UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
 
Date of report (Date of earliest event reported) June 13, 2008
 
DineEquity, Inc.
(Exact Name of Registrant as Specified in Charter)
 
Delaware	 	001-15283	 	95-3038279	
(State or Other Jurisdiction
of Incorporation)	 	(Commission
File Number)	 	(IRS Employer
Identification No.)	
 	 	 	 	 	
450 North Brand, Glendale, California	 	91203	
(Address of Principal Executive Offices)	 	(Zip Code)	
 
(818) 240-6055
(Registrant’s telephone number, including area code)
 
Not applicable
(Former Name or Former Address, if Changed Since Last Report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:
 
o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
Item 2.03	 	Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant	
 	 	 	
 	 	On June 13, 2008, Applebee’s Restaurants Kansas LLC, Applebee’s Restaurants Mid-Atlantic LLC, Applebee’s Restaurants North LLC, Applebee’s Restaurants Texas LLC, and Applebee’s Restaurants West LLC (collectively the “Tenant”) entered into a Master Land and Building Lease (the “Master Lease”) with DBAPPLEF, LLC (the “Landlord”) relating to 181 parcels of real property, each of which is improved with a restaurant operating as an Applebee’s Neighborhood Grill and Bar (the “Properties”).
 
The Master Lease calls for an initial term of twenty years and four five-year options to extend the term which are exercisable by the Tenant or its successors.  The initial monthly base rent under the Master Lease will be $2,612,916.66. The initial monthly base rent is subject to a 2% increase on each of the following dates: January 1, 2009; July 1, 2010; July 1, 2011; July 1, 2012; and July 1, 2013. Thereafter, the monthly base rent shall increase by ten percent (10%) of the monthly base rent preceding such increase in base rent on each of July 1, 2018 and July 1, 2023. The Master Lease provides for rent adjustments during each of the option periods as well. Additionally, the tenant under the Master Lease is responsible for additional rent equal to any and all fees, expenses, taxes and other charges of every kind and nature arising in connection with or relating to the Properties.
 
The Tenant may sublease all or a portion of the Properties, without the Landlord’s consent, provided that certain conditions are met. In addition, the Tenant may assign its interest in the Master Lease with respect to some or all of the Properties, without Landlord’s consent, provided that certain conditions are met and the assignee agrees to enter into a direct lease with the Landlord on a pre-approved form attached to the Master Lease (“Assigned Leases”). Further, if such assignment is to a qualified franchisee meeting certain parameters set forth in the Master Lease, the Tenant shall be released by the Landlord from all obligations with respect to any Assigned Lease.
 
Attached as Exhibits 99.1 and 99.2, respectively, are the Press Release of the Registrant dated June 17, 2008 and Supplemental Information on Sale-Leaseback of Applebee’s Company-Owned Real Estate, discussing the Master Lease which are incorporated herein by reference.	
 	
Item 9.01.	 	Financial Statements and Exhibits.	
 	 	 	
(d)	 	Exhibits.	
 	 	 	
Exhibit No.	 	Description	
 	 	 	
99.1	 	Press Release of Registrant dated June 17, 2008	
99.2	 	Supplemental Information on Sale-Leaseback of Applebee’s Company-Owned Restaurant Real Estate	
 
2

 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: June 19, 2008	DINEEQUITY, INC.	
 	 	
 	By:	/s/ Thomas G. Conforti	
 	 	Thomas G. Conforti	
 	 	Chief Financial Officer
(Principal Financial Officer)	
 
3

Exhibit 99.1

 

Stacy Roughan
Director, Investor Relations
DineEquity, Inc.
818-637-3632
 
DineEquity, Inc. Completes Sale-Leaseback of 181 Applebee’s-Owned Restaurant
Locations, Enables $303 Million Reduction in the Company’s Funded Debt
 
GLENDALE, Calif., June 17, 2008 — DineEquity, Inc. (NYSE: DIN), franchisor and operator of Applebee’s and IHOP restaurants, today announced the completion of a sale-leaseback transaction for 181 Applebee’s company-owned restaurant locations with an entity majority owned by affiliates of Drawbridge Special Opportunities Fund LP, Drawbridge Real Assets Fund LP and Cardinal Capital Partners.  Drawbridge funds are affiliates of Fortress Investment Group, a publicly traded, global alternative asset manager.  The sale-leaseback transaction generated approximately $296 million in after-tax cash proceeds.  After-tax cash proceeds exclude approximately $5 million in transaction costs related to the sale-leaseback.  Due to the sale-leaseback transaction, DineEquity also plans to accelerate for tax purposes the recognition of financing and interest rate swap related costs associated with its funded debt reduction.  This will result in an approximate $12 million tax benefit that is expected to partially offset the tax obligation of the sale-leaseback transaction and enable the Company to reduce its consolidated funded debt by approximately $303 million.
 
