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 ~~March 31,~~June 30, 2012

o 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 001-15283

________________________________________________________________

DineEquity, Inc.

(Exact name of registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)		95-3038279 (I.R.S. Employer Identification No.)

450 North Brand Boulevard, Glendale, California		91203-1903
(Address of principal executive offices)		(Zip Code)

(818) 240-6055

(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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was ~~Required~~required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer x		Accelerated filer 0o

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		Outstanding as of ~~April 25,~~July 27, 2012
Common Stock, ~~$.01~~$0.01 par value		~~18,312,741~~18,319,035

Table of Contents

~~DINEEQUITY, INC. AND SUBSIDIARIES~~DineEquity, Inc. and Subsidiaries

~~INDEX~~Index



		Page
PART I.	FINANCIAL INFORMATION	2
	Item 1—Financial Statements	2
	Consolidated Balance Sheets—~~March 31,~~June 30, 2012 (unaudited) and December 31, ~~201~~20111	2
	Consolidated Statements of Income and Comprehensive Income (unaudited)—Three and Six Months Ended ~~March 31,~~June 30, 2012 and ~~201~~20111	3
	Consolidated Statements of Cash Flows (unaudited)—~~Three~~Six Months Ended ~~March 31,~~June 30, 2012 and ~~201~~20111	4
	Notes to Consolidated Financial Statements	5
	Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations	1820
	Item 3—Quantitative and Qualitative Disclosures about Market Risk	3139
	Item 4—Controls and Procedures	3239
PART II.	OTHER INFORMATION	3240
	Item 1—Legal Proceedings	3240
	Item 1A—Risk Factors	3240
	Item 2—Unregistered Sales of Equity Securities and Use of Proceeds	3340
	Item 3—Defaults Upon Senior Securities	3341
	Item 4—Mine ~~and~~ Safety Disclosure	3341
	Item 5—Other Information	3341
	Item 6—Exhibits	3442
	Signatures	3543

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

~~DINEEQUITY, INC. AND SUBSIDIARIES~~DineEquity, Inc. and Subsidiaries

~~CONSOLIDATED BALANCE SHEETS~~Consolidated Balance Sheets

(In thousands, except share and per share amounts)


	March 31, 2012			December 31, 2011			June 30, 2012			December 31, 2011
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	48,684		$	60,691		$	32,371		$	60,691
Receivables, net	80,746			115,667			77,873			115,667
Inventories	11,534			12,031			12,056			12,031
Prepaid income taxes	—			13,922			5,721			13,922
Prepaid gift cards	28,903			36,643			29,352			36,643
Deferred income taxes	22,852			20,579			24,984			20,579
Assets held for sale	3,986			9,363			27,648			9,363
Other current assets	18,448			8,051			21,170			8,051
Total current assets	215,153			276,947			231,175			276,947
Long-term receivables	224,348			226,526			219,425			226,526
Property and equipment, net	462,427			474,154			435,582			474,154
Goodwill	697,470			697,470			697,470			697,470
Other intangible assets, net	818,783			822,361			815,577			822,361
Other assets, net	116,305			116,836			114,718			116,836
Total assets	$	2,534,486		$	2,614,294		$	2,513,947		$	2,614,294
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt	$	7,420		$	7,420		$	7,420		$	7,420
Accounts payable	32,906			29,013			28,532			29,013
Accrued employee compensation and benefits	17,596			26,191			19,106			26,191
Gift card liability	92,154			146,955			91,266			146,955
Accrued interest payable	30,509			12,537			12,437			12,537
Current maturities of capital lease and financing obligations	13,618			13,480			14,154			13,480
Income taxes payable	10,159			—
Other accrued expenses	25,303			22,048			23,431			22,048
Total current liabilities	229,665			257,644			196,346			257,644
Long-term debt, less current maturities	1,337,960			1,411,448			1,338,819			1,411,448
Financing obligations, less current maturities	152,621			162,658			151,638			162,658
Capital lease obligations, less current maturities	131,903			134,407			129,070			134,407
Deferred income taxes	376,457			383,810			372,246			383,810
Other liabilities	110,200			109,107			109,185			109,107
Total liabilities	2,338,806			2,459,074			2,297,304			2,459,074
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, Series B, at accreted value, shares:10,000,000 authorized; 35,000 issued; March 31, 2012 and December 31, 2011 - 34,900 outstanding	45,176			44,508
Common stock, $.01 par value, shares: 40,000,000 authorized; March 31, 2012 - 24,646,467 issued, 18,314,610 outstanding; December 31, 2011 - 24,658,985 issued,18,060,206 outstanding	246			247
Convertible preferred stock, Series B, at accreted value, shares:10,000,000 authorized; 35,000 issued; June 30, 2012 and December 31, 2011 - 34,900 outstanding							45,853			44,508
Common stock, $0.01 par value, shares: 40,000,000 authorized; June 30, 2012 - 24,636,137 issued, 18,326,803 outstanding; December 31, 2011 - 24,658,985 issued,18,060,206 outstanding							246			247
Additional paid-in-capital	206,476			205,663			209,737			205,663
Retained earnings	227,545			196,869			243,806			196,869
Accumulated other comprehensive loss	(152		)	(294		)	(155		)	(294		)
Treasury stock, at cost; shares: March 31, 2012 - 6,331,857; December 31, 2011 - 6,598,779	(283,611		)	(291,773		)
Treasury stock, at cost; shares: June 30, 2012 - 6,309,334; December 31, 2011 - 6,598,779							(282,844		)	(291,773		)
Total stockholders’ equity	195,680			155,220			216,643			155,220
Total liabilities and stockholders’ equity	$	2,534,486		$	2,614,294		$	2,513,947		$	2,614,294

See the accompanying Notes to Consolidated Financial Statements.

Table of Contents

~~DINEEQUITY, INC. AND SUBSIDIARIES~~DineEquity, Inc. and Subsidiaries

~~CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME~~Consolidated Statements of Income and Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
Segment Revenues:
Franchise revenues	$	108,409		$	104,552		$	102,459		$	98,551		$	210,868		$	203,103
Company restaurant sales	100,885			154,703			93,802			134,634			194,687			289,337
Rental revenues	32,005			32,216			29,171			31,624			61,176			63,840
Financing revenues	4,283			8,729			3,959			3,529			8,242			12,258
Total segment revenues	245,582			300,200			229,391			268,338			474,973			568,538
Segment Expenses:
Franchise expenses	27,632			27,443			26,346			26,207			53,978			53,650
Company restaurant expenses	84,183			131,766			79,574			117,279			163,757			249,045
Rental expenses	24,537			24,647			24,301			24,566			48,838			49,213
Financing expenses	655			5,575			916			1			1,571			5,576
Total segment expenses	137,007			189,431			131,137			168,053			268,144			357,484
Gross segment profit	108,575			110,769			98,254			100,285			206,829			211,054
General and administrative expenses	39,632			37,969			37,239			38,450			76,871			76,419
Interest expense	30,221			36,306			29,650			32,867			59,871			69,173
Impairment and closure charges							122			21,816			844			26,754
Amortization of intangible assets	3,075			3,075			3,075			3,075			6,150			6,150
Impairment and closure charges	722			4,938
Gain on disposition of assets	(16,733		)	(23,754		)
Loss (gain) on disposition of assets							741			1,291			(15,992		)	(22,463		)
Loss on extinguishment of debt	2,611			6,946			—			939			2,611			7,885
Debt modification costs	—			4,114			—			10			—			4,124
Income before income taxes	49,047			41,175			27,427			1,837			76,474			43,012
Provision for income taxes	(17,703		)	(11,476		)	(10,489		)	(1,489		)	(28,192		)	(12,965		)
Net income	31,344			29,699			16,938			348			48,282			30,047
Other comprehensive income:
Adjustment to unrealized loss on available-for-sale investments	140			—			—			—			140			—
Foreign currency translation adjustment	2			21			(3		)	(1		)	(1		)	20
Total comprehensive income	$	31,486		$	29,720		$	16,935		$	347		$	48,421		$	30,067
Net income available to common stockholders:
Net income	$	31,344		$	29,699		$	16,938		$	348		$	48,282		$	30,047
Less: Accretion of Series B preferred stock	(668		)	(629		)	(677		)	(639		)	(1,345		)	(1,268		)
Less: Net income allocated to unvested participating restricted stock	(796		)	(1,014		)	(388		)	7			(1,169		)	(846		)
Net income available to common stockholders	$	29,880		$	28,056
Net income available to common stockholders per share:
Net income (loss) available to common stockholders							$	15,873		$	(284	)	$	45,768		$	27,933
Net income (loss) available to common stockholders per share:
Basic	$	1.69		$	1.59		$	0.89		$	(0.02	)	$	2.57		$	1.56
Diluted	$	1.64		$	1.53		$	0.88		$	(0.02	)	$	2.52		$	1.53
Weighted average shares outstanding:
Basic	17,682			17,697			17,890			18,072			17,786			17,884
Diluted	18,651			18,763			18,138			18,072			18,731			18,280

See the accompanying Notes to Consolidated Financial Statements.

Table of Contents

~~DINEEQUITY, INC. AND SUBSIDIARIES~~DineEquity, Inc. and Subsidiaries

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended						Six Months Ended
	March 31,						June 30,
	2012			2011			2012			2011
Cash flows from operating activities:
Net income	$	31,344		$	29,699		$	48,282		$	30,047
Adjustments to reconcile net income to cash flows provided by operating activities:
Depreciation and amortization	10,463			13,290			20,956			26,339
Non-cash interest expense	1,529			1,417			3,045			2,988
Loss on extinguishment of debt	2,611			6,946			2,611			7,885
Impairment and closure charges	445			4,717			571			26,540
Deferred income taxes	(9,626		)	(3,903		)	(15,969		)	(2,592		)
Non-cash stock-based compensation expense	3,789			1,863			6,573			5,063
Tax benefit from stock-based compensation	4,000			5,121			4,653			6,021
Excess tax benefit from stock options exercised	(2,421		)	(4,866		)
Excess tax benefit from share-based compensation							(2,820		)	(5,687		)
Gain on disposition of assets	(16,733		)	(23,754		)	(15,992		)	(22,463		)
Other	(353		)	361			894			116
Changes in operating assets and liabilities:
Receivables	35,545			24,636			38,598			26,337
Inventories	197			(378		)	(325		)	(1,053		)
Prepaid expenses	(24		)	5,567			(2,058		)	4,067
Current income tax receivables and payables	23,724			32,194			7,414			22,052
Accounts payable	1,660			1,358			69			(8,042		)
Accrued employee compensation and benefits	(8,594		)	(12,249		)	(7,084		)	(10,955		)
Gift card liability	(54,801		)	(46,998		)	(55,690		)	(49,183		)
Other accrued expenses	21,938			15,455			2,628			(9,292		)
Cash flows provided by operating activities	44,693			50,476			36,356			48,188
Cash flows from investing activities:
Additions to property and equipment	(4,150		)	(3,835		)	(10,650		)	(13,510		)
Proceeds from sale of property and equipment and assets held for sale	21,390			54,597			21,500			55,494
Principal receipts from notes, equipment contracts and other long-term receivables	3,437			3,395			6,577			7,055
Other	699			(128		)	(760		)	(574		)
Cash flows provided by investing activities	21,376			54,029			16,667			48,465
Cash flows from financing activities:
Borrowings under revolving credit facilities							35,000			25,000
Repayments under revolving credit facilities							(35,000		)	(25,000		)
Repayment of long-term debt (including premiums)	(76,037		)	(145,273		)	(76,037		)	(153,437		)
Principal payments on capital lease and financing obligations	(3,007		)	(3,553		)	(6,125		)	(6,764		)
Payment of debt modification and issuance costs	—			(12,208		)	—			(12,316		)
Repurchase of restricted stock	(859		)	(3,272		)	(1,344		)	(4,742		)
Proceeds from stock options exercised	2,045			5,378			3,120			6,240
Excess tax benefit from stock options exercised	2,421			4,866
Excess tax benefit from share-based compensation							2,820			5,687
Change in restricted cash	(2,639		)	(2,392		)	(3,777		)	1,492
Other							—			(600		)
Cash flows used in financing activities	(78,076		)	(156,454		)	(81,343		)	(164,440		)
Net change in cash and cash equivalents	(12,007		)	(51,949		)	(28,320		)	(67,787		)
Cash and cash equivalents at beginning of period	60,691			102,309			60,691			102,309
Cash and cash equivalents at end of period	$	48,684		$	50,360		$	32,371		$	34,522
Supplemental disclosures:
Interest paid	$	14,777		$	22,292
Income taxes paid	$	1,545		$	1,276
Interest paid in cash							$	65,040		$	79,482
Income taxes paid in cash							$	34,061		$	11,071

See the accompanying Notes to Consolidated Financial Statements.

Table of Contents

~~DINEEQUITY, INC. AND SUBSIDIARIES~~DineEquity, Inc. and Subsidiaries

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~Notes to Consolidated Financial Statements

(Unaudited)

1. General

The accompanying unaudited consolidated financial statements of DineEquity, Inc. (the “Company”) have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. ~~Operating~~The operating results for the ~~three~~six months ended ~~March 31,~~June 30, 2012 are not necessarily indicative of the results that may be expected for the twelve months ending December 31, 2012.

