What changed in Dine Brands Global, Inc.'s 10-K — 2022 vs 2023

Item 1. - Business . Financing operations revenue primarily consists of interest income from the financing of IHOP equipment leases and franchise fees, as well as from notes receivable from Applebee's and IHOP franchisees. Financing expenses are the cost of taxes related to IHOP equipment leases. Financing revenues decreased $0.7 million in 2022 compared to 2021.

The change was primarily due to a $0.8 million decrease in IHOP interest income resulting from a decline in interest income from the financing of franchise fees and equipment leases as note balances were repaid offset by an increase in interest income on notes from franchisees.

Company Operations Variance 2022 vs 2021 Favorable (Unfavorable) Variance 2021 vs 2020 Favorable (Unfavorable) 2022 2021 2020 Effective Company Restaurants: Applebee’s 56 (13) 69 1 68 Average weekly unit sales (in thousands) $ 43.6 $ 3.0 $ 40.6 $ 10.9 $ 29.7 (In millions) Applebee's company restaurant sales (1) $ 126.6 $ (19.4) $ 146.0 $ 37.9 $ 108.1 Applebee's company restaurant expenses (1) 121.5 14.3 135.8 (26.1) 109.7 IHOP restaurant expenses (2) — 0.9 0.9 1.0 1.9 Company restaurant segment profit (loss) $ 5.1 $ (4.2) $ 9.3 $ 12.8 $ (3.5) Gross profit (loss) as % of revenue (3) 4.0 % 6.4 % (3.2) % _________________________________ (1) Related to 69 Applebee's company-operated restaurants.

Company restaurant sales are retail sales at company-operated restaurants. Company restaurant expenses are operating expenses at company-operated restaurants and include food, beverage, labor, benefits, utilities, rent, depreciation and other operating costs. (2) Costs associated with IHOP restaurants in the process of being refranchised. (3) Calculated for Applebee's company-operated restaurants only. Percentages calculated on actual amounts, not rounded amounts shown above.

From time to time, we may reacquire restaurants from franchisees that we subsequently refranchise. These restaurants may or may not be operated by us on a temporary basis until refranchised. In October 2022, we sold 69 Applebee's restaurants in North Carolina and South Carolina to an Applebee's franchisee.

The decrease in effective restaurants (a weighted average calculation) for 2022 reflects the period of time during fiscal 2022 when we no longer operated these Applebee's restaurants.

Applebee's company restaurant sales for the year ended December 31, 2022 decreased 13% compared to the same period of 2021 primarily due to the sale of the 69 Applebee's company-operated restaurants in October 2022, offset by an increase in average check and an increase in traffic prior to the sale.

Company segment restaurant expenses for the years ended December 31, 2021 and 2020 included $0.9 million and $1.9 million, respectively, of costs associated with certain IHOP restaurants incurred while the restaurants were being refranchised. None of the reacquired IHOP restaurants were operated during the years ended December 31, 2021 and 2020, and IHOP recorded no restaurant revenues in this period.

We held no reacquired restaurants at or during the year ended December 31, 2022. 43 General and Administrative Expenses Variance 2022 vs 2021 Favorable (Unfavorable) Variance 2021 vs 2020 Favorable (Unfavorable) 2022 2021 2020 (In millions) G&A expenses $ 190.7 $ (18.9) $ 171.8 $ (27.0) $ 144.8 G&A expenses for 2022 increased 11.0% compared to 2021, primarily due to increases in professional service fees including acquisition costs, occupancy costs, travel and conference expenses, and software maintenance costs, some of which are non-recurring expenditures, offset by lower personnel-related expenses.

The decrease in personnel-related expenses primarily was due to lower costs of bonus and equity-based incentive compensation offset by increased costs of salaries and benefits.

Closure and Impairment Charges Variance 2022 vs 2021 Favorable (Unfavorable) Variance 2021 vs 2020 Favorable (Unfavorable) 2022 2021 2020 (In millions) Closure charges $ 1.7 $ 2.0 $ 3.7 $ (0.7) $ 3.0 Impairment of goodwill — — — 92.2 92.2 Impairment of tradename — — — 11.0 11.0 Long-lived asset impairment 1.4 0.3 1.7 20.6 22.3 Impairment of reacquired franchise rights — — — 3.3 3.3 Impairment of favorable leasehold intangible — — — 0.8 0.8 Total $ 3.1 $ 2.3 $ 5.4 $ 127.2 $ 132.6 Closure Charges The closure charges of $1.7 million for the year ended December 31, 2022 comprised of $1.3 million for revisions to existing closure reserves, including accretion for approximately 40 IHOP restaurants closed prior to 2022 and $0.4 million related to three IHOP restaurants closed in 2022.

