 Section 5. Seal.........................................................15 Section 6. Electronic Transmission......................................16 Section 7. Gender Neutral...............................................16 ARTICLE VIII AMENDMENTS.......................................................16 Section 1. .............................................................16 ARTICLE IX INDEMNIFICATION OF DIRECTORS AND OFFICERS..........................16 Section 1. Indemnification in Actions Other Than Those by or in the Right of the Corporation.................................16 Section 2. Indemnification in Actions by or in the Right of the Corporation..................................................17 Section 3. Expenses after Successful Defense............................17 Section 4. Authorization of Indemnification.............................17 Section 5. Expenses Payable in Advance..................................18 Section 6. Indemnification Not Exclusive................................18 Section 7. Insurance....................................................18 Section 8. Survival of Rights...........................................18 Section 9. Certain Definitions..........................................19 Section 10. Certain Definitions..........................................19 Section 11. Limitations..................................................19 i APPLEBEE'S INTERNATIONAL, INC. B Y L A W S AS AMENDED AND RESTATED AUGUST 25, 2006 ARTICLE I OFFICES Section 1. Registered Office. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. All meetings of the stockholders shall be held at the registered office of the corporation in Delaware, or at such other place within or without the state of Delaware as may be designated from time to time by the Board of Directors and stated in the notice of the meeting. Section 2. Annual Meeting. Annual meetings of stockholders shall be held on such date and at such time as the Board of Directors may designate and stated in the notice of the meeting. At such annual meeting the stockholders shall elect directors by a plurality vote and transact such other business as may properly be brought before the meeting. The Board of Directors may, in its sole discretion, determine that the annual meeting shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law. If so authorized, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at such meeting may, by means of remote communication, participate in a meeting of stockholders, provided that (i) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) the corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation. Section 3. Notice of Annual Meeting. Notice of the annual meeting stating the place, if any, date and time of the meeting, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting, in the manner provided in Article IV, Section 1 of these bylaws. 1 Section 4. Stock List. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. The list shall not be required to include electronic mail addresses or other electronic contact information. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least ten days prior to the meeting: (i) on a reasonably accessible electronic network provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii), during ordinary business hours, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. The stock ledger shall be the only evidence as to which stockholders are entitled to examine the stock ledger, the list of stockholders entitled to vote at a meeting, or the books of the corporation, and as to which stockholders are entitled to vote in person or by proxy at any meeting of stockholders. Section 5. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the chief executive officer or the chairman of the Board and shall be called by the chief executive officer, chairman of the Board or secretary at the request in writing of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. Section 6. Notice of Special Meetings. Notice of a special meeting stating the place, if any, date and time of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting, in the manner provided in Article IV, Section 1 of these bylaws. 2 Section 7. Nominations and Stockholder Business. (a) Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the corporation's notice of meeting, (b) by or at the direction of the Board of Directors, or (c) by any stockholder of the corporation who is a stockholder of record at the time of giving of notice provided for in this Section, who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section. (b) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to this Section, the stockholder must have given timely notice thereof in writing to the secretary of the corporation, and such business must be a proper subject for stockholder action under the Delaware General Corporation Law. To be timely, a stockholder's notice shall be delivered to the secretary at the principal executive offices of the corporation (if delivered by electronic mail or facsimile, the stockholder's notice shall be directed to the secretary at the electronic mail address or facsimile number, as the case may be, specified in the corporation's most recent proxy statement) not less than one hundred twenty (120) days nor more than one hundred sixty-five (165) days prior to the date on which the corporation first mailed its proxy materials for the prior year's annual meeting of stockholders; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty (30) days or delayed (other than as a result of adjournment) by more than thirty (30) days from the anniversary of the previous year's annual meeting, notice by the stockholder to be timely must be delivered not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owners if any on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and a representation that the stockholder is a holder of record and intends to appear in person or by proxy to nominate the person or persons specified in the notice or bring the specified business before the meeting, and (iii) a description of all arrangements or understandings between the stockholder and each nominee and any person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder. 3 (c) Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the corporation who is a stockholder of record at the time of giving of notice provided for in this