The consolidated balance sheet at December 31, 2011 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

2. Basis of Presentation

The Company’s fiscal quarters end on the Sunday closest to the last day of each quarter. For convenience, the fiscal quarters are reported as ending on March 31, June 30, September 30 and December 31. The first and second fiscal quarters of 2012 ~~and~~ ~~2011~~ended on April 1, 2012 and July 1, 2012, respectively; the first and second fiscal quarters of 2011 ended on April 3, 2011 and July 3, 2011, respectively.

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries that are consolidated in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to provisions for doubtful accounts, legal contingencies, income taxes, long-lived assets, goodwill and intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

Restricted Assets

Restricted Cash

The Company receives funds from Applebee's franchisees pursuant to franchise agreements, usage of which is restricted to advertising activities. ~~Restricted cash~~Cash balances restricted for this purpose as of ~~March 31,~~June 30, 2012 and December 31, 2011 totaled $~~3.8~~4.9 million and $1.2 million, respectively. The balances were included as other current assets in the consolidated balance sheets.

Other Restricted Assets

As of ~~March 31,~~June 30, 2012 and December 31, 2011, restricted assets related to a captive insurance subsidiary totaled $~~3.9~~3.8 million and $3.6 million, respectively, and were included in other assets in the consolidated balance sheets. The captive insurance subsidiary, which has not underwritten coverage since January 2006, was formed to provide insurance coverage to Applebee's and its franchisees. These restricted assets were primarily investments, use of which is restricted to the payment of insurance claims for incidents that ~~are in run-off.~~occurred during the period coverage had been provided.

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DineEquity, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

3. Accounting Policies

Recently Adopted Accounting Standards

In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-05, Comprehensive Income — Presentation of Comprehensive Income (“ASU 2011-05”). ASU 2011-05 requires the presentation of the total of comprehensive income, the components of net income, and the components of other comprehensive income either in

~~Table of Contents~~

a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 did not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income, nor did it affect how earnings per share is calculated or presented. The Company adopted ASU 2011-05 retrospectively in the first quarter of 2012 and adoption did not have a material impact on the Company’s consolidated financial statements.

Newly Issued Accounting Standards

The Company reviewed all ~~other~~ significant newly issued accounting pronouncements and concluded that they either are not applicable to the Company’s operations or that no material effect is expected on the consolidated financial statements as a result of future adoption.

4. Assets Held for Sale

The Company classifies assets as held for sale and ceases the depreciation and amortization of the assets when there is a plan for disposal of the assets and those assets meet the held for sale criteria, as defined in applicable U.S. GAAP. The balance of assets held for sale at December 31, 2011 of $9.4 million was comprised of 17 Applebee's company-operated restaurants located in a six-state market area geographically centered around Memphis, Tennessee, one parcel of land on which a refranchised Applebee's formerly company-operated restaurant is situated and three parcels of land previously intended for future restaurant development.

During the ~~three~~six months ended ~~March 31,~~June 30, 2012, the Company ~~sold~~completed the refranchising and sale of related restaurant assets of the 17 Applebee's company-operated restaurants located in a six-state market area geographically centered around Memphis, Tennessee. ~~Additionally,~~In April 2012, the Company entered into an ~~impairment~~asset purchase agreement for the refranchising and sale of related restaurant assets of 39 Applebee's company-operated restaurants located in Virginia. In May 2012, the Company entered into an asset purchase agreement for the refranchising and sale of related restaurant assets of 33 Applebee's company-operated restaurants located primarily in Missouri and Indiana. Accordingly, $~~0.3~~23.7 million ~~was recognized on one~~, representing the net book value of the ~~parcels of land previously intended~~assets related to these 72 restaurants, was transferred to assets held for ~~future restaurant development as an adjustment of the estimated fair value to be received upon~~ sale.

~~The balance of assets~~Assets held for sale at ~~March 31,~~June 30, 2012 of $~~4.0~~27.6 million was comprised of72 Applebee's company-operated restaurants located primarily in Virginia, Missouri and Indiana, one parcel of land on which a refranchised Applebee's formerly company-operated restaurant is situated and three parcels of land previously intended for future restaurant development.

The following table summarizes changes in ~~the balance of~~ assets held for sale during the ~~three~~six months ended ~~March 31,~~June 30, 2012:


	(In millions)			(In millions)
Balance, December 31, 2011	$	9.4		$	9.4
Assets transferred to held for sale				23.7
Assets sold	(5.1		)	(5.1		)
Impairment	(0.3		)
Balance, March 31, 2012	$	4.0
Other				(0.4		)
Balance, June 30, 2012				$	27.6

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DineEquity, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

5. Long-Term Debt

Long-term debt consisted of the following components:


	March 31, 2012			December 31, 2011			June 30, 2012			December 31, 2011
	(In millions)						(In millions)
Senior Secured Credit Facility, due October 2017, at a variable interest rate of 4.25% as of March 31, 2012 and December 31, 2011	$	612.0		$	682.5
Senior Secured Credit Facility, due October 2017, at a variable interest rate of 4.25% as of June 30, 2012 and December 31, 2011							$	612.0		$	682.5
Senior Notes due October 2018, at a fixed rate of 9.5%	760.8			765.8			760.8			765.8
Discount	(27.4		)	(29.5		)	(26.6		)	(29.5		)
Total long-term debt	1,345.4			1,418.8			1,346.2			1,418.8
Less current maturities	(7.4		)	(7.4		)	(7.4		)	(7.4		)
Long-term debt, less current maturities	$	1,338.0		$	1,411.4		$	1,338.8		$	1,411.4

For a description of the respective instruments, refer to Note 8 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

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Debt Modification Costs

On February 25, 2011, the Company entered into Amendment No. 1 (the ''Amendment'') to the Credit Agreement dated as of October 8, 2010. For a description of the Amendment, refer to Note 8 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. Fees of $4.1 million paid to third parties in connection with the Amendment were ~~recorded~~included as “Debt modification costs” in the Consolidated Statement of Income for the ~~three~~six months ended ~~March 31,~~June 30, 2011.

Loss on Extinguishment of Debt

During the ~~three~~six months ended ~~March 31,~~June 30, 2012 and 2011, the Company recognized the following losses on the extinguishment of debt:

Instrument Repaid/Retired
Face Amount
Repaid/Retired
Cash Paid
Loss ⁽¹⁾
(In millions)
Term Loans $ 70.5
$ 70.5
$ 1.9
Senior Notes 5.0
5.5
0.7
Three months ended March 31, 2012 75.5
76.0
2.6

Term Loans $ 110.0
$ 110.0
$ 2.7
Senior Notes 32.3
35.3
4.2
Three months ended March 31, 2011 $ 142.3
$ 145.3
$ 6.9



Quarter Ended	Instrument Repaid/Retired	Face Amount Repaid/Retired		Cash Paid		Loss ⁽¹⁾
		(In millions)
March 2012	Term Loans	$	70.5	$	70.5	$	1.9
March 2012	Senior Notes	5.0		5.5		0.7
	Total 2012	75.5		76.0		2.6

March 2011	Term Loans	$	110.0	$	110.0	$	2.7
March 2011	Senior Notes	32.3		35.3		4.3
June 2011	Senior Notes	7.5		8.2		0.9
	Total 2011	$	149.8	$	153.5	$	7.9

⁽¹⁾ Including write-off of the discount and deferred financing costs related to the debt retired.

Compliance with Covenants and Restrictions

The Company was in compliance with all the covenants and restrictions related to its Senior Secured Credit Facility and Senior Notes as of ~~March 31,~~June 30, 2012.

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DineEquity, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

6. Financing Obligations

As of ~~March 31,~~June 30, 2012, future minimum lease payments under financing obligations during the initial terms of the leases related to sale-leaseback transactions are as follows:


Fiscal Years	(In millions)			(In millions)
Remainder of 2012 ~~(1)~~	$	11.4		$	7.2		⁽¹	⁾
2013	17.4			17.4
2014	17.6			17.6
2015 ~~(1)~~	19.0			19.0			⁽¹	⁾
2016	17.6			17.6
Thereafter	206.2			207.5
Total minimum lease payments	289.2			286.3
Less interest	(132.8		)	(130.9		)
Total financing obligations	156.4			155.4
Less current portion ~~(2)~~	(3.8		)	(3.8		)	⁽²	⁾
Long-term financing obligations	$	152.6		$	151.6

(1) Due to the varying closing dates of the Company’s fiscal years, 11 monthly payments will be made in fiscal 2012 and 13 monthly payments will be made in fiscal 2015.

(2) Included in “current maturities of capital lease and financing obligations” on the consolidated balance sheet.

During the ~~three~~six months ended ~~March 31,~~June 30, 2012, the Company’s continuing involvement with six properties subject to financing obligations was ended by assignment of the lease obligations to a qualified franchisee. As a result, the Company’s financing obligations were reduced by $9.2 million.

~~Table of Contents~~

7. Impairment and Closure Charges

The Company assesses tangible long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The following table summarizes the components of impairment and closure charges for the three and six months ended ~~March 31,~~June 30, 2012 and 2011:


	Three Months Ended				Three Months Ended				Six Months Ended
	March 31,				June 30,				June 30,
	2012		2011		2012		2011		2012		2011
	(In millions)				(In millions)
Impairment and closure charges:
Impairment	$	0.3	$	4.5	$	—	$	0.3	$	0.3	$	4.8
Lenexa lease termination					—		21.3		—		21.3
Closure charges	0.4		0.4		0.1		0.2		0.5		0.7
Total impairment and closure charges	$	0.7	$	4.9	$	0.1	$	21.8	$	0.8	$	26.8

Impairment and closure charges for the ~~three~~six months ended ~~March 31,~~June 30, 2012 totaled $~~0.7~~0.8 million. The impairment charge related to a parcel of land previously intended for future restaurant ~~development (see Note 4).~~development. Closure charges related to several individually insignificant franchise restaurant closures.

Impairment and closure charges for the ~~three~~six months ended ~~March 31,~~June 30, 2011 totaled $~~4.9~~26.8 million~~. Impairment charges~~ and primarily related to termination of the Company's sublease of the commercial space previously occupied by the Applebee's Restaurant Support Center in Lenexa, Kansas. The Company recognized $21.3 million for the termination fee and other closing costs in the second quarter of 2011. The Company recognized a $4.5 million impairment charge in the quarter ended March 31, 2011 related to furniture, fixtures and leasehold improvements at the ~~Applebee's Restaurant Support Center in Lenexa, Kansas,~~facility whose book value was not realizable as athe result of the ~~Company's~~ termination of the ~~sublease of those premises.~~sublease. Closure charges related to several individually insignificant franchise restaurant closures.

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DineEquity, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

8. Income Taxes

The effective tax rate was ~~36.1%~~36.9% for the ~~three~~six months ended ~~March 31,~~June 30, 2012 as compared to ~~27.9%~~30.1% for the ~~three~~six months ended ~~March 31, 2011.The~~June 30, 2011. The effective tax rate in the prior year was lower due to the release of liabilities for unrecognized tax benefits related to gift card income deferral as a result of the issuance of ~~new~~ guidance by the U.S. Internal Revenue Service.

At ~~March 31,~~June 30, 2012, the Company had a liability for unrecognized tax benefits, including potential interest and penalties net of related tax benefit, totaling $~~8.2~~7.9 million, of which approximately $~~1.6~~1.2 million is expected to be paid within one year. For the remaining liability, due to the uncertainties related to these tax matters, the Company is unable to make a reasonably reliable estimate when cash settlement with a taxing authority will occur.

As of ~~March 31,~~June 30, 2012, accrued interest and penalties were $~~2.5~~2.6 million and $0.4 million, respectively, excluding any related income tax benefits. As of December 31, 2011, accrued interest and penalties were $3.0 million and $0.3 million, respectively, excluding any related income tax benefits. The decrease of $~~0.5~~0.4 million of accrued interest is primarily related to the decrease of unrecognized tax benefits due to settlements with taxing authorities, partially offset by the accrual of interest during the ~~three~~six months ended ~~March 31,~~June 30, 2012. The Company recognizes interest accrued related to unrecognized tax benefits and penalties as a component of income tax expense, which is recognized in the Consolidated Statements of Income.

The Company and its subsidiaries file federal income tax returns as well as income tax returns in various state and foreign jurisdictions. With few exceptions, the Company is no longer subject to federal, state or non-United States tax examinations by tax authorities for years before 2008. The Internal Revenue Service commenced examination of the Company's U.S. federal income tax return for the tax years 2008 to 2010 in the first quarter of 2012. The examination is anticipated to be completed by the first quarter of 2013.

9. Stock-Based Compensation

From time to time, the Company has granted nonqualified stock options, restricted stock, cash-settled and stock-settled restricted stock units and performance units to officers, other employees and non-employee directors of the Company. Currently, the Company is authorized to grant nonqualified stock options, stock appreciation rights, restricted stock, cash-settled and stock-settled restricted stock units and performance units to officers, other employees and nonemployee directors under the DineEquity, Inc. 2011 Stock Incentive Plan (the “2011 Plan”). The 2011 Plan was approved by stockholders on May 17, 2011 and permits the issuance of up to 1,500,000 shares of the Company’s common stock. The 2011 Plan will expire in May 2021.