The sale-leaseback of Applebee’s company-owned restaurants does not qualify as a sale under accounting rules.  This is due to the ongoing economic involvement Applebee’s will have with the properties until the restaurants can be franchised and the leasehold obligations transferred to the acquiring franchisees.  As a result, the expense associated with leasehold obligations established under the transaction will be captured in the Company’s interest expense line item on its consolidated statement of operations.  Initially, the interest expense associated with this lease payment will be approximately $2 million per month.  This payment is expected to be reduced over time as leasehold obligations are transferred to franchisees who acquire Applebee’s company-operated restaurants. As previously announced, DineEquity intends to franchise the large majority of Applebee’s company-operated restaurants over the next two and a half years.
 
This accounting treatment is not expected to materially impact consolidated cash from operations and the Company reiterated that it expects to generate $105 to $110 million in consolidated cash from operations for fiscal 2008.  DineEquity is evaluating its sale-leaseback gross proceeds of $337 million against the preliminary purchase price accounting values of the properties included in this transaction.  Such evaluation may result in an impairment charge during the second quarter 2008.
 
Due to technical reasons, six restaurant properties of the previously targeted 187 were excluded from the sale-leaseback transaction.  The Company anticipates selling these properties in the
 
 	DineEquity, Inc.	
 	450 North Brand Blvd., 7th floor	
 	Glendale, California 91203-4415	
 	866.995.DINE	

 
future.  For more information on the sale-leaseback transaction, please visit the Investor Overview section of DineEquity’s Investor Relations website at http://investors.dineequity.com.
 
About DineEquity, Inc.
 
Based in Glendale, California, DineEquity, Inc. franchises and operates restaurants under the Applebee’s Neighborhood Grill & Bar and IHOP brands.  With more than 3,300 restaurants combined, DineEquity is the largest full-service restaurant company in the world.  For more information on DineEquity, visit the Company’s Web site located at www.dineequity.com.
 
Forward-Looking Statements
 
There are forward-looking statements contained in this news release. They use such words as “may,” “will,” “expect,” “believe,” “plan,” or other similar terminology, and include statements regarding the strategic and financial benefits of the acquisition of Applebee’s International, Inc., expectations regarding integration and cost savings, and other financial guidance. These statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results to be materially different than those expressed or implied in such statements. These factors include, but are not limited to: the implementation of the Company’s strategic growth plan; the availability of suitable locations and terms for the sites designated for development; the ability of franchise developers to fulfill their commitments to build new restaurants in the numbers and time frames covered by their development agreements; legislation and government regulation including the ability to obtain satisfactory regulatory approvals; risks associated with executing the Company’s strategic plan for Applebee’s; risks associated with the Company’s incurrence of significant indebtedness to finance the acquisition of Applebee’s; the failure to realize the synergies and other perceived advantages resulting from the acquisition; costs and potential litigation associated with the acquisition; the ability to retain key personnel after the acquisition; conditions beyond the Company’s control such as weather, natural disasters, disease outbreaks, epidemics or pandemics impacting the Company’s customers or food supplies; or acts of war or terrorism; availability and cost of materials and labor; cost and availability of capital; competition; continuing acceptance of the IHOP, International House of Pancakes and Applebee’s brands and concepts by guests and franchisees; the Company’s overall marketing, operational and financial performance; economic and political conditions; adoption of new, or changes in, accounting policies and practices; and other factors discussed from time to time in the Company’s news releases, public statements and/or filings with the Securities and Exchange Commission, especially the “Risk Factors” sections of Annual and Quarterly Reports on Forms 10-K and 10-Q. Forward-looking information is provided by the Company pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these factors. In addition, the Company disclaims any intent or obligation to update these forward-looking statements.
 
2

Exhibit 99.2
 
 	Great franchisees. Great brands.TM Supplemental Information on Sale-Leaseback of Applebee’s Company-Owned Restaurant Real Estate June 16, 2008	