Section. Nominations by stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice required by this Section shall be delivered to the secretary at the principal executive offices of the corporation (if delivered by electronic mail or facsimile, the stockholder's notice shall be directed to the secretary at the electronic mail address or facsimile number, as the case may be, specified in the corporation's most recent proxy statement) not earlier than the one hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such special meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. (d) Only those persons who are nominated in accordance with the procedures set forth in this Section shall be eligible for election as directors at any meeting of stockholders. The corporation may require any proposed nominee to furnish additional information as may be reasonably required by the corporation to determine the eligibility of such person to serve as a director of the corporation. Only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section. The chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section and, if any proposed nomination or business is not in compliance with this Section, to declare that such defective proposal shall be disregarded. (e) For purposes of this Section, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 9, 13, 14 or 15(d) of the Exchange Act. (f) Notwithstanding the foregoing provisions of this Section, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section. Nothing in this Section shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. Section 8. Quorum. At each meeting of the stockholders, the holders of a majority of the outstanding shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. In the absence of a quorum, the stockholders to present, by majority vote, shall have power to adjourn the meeting from time to time, without notice other than an announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 4 Section 9. Voting. Unless a greater number of affirmative votes is required by the Certificate of Incorporation, these bylaws, the rules or regulations of any stock exchange applicable to the corporation, or by law or any regulation applicable to the corporation, if a quorum exists at any meeting of stockholders, stockholders shall have approved any matter, other than the election of directors, if the votes cast by stockholders present in person or represented by proxy at the meeting and entitled to vote on the matter in favor of such matter exceed the votes cast by such stockholders against such matter. Directors shall be elected by a plurality of the votes cast. Section 10. Proxies. Unless otherwise provided in the certificate of incorporation each stockholder shall at every meeting of the stockholders be entitled to one vote in person or to authorize another person to act for it by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Such authorization must be in writing and executed by the stockholder or its authorized officer, director, employee, or agent. To the extent permitted by law, a stockholder may authorize another person or persons to act for it as proxy by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission provided that the telegram, cablegram or electronic transmission either sets forth or is submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by filing a subsequent duly executed proxy with the secretary of the corporation. Section 11. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Section 12. Conduct of Meeting. The time of the opening and closing of the polls for each matter upon which the stockholders will vote at a meeting shall be determined and announced at the meeting by the chairman presiding at the meeting. The Board of Directors may, to the extent not prohibited by law, adopt by resolution such rules, regulations and procedures for the conduct of the meeting as it deems appropriate. Except to the extent inconsistent with such rules and regulations so adopted by 5 the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the sole judgment of such chairman, are appropriate for the proper conduct of any such meeting. Such rules, regulations or procedures, whether prescribed by the Board of Directors or adopted by the chairman of the meeting, may, to the extent not prohibited by law, include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules, regulations and procedures for maintaining order at the meeting and for the safety of those persons present at the meeting; whether any threat or activity with respect to such order or safety is real or perceived; (iii) limitations on and procedures for attendance at, admission to or participation in the meeting, including for example, limiting the meeting to stockholders of record of the Company, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on the entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by the meeting participants and the responses thereto. Unless, and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. ARTICLE III DIRECTORS Section 1. Number; Election; Terms. The business and affairs of the corporation shall be managed by the Board of Directors. The number of directors which shall constitute the whole Board of Directors of the corporation shall not be less than 9 nor more than 13. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by the affirmative votes of at least all but one of the entire Board of Directors. Upon the effectiveness of the amendment to the certificate of incorporation of the corporation pursuant to the Delaware General Corporation Law, the Board of Directors of the corporation shall be divided into three classes, designated Class I, Class II, and Class III, which at all times shall be as nearly equal in number as possible, as determined by the Board of Directors. If the Board of Directors shall by resolution increase the number of directors which shall constitute the entire Board, such additional directors shall be designated to serve in either Class I, Class II, or Class III, at the discretion of the Board of Directors, so long as each class is maintained as nearly equal in number as possible. The term of office of the initial Class I directors shall expire at the annual meeting of stockholders next succeeding the date which these bylaws are adopted, the term of office of the initial Class II directors shall expire at the annual meeting of stockholders next succeeding the annual meeting at which the term of office of the initial Class I directors expires, and the term of office of the initial Class III directors shall expire at the annual meeting of stockholders next succeeding the annual meeting at which the term of office of the initial Class II directors expires. The appointment of incumbent directors to Board of Director Classes I, II and III at the time of said effectiveness of the amendment to the certificate of incorporation shall be by a resolution adopted by a majority of the stockholders entitled to vote in an election of directors. 