~~Table of Contents~~

The nonqualified stock options generally vest over a three-year period and have a term of ten years from the effective issuance date. Option exercise prices equal the closing price of the Company’s common stock on the New York Stock Exchange on the date of grant. Restricted stock and restricted stock units are issued at no cost to the holder and vest over terms determined by the Compensation Committee of the Company’s Board of Directors, generally three years.

The following table summarizes the components of the Company’s stock-based compensation expense included in general and administrative expenses in the consolidated financial statements:


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
	(In millions)						(In millions)
Pre-tax compensation expense	$	4.5		$	3.1		$	2.5		$	3.3		$	7.0		$	6.4
Tax provision	(1.7		)	(1.2		)	(1.0		)	(1.3		)	(2.7		)	(2.5		)
Total stock-based compensation expense, net of tax	$	2.8		$	1.9		$	1.5		$	2.0		$	4.3		$	3.9

As of ~~March 31,~~June 30, 2012, total unrecognized compensation cost (including estimated forfeitures) of $~~14.4~~12.2 million related to restricted stock and restricted stock units and $~~12.3~~10.6 million related to stock options is expected to be recognized over a weighted average period of ~~1.3~~1.2 years for restricted stock and restricted stock units and ~~1.2~~1.1 years for stock options.

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DineEquity, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

The estimated fair values of the options granted during the ~~three~~six months ended ~~March 31,~~June 30, 2012 were calculated using a Black-Scholes option pricing model. The following summarizes the assumptions used in the Black-Scholes model:



Risk-free interest rate	0.86		%
Weighted average historical volatility	83.6		%
Dividend yield	—
Expected years until exercise	4.66
Forfeitures	11.0		%
Weighted average fair value of options granted	$	33.11

Option balances as of ~~March 31,~~June 30, 2012 and activity related to the Company’s stock options during the ~~three~~six months then ended were as follows:


	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value		Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2011	1,318,640		$	32.06				1,318,640		$	32.06
Granted	147,674		$	51.63				147,674		$	51.63
Exercised	(164,954	)	$	12.40				(212,308	)	$	15.94
Forfeited	(13,335	)	$	44.44				(24,775	)	$	39.09
Outstanding at March 31, 2012	1,288,025		$	36.69	6.89	$	18,277,000
Vested at March 31, 2012 and Expected to Vest	1,220,562		$	36.09	6.77	$	17,958,000
Exercisable at March 31, 2012	812,691		$	31.82	5.68	$	14,914,000
Outstanding at June 30, 2012								1,229,231		$	37.05	6.87	$	13,145,000
Vested at June 30, 2012 and Expected to Vest								1,173,783		$	36.48	6.76	$	12,991,000
Exercisable at June 30, 2012								780,398		$	31.89	5.8	$	11,172,000

The aggregate intrinsic value in the table above represents the total ~~pre-tax~~pretax intrinsic value (the difference between the closing stock price of the Company’s common stock on the last trading day of the ~~first~~second quarter of 2012 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on ~~March 31,~~June 30, 2012. The ~~amount of~~ aggregate intrinsic value will change based on the fair market value of the Company’s common stock and the number of in-the-money options.

~~Table of Contents~~

A summary of restricted stock activity for the ~~three~~six months ended ~~March 31,~~June 30, 2012 is presented below:


	Restricted Stock		Weighted Average Grant Date Fair Value		Restricted Stock Units	Weighted Average Grant Date Fair Value		Restricted Stock		Weighted Average Grant Date Fair Value	Restricted Stock Units		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2011	486,533		$	31.18	18,000	$	29.32	486,533		$31.25	18,000		$29.32
Granted	120,123		$	51.85	19,152	52.23		120,123		$51.85	19,152		$52.23
Released	(125,914	)	$	7.00	—	—		(154,903	)	$11.03	(3,910	)	$40.58
Forfeited	(14,194	)	$	38.68	—	—		(36,976	)	$40.90	—		—
Outstanding at March 31, 2012	466,548		$	42.80	37,152	$	41.13
Outstanding at June 30, 2012								414,777		$43.72	33,242		$41.19

The Company has issued 44,957 shares of cash-settled restricted stock units to members of the Board of Directors, of which ~~41,957~~37,184 were outstanding at ~~March 31,~~June 30, 2012. As these instruments can only be settled in cash, they are recorded as liabilities based on the closing price of the Company’s common stock as of ~~March 31,~~June 30, 2012. For the ~~three~~six months ended ~~March 31,~~June 30, 2012 and 2011, $~~0.3~~0.2 million and $0.8 million, respectively, were included in ~~pre-tax~~pretax stock-based compensation expense for the cash-settled restricted stock units.

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DineEquity, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

10. Segments

The Company’s revenues and expenses are recorded in four segments: franchise operations, company restaurant operations, rental operations and financing operations.

As of ~~March 31,~~June 30, 2012, the franchise operations segment consisted of (i) ~~1,861~~1,858 restaurants operated by Applebee’s franchisees in the United States, one U.S. territory and 15 countries outside the United States; and (ii) ~~1,542~~1,540 restaurants operated by IHOP franchisees and area licensees in the United States, two U.S. territories and three countries outside the United States. Franchise operations revenue consists primarily of franchise royalty revenues, sales of proprietary products, certain franchise advertising fees and the portion of the franchise fees allocated to intellectual property. Franchise operations expenses include advertising expense, the cost of proprietary products, ~~preopening~~pre-opening training expenses and costs related to intellectual property provided to certain franchisees.

As of ~~March 31,~~June 30, 2012, the company restaurant operations segment consisted of 160 Applebee’s company-operated restaurants and 1217 IHOP company-operated restaurants, all located in the United States. Company restaurant sales are retail sales at company-operated restaurants. Company restaurant expenses are operating expenses at company-operated restaurants and include food, labor, benefits, utilities, rent and other restaurant operating costs.

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

Financing operations revenue primarily consists of interest income from the financing of franchise fees and equipment leases, as well as sales of equipment associated with refranchised IHOP restaurants and a portion of franchise fees for restaurants taken back from franchisees not allocated to IHOP intellectual property. Financing expenses are primarily the cost of restaurant equipment.

~~Table of Contents~~

Information on segments was as follows:


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
	(In millions)						(In millions)
Revenues from External Customers
Franchise operations	$	108.4		$	104.6		$	102.5		$	98.6		$	210.9		$	203.1
Company restaurants	100.9			154.7			93.8			134.6			194.7			289.3
Rental operations	32.0			32.2			29.1			31.6			61.2			63.8
Financing operations	4.3			8.7			4.0			3.5			8.2			12.3
Total	$	245.6		$	300.2		$	229.4		$	268.3		$	475.0		$	568.5
Interest Expense
Company restaurants	$	0.1		$	0.2		$	0.1		$	0.1		$	0.2		$	0.3
Rental operations	4.4			4.6			4.3			4.5			8.6			9.2
Corporate	30.2			36.3			29.7			32.9			59.9			69.2
Total	$	34.7		$	41.1		$	34.1		$	37.5		$	68.7		$	78.7
Depreciation and amortization
Franchise operations	$	2.5		$	2.5		$	2.5		$	2.6		$	4.9		$	5.1
Company restaurants	2.4			4.9			2.3			4.6			4.7			9.5
Rental operations	3.5			3.5			3.4			3.5			6.9			7.1
Corporate	2.1			2.4			2.3			2.4			4.5			4.6
Total	$	10.5		$	13.3		$	10.5		$	13.1		$	21.0		$	26.3
Income (loss) before income taxes
Franchise operations	$	80.8		$	77.1		$	76.2		$	72.4		$	156.9		$	149.4
Company restaurants	16.7			22.9			14.2			17.3			30.9			40.3
Rental operations	7.5			7.6			4.8			7.0			12.3			14.6
Financing operations	3.6			3.2			3.1			3.6			6.7			6.7
Corporate	(59.6		)	(69.6		)	(70.9		)	(98.5		)	(130.3		)	(168.0		)
Total	$	49.0		$	41.2		$	27.4		$	1.8		$	76.5		$	43.0

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DineEquity, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

11. Net Income (Loss) per Share

The computation of the Company’s basic and diluted net income (loss) per share was as follows:


	Three Months Ended						Three Months Ended						Six Months Ended
	March 31,						June 30,						June 30,
	2012			2011			2012			2011			2012			2011
	(In thousands, except per share data)						(In thousands, except per share data)
Numerator for basic and dilutive income - per common share:
Net income	$	31,344		$	29,699		$	16,938		$	348		$	48,282		$	30,047
Less: Accretion of Series B Preferred Stock	(668		)	(629		)	(677		)	(639		)	(1,345		)	(1,268		)
Less: Net income allocated to unvested participating restricted stock	(796		)	(1,014		)	(388		)	7			(1,169		)	(846		)
Net income available to common stockholders - basic	29,880			28,056
Net income (loss) available to common stockholders - basic							15,873			(284		)	45,768			27,933
Effect of unvested participating restricted stock in two-class calculation	40			57			5			—			58			17
Accretion of Series B Preferred Stock	668			629			—			—			1,345			—
Net income available to common stockholders - diluted	$	30,588		$	28,742
Net income (loss) available to common stockholders - diluted							$	15,878		$	(284	)	$	47,171		$	27,950
Denominator:
Weighted average outstanding shares of common stock - basic	17,682			17,697			17,890			18,072			17,786			17,884
Dilutive effect of:
Stock options	316			451			248			—			282			396
Series B Preferred Stock	653			615			—			—			663			—
Weighted average outstanding shares of common stock - diluted	18,651			18,763			18,138			18,072			18,731			18,280
Net income per common share:
Net income (loss) per common share:
Basic	$	1.69		$	1.59		$	0.89		$	(0.02	)	$	2.57		$	1.56
Diluted	$	1.64		$	1.53		$	0.88		$	(0.02	)	$	2.52		$	1.53

~~Table~~For the three months ended June 30, 2012 and the six months ended June 30, 2011, the diluted income per common share was computed excluding 662,500 and 624,000 shares, respectively, of ~~Contents~~

common stock equivalents from the conversion of Series B Preferred Stock that were antidilutive. For the three months ended June 30, 2011, the diluted loss per common share was computed excluding 965,000 shares of common stock equivalents that were antidilutive.

12. Fair Value Measurements

The Company does not have a material amount of financial instruments that are required under U.S. GAAP to be measured on a recurring basis at fair value. ~~None~~The Company does not have a material amount of ~~the Company's~~ non-financial assets or non-financial liabilities isthat are required to be measured at fair value on a recurring basis. The Company has not elected to use fair value measurement, as provided under U.S. GAAP, for any assets or liabilities for which fair value measurement is not presently required.

The Company believes the fair values of cash equivalents, accounts receivable, accounts payable and the current portion of long-term debt approximate the carrying amounts due to their short duration.

The fair values of non-current financial liabilities at ~~March 31,~~June 30, 2012 and December 31, 2011, determined based on Level 2 inputs, were as follows:

March 31, 2012 December 31, 2011

Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
(in millions)
Long-term debt, less current maturities $ 1,338.0
$ 1,436.5
$ 1,411.4
$ 1,486.2



	June 30, 2012				December 31, 2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(in millions)
Long-term debt, less current maturities	$	1,338.8	$	1,438.4	$	1,411.4	$	1,486.2

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DineEquity, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

13. Commitments and Contingencies

Litigation, Claims and Disputes

The Company is subject to various lawsuits, ~~claims~~administrative proceedings, audits, and ~~governmental inspections or audits~~claims arising in the ordinary course of business. Some of these lawsuits purport to be class actions and/or seek substantial damages. InThe Company is required to record an accrual for litigation loss contingencies that are both probable and reasonably estimable. Legal fees and expenses associated with the ~~opinion~~defense of ~~management, these matters~~all of the Company's litigation are ~~adequately covered by~~expensed as such fees and expenses are incurred. Management regularly assesses the Company's insurance ~~or, if~~deductibles, analyzes litigation information with the Company's attorneys and evaluates its loss experience in connection with pending legal proceedings. While the Company does not ~~so covered, are without merit or are~~presently believe that any of ~~such~~the legal proceedings to which the Company is currently a ~~nature or involve amounts that would not~~party will ultimately have a material adverse impact onupon the ~~Company’s business~~Company, there can be no assurance that the Company will prevail in all the proceedings the Company is party to, or ~~consolidated financial statements.~~ that the Company will not incur material losses from them.