The closure charges of $3.7 million for the year ended December 31, 2021 comprised $2.1 million related to 20 IHOP restaurants closed in 2021 and $1.6 million for revisions to existing closure reserves, including accretion for 28 IHOP restaurants closed prior to 2021.

Impairment Charges The Company evaluates its goodwill and the indefinite-lived Applebee's tradename for impairment annually in the fourth quarter of each year or on an interim basis if events or changes in circumstances between annual tests indicate a potential impairment.

Definite-lived intangible assets and long-lived tangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on estimated undiscounted future cash flows.

The long-lived asset impairment of $1.4 million for the year ended December 31, 2022 comprised of $1.1 million related to the 69 Applebee's company-owned restaurants in North Carolina and South Carolina that were sold in October 2022 and $0.3 million related to two IHOP franchisee-operated restaurants.

The impairment recorded represented the difference between the carrying value and the estimated fair value. The long-lived asset impairment of $1.7 million for the year ended December 31, 2021 related to five IHOP franchisee-operated restaurants for which the carrying amount exceeded the undiscounted cash flows.

Other Income and Expense Items Variance 2022 vs 2021 Favorable (Unfavorable) Variance 2021 vs 2020 Favorable (Unfavorable) 2022 2021 2020 (In millions) Interest expense, net $ 60.7 $ 2.6 $ 63.3 $ 3.6 $ 66.9 Amortization of intangible assets 10.6 0.1 10.7 0.2 10.9 (Gain) loss on disposition of assets (2.5) 4.5 2.0 0.1 2.1 Total $ 68.8 $ 7.2 $ 76.0 $ 3.9 $ 79.9 44 Interest Expense, Net Interest expense, net, decreased $2.6 million in 2022 compared to 2021, primarily due to a $4.3 million increase in interest income offset by a $1.6 million increase in interest expense related to our revolving credit facility (the “Credit Facility”).

See the “ Liquidity and Capital Resources of the Company ” section for additional discussion related to borrowings under our Credit Facility.

Amortization of Intangible Assets Amortization of intangible assets primarily relates to franchising rights arising from the November 2007 acquisition of Applebee's and reacquired franchise rights arising from the December 2018 acquisition of 69 Applebee's restaurants from a former franchisee. The decrease in amortization expense in 2022 as compared to 2021 was insignificant.

(Gain) Loss on Disposition of Assets The gain on disposition of assets for the year ended December 31, 2022 primarily related to the gain on sales of the land and buildings on which three IHOP restaurants were located, the 69 Applebee's company-operated restaurants and the termination of two IHOP restaurant leases.

The loss on disposition of assets for the year ended 2021 primarily related to the disposition of capitalized software no longer in use.

Income Taxes Variance 2022 vs 2021 Favorable (Unfavorable) Variance 2021 vs 2020 Favorable (Unfavorable) 2022 2021 2020 (In millions) Income tax provision (benefit) $ 33.7 $ (9.6) $ 24.1 $ (28.7) $ (4.6) Effective tax rate 29.3 % (9.6) % 19.7 % (15.5) % 4.2 % The income tax provision will vary from period to period for two primary reasons: a change in pretax book income and a change in the effective tax rate.

Changes in our pretax book income between 2022 and 2021 and are addressed in the preceding sections of “ Consolidated Results of Operations - Fiscal 2022, 2021 and 2020. ” The fiscal year 2022 effective tax rate of 29.3% applied to pretax book income was different than the statutory Federal income tax rate of 21% due to the state and local income taxes and the non-deductibility of executive compensation.

The effective tax rate further increased due to the increase in the effective state tax rate applied to revaluing deferred tax balances. The increase in the effective state tax rate was due to the non-recurring refranchising of 69 Applebee’s company-operated restaurants in the fourth quarter of 2022 and various state legislative changes.

The fiscal year 2021 effective tax rate of 19.7% applied to pretax book income was different than the statutory Federal income tax rate of 21% primarily due to the recognition of excess tax benefits on stock-based compensation, offset by non-deductibility of executive compensation and state and local income taxes.

As of each reporting date, we consider new evidence, both positive and negative, that could impact our view with regards to future realization of deferred tax assets.

During fiscal 2022, we released a valuation allowance of $1.1 million related to state deferred tax assets based on positive evidence which suggests that deferred tax assets will be more likely than not to be realizable in the future.

We also believe that the future realizability of benefits arising from foreign tax credit carryforwards and certain state net operating loss carryforwards does not meet the more-likely-than-not threshold.