6 At each annual meeting of stockholders following such initial classification and election, directors elected to succeed those terms expired at the time of such meeting shall be elected to hold office until the third succeeding annual meeting of stockholders of their election. In the event of any increase in the number of directors of the corporation, the additional directors shall be so classified that all classes of directors shall be increased equally as nearly as possible. Election of directors of the corporation need not be by written ballot. Directors need not be stockholders. Section 2. Vacancies and Resignations. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and any director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacant, and until his or her successor is duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Any director may resign at any time upon written notice to the corporation. Section 3. Powers. The business of the corporation shall be managed by or under the direction of its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders. Section 4. Place of Meetings. The Board of Directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. Organizational Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, after each annual election of directors on the day and at the place of the next regular meeting of the Board. Notice of such meeting need not be given. Such meeting may be held at any other time or place which shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors or in a consent and waiver of notice thereof signed by all of the directors. Section 6. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by the president, chief executive officer or chairman of the Board by notice to each director at least 24 hours before the start of the meeting, or if sent by first-class mail, at least 48 hours before the start of the meeting; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors unless the Board consists of only one director; in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. 7 Section 8. Quorum. At all meetings of the Board of Directors a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the Board of Directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Action Without Meetings. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmissions are filed with the minutes of proceedings of the Board or committee. Section 10. Presence at Meetings. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 11. Committees of Directors. The Board of Directors may, by resolution passed by a majority of the directors present at a meeting at which a quorum is present, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same of any other class or 8 classes of stock of the corporation) adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation; and, unless the resolution or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Unless the Board of Directors shall otherwise provide, regular meetings of any committee appointed pursuant to this Section shall be held at such times and places as are determined by the Board of Directors, or by any such committee. Special meetings of any committee may be called and notice given in the same manner as for special meetings of the Board of Directors, or as otherwise specified by the Board of Directors. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. Section 12. Minutes of Meetings. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 13. Compensation of Directors. Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV NOTICES Section 1. Manner of Giving Notice; Affidavit of Notice. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these bylaws, notice is required to be given to any stockholder, director, or officer, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such stockholder, director, or officer at his address as it appears on the records of the corporation, with postage thereon prepaid, or, in the case of directors or officers, by telegram, cablegram, electronic or facsimile transmission or voicemail. Any notice given by mail shall be deemed to be given at the time when the same shall be deposited in the country-regionplaceUnited States mail. Any notice given by telegram, cablegram, electronic or facsimile transmission or voicemail shall be deemed to have been given when it shall have been delivered for transmission. 9 Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the Delaware General Corporation Law, the Certificate of Incorporation or these bylaws, any notice to stockholders given by the corporation under any provision of the Delaware General Corporation Law, the Certificate of Incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if: (i) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent; and (ii) such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of notice. However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Any notice given pursuant to the preceding paragraph shall be deemed given: (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the stockholder. An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein. Notice by electronic transmission shall not apply to those Sections of the Delaware General Corporation Law as specified in Section 232(e) thereof. Section 2. Waiver of Notice. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of such a person at a meeting shall constitute a waiver of notice of such meeting, except when the person appears at the meeting only for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened and the person then leaves the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, Board or committee thereof need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the Certificate of Incorporation or these Bylaws. 