Gerald Fast v. Applebee's

The Company is currently defending a collective action in United States District Court for the Western District of Missouri, Central Division filed on July 14, 2006 under the Fair Labor Standards Act, Gerald Fast v. Applebee's International, Inc., in which named plaintiffs claim that tipped ~~workers~~servers and bartenders in ~~company~~Applebee's company-operated restaurants ~~perform excessive amounts~~spend more than 20% of ~~non-tipped~~their time performing general preparation and maintenance duties, or “non-tipped work,” for which they should be compensated at the minimum wage. ~~The~~On June 19, 2007, the court ~~has conditionally certified~~granted conditional certification of a nationwide class of servers and bartenders who ~~have~~had worked in Applebee's company-operated ~~Applebee's~~ restaurants since June 19, 2004. ~~Unlike a class action, a collective action requires~~As of February 2008, there were 5,540 potential class members who had opted into the collective action. Under this action, plaintiffs currently are seeking unpaid wages and other relief of up to ~~“opt in” rather than “opt out.” On February 12, 2008,~~ ~~5,540~~$17 million ~~opt-in forms were filed with the court.~~

~~In cases of this type, conditional certification of the plaintiff class is granted under a lenient standard. On January 15, 2009, the Company filed a motion seeking to have the class de-certified~~plus plaintiffs' attorneys' fees and ~~the plaintiffs filed a motion for summary judgment, both of which were denied by the court.~~

The parties stipulated to a bench trial which was set to begin on September 8, 2009 in Jefferson City, Missouri. Just prior to trial, however, the court vacated the trial setting in order to submit key legal issues to the Eighth Circuit Court of Appeals for review on interlocutory appeal. On April 21, 2011, the Eighth Circuit affirmed the trial court's denial of the Company's motion for summary judgment. On July 6, 2011, the Eighth Circuit denied the Company's petition for rehearing.

On October 4, 2011, the Company filed a petition for certiorari asking the United States Supreme Court to review the decision of the Eighth Circuit. On January 17, 2012, the Supreme Court declined to review the case.expenses. The bench trial is currently scheduled to begin on September 10, 2012.

The Company believes it has meritorious defenses and intends to vigorously defend this case. ~~An estimate of~~Due to the ~~possible loss or a range of the loss, if any, cannot~~inherent uncertainty in litigation, however, there can be ~~made and, therefore,~~no guarantee that the Company ~~has~~ultimately will be successful. Substantial losses from or costs related to this legal proceeding could have a material impact on the Company. As of June 30, 2012, the Company had not accrued a loss contingency related to this matter. Given the uncertainty of the potential outcome, the Company is also unable to estimate, for financial reporting purposes, a reasonably possible loss or a range of reasonably possible losses for this matter.

~~Table of Contents~~

Lease Guarantees

In connection with the sale of Applebee’s restaurants or previous brands to franchisees and other parties, the Company has, in certain cases, guaranteed or had potential continuing liability for lease payments totaling $~~365.7~~370.4 million as of ~~March 31,~~June 30, 2012. This amount represents the maximum potential liability offor future payments under these leases. These leases have been assigned to the buyers and expire at the end of the respective lease terms, which range from 2012 through 2048. In the event of default, the indemnity and default clauses in our sale or assignment agreements govern our ability to pursue and recover damages incurred. No material liabilities have been recorded as of ~~March 31,~~June 30, 2012.

14. Consolidating Financial Information

Certain of ~~our~~the Company's subsidiaries have guaranteed ~~our~~the Company's obligations under the Senior Secured Credit Facility. The following presents the condensed consolidating financial information separately for: (i) the parent Company, the issuer of the guaranteed obligations; (ii) the guarantor subsidiaries, on a combined basis, as specified in the Credit Agreement; (iii) the non-guarantor subsidiaries, on a combined basis; (iv) consolidating eliminations and reclassifications; and (v) DineEquity, Inc. and Subsidiaries, on a consolidated basis.

Each guarantor subsidiary is 100% owned by the Company at the date of each balance sheet presented. The notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary. Each entity in the consolidating financial information follows the same accounting policies as described in the consolidated financial statements.

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DineEquity, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

Supplemental Condensed Consolidating Balance Sheet

~~March 31,~~June 30, 2012

(In millions⁽¹⁾)


	Parent			Combined Guarantor Subsidiaries		Combined Non-guarantor Subsidiaries			Eliminations and Reclassification			Consolidated		Parent			Combined Guarantor Subsidiaries		Combined Non-guarantor Subsidiaries			Eliminations and Reclassification			Consolidated
Assets
Current Assets
Cash and cash equivalents	$	7.7		$	40.2	$	0.8		$	—		$	48.7	$	—		$	31.9	$	0.5		$	—		$	32.4
Receivables, net	0.7			87.9		0.1			(8.0		)	80.7		0.9			84.9		0.1			(8.0		)	77.9
Inventories	—			11.5		—			—			11.5		—			12.1		—			—			12.1
Prepaid expenses and other current assets	99.4			46.6		—			(98.6		)	47.4		118.5			48.8		—			(111.1		)	56.2
Deferred income taxes	1.6			21.0		0.3			—			22.9		2.3			22.4		0.3			—			25.0
Assets held for sale	—			2.2		1.8			—			4.0		—			25.8		1.8			—			27.6
Intercompany	(265.3		)	260.1		5.2			—			—		(283.6		)	278.0		5.6			—			—
Total current assets	(155.9		)	469.5		8.2			(106.6		)	215.2		(161.9		)	503.9		8.3			(119.1		)	231.2
Long-term receivables	—			224.3		—			—			224.3		—			219.4		—			—			219.4
Property and equipment, net	24.4			438.0		—			—			462.4		24.3			411.3		—			—			435.6
Goodwill	—			697.5		—			—			697.5		—			697.5		—			—			697.5
Other intangible assets, net	—			818.8		—			—			818.8		—			815.6		—			—			815.6
Other assets, net	21.7			94.6		—			—			116.3		20.9			93.7		—			—			114.6
Investment in subsidiaries	1,697.5			—		—			(1,697.5		)	—		1,697.6			—		—			(1,697.6		)	—
Total assets	$	1,587.7		$	2,742.7	$	8.2		$	(1,804.1	)	$	2,534.5	$	1,580.9		$	2,741.4	$	8.3		$	(1,816.7	)	$	2,513.9
Liabilities and Stockholders’ Equity
Current Liabilities
Current maturities of long-term debt	$	15.4		$	—	$	—		$	(8.0	)	$	7.4	$	15.4		$	—	$	—		$	(8.0	)	$	7.4
Accounts payable	1.3			31.6		—			—			32.9		2.2			26.3		—			—			28.5
Accrued employee compensation and benefits	3.4			14.2		—			—			17.6		4.6			14.5		—						19.1
Gift card liability	—			92.2		—			—			92.2		—			91.3		—						91.3
Income taxes payable	(11.8		)	120.4		0.2			(98.6		)	10.2		(23.9		)	135.0		—			(111.1		)	—
Other accrued expenses	33.6			35.8		—			—			69.4		15.0			34.7		0.3						50.0
Total current liabilities	41.9			294.2		0.2			(106.6		)	229.7		13.3			301.8		0.3			(119.1		)	196.3
Long-term debt	1,338.0			—		—			—			1,338.0		1,338.8			—		—						1,338.8
Financing obligations	—			152.6		—			—			152.6		—			151.6		—						151.6
Capital lease obligations	—			131.9		—			—			131.9		—			129.1		—						129.1
Deferred income taxes	6.4			370.3		(0.3		)	—			376.4		6.5			366.0		(0.3		)	—			372.2
Other liabilities	5.6			103.7		0.9			—			110.2		5.5			102.9		0.9						109.3
Total liabilities	1,391.9			1,052.7		0.8			(106.6		)	2,338.8		1,364.1			1,051.4		0.9			(119.1		)	2,297.3
Total stockholders’ equity	195.8			1,690.0		7.4			(1,697.5		)	195.7		216.8			1,690.0		7.4			(1,697.6		)	216.6
Total liabilities and stockholders’ equity	$	1,587.7		$	2,742.7	$	8.2		$	(1,804.1	)	$	2,534.5	$	1,580.9		$	2,741.4	$	8.3		$	(1,816.7	)	$	2,513.9

⁽¹⁾ Supplemental statements presented in millions may not add due to rounding from Consolidated Statements presented in thousands.

Table of Contents

DineEquity, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

Supplemental Condensed Consolidating Balance Sheet

December 31, 2011

(In millions⁽¹⁾)


	Parent			Combined Guarantor Subsidiaries		Combined Non-guarantor Subsidiaries			Eliminations and Reclassification			Consolidated		Parent			Combined Guarantor Subsidiaries		Combined Non-guarantor Subsidiaries			Eliminations and Reclassification			Consolidated
Assets
Current Assets
Cash and cash equivalents	$	9.9		$	50.4	$	0.4		$	—		$	60.7	$	9.9		$	50.4	$	0.4		$	—		$	60.7
Receivables, net	0.6			121.0		0.1			(6.0		)	115.7		0.6			121.0		0.1			(6.0		)	115.7
Inventories	—			12.0		—			—			12.0		—			12.0		—			—			12.0
Prepaid expenses and other current assets	85.3			44.6		—			(71.3		)	58.6		85.3			44.6		—			(71.3		)	58.6
Deferred income taxes	1.5			19.0		0.1			—			20.6		1.5			19.0		0.1			—			20.6
Assets held for sale	—			7.3		2.1			—			9.4		—			7.3		2.1			—			9.4
Intercompany	(300.2		)	294.5		5.7			—			—		(300.2		)	294.5		5.7			—			—
Total current assets	(202.9		)	548.8		8.4			(77.3		)	276.9		(202.9		)	548.7		8.4			(77.3		)	276.9
Long-term receivables	—			226.5		—			—			226.5		—			226.5		—			—			226.5
Property and equipment, net	24.6			449.5		—			—			474.2		24.6			449.6		—			—			474.2
Goodwill	—			697.5		—			—			697.5		—			697.5		—			—			697.5
Other intangible assets, net	—			822.4		—			—			822.4		—			822.4		—			—			822.4
Other assets, net	23.2			93.5		0.1			—			116.8		23.2			93.5		0.1			—			116.8
Investment in subsidiaries	1,697.6			—		—			(1,697.6		)	—		1,697.6			—		—			(1,697.6		)	—
Total assets	$	1,542.5		$	2,838.2	$	8.5		$	(1,774.9	)	$	2,614.3	$	1,542.5		$	2,838.2	$	8.5		$	(1,774.9	)	$	2,614.3
Liabilities and Stockholders’ Equity
Current Liabilities
Current maturities of long-term debt	$	13.4		$	—	$	—		$	(6.0	)	$	7.4	$	13.4		$	—	$	—		$	(6.0	)	$	7.4
Accounts payable	2.8			26.2		—			—			29.0		2.8			26.2		—			—			29.0
Accrued employee compensation and benefits	6.7			19.5		—			—			26.2		6.7			19.5		—			—			26.2
Gift card liability	—			147.0		—			—			147.0		—			147.0		—			—			147.0
Other accrued expenses	(61.6		)	180.6		0.4			(71.3		)	48.1		(61.6		)	180.6		0.4			(71.3		)	48.1
Total current liabilities	(38.6		)	373.3		0.4			(77.3		)	257.6		(38.7		)	373.3		0.4			(77.3		)	257.6
Long-term debt	1,411.4			—		—			—			1,411.4		1,411.4			—		—			—			1,411.4
Financing obligations	—			162.7		—			—			162.7		—			162.7		—			—			162.7
Capital lease obligations	—			134.4		—			—			134.4		—			134.4		—			—			134.4
Deferred income taxes	8.9			375.3		(0.4		)	—			383.8		8.9			375.3		(0.4		)	—			383.8
Other liabilities	5.4			102.6		1.1			—			109.1		5.4			102.6		1.1			—			109.1
Total liabilities	1,387.0			1,148.3		1.1			(77.3		)	2,459.1		1,387.0			1,148.3		1.1			(77.3		)	2,459.1
Total stockholders’ equity	155.5			1,689.9		7.4			(1,697.6		)	155.2		155.5			1,689.9		7.4			(1,697.6		)	155.2
Total liabilities and stockholders’ equity	$	1,542.5		$	2,838.2	$	8.5		$	(1,774.9	)	$	2,614.3	$	1,542.5		$	2,838.2	$	8.5		$	(1,774.9	)	$	2,614.3

⁽¹⁾ Supplemental statements presented in millions may not add due to rounding from Consolidated Statements presented in thousands.