 	Forward-Looking Information There are forward-looking statements contained in this presentation. They use such words as “may,” “will,” “expect,” “believe,” “plan,” or other similar terminology, and include statements regarding the strategic and financial benefits of the acquisition of Applebee’s International, Inc., expectations regarding integration and cost savings, and other financial guidance. These statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results to be materially different than those expressed or implied in such statements. These factors include, but are not limited to: the implementation of the Company’s strategic growth plan; the availability of suitable locations and terms for the sites designated for development; the ability of franchise developers to fulfill their commitments to build new restaurants in the numbers and time frames covered by their development agreements; legislation and government regulation including the ability to obtain satisfactory regulatory approvals; risks associated with executing the Company’s strategic plan for Applebee’s; risks associated with the Company’s incurrence of significant indebtedness to finance the acquisition of Applebee’s; the failure to realize the synergies and other perceived advantages resulting from the acquisition; costs and potential litigation associated with the acquisition; the ability to retain key personnel after the acquisition; conditions beyond the Company’s control such as weather, natural disasters, disease outbreaks, epidemics or pandemics impacting the Company’s customers or food supplies; or acts of war or terrorism; availability and cost of materials and labor; cost and availability of capital; competition; continuing acceptance of the IHOP, International House of Pancakes and Applebee’s brands and concepts by guests and franchisees; the Company’s overall marketing, operational and financial performance; economic and political conditions; adoption of new, or changes in, accounting policies and practices; and other factors discussed from time to time in the Company’s news releases, public statements and/or filings with the Securities and Exchange Commission, especially the “Risk Factors” sections of Annual and Quarterly Reports on Forms 10-K and 10-Q. Forward-looking information is provided by DineEquity, Inc. pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 and should be evaluated in the context of these factors. In addition, the Company disclaims any intent or obligation to update these forward-looking statements.	

 	Details of Sale-Leaseback Transaction Completed June 2008 Properties · 181 Applebee’s company-owned restaurant properties · Lease obligations expected to be assigned to franchisees upon sale of company-operated restaurants · Initial lease term of 20 years with four 5-year options to extend · Six properties excluded from transaction due to technical reasons; anticipate selling properties in the future Proceeds · Approximately $337 million in gross proceeds · Approximately $296 million in after-tax cash proceeds; excludes approximately $5 million in transaction costs · Funded debt reduction results in approximate $12 million tax benefit due to accelerated recognition of transaction and interest rate swap costs · Approximately $303 million in total funded debt reduction made possible by the sale-leaseback transaction and related tax benefit from funded debt reduction Interest Expense · Approximately $2 million initial monthly interest expense associated with the lease payment expected to be reduced over time with lease obligation assignment upon franchising company-operated Applebee’s · Annual per restaurant rent expense of approximately $173,200 reflects approximate 7.5% rent factor and average unit volume of approximately $2.3 million	

 	Sale-Leaseback Accounting Treatment · Sale-leaseback of Applebee’s company-owned restaurants does not qualify as a “sale” under accounting rules · Company deemed to have an ongoing economic involvement until restaurants can be franchised and lease obligation can be assigned to franchisees · Will be considered a “financing obligation” versus capital lease obligation · Interest expense to be recognized in consolidated corporate interest expense line item, not in the Rental Operations segmentas previously expected	

 	Accounting Adjustment Resulting from Transaction • Evaluating sale-leaseback gross proceeds of approximately $337 million against preliminary purchase price accounting values of properties – Such evaluation may result in an impairment charge during the second quarter 2008 • Company to provide more detail on potential impairment charge on its second quarter 2008 conference call currently scheduled for July 29, 2008	

 	P&L Impact of Sale-Leaseback • Interest expense recognized in consolidated corporate interest expense line item – Approximately $12.7 million in interest expense expected for balance of fiscal 2008 – Updating Company’s current fiscal 2008 corporate interest expense guidance to approximately $203 million vs. prior expectation of approximately $190 million to reflect recognition of lease payment in corporate interest expense vs. Rental Operations segment – Does not take into account refranchising activity or expense reduction related to planned leasehold obligation assignments in fiscal 2008	

 	Cash Flow and Balance Sheet Impact of Sale-Leaseback • Do not expect material impact to cash flow statement due to transaction – Reiterated fiscal 2008 consolidated cash from operations guidance of $105 to $110 million – Principal payments on leasehold obligation to be captured under Financing Activities – Expect approximately $5.5 million reduction in restricted cash in line with lower reserve balance required as a result of the reduction in consolidated funded debt • Expect to add new line item to balance sheet to reflect financing obligation liability related to sale-leaseback – Approximately $337 million financing obligation added as a result of sale-leaseback transaction – Approximately $303 million of consolidated funded debt reduced with transaction proceeds	

 	Funded Debt Reduction • Expect approximately $303 million in total funded debt reduction – Tax obligation from sale-leaseback is expected to be partially offset by approximate $12 million benefit due to the accelerated recognition of financing and interest rate swap costs • Little change to consolidated adjusted debt/EMITDAR as a result of sale-leaseback transaction – 7.3x consolidated adjusted debt/EMITDAR post sale-leaseback transaction • Expect to experience “double de-leveraging” effect upon franchising of company-operated Applebee’s – Restaurant sale after-tax cash proceeds allocated to consolidated funded debt reduction – Further reduction of debt obligations with assignment of restaurant leasehold obligation to franchisees upon sale of company-operated Applebee’s