10 ARTICLE V OFFICERS Section 1. Appointment of Officers. The officers of the corporation shall be chosen by the Board of Directors and shall be a chairman of the Board, a chief executive officer, a president, a secretary and a treasurer. The Board of Directors may also choose one or more vice-presidents, and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these bylaws otherwise provide. Section 2. Required Officers. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a chairman of the Board, a chief executive officer, a president, a secretary and a treasurer. Section 3. Other Officers. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. Section 4. Compensation of Officers. The Executive Compensation Committee of the Board of Directors shall have the power to fix the compensation of all executive officers of the corporation, as defined by the rules and regulations of the Securities and Exchange Commission. The president, chief executive officer or chairman of the Board shall have the power to fix the compensation of any officer or agent of the corporation whose compensation has not been fixed by a contract between the officer and the corporation or by the Board of Directors. The president, chief executive officer or chairman of the Board may authorize any officer, upon whom the power of appointing subordinate officers may have been conferred, to fix the compensation of such subordinate officers. Section 5. Removal and Vacancies. The officers of the corporation shall hold office until their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors or by the president, chief executive officer or chairman of the Board if such vacancy is not filled by the Board of Directors. Section 6. Chairman of the Board. The chairman of the Board of Directors shall preside at all meetings of the stockholders and the Board of Directors, and shall have supervision of such matters as may be designated to him by the Board of Directors. In the absence of the chairman of the Board, the chief executive officer, if such officer is a director, shall preside at all meetings of the Board of Directors, unless the Board of Directors determines otherwise. 11 Section 7. Chief Executive Officer. Subject to the control of the Board of Directors and any supervisory powers the Board of Directors may give to the chairman of the Board, the chief executive officer shall, together with the president of the corporation, have general supervision, direction, and control of the business and affairs of the corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The chief executive officer shall, together with the president of the corporation, also perform all duties incidental to this office that may be required by law and all such other duties as are properly required of this office by the Board of Directors. The chief executive officer shall serve as chairman of and preside at all meetings of the stockholders. In the absence of the chairman of the Board, the chief executive officer shall preside at all meetings of the Board of Directors. Section 8. President. The president, in the absence of the chairman of the Board, shall preside at all meetings of the stockholders and the Board of Directors. He shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The president shall execute stock certificates, bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation. Section 9. Vice-Presidents. In the absence of the president or in the event of his inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 10. Secretary. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 11. Assistant Secretary. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. 12 Section 12. Treasurer. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. The treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. If required by the Board of Directors, the treasurer shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 13. Assistant Treasurer. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE VI CERTIFICATES FOR SHARES; RECORD DATE; REGISTERED STOCKHOLDERS Section 1. Stock. The shares of the corporation shall be represented by a certificate or shall be uncertificated. Each registered holder of shares, upon request to the corporation, shall be provided with a certificate of stock representing the number of shares owned by such holder. The certificates of stock of the corporation shall be in the form or forms from time to time approved by the Board of Directors. Such certificates shall be numbered and registered and shall exhibit the holder's name and the number of shares. Certificates shall be signed by, or in the name of the corporation by, the chairman of the Board of Directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation. Section 2. Signatures on Certificate. Any of or all the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 3. Lost Certificates. The Board of Directors may direct a new certificate or certificates or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates or uncertificated shares, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. 13 Section 4. Transfer of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of proper transfer instructions from the registered owner of uncertificated shares such uncertificated shares shall be canceled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the corporation. Section 5. Fixing Record Date. (a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payments of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action other than stockholder action by written consent, the Board of Directors may fix a record date, which shall not precede the date such record date is fixed and shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any such other action. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given. The record date for any other purpose other than stockholder action by written consent shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the secretary, provide a copy of the corporate action proposed to be authorized or taken and request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a copy of the proposed corporate action and request are received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the corporation having custody of the book in which proceedings of meeting of stockholders are recorded. 14 Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action. Section 6. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 3. Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 4. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. Section 5. Seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. 15 Section 6. Electronic Transmission. When used in these bylaws, the terms "written" and "in writing" shall include any "electronic transmission," as defined in Section 232(c) of the Delaware General Corporation Law, including without limitation any voicemail, telegram, cablegram, facsimile transmission and communication by electronic mail. Section 7. Gender Neutral. Whenever in these bylaws words are used in a gender specific manner, they shall be read and construed in a gender neutral manner. ARTICLE VIII AMENDMENTS Section 1. Subject to any requirements set forth in these bylaws, these bylaws may be amended or repealed, and any new bylaws may be adopted, by a majority of the stockholders entitled to vote or by a majority of the Board of Directors, except that the provisions of Article III may be amended only by the affirmative vote of at least all but one of the Board of Directors or by the vote of eighty percent of the stockholders entitled to vote. ARTICLE IX INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 1. Indemnification in Actions Other Than Those by or in the Right of the Corporation. The corporation shall indemnify each person who has been or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or appellate (other than an action by or in the right of the corporation) by reason of the fact that such person is or was an officer or director of the corporation or is or was serving at the corporation's request as a director or officer of any Other Enterprise against all liabilities and expenses, including, without limitation, judgments, amounts paid in settlement (provided that such settlement and all amounts paid in connection therewith are approved in advance by the corporation in accordance with Section 4 of this Article IX, which approval shall not be unreasonably withheld), attorneys' fees, ERISA excise taxes or penalties, fines and other expenses actually and reasonably incurred by such person in connection with such action, suit or proceeding (including without limitation the investigation, defense, settlement or appeal of such action, suit or proceeding) if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; provided, however, that the corporation shall not be required to indemnify or advance expenses to any such person or persons seeking indemnification or advancement of expenses in connection with an action, suit or proceeding initiated by such person unless the initiation of such action, suit or proceeding was authorized by the Board of Directors of the corporation. The termination of any such action, suit or proceeding by judgment, order, settlement, conviction or under a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding that he had reasonable cause to believe that his conduct was unlawful. 16 Section 2. Indemnification in Actions by or in the Right of the Corporation. The corporation shall indemnify each person who has been or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was an officer or director of the corporation or is or was serving at the corporation's request as a director or officer of any Other Enterprise against amounts paid in settlement thereof (provided that such settlement and all amounts paid in connection therewith are approved in advance by the corporation in accordance with Section 4 of this Article IX, which approval shall not be unreasonably withheld) and all expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action, suit or proceeding (including without limitation the investigation, defense, settlement or appeal of such action, suit or proceeding) if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification under this Section 2 shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged liable to the corporation unless and only to the extent that the court in which the action, suit or proceeding is brought determines upon application that, despite the adjudication of liability and in view of all the circumstances of the case, the person is fairly and reasonably entitled to such indemnification. Section 3. Expenses after Successful Defense. Notwithstanding the other provisions of this Article IX, to the extent that a person who is or was serving as a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of any Other Enterprise, has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article IX (including the dismissal of any such action, suit or proceeding without prejudice), or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 4. Authorization of Indemnification. Prior to indemnifying a person pursuant to the provisions of Sections 1 and 2 of this Article IX, unless ordered by a court and except as otherwise provided by Section 3 of this Article IX, the corporation shall determine that such person has met the specified standard of conduct entitling such person to indemnification as set forth under Sections 1 and 2 of this Article IX. Any determination that a person shall or shall not be indemnified under the provisions of Sections 1 and 2 of this Article IX shall be made by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding, or if such quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion or by the stockholders, and such determination shall be final and binding upon the corporation; provided, however, that in the event such determination is adverse to the person or persons to be indemnified hereunder, such person or persons shall have the right to maintain an action in any court of competent jurisdiction against the corporation to determine whether or not such person has met the requisite standard of conduct and is entitled to such indemnification hereunder. If such court action is successful and the person or persons is determined to be entitled to such indemnification, such person or persons shall be reimbursed by the corporation for all fees and expenses (including attorneys' fees) actually and reasonably incurred in connection with any such action (including without limitation the investigation, defense, settlement or appeal of such action). 