Table of Contents

DineEquity, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

Supplemental Condensed Consolidating Statement of Operations

For the Three Months Ended ~~March 31,~~June 30, 2012

(In ~~millions)~~millions⁽¹⁾)


	Parent			Combined Guarantor Subsidiaries			Combined Non-guarantor Subsidiaries			Eliminations and Reclassification			Consolidated			Parent			Combined Guarantor Subsidiaries			Combined Non-guarantor Subsidiaries			Eliminations and Reclassification			Consolidated
Revenues
Franchise revenues	$	0.6		$	107.5		$	0.3		$	—		$	108.4		$	0.6		$	101.6		$	0.3		$	—		$	102.5
Restaurant sales	—			100.9			—			—			100.9			—			93.8			—			—			93.8
Rental revenues	—			32.0			—			—			32.0			—			29.2			—			—			29.1
Financing revenues	—			4.3			—			—			4.3			—			4.0			—			—			4.0
Total revenue	0.6			244.7			0.3			—			245.6			0.6			228.6			0.3			—			229.4
Franchise expenses	0.6			27.0			—			—			27.6			0.6			25.7			—			—			26.3
Restaurant expenses	—			84.2			—			—			84.2			—			79.6			—			—			79.6
Rental expenses	—			24.5			—			—			24.5			—			24.3			—			—			24.3
Financing expenses	—			0.7			—			—			0.7			—			0.9			—			—			0.9
General and administrative	7.1			32.1			0.5			—			39.7			6.1			30.6			0.5			—			37.2
Interest expense	27.4			2.8			—			—			30.2			27.0			2.7			—			—			29.7
Impairment and closure																—			0.1			—			—			0.1
Amortization of intangible assets	—			3.1			—			—			3.1			—			3.1			—			—			3.1
Impairment and closure	—			0.4			0.3			—			0.7
Gain on disposition of assets	—			(16.4		)	(0.3		)				(16.7		)
Loss (gain) on disposition of assets																—			1.2			(0.4		)	—			0.7
Loss on extinguishment of debt	2.6			—			—			—			2.6			—			—			—			—			—
Intercompany dividend	(54.1		)	—			—			54.1			—			(37.0		)	—			—			37.0			—
Income (loss) before income taxes	17.0			86.3			(0.2		)	(54.1		)	49.0			3.9			60.4			0.2			(37.0		)	27.4
Benefit (provision) for income taxes	14.3			(32.0		)	—			—			(17.7		)	12.8			(23.3		)	—			—			(10.5		)
Net (loss) income	$	31.3		$	54.3		$	(0.2	)	$	(54.1	)	$	31.3		$	16.9		$	36.9		$	0.1		$	(37.0	)	$	16.9
Total comprehensive income	$	31.3		$	54.5		$	(0.2	)	$	(54.1	)	$	31.5		$	16.9		$	36.9		$	0.1		$	(37.0	)	$	16.9

Supplemental Condensed Consolidating Statement of Operations

For the Three Months Ended ~~March 31,~~June 30, 2011

(In ~~millions)~~millions⁽¹⁾)


	Parent			Combined Guarantor Subsidiaries			Combined Non-guarantor Subsidiaries			Eliminations and Reclassification			Consolidated			Parent			Combined Guarantor Subsidiaries			Combined Non-guarantor Subsidiaries			Eliminations and Reclassification			Consolidated
Revenues
Franchise revenues	$	0.7		$	103.6		$	0.3		$	—		$	104.6		$	0.6		$	97.7		$	0.2		$	—		$	98.6
Restaurant sales	—			154.3			0.4			—			154.7			—			134.3			0.4			—			134.6
Rental revenues	—			32.2			—			—			32.2			—			31.6			—			—			31.6
Financing revenues	—			8.7			—			—			8.7			—			3.5			—			—			3.5
Total revenue	0.7			298.8			0.7			—			300.2			0.6			267.1			0.6			—			268.3
Franchise expenses	0.5			27.0			—			—			27.5			0.5			25.7			—			—			26.2
Restaurant expenses	—			131.5			0.3			—			131.8			—			117.1			0.2			—			117.3
Rental expenses	—			24.6			—			—			24.6			—			24.6			—			—			24.6
Financing expenses	—			5.6			—			—			5.5			—			—			—			—			—
General and administrative	7.5			29.9			0.6			—			38.0			6.1			31.7			0.6			—			38.4
Interest expense	32.3			4.0			—			—			36.3			28.7			4.2			—			—			32.9
Impairment and closure																—			21.8			—			—			21.8
Amortization of intangible assets	—			3.1			—			—			3.1			—			3.1			—			—			3.1
Impairment and closure	—			4.9			—			—			4.9
Gain on disposition of assets	—			(23.7		)	(0.1		)				(23.8		)
Loss on disposition of assets																—			1.2			0.1			—			1.3
Loss on extinguishment of debt	6.9			—			—			—			6.9			0.9			—			—			—			0.9
Debt modification costs	4.1			—			—			—			4.1			—			—			—			—			—
Other (income) expense	—			(23.4		)	(0.4		)	23.7			—			30.4			43.8			(0.5		)	(73.7		)	—
Intercompany dividend	(16.1		)	—			—			16.1			—
Income (loss) before income taxes	(34.6		)	115.3			0.3			(39.8		)	41.2			(66.0		)	(6.1		)	0.2			73.7			1.8
Benefit (provision) for income taxes	19.7			(31.0		)	(0.1		)				(11.4		)	13.8			(15.1		)	(0.1		)	—			(1.5		)
Net (loss) income	$	(15.0	)	$	84.3		$	0.2		$	(39.8	)	$	29.7		$	(52.2	)	$	(21.2	)	$	0.2		$	73.7		$	0.3
Total comprehensive income	$	(15.0	)	$	84.3		$	0.2		$	(39.8	)	$	29.7		$	(52.2	)	$	(21.2	)	$	0.2		$	73.7		$	0.3

⁽¹⁾ Supplemental statements presented in millions may not add due to rounding from Consolidated Statements presented in thousands.

Table of Contents

DineEquity, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

Supplemental Condensed Consolidating Statement of Operations

For the Six Months EndedJune 30, 2012

(In millions⁽¹⁾)



	Parent			Combined Guarantor Subsidiaries			Combined Non-guarantor Subsidiaries			Eliminations and Reclassification			Consolidated
Revenues
Franchise revenues	$	1.3		$	209.1		$	0.5		$	—		$	210.9
Restaurant sales	—			194.7			—			—			194.7
Rental revenues	—			61.2			—			—			61.2
Financing revenues	—			8.2			—			—			8.3
Total revenue	1.3			473.2			0.5			—			475.0
Franchise expenses	1.2			52.8			—			—			54.0
Restaurant expenses	—			163.8			—			—			163.8
Rental expenses	—			48.8			—			—			48.9
Financing expenses	—			1.6			—			—			1.6
General and administrative	13.1			62.7			1.0			—			76.9
Interest expense	54.4			5.5			—			—			59.9
Impairment and closure	—			0.4			0.4			—			0.8
Amortization of intangible assets	—			6.2			—			—			6.2
Gain on disposition of assets	—			(15.2		)	(0.8		)	—			(16.0		)
Loss on extinguishment of debt	2.6			—			—			—			2.6
Intercompany dividend	(91.1		)	—			—			91.1			—
Income (loss) before income taxes	21.1			146.6			(0.1		)	(91.1		)	76.5
Benefit (provision) for income taxes	27.2			(55.3		)	—			—			(28.2		)
Net (loss) income	$	48.3		$	91.3		$	(0.1	)	$	(91.1	)	$	48.3
Total comprehensive income	$	48.2		$	91.4		$	(0.1	)	$	(91.1	)	$	48.4

Supplemental Condensed Consolidating Statement of Operations

For the Six Months EndedJune 30, 2011

(In millions⁽¹⁾)



	Parent			Combined Guarantor Subsidiaries			Combined Non-guarantor Subsidiaries			Eliminations and Reclassification			Consolidated
Revenues
Franchise revenues	$	1.3		$	201.3		$	0.5		$	—		$	203.1
Restaurant sales	—			288.5			0.8			—			289.3
Rental revenues	—			63.8			—			—			63.8
Financing revenues	—			12.3			—			—			12.3
Total revenue	1.3			565.9			1.3			—			568.5
Franchise expenses	1.0			52.7			—			—			53.7
Restaurant expenses	—			248.6			0.4			—			249.0
Rental expenses	—			49.2			—			—			49.2
Financing expenses	—			5.6			—			—			5.6
General and administrative	13.6			61.6			1.2			—			76.4
Interest expense	61.0			8.1			—			—			69.2
Impairment and closure	—			26.7			0.1			—			26.8
Amortization of intangible assets	—			6.2						—			6.2
Gain on disposition of assets	—			(22.5		)	—			—			(22.5		)
Loss on extinguishment of debt	7.9			—						—			7.9
Debt modification costs	4.1			—			—			—			4.1
Other (income) expense	14.3			20.5			(0.9		)	(33.9		)	—
Income (loss) before income taxes	(100.6		)	109.2			0.5			33.9			43.0
Benefit (provision) for income taxes	33.4			(46.2		)	(0.2		)	—			(13.0		)
Net (loss) income	$	(67.2	)	$	63.0		$	0.3		$	33.9		$	30.0
Total comprehensive income	$	(67.2	)	$	63.1		$	0.3		$	33.9		$	30.0

⁽¹⁾ Supplemental statements presented in millions may not add due to rounding from Consolidated Statements presented in thousands.

Table of Contents

DineEquity, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

Supplemental Condensed Consolidating Statement of Cash Flows

For the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2012

(In ~~millions)~~millions⁽¹⁾)


	Parent			Combined Guarantor Subsidiaries			Combined Non-guarantor Subsidiaries			Eliminations and Reclassification	Consolidated			Parent			Combined Guarantor Subsidiaries			Combined Non-guarantor Subsidiaries			Eliminations and Reclassification	Consolidated
Cash flows provided by (used in) operating activities	$	(15.0	)	$	59.8		$	(0.1	)	—	$	44.7		$	(64.9	)	$	101.1		$	0.2		—	$	36.4
Investing cash flows
Additions to property and equipment	(1.3		)	(2.8		)	—				(4.1		)	(3.0		)	(7.7		)	—				(10.7		)
Principal receipts from long-term receivables	—			3.4			—			—	3.4			—			6.6			—			—	6.6
Proceeds from sale of assets	—			21.4			—			—	21.4			—			21.5			—			—	21.5
Other	—			0.7			—			—	0.7			—			(0.8		)	—			—	(0.8		)
Cash flows provided by (used in) investing activities	(1.3		)	22.7			—			—	21.4			(3.0		)	19.6			—			—	16.6
Financing cash flows
Revolving credit borrowings														35.0			—			—			—	35.0
Revolving credit repayments														(35.0		)	—			—			—	(35.0		)
Payment of debt	(76.0		)	(3.0		)	—			—	(79.0		)	(76.0		)	(6.1		)	—			—	(82.2		)
Payment of debt issuance costs														—			—			—			—	—
Purchase of common stock														—			—			—			—	—
Restricted cash	—			(2.6		)	—			—	(2.6		)	—			(3.8		)	—			—	(3.8		)
Other	3.1			0.4			—			—	3.5			3.9			0.7			—			—	4.6
Intercompany transfers	87.0			(87.5		)	0.5			—	—			130.1			(130.0		)	(0.1		)	—	—
Cash flows provided by (used in) financing activities	14.1			(92.7		)	0.5			—	(78.1		)	58.0			(139.2		)	(0.1		)	—	(81.3		)
Net change	(2.2		)	(10.2		)	0.4			—	(12.0		)	(9.9		)	(18.5		)	0.1			—	(28.3		)
Beginning cash and equivalents	9.9			50.4			0.4			—	60.7			9.9			50.4			0.4			—	60.7
Ending cash and equivalents	$	7.7		$	40.2		$	0.8		—	$	48.7		$	—		$	31.9		$	0.5		—	$	32.4

Supplemental Condensed Consolidating Statement of Cash Flows

For the ~~Three~~Six Months Ended ~~March 31,~~June 30, 2011

(In ~~millions)~~millions⁽¹⁾)


	Parent			Combined Guarantor Subsidiaries			Combined Non-guarantor Subsidiaries			Eliminations and Reclassification	Consolidated			Parent			Combined Guarantor Subsidiaries			Combined Non-guarantor Subsidiaries			Eliminations and Reclassification	Consolidated
Cash flows provided by (used in) operating activities	$	(26.3	)	$	76.3		$	0.5		—	$	50.5		$	(79.7	)	$	127.4		$	0.5		—	$	48.2
Investing cash flows
Additions to property and equipment	(1.3		)	(2.5		)	—			—	(3.8		)	(4.0		)	(9.5		)	—			—	(13.5		)
Principal receipts from long-term receivables	—			3.4			—			—	3.4			—			7.1			—			—	7.1
Proceeds from sale of assets	—			54.6			—			—	54.6			—			55.5			—			—	55.5
Other	—			(0.2		)	—			—	(0.2		)	—			(0.6		)	—			—	(0.6		)
Cash flows provided by (used in) investing activities	(1.3		)	55.3			—			—	54.0			(4.0		)	52.5			—			—	48.5
Financing cash flows
Revolving credit borrowings														25.0			—			—			—	25.0
Revolving credit repayments														(25.0		)								(25.0		)
Payment of debt	(145.3		)	(3.5		)	—			—	(148.8		)	(153.4		)	(6.8		)	—			—	(160.2		)
Payment of debt issuance costs	(12.2		)	—			—			—	(12.2		)	(12.3		)	—			—			—	(12.3		)
Restricted cash	—			(2.4		)	—			—	(2.4		)	—			1.5			—			—	1.5
Other	6.2			0.8			—			—	7.0			6.2			0.3			—			—	6.5
Intercompany transfers	169.6			(169.3		)	(0.3		)	—	—			226.6			(225.0		)	(1.6		)	—	—
Cash flows provided by (used in) financing activities	18.3			(174.4		)	(0.3		)	—	(156.4		)	67.1			(230.0		)	(1.6		)	—	(164.5		)
Net change	(9.3		)	(42.8		)	0.2			—	(51.9		)	(16.6		)	(50.1		)	(1.1		)	—	(67.8		)
Beginning cash and equivalents	23.4			77.3			1.6			—	102.3			23.4			77.3			1.6			—	102.3
Ending cash and equivalents	$	14.1		$	34.5		$	1.8		—	$	50.4		$	6.8		$	27.2		$	0.5		—	$	34.5

⁽¹⁾ Supplemental statements presented in millions may not add due to rounding from Consolidated Statements presented in thousands.