In recognition of this risk, there is a valuation allowance of $3.5 million as of December 31, 2022. 45 Liquidity and Capital Resources of the Company Our total cash balances, net of revolving credit facility borrowings, at December 31, 2022, 2021 and 2020 were as follows: December 31, 2022 December 31, 2021 December 31, 2020 (In millions) Cash and cash equivalents $ 269.7 $ 361.4 $ 383.4 Restricted cash, current 38.9 47.5 39.9 Restricted cash, non-current 16.4 16.4 32.8 Total cash, restricted cash and cash equivalents 325.0 425.3 456.1 Less: Revolving credit facility borrowing (100.0) — (220.0) Total cash, restricted cash and cash equivalents, net $ 225.0 $ 425.3 $ 236.1 At December 31, 2022, we had contractual obligations to repay debt, make payments under operating leases, finance leases and financing obligations, and to purchase certain goods and services.

Material cash requirements to satisfy these obligations were as follows: Obligation Due in Fiscal 2023 Due Thereafter Total Reference (1) (in millions) Long-term debt (principal) $ 100.0 $ 1,247.0 $ 1,347.0 Note 8 - Long-term Debt Long-term debt (interest) 64.1 83.8 147.9 Note 8 - Long-term Debt Operating leases 63.7 340.6 404.3 Note 10 - Leases Finance leases 8.8 39.1 47.9 Note 10 - Leases Financing obligations 4.0 41.1 45.1 Note 9 - Financing Obligations Purchase commitments 95.2 0.4 95.6 Note 11 - Commitments and Contingencies Total $ 335.8 $ 1,752.0 $ 2,087.8 _________________________________ (1) See referenced note of Notes to the Consolidated Financial Statements for additional information about the obligation.

See Note 11 - Commitments and Contingencies, of the Notes to the Consolidated Financial Statements, for a description of the Company's lease guarantees. We believe that our unrestricted cash and cash equivalents on hand, cash flow from operations and the borrowing capacity available under our Credit Facility will provide us with adequate liquidity for at least the next twelve months.

Long-Term Debt Key provisions of our long-term debt potentially impacting liquidity are summarized below. See Note 8 - Long-term Debt, of the Notes to the Consolidated Financial Statements, for additional detail on long-term debt, including the balances outstanding at December 31, 2022 and 2021.

Instruments Our long-term debt consists of two tranches of fixed rate senior secured notes, the Series 2019-1 4.194% Fixed Rate Senior Secured Notes, Class A-2-I (“Class A-2-I Notes”) in an initial aggregate principal amount of $700 million and the Series 2019-1 4.723% Fixed Rate Senior Secured Notes in an initial aggregate principal amount of $600 million (the “Class A-2-II Notes” and, together with the Class A-2-I Notes, the “2019 Class A-2 Notes”).

In August 2022, Applebee's Funding LLC and IHOP Funding LLC (the “Co-Issuers”) entered into the Credit Facility that allows for drawings up to $325 million of variable funding notes on a revolving basis and the issuance of letters of credit.

Maturity The legal final maturity of the 2019 Class A-2 Notes is in June 2049, but it is anticipated that, unless repaid earlier, the Class A-2-I Notes will be repaid in June 2024 and the Class A-2-II Notes will be repaid in June 2026.

The renewal date of the Credit Facility is June 2027, subject to two additional one-year extensions at the option of the Company upon the satisfaction of certain conditions. 46 Payment of Principal and Interest While the 2019 Class A-2 Notes are outstanding, payment of principal and interest is required to be made on the Class A-2 Notes on a quarterly basis.

The payment of principal on the 2019 Class A-2 Notes may be suspended when the leverage ratio for the Company and its subsidiaries is less than or equal to 5.25x. Exceeding the leverage ratio of 5.25x does not violate any covenant related to the Class A-2 Notes.

On February 16, 2023, our Company's Board of Directors authorized a debt repurchase program of up to $100 million. As of December 31, 2022, our leverage ratio was 4.4x. Therefore, quarterly principal payments are not required.

Make-whole Premiums We may voluntarily repay the Class A-2 Notes at any time; however, if repaid prior to certain dates we would be required to pay make-whole premiums. As of December 31, 2022, the make-whole premium associated with voluntary prepayment of the Class A-2-I Notes was zero and will remain as such.

As of December 31, 2022, the make-whole premium associated with voluntary prepayment of the Class A-2-II Notes was approximately $0.5 million; this amount declines each quarter to zero in June 2024. We would also be subject to a make-whole premium in the event of a mandatory prepayment required following certain rapid amortization events or certain asset dispositions.