17 Section 5. Expenses Payable in Advance. Expenses (including attorneys' fees) actually and reasonably incurred by a person who may be entitled to indemnification hereunder in defending an action, suit or proceeding, whether civil, criminal, administrative, investigative or appellate, shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such person to repay such amount if it shall ultimately be determined that he is not entitled to indemnification by the corporation. Notwithstanding the foregoing, no advance shall be made by the corporation if a determination is reasonably and promptly made by (i) the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding for which the advancement is requested, (ii) if a quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders, that, based upon the facts known to the Board, counsel or stockholders at the time such determination is made, such person acted in bad faith and in a manner that such person did not believe to be in or not opposed to the best interest of the corporation, or, with respect to any criminal proceeding, that such person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the Board, stockholders or independent legal counsel reasonably determines that such person deliberately breached his duty to the corporation or its stockholders. Section 6. Indemnification Not Exclusive. The indemnification and advancement of expenses provided by this Article IX shall not be exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, under the certificate of incorporation, bylaws, agreement, vote of stockholders or disinterested directors, policy of insurance or otherwise, both as to action in their official capacity and as to action in another capacity while holding their respective offices, and shall not limit in any way any right which the corporation may have to make additional indemnifications with respect to the same or different persons or classes of persons. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article IX shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors, administrators and estate of such a person. Section 7. Insurance. Upon resolution passed by the Board of Directors, the corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of any Other Enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article IX. Section 8. Survival of Rights. The rights granted by this Article IX shall be vested in each person entitled to indemnification hereunder as a bargained-for, contractual condition of such person's acceptance of his election or appointment as a director or officer of the corporation or serving at the request of the corporation as a director or officer of any Other Enterprise and while this Article IX may be amended or repealed, no such amendment or repeal shall release, terminate or adversely affect the rights of such person under this Article IX with respect to any act taken or the failure to take any act by such person prior to such amendment or repeal or with respect to any action, suit or proceeding with respect to such act or failure to act filed after such amendment or repeal. 18 Section 9. Certain Definitions. For purposes of this Article IX, references to "the corporation" shall, if and only if the Board of Directors shall determine, include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers or persons serving at the request of such constituent corporation as a director or officer of any Other Enterprise, so that any person who is or was a director or officer of such constituent corporation, or is or was serving at the request of such constituent corporation as a director or officer of any Other Enterprise, shall stand in the same position under the provisions of this Article IX with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. Section 10. Certain Definitions. For the purpose of this Article IX, references to "Other Enterprises" or "Other Enterprise" shall include without limitation any other corporation, partnership, joint venture, trust or employee benefit plan; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; references to "defense" shall include investigations of any threatened, pending or completed action, suit or proceeding as well as appeals thereof and shall also include any defensive assertion of a cross claim or counterclaim; and references to "serving at the request of the corporation" shall include any service as a director or officer of a corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of any employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article IX. For the purpose of this Article IX, unless the Board of Directors of the corporation shall determine otherwise, any director or officer of the corporation who shall serve as an officer or director of any Other Enterprise of which the corporation, directly or indirectly, is a stockholder or creditor, or in which the corporation is in any way interested, shall be presumed to be serving as such director or officer at the request of the corporation. In all other instances where any person shall serve as a director or officer of an Other Enterprise, if it is not otherwise established that such person is or was serving as such director or officer at the request of the corporation, the Board of Directors of the corporation shall determine whether such person is or was serving at the request of the corporation, and it shall not be necessary to show any actual or prior request for such service, which determination shall be final and binding on the corporation and the person seeking indemnification. Section 11. Limitations. If any provision of this Article IX or the application of any such provision to any person or circumstance is held invalid, illegal or unenforceable for any reason whatsoever, the remaining provisions of this Article IX and the application of such provisions to other persons or circumstances shall not be affected thereby and to the fullest extent possible the court finding such provision invalid, illegal or unenforceable shall modify and construe the provisions so as to render it valid and enforceable as against all persons or entities and to give the maximum possible protection to persons subject to indemnification hereby within the bounds of validity, legality and enforceability. Without limiting the generality of the foregoing, if any officer or director of the corporation or any person who is or was serving at the request of the corporation as a director or officer of any Other Enterprise, is entitled under any provision of this Article IX, to indemnification by the 19 corporation for some or a portion of the judgments, amounts paid in settlement, attorneys' fees, ERISA excise taxes or penalties, fines or other expenses actually and reasonably incurred by any such person in connection with any threatened, pending or completed action, suit or proceeding (including without limitation, the investigation, defense, settlement or appeal of such action, suit or proceeding), whether civil, criminal, administrative, investigative or appellate, but not, however, for all of the total amount thereof, the corporation shall nevertheless indemnify such person for the portion thereof to which such person is entitled. 