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DineEquity, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements (Continued)

15. Subsequent Events

On ~~April 30,~~July 20, 2012, the Company entered into an asset purchase agreement for the refranchising and sale of related restaurant assets of 3965 Applebee's company-operated restaurants located in ~~Virgina.~~Michigan. This transaction is expected to close inby the end of fiscal ~~third quarter~~2012. A gain will be recognized upon the close of ~~2012.~~the transaction.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Statement Regarding Forward-Looking Statements

Statements contained in this report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to be materially different from those expressed or implied in such statements. You can identify these forward-looking statements by words such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “plan” and other similar expressions. You should consider our forward-looking statements in light of the risks discussed under the heading “Risk Factors” in our most recent Annual Report on Form 10-K, as well as our consolidated financial statements, related notes, and the other financial information appearing elsewhere in this report and our other filings with the United States Securities and Exchange Commission. The forward-looking statements contained in this report are made as of the date hereof and the Company assumes no obligation to update or supplement any forward-looking statements.

You should read the following Management's Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this report.

Overview

The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in Item 1 of Part I of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. Except where the context indicates otherwise, the words “we,” “us,” “our” and the “Company” refer to DineEquity, Inc., together with its subsidiaries that are consolidated in accordance with United States generally accepted accounting principles (“U.S. GAAP”).

The Company was incorporated under the laws of the State of Delaware in 1976. The first International House of Pancakes^® (“IHOP”) restaurant opened in 1958 in Toluca Lake, California. Since that time, the Company or its predecessors have engaged in the development, operation, franchising and licensing of IHOP restaurants. In November 2007, we acquired Applebee’s International, Inc. (“Applebee’s”), which became a wholly-owned subsidiary of the Company. Through various IHOP and Applebee’s subsidiaries, we own, operate and franchise two restaurant concepts in the casual dining and family dining categories of the food service industry: Applebee’s Neighborhood Grill and Bar^® and IHOP^®. DineEquity, Inc. is the parent of the IHOP and Applebee’s subsidiaries. References herein to Applebee’s and IHOP restaurants are to these two restaurant concepts, whether operated by franchisees, area licensees or the Company. References herein to “system sales” include retail sales at restaurants that are owned by franchisees and area licensees and are not attributable to the Company, as well as retail sales at company-operated restaurants.

Domestically, IHOP restaurants are located in all 50 states and the District of Columbia while Applebee's restaurants are located in every state except Hawaii. Internationally, IHOP restaurants are located in two United States territories and three foreign countries; Applebee's restaurants are located in one United States territory and 15 foreign countries. With over 3,500 franchised ~~or owned-and-operated~~and company-operated restaurants combined, we ~~believe we~~ are one of the largest full-service restaurant ~~company~~companies in the world.

Franchise Business Model

As of June 30, 2012, our system-wide restaurant portfolio was 95.0% franchised and consisted of the following:



	June 30, 2012
	Applebee's		IHOP		Total
Domestic:
Franchise/area license restaurants	1,710		1,503		3,213
Company-operated restaurants	160		17		177
International:
Franchise/area license restaurants	148		37		185
Total	2,018		1,557		3,575
Percentage franchised	92.1	%	98.9	%	95.0	%

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Since the completion of the Applebee’s acquisition, we have been pursuing a strategy to transition Applebee's from a system that was 74% franchised at the time of the acquisition to a 99% franchised Applebee's system, similar to IHOP’s 99% franchised system. We believe a highly franchised business model requires less capital investment, generates higher gross profit margins and reduces the volatility of free cash flow performance over time, as compared to a model based on operating a significant number of company restaurants.

During the ~~three~~six months ended ~~March 31,~~June 30, 2012, we completed the refranchising and sale of related restaurant assets of 17 Applebee's company-operated restaurants in a six-state market area geographically centered around Memphis, Tennessee. We now have refranchised 342 Applebee's company-operated restaurants since the acquisition and are planning to refranchise the remaining 160 Applebee's company-operated restaurants over the next several years, except for 20-30 restaurants in the Kansas City area that will be retained as a Company market.

OnIn April ~~30,~~ 2012, ~~the Company~~we entered into an asset purchase agreement for the refranchising and sale of related restaurant assets of 39 Applebee's company-operated restaurants located in ~~Virgina. This transaction is expected to close in the fiscal third quarter of 2012.~~

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~~As of~~ ~~March 31,~~Virginia. In May 2012,~~, our system-wide restaurant portfolio was~~ ~~95.2%~~ ~~franchised and consisted of the following:~~

March 31, 2012
Applebee's
IHOP Total
Domestic:
Franchise/Area license 1,710
1,505
3,215
Company 160
12
172
International:
Franchise/Area license 151
37
188
Total 2,021
1,554
3,575
Percentage franchised 92.1 % 99.2 % 95.2 %

~~A range of factors, including the overall market~~ we entered into an asset purchase agreement for restaurant franchises, the availability of financing and the financial and operating performance of Applebee’s company-owned restaurants, can impact the likelihood and timing of the completion of this strategy as well as the ultimate proceeds we will receive from the refranchising and sale of related restaurant assets of company-operated restaurants. We continually monitor these factors to assess their impact on possible refranchising transactions. We may choose to suspend or revise our refranchising strategy for Applebee’s33 Applebee's company-operated restaurants iflocated primarily in Missouri and Indiana. In July, 2012, we ~~do not believe that conditions will lead to satisfactory proceeds from~~entered into an asset purchase agreement for the refranchising ~~of the Applebee’s company-operated restaurants~~ and sale of related restaurant ~~assets.~~

assets of 65 Applebee's company-operated restaurants located in Michigan. All of these transactions are expected to close by the end of fiscal 2012. Upon consummation of these transactions, we will have refranchised all Applebee's company-operated restaurants, except for 23 restaurants in the Kansas City area that will be retained as a Company market; upon consummation of these transactions, 99% of DineEquity's restaurants will be franchised.

Key Performance Indicators

In evaluating and assessing the performance of our business units, we consider our key operating performance indicators to be: (i) percentage change in domestic system-wide same-restaurant sales for Applebee's and IHOP; (ii) net franchise restaurant development and restaurants refranchised for Applebee's and IHOP; and (iii) Applebee's company-operated restaurant operating ~~margin; (iv) consolidated cash from operations; and (v) consolidated free cash flow.~~margin. An overview of ~~our performance in~~ these metrics for the ~~three~~six months ended ~~March 31,~~June 30, 2012 is as follows:


	Applebee's	IHOP		DineEquity		Applebee's	IHOP
Percentage change in system-wide domestic same-restaurant sales	1.2%	(0.5	)%	—		1.0%	(0.9)%
Net Franchise restaurant development	2	4		—		(1)	7
Restaurants refranchised	17	3		—		17	4
Restaurant operating margin	17.8%	n/a		—		17.3%	n/a
Consolidated cash from operations (millions)	—	—		$	44.7
Consolidated free cash flow (millions)	—	—		$	44.0

n/a - not applicable given relatively small number and test-market nature of IHOP company restaurants

We consider cash from operations and free cash flow (cash provided by operating activities, plus receipts from notes, equipment contracts and other long-term receivables, less additions to property and equipment) to be key indicators of consolidated performance. Cash from operations and free cash flow for the six months ended June 30, 2012 were $36.4 million and $32.3 million, respectively.

Additional information on each of these metrics is presented under the captions "Restaurant Data," "Restaurant Development Activity," "Company Restaurant Operations" and "Liquidity and Capital Resources" that follow.

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Restaurant Data

The following table sets forth, for the three and six months ended ~~March 31,~~June 30, 2012 and 2011, the number of effective restaurants in the Applebee’s and IHOP systems and information regarding the percentage change in sales at those restaurants compared to the same periods in the prior year. “Effective restaurants” are the number of restaurants in a given period, adjusted to account for restaurants open for only a portion of the period. Information is presented for all effective restaurants in the Applebee’s and IHOP systems, which includes restaurants owned by the Company, as well as those owned by franchisees and area licensees. Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company. However, we believe that presentation of this information is useful in analyzing our revenues because franchisees and area licensees pay us royalties and advertising fees that are generally based on a percentage of their sales, as well as rental payments under leases that are usually based on a percentage of their sales. Management also uses this information to make decisions about future plans for the development of additional restaurants as well as evaluation of current operations.



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
	(unaudited)
Applebee's Restaurant Data
Effective restaurants(a)
Franchise	1,859			1,767			1,857			1,753
Company	160			244			161			257
Total	2,019			2,011			2,018			2,010
System-wide(b)
Sales percentage change(c)	1.2		%	3.8		%	1.4		%	4.1		%
Domestic same-restaurant sales percentage change(d)	0.7		%	3.1		%	1.0		%	3.5		%
Franchise(b)(f)
Sales percentage change(c)	5.5		%	13.5		%	6.4		%	13.3		%
Domestic same-restaurant sales percentage change(d)	0.5		%	3.5		%	0.8		%	3.9		%
Average weekly domestic unit sales (in thousands)	$	46.9		$	46.8		$	48.5		$	48.5
Company (f)
Sales percentage change(c)	(31.8		)%	(36.9		)%	(34.2		)%	(34.1		)%
Same-restaurant sales percentage change(d)	3.1		%	0.7		%	3.5		%	0.7		%
Average weekly domestic unit sales (in thousands)	$	42.7		$	41.1		$	43.9		$	41.8



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
	(unaudited)
IHOP Restaurant Data
Effective restaurants(a)
Franchise	1,377			1,339			1,375			1,334
Area license	164			163			164			164
Company	14			10			13			10
Total	1,555			1,512			1,552			1,508
System-wide(b)
Sales percentage change(c)	1.9		%	1.1		%	2.4		%	1.2		%
Domestic same-restaurant sales percentage change(d)	(1.4		)%	(2.9		)%	(0.9		)%	(2.8		)%
Franchise(b)
Sales percentage change(c)	1.7		%	0.9		%	2.2		%	1.2		%
Domestic same-restaurant sales percentage change(d)	(1.3		)%	(2.8		)%	(0.8		)%	(2.8		)%
Average weekly domestic unit sales (in thousands)	$	33.8		$	34.2		$	34.4		$	34.7

Company (e)	n/a			n/a			n/a			n/a

Area License(b)
Sales percentage change(c)	3.2		%	3.0		%	3.3		%	1.6		%

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Three Months Ended March 31,
2012 2011 2012 2011
Applebee's IHOP
(unaudited)
Restaurant Data

Effective restaurants(a)

Franchise 1,855
1,738
1,374
1,329
Company 163
271
13
10
Area license —
—
164
165
Total 2,018
2,009
1,551
1,504
System-wide(b)

Sales percentage change(c) 1.7 % 4.4 % 2.9 % 1.3 %
Domestic same-restaurant sales percentage change(d) 1.2 % 3.9 % (0.5 )% (2.7 )%
Franchise(b)(e)(g)

Sales percentage change(c) 7.2 % 13.1 % 2.8 % 1.4 %
Domestic same-restaurant sales percentage change(d) 1.0 % 4.3 % (0.5 )% (2.7 )%
Average weekly domestic unit sales (in thousands) $ 50.1
$ 50.1
$ 35.0
$ 35.2
Company (f)(g)

Sales percentage change(c) (36.2 )% (31.6 )% n/a
n/a
Same-restaurant sales percentage change(d) 3.9 % 0.7 % n/a
n/a
Average weekly domestic unit sales (in thousands) $ 45.1
$ 42.5
n/a
n/a
Area License(e)
Sales percentage change(c) —
—
3.4 % 0.3 %

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

(b) “System-wide” sales are retail sales at Applebee’s restaurants operated by franchisees and IHOP restaurants operated by franchisees and area licensees, as reported to the Company, in addition to retail sales at company-operated restaurants. Sales at restaurants that are owned by franchisees and area licensees are not attributable to the Company. Applebee's domestic franchise restaurant sales, IHOP franchise restaurant sales and IHOP area license restaurant sales for the three and six months ended June 30, 2012 and 2011 were as follows:



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
	(In millions)
Reported sales (unaudited)
Applebee's franchise restaurant sales	$	1,042.5	$	987.7	$	2,154.0	$	2,024.5
IHOP franchise restaurant sales	$	604.8	$	594.8	$	1,229.8	$	1,202.8
IHOP area license restaurant sales	$	58.5	$	56.6	$	120.8	$	116.9

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

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

(e) ~~Applebee's domestic franchise restaurant sales, IHOP franchise restaurant sales and IHOP area license restaurant sales for the three months ended March 31, 2012 and 2011 were as follows:~~

Three Months Ended
March 31,
2012 2011
(In millions)
Reported sales (unaudited)

Applebee’s franchise restaurant sales $ 1,111.5
$ 1,036.8
IHOP franchise restaurant sales $ 624.9
$ 608.0
IHOP area license restaurant sales $ 62.3
$ 60.3

~~(f)~~ Sales percentage change and same-restaurant sales percentage change for IHOP company-operated restaurants are not applicable (“n/a”) due to the relatively small number and test-market nature of the restaurants, along with the periodic inclusion of restaurants reacquired from franchisees that are temporarily operated by the ~~Company.~~Company in the sales percentage change.

~~(g)~~(f) The sales percentage change for the three and six months ended ~~March 31,~~June 30, 2012 and 2011 for Applebee’s franchise and company-operated restaurants was impacted by the refranchising of 17 company-operated restaurants in 2012 and 132 company-operated restaurants during 2011.

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Restaurant Development Activity

The following table summarizes Applebee’s restaurant development and franchising activity:


	Three Months Ended				Three Months Ended				Six Months Ended
	March 31,				June 30,				June 30,
	2012		2011		2012		2011		2012		2011
	(unaudited)				(unaudited)
Applebee’s Restaurant Development Activity
Beginning of period	2,019		2,010		2,021		2,011		2,019		2,010
New openings
Franchise	6		3		3		5		9		8
Total new openings	6		3		3		5		9		8
Closings
Company	—		—
Franchise	(4	)	(2	)	(6	)	(4	)	(10	)	(6	)
Total closings	(4	)	(2	)	(6	)	(4	)	(10	)	(6	)
End of period	2,021		2,011		2,018		2,012		2,018		2,012
Summary - end of period
Franchise	1,861		1,767		1,858		1,768		1,858		1,768
Company	160		244		160		244		160		244
Total	2,021		2,011		2,018		2,012		2,018		2,012
Restaurant Franchising Activity
Domestic franchise openings	1		3		2		3		3		6
International franchise openings	5		—		1		2		6		2
Refranchised	17		65		—		—		17		65
Total restaurants franchised	23		68		3		5		26		73
Closings
Domestic franchise	(2	)	(1	)	(2	)	(1	)	(4	)	(2	)
International franchise	(2	)	(1	)	(4	)	(3	)	(6	)	(4	)
Total franchise closings	(4	)	(2	)	(6	)	(4	)	(10	)	(6	)
Net franchise restaurant additions (reductions)	19		66
Net franchise restaurant (reductions) additions					(3	)	1		16		67

In 2012, we expect Applebee's franchisees to open a total of 2530 to 3040 new Applebee's ~~franchise restaurants.~~restaurants, approximately half of which are expected to be opened domestically. We currently do not plan to open any company-operated restaurants. The following table represents commitments for 2012-2013 by franchisees under development agreements to develop Applebee's restaurants. We disclose development commitments for only a two-year period as the Applebee's development agreements generally provide for a series of two-year development commitments after the initial development period.

Contractual Opening of
Restaurants by Year
2012 2013
Domestic development agreements 20 39
International development agreements 16 10
Total 36 49

The actual number of openings may differ from both our expectations and development commitments due to various factors, including economic conditions, franchisee access to capital, and the impact of currency fluctuations on our international franchisees. The timing of new restaurant openings also may be affected by various factors including weather-related and other construction delays and difficulties in obtaining regulatory approvals.

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The following table summarizes IHOP restaurant development and franchising activity:

Three Months Ended
March 31,
2012 2011
(unaudited)
IHOP Restaurant Development Activity

Beginning of period 1,550
1,504
New openings

Franchise 10
11
Area license —
2
Total new openings 10
13
Closings

Franchise (5 ) (3 )
Area license (1 ) (1 )
Total closings (6 ) (4 )
End of period 1,554
1,513
Summary - end of period

Franchise 1,377
1,338
Company 12
10
Area license 165
165
Total 1,554
1,513
Restaurant Franchising Activity

Domestic franchise openings 9
8
International franchise openings 1
3
Area license openings —
2
Refranchised 3
1
Total restaurants franchised 13
14
Closings

Domestic franchise (5 ) (3 )
Area license (1 ) (1 )
Total franchise closings (6 ) (4 )
Reacquired by the Company —
—
Net franchise restaurant additions 7
10

~~The following table represents IHOP restaurant development commitments, including options, as of~~ ~~March 31, 2012~~:

Number of Contractual Openings of Restaurants by Year
Signed Agreements at 3/31/12 Rest of 2012 2013 2014 2015 2016 and
thereafter Total
Single-store development agreements 7 6 1 — — — 7
Multi-store development agreements 45 31 35 27 21 28 142
Multi-store development options 6 — — — 3 57 60
International territory agreements 6 6 9 10 13 23 61
International territory options 3 — 2 1 2 7 12
Total 67 43 47 38 39 115 282



	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
	(unaudited)
IHOP Restaurant Development Activity
Beginning of period	1,554		1,513		1,550		1,504
New openings
Franchise	5		12		15		23
Area license	1		—		1		2
Total new openings	6		12		16		25
Closings
Franchise	(2	)	—		(7	)	(3	)
Area license	(1	)	(3	)	(2	)	(4	)
Total closings	(3	)	(3	)	(9	)	(7	)
End of period	1,557		1,522		1,557		1,522
Summary - end of period
Franchise	1,375		1,349		1,375		1,349
Area license	165		162		165		162
Company	17		11		17		11
Total	1,557		1,522		1,557		1,522
Restaurant Franchising Activity
Domestic franchise openings	5		9		14		17
International franchise openings	—		3		1		6
Area license openings	1		—		1		2
Refranchised	1		—		4		1
Total restaurants franchised	7		12		20		26
Closings
Domestic franchise	(2	)	—		(7	)	(3	)
International franchise	—		—		—		—
Area license	(1	)	(3	)	(2	)	(4	)
Total franchise closings	(3	)	(3	)	(9	)	(7	)
Reacquired by the Company	(6	)	(1	)	(6	)	(1	)
Net franchise restaurant (reductions) additions	(2	)	8		5		18

In 2012, we expect IHOP franchisees to open a total of 45 to 55 new IHOP restaurants, primarily in the domestic market. The actual number of openings in any period may differ from both our expectations and the number of signed commitments. Historically, the actual number of restaurants developed in a particular year has been less than the total number committed to be developed due to various factors including weather-related delays, other construction delays, difficulties in obtaining timely regulatory approvals, franchisee noncompliance with development agreements and various economic factors. We currently do not plan to open any new IHOP company-operated restaurants. The number of IHOP company-operated restaurants increased during the second quarter of 2012 due to the takeback of six franchise restaurants whose franchise agreements were terminated.

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Significant Known Events, Trends or Uncertainties Impacting or Expected to Impact Comparisons of Reported or Future Results

Sales Trends


	Domestic System-wide Same-restaurant Sales																		Domestic System-wide Same-restaurant Sales
	Increase (Decrease)																		Increase (Decrease)
	2010								2011								2012		2010								2011								2012
	Q1		Q2		Q3		Q4		Q1		Q2		Q3		Q4		Q1		Q1		Q2		Q3		Q4		Q1		Q2		Q3		Q4		Q1		Q2
Applebee’s
Quarter	(2.7	)%	(1.6	)%	3.3	%	2.9	%	3.9	%	3.1	%	(0.3	)%	1.0	%	1.2	%	(2.7	)%	(1.6	)%	3.3	%	2.9	%	3.9	%	3.1	%	(0.3	)%	1.0	%	1.2	%	0.7	%
YTD	(2.7	)%	(2.2	)%	(0.5	)%	0.3	%	3.9	%	3.5	%	2.3	%	2.0	%	1.2	%	(2.7	)%	(2.2	)%	(0.5	)%	0.3	%	3.9	%	3.5	%	2.3	%	2.0	%	1.2	%	1.0	%
IHOP
Quarter	(0.4	)%	(1.0	)%	0.1	%	1.1	%	(2.7	)%	(2.9	)%	(1.5	)%	(1.0	)%	(0.5	)%	(0.4	)%	(1.0	)%	0.1	%	1.1	%	(2.7	)%	(2.9	)%	(1.5	)%	(1.0	)%	(0.5	)%	(1.4	)%
YTD	(0.4	)%	(0.7	)%	(0.4	)%	0.0	%	(2.7	)%	(2.8	)%	(2.4	)%	(2.0	)%	(0.5	)%	(0.4	)%	(0.7	)%	(0.4	)%	0.0	%	(2.7	)%	(2.8	)%	(2.4	)%	(2.0	)%	(0.5	)%	(0.9	)%

Applebee’s domestic system-wide same-restaurant sales increased ~~1.2%~~0.7% for the three months ended ~~March 31,~~June 30, 2012, the ~~sixth~~seventh positive quarter of the most recent ~~seven quarters and a sequential improvement over the fourth quarter of 2011.~~eight quarters. The increase in the ~~first~~second quarter of 2012 was driven primarily by an increase in system-wide guest check, ~~and an increase in guest traffic at company-operated restaurants,~~ partially offset by a decline in guest traffic at franchise restaurants. The higher guest check came from an increase in menu pricing and from favorable product mix changes.

We are focusing our efforts on driving sales and traffic growth while improving the guest experience by providing value and variety that is unique to Applebee's. Our signature "2 for $20" menu offerings continue to resonate with our guests, especially when we update this value proposition with new menu items. In addition to menu innovation, we are focusing on both excellence and execution at the restaurant level in every aspect of operations. In July, we launched Applebee's new campaign, “See You Tomorrow^SM,” which communicates that we are doing whatever it takes to make sure our guests return. The campaign includes TV, radio, online, and outdoor ads to encourage repeat visits by highlighting Applebee's new Fresh Flavors of Summer menu and the everyday value our guests have come to expect. Our remodel program continued to progress at a steady pace as, when combined with new openings, 42% of Applebee's domestic system restaurants have the revitalized look.

IHOP’s domestic system-wide same-restaurant sales decreased ~~0.5%~~1.4% for the three months ended ~~March 31,~~June 30, 2012. The decrease was primarily due to a decline in guest traffic, ~~which we believe was due in part to certain promotions during the quarter that did not drive sales as much as expected,~~ partially offset by an increase in average guest check.

We are addressing the traffic decline with a rollout of programs aimed at improving guest satisfaction and driving sales. We completed the rollout of two key components of our "Operations Improvement Plan": Service Excellence and Operations Evaluations. These programs are designed to work in tandem to both raise the bar on providing guests with an exceptional dining experience and set high operating standards. In May, we launched a new advertising campaign, “IHOP. Everything You Love About Breakfast^SM,” refocusing on what we do best and what we know is our heritage - breakfast. Our brand positioning is to redefine the American breakfast experience, making IHOP the destination of choice for breakfast any time of day.

With respect to both brands, same-restaurant sales for the first ~~three~~six months of 2012 are not necessarily indicative of results expected for the full year.

Financial Statement Effect of Refranchising Company-Operated Restaurants

As discussed under “Franchise Business Model” above, we have been pursuing a strategy to transition Applebee's to a system that is 99% franchised. As the number of company-operated restaurants declines, the amount reported in future periods for company-operated restaurant revenues and expenses will also decline while franchise royalty revenues and expenses will increase, as compared to amounts reported in previous periods. Segment profit will also decline as company-operated restaurants are refranchised because ~~the~~ associated royalties from franchised restaurants are a smaller percentage of restaurant revenues than the restaurant operating profit margin percentage of company-operated restaurants. In addition, changes in same-restaurant sales will create less of an impact on changes in operating income once the Applebee's system is 99% franchised. Refranchising of additional Applebee’s company-operated restaurants will result in the reduction of interest expense as proceeds from the sale of related restaurant assets ~~(subject to certain exclusions)~~ must be used to retire ~~debt.~~debt (subject to certain exclusions). Refranchising of additional Applebee’s company-operated restaurants also will result in a reduction of both general and administrative expenses ("G&A") and capital investment in restaurant assets.

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General and Administrative Expenses

In addition to a reduction in G&A resulting from the refranchising and sale of related assets of Applebee's company-operated restaurants, a comprehensive review of our organizational structure as a 99% franchised company has identified further potential G&A savings, primarily resulting from headcount reductions. We anticipate that these savings will begin to be realized in the fourth quarter of 2012.