20 Amendment to Bylaws of Applebee's International, Inc. adopted April 26, 2007 WHEREAS, the Board of Directors deems it to be in the best interests of Applebee's International, Inc. (the "Company") to amend its Bylaws as set forth below. NOW, THEREFORE, BE IT RESOLVED, that Article III, Section 1 of the Bylaws of the Company be, and it hereby is, amended by deleting the first paragraph and substituting in its place the following: "Section 1. Number; Election; Terms. The business and affairs of the corporation shall be managed by the Board of Directors. The number of directors which shall constitute the whole Board of Directors of the corporation shall not be less than 9 nor more than 14. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by the affirmative votes of at least all but one of the entire Board of Directors." 21 EX-10 4 ex104sixthamendmentespp.txt EX 10.4 6TH AMENDMENT TO ESPP SIXTH AMENDMENT TO APPLEBEE'S INTERNATIONAL, INC. EMPLOYEE STOCK PURCHASE PLAN THIS SIXTH AMENDMENT is adopted this 30th day of November, 2006, by Applebee's International, inc. a Delaware corporation. WHEREAS, Applebee's International, Inc. (the "Company") adopted the Applebee's International, Inc. Employee Stock Purchase Plan (the "Plan"), with the Plan intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code; WHEREAS, the Plan permits eligible employees of the Company to purchase the common stock of the Company at a discount from its trading price on NASDAQ; WHEREAS, the Company reserved the right to amend the Plan from time to time, subject to certain restrictions specified in Section 15.2 of the Plan; and WHEREAS, the Company now desires to amend the Plan in the manner hereinafter set forth. NOW THEREFORE, effective as of January 1, 2007, the Plan is amended as follows: 1. Article 6 is amended in its entirety to read as follows: "Article 6 - Purchase Price The "Purchase Price" per Share pursuant to an Offering shall be 95% of the fair market value per Share on the Ending Date of such Offering or, if the Ending Date is not a business day, the nearest prior business day. "Fair market value" for this purpose shall mean the closing price as reported on the National Association of Securities Dealers Automated Quotation National Market System (the "NASDAQ-NMS") or, if the Shares are not reported on the NASDAQ-NMS, on the stock exchange, market, or system on which the Shares are traded as reported that is designated by the Committee as controlling for purposes of the Plan. In the event Shares are not so traded or reported, no purchase shall be made and each Participant's interest in the amount credited to the Payroll Deduction Account shall be returned to each Participant without interest." 2. Section 11.3 is amended in its entirety to read as follows: 11.3 A Participant hereunder may elect at any time on a form acceptable to the Committee to have all or part of the Shares credited to the Brokerage Account on his behalf (including fractional Shares) sold at the Participant's expense and cash paid to the Participant. A Participant hereunder may elect, at any time after two years following the Commencement Date for any Offering and on a form acceptable to the Committee, to have all or part of the whole Shares purchased with respect to such Offering and credited to the Brokerage Account on his behalf (including fractional Shares): (i) transferred to the Participant's individual brokerage account established at the Participant's expense, or (ii) issued to the Participant or his designee in the form of a stock certificate. 3. The provisions of this Amendment are effective as of the dates set forth herein. In all other respects, the Plan shall remain unchanged. IN WITNESS WHEREOF, the Company has executed this Amendment as of the 30th day of November, 2006. APPLEBEE'S INTERNATIONAL, INC. "Company" By: /s/ Rebecca Tilden -------------------- Title: Vice President ---------------- EX-31 5 ex311goebel.txt EX. 31.1 GOEBEL 302 CERT EXHIBIT 31.1 CERTIFICATION I, David L. Goebel, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Applebee's International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 2, 2007 By: /s/ David L. Goebel --------------------- -------------------------------------- David L. Goebel President and Chief Executive Officer (principal executive officer) EX-31 6 ex312lumpkin.txt EX. 31.2 LUMPKIN 302 CERT EXHIBIT 31.2 CERTIFICATION I, Steven K. Lumpkin, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Applebee's International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 2, 2007 By: /s/ Steven K. Lumpkin --------------------- -------------------------------------- Steven K. Lumpkin Executive Vice President and Chief Financial and Strategy Officer (principal financial officer) EX-32 7 ex32q1.txt EX. 32 GOEBEL & LUMPKIN 906 CERTIFICATIONS EXHIBIT 32 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Applebee's International, Inc. (the "Company") on Form 10-Q for the quarterly period ended April 1, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacities and dates indicated below, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 2, 2007 By: /s/ David L. Goebel ------------------------- ------------------------------------- David L. Goebel President and Chief Executive Officer CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Applebee's International, Inc. (the "Company") on Form 10-Q for the quarterly period ended April 1, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacities and dates indicated below, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 2, 2007 By: /s/ Steven K. Lumpkin ------------------------- ------------------------------------- Steven K. Lumpkin Executive Vice President and Chief Financial and Strategy Officer -----END PRIVACY-ENHANCED MESSAGE-----