Comparison of the Three Months ended ~~March 31,~~June 30, 2012 and 2011

Results of Operations

Key components of changes in our financial results for the three months ended ~~March 31,~~June 30, 2012 compared to the same period of 2011 are ~~as follows:~~summarized below and discussed in the sections that follow:

Revenue decreased $~~54.6~~38.9 million, primarily due to the refranchising of Applebee's company-operated restaurants and a ~~0.5%~~1.4% decrease in IHOP domestic same-restaurant sales, partially offset by higher franchise royalty revenues resulting from the increase in Applebee’s and IHOP effective franchise ~~units~~restaurants and a ~~1.2%~~0.7% increase in Applebee's domestic same-restaurant ~~sales.~~sales;

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Segment profit decreased $~~2.2~~2.0 million, comprised as follows:


	Three Months Ended				Favorable (Unfavorable)			Three Months Ended				Favorable (Unfavorable)
	March 31,				Favorable (Unfavorable)			June 30,				Favorable (Unfavorable)
	2012		2011		Variance			2012		2011		Variance
	(In millions)							(In millions)
Franchise operations	$	80.8	$	77.1	$	3.7		$	76.2	$	72.4	$	3.8
Company restaurant operations	16.7		22.9		(6.2		)	14.2		17.3		(3.1		)
Rental operations	7.5		7.6		(0.1		)	4.8		7.0		(2.2		)
Financing operations	3.6		3.2		0.4			3.1		3.6		(0.5		)
Total	$	108.6	$	110.8	$	(2.2	)	$	98.3	$	100.3	$	(2.0	)

The decline in segment profit was primarily due to the refranchising of Applebee’s company-operated restaurants and the write-off of $2.0 million of deferred rental revenue associated with franchisee-operated restaurants whose lease agreements were prematurely terminated, partially offset by an increase in effective Applebee’s and IHOP franchise restaurants and a ~~1.2%~~0.7% increase in Applebee's domestic same-restaurant ~~sales.~~sales;

Impairment and closure charges decreased$21.7 million as costs of $21.3 million recorded in the second quarter of 2011 related to the termination of our sublease of commercial space previously occupied by the Applebee's Restaurant Support Center in Lenexa, Kansas did not recur;

Interest expense decreased $~~6.1~~3.2 million due to our reduction of debt balances ~~and~~over the ~~February 2011 amendment to our Credit Agreement dated as of October 8, 2010 (the "Credit Agreement") that reduced the interest rate on term loan borrowings by 1.75%.~~past 12 months; and

General and administrative ("G&A") expenses decreased$1.2 million, primarily due to lower personnel costs and professional services expenses, partially offset by higher occupancy costs.

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Franchise Operations


	Three Months Ended						Favorable (Unfavorable)						Three Months Ended						Favorable (Unfavorable)
	March 31,											June 30,							Favorable (Unfavorable)
	2012			2011			Favorable (Unfavorable)	Variance			% Change ⁽¹⁾			2012			2011			Variance			% Change ⁽¹⁾
	(In millions)												(In millions)
Franchise Revenues
Applebee’s	$	47.5		$	45.3		$	2.2		5.0	%		$	46.2		$	42.9		$	3.3		7.8	%
IHOP	41.2			40.1			1.1			2.5	%		37.3			37.0			0.3			0.8	%
IHOP advertising	19.7			19.1			0.6			3.2	%		19.0			18.7			0.3			1.4	%
Total franchise revenues	108.4			104.5			3.9			3.7	%		102.5			98.6			3.9			4.0	%
Franchise Expenses
Applebee’s	0.8			0.6			(0.2		)	(21.6	)%		1.1			1.0			(0.1		)	(22.2	)%
IHOP	7.1			7.7			0.6			7.2	%		6.2			6.5			0.3			5.1	%
IHOP advertising	19.7			19.1			(0.6		)	(3.2	)%		19.0			18.7			(0.3		)	(1.4	)%
Total franchise expenses	27.6			27.4			(0.2		)	(0.7	)%		26.3			26.2			(0.1		)	(0.5	)%
Franchise Segment Profit
Applebee’s	46.8			44.7			2.1			4.7	%		45.1			41.9			3.2			7.5	%
IHOP	34.0			32.4			1.6			4.8	%		31.1			30.5			0.6			2.0	%
Total franchise segment profit	$	80.8		$	77.1		$	3.7		4.8	%		$	76.2		$	72.4		$	3.8		5.2	%
Segment profit as % of revenue ⁽¹⁾	74.4		%	72.5		%							74.3		%	73.4		%

_____________________________________________________

⁽¹⁾ Percentages calculated on actual amounts, not rounded amounts presented above

The $~~2.2~~3.3 million increase in Applebee’s franchise revenue was primarily attributable to increased royalty revenue resulting from the refranchising of ~~149~~84 Applebee’s company-operated restaurants in the ~~last fifteen~~past 12 months, franchise fees from franchise extension agreements and a ~~1.0%~~0.5% increase in domestic same-restaurant sales. The $~~1.1~~0.3 million increase in IHOP franchise revenue (other than advertising) was primarily attributable to a ~~3.4%~~2.8% increase in effective franchise restaurants partially offset by a decrease of ~~0.5%~~1.3% in IHOP domestic franchise same-restaurant sales. The ~~$0.6~~$0.3 milliondecrease in IHOP franchise expenses was primarily due to lower bad debt ~~expenses.~~expense.

IHOP’s franchise expenses are substantially larger than Applebee’s due to advertising expenses. Franchise fees designated for IHOP’s national advertising fund and local marketing and advertising cooperatives are recognized as revenue and expense of franchise operations; however, Applebee’s national advertising fund activity constitutes an agency transaction and therefore is not recognized as franchise revenue and expense. The increase in IHOP advertising revenue and expense is primarily due to the increase in effective franchise restaurants partially offset by the decrease in domestic franchise same-restaurant sales.

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The increase in franchise segment profit is primarily due to an increase in effective franchise restaurants due to the refranchising of Applebee’s company-operated restaurants and IHOP franchise development.

Company Restaurant Operations


	Three Months Ended						Favorable (Unfavorable)						Three Months Ended						Favorable (Unfavorable)
	March 31,											June 30,							Favorable (Unfavorable)
	2012			2011			Favorable (Unfavorable)	Variance			% Change ⁽¹⁾			2012			2011			Variance			% Change ⁽¹⁾
	(In millions)												(In millions)
Company restaurant sales	$	100.9		$	154.7		$	(53.8	)	(34.8	)%		$	93.8		$	134.6		$	(40.8	)	(30.3	)%
Company restaurant expenses	84.2			131.8			47.6			36.1	%		79.6			117.3			37.7			32.1	%
Company restaurant segment profit	$	16.7		$	22.9		$	(6.2	)	(27.2	)%		$	14.2		$	17.3		$	(3.1	)	(18.0	)%
Segment profit as % of revenue ⁽¹⁾	16.6		%	14.8		%							15.2		%	12.9		%

⁽¹⁾ Percentages calculated on actual amounts, not rounded amounts presented above

As of ~~March 31,~~June 30, 2012, company restaurant operations were comprised of 160 Applebee’s company-operated restaurants and 1217 IHOP company-operated restaurants. The impact of the IHOP company-operated restaurants on all comparisons of the three months ended ~~March 31,~~June 30, 2012 with the same period of 2011 was negligible.

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Consolidated company restaurant sales decreased $~~53.8~~40.8 million. Applebee’s company restaurant sales decreased $~~54.5~~41.6 million, primarily due to the refranchising of ~~149~~84 company-operated restaurants in the ~~last fifteen~~past 12 months ~~(65 in the first quarter of 2011, one~~(one in the third quarter of 2011, 66 in the fourth quarter of 2011 and 17 in the first quarter of 2012), partially offset by an increase in company same-restaurant sales of ~~3.9%~~3.1%. The change in same-restaurant sales was driven by an increase in ~~both guest traffic and average guest check. The higher~~ average guest check ~~is the result~~due to an increase of an approximately ~~1.8% increase~~2.3% in ~~menu~~ pricing and favorable product mix changes.

Consolidated company restaurant expenses decreased $~~47.6~~37.7 million. Applebee’s company restaurant expenses decreased $~~48.5~~39.0 million, of which ~~$49.9~~$38.7 million was due to the refranchising of the ~~149 Applebee’s~~84 Applebee's company-operated restaurants noted ~~above, partially offset by higher food costs.~~above. The restaurant operating profit for ~~Applebee’s~~Applebee's company restaurant operations increased to ~~17.8%~~16.9% for the first quarter of 2012 compared to ~~15.3%~~13.4% for the same period of last year, as shown below:


					Favorable (Unfavorable)										Favorable (Unfavorable)
	Three Months Ended						Components of Total Variance				Three Months Ended						Components of Total Variance
Applebee's Company-Operated Expenses	March 31,				Total		Refranchising		Current		June 30,				Total		Refranchising		Current
As Percentage of Restaurant Sales	2012		2011		Variance		and Closures		Restaurants		2012		2011		Variance		and Closures		Restaurants
Revenue	100.0	%	100.0	%							100.0	%	100.0	%
Food and beverage	25.8	%	25.0	%	(0.8	)%	0.1	%	(0.9	)%	26.2	%	26.1	%	(0.1	)%	(0.1	)%	0.0	%
Labor	31.8	%	32.4	%	0.6	%	0.3	%	0.3	%	32.7	%	33.7	%	1.0	%	0.2	%	0.8	%
Direct and occupancy	24.6	%	27.3	%	2.7	%	0.8	%	1.9	%	24.2	%	26.8	%	2.6	%	0.6	%	2.0	%
Restaurant Operating Profit Margin ^(a)	17.8	%	15.3	%	2.5	%	1.2	%	1.3	%
Restaurant Operating Profit Margin ⁽¹⁾											16.9	%	13.4	%	3.5	%	0.6	%	2.8	%

^(a)(1) Percentages may not add due to rounding

The restaurant refranchising and closures discussed above had a net favorable impact of ~~1.2%~~0.6% on margins, primarily because the refranchised markets had higher-than-average labor ~~costs. There~~costs; there was also a favorable impact resulting from the cessation of depreciation charges on restaurant ~~asset~~assets held for sale. Other margin changes in specific cost categories were as follows:

Food and beverage costs as a percentage of company restaurant sales ~~increased 0.9% due to higher~~were basically flat. Changes in commodity costs ~~for~~impacting most products ~~partially~~were offset by improved control of waste and a favorable mix ~~shift and a reduction in waste.~~shift.

Labor costs as a percentage of ~~company~~ restaurant sales decreased by ~~0.3%~~0.8% due to improved productivity in hourly labor partially offset by increased costs of bonus expense, ~~due to improved restaurant performance, additional~~ management staffing and ~~salary~~ merit ~~increases.~~

25increases.

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Direct and occupancy costs as a percent of restaurant sales decreased ~~1.9%~~2.0% primarily due to ~~favorable~~lower depreciation ~~related to~~expense as the result of a ~~group~~block of ~~restaurant~~ assets that became fully depreciated in 2011 and ~~gift card discounts due to true-up of prior year estimates,~~favorable general liability insurance costs, partially offset by incremental investment in local media advertising.

Rental Operations


	Three Months Ended						Favorable (Unfavorable)						Three Months Ended						Favorable (Unfavorable)
	March 31,											June 30,							Favorable (Unfavorable)
	2012			2011			Favorable (Unfavorable)	Variance			% Change ⁽¹⁾			2012			2011			Variance			% Change ⁽¹⁾
	(In millions)												(In millions)
Rental revenues	$	32.0		$	32.2		$	(0.2	)	(0.7	)%		$	29.1		$	31.6		$	(2.5	)	(7.8	)%
Rental expenses	24.5			24.6			0.1			0.4	%		24.3			24.6			0.3			1.1	%
Rental operations segment profit	$	7.5		$	7.6		$	(0.1	)	(1.3	)%		$	4.8		$	7.0		$	(2.2	)	(205.8	)%
Segment profit as % of revenue	23.3		%	23.5		%							16.7		%	22.3		%

⁽¹⁾ Percentages calculated on actual amounts, not rounded amounts presented above

Rental operations relate primarily to IHOP franchise restaurants. Rental income includes revenue from operating leases and interest income from direct financing leases. Rental expenses are costs of prime operating leases and interest expense on prime capital leases on franchisee-operated restaurants. ~~Rental~~

The decrease in rental revenue ~~expenses~~ and rental segment profit ~~for~~is primarily due to the ~~first three months~~write-off of ~~2012~~$2.0 million of deferred lease rental revenue associated with franchise restaurants whose lease agreements were ~~consistent with the same period~~prematurely terminated.

Table of ~~the prior year.~~Contents

Financing Operations


	Three Months Ended						Favorable (Unfavorable)						Three Months Ended						Favorable (Unfavorable)
	March 31,											June 30,
	2012			2011			Favorable (Unfavorable)	Variance			% Change ⁽¹⁾			2012			2011		Favorable (Unfavorable)		Variance		% Change ⁽¹⁾
	(In millions)												(In millions)
Financing revenues	$	4.3		$	8.7		$	(4.4	)	(50.9	)%		$	4.0		$	3.6		$	0.4		12.2%
Financing expenses	0.7			5.5			4.8			88.3	%		0.9			0.0			(0.9		)	n.m.
Financing operations segment profit	$	3.6		$	3.2		$	0.4		15.0	%		$	3.1		$	3.6		$	(0.5	)	(13.7)%
Segment profit as % of revenue	84.7		%	36.1		%							76.9		%	100.0		%

⁽¹⁾ Percentages calculated on actual amounts, not rounded amounts presented above

n.m. - not meaningful

All of our financing operations relate to IHOP franchise restaurants. The ~~variance~~increase in ~~both revenue and expense~~financing revenues is primarily due to refranchising transactions related to ~~a 2011 transaction in which 40~~IHOP restaurants ~~operated~~previously taken back from franchisees, partially offset by a ~~former franchisee that defaulted on its obligations under~~decrease in interest revenue due to the ~~franchise agreement were refranchised~~progressive decline in note balances as a result of repayments. The increase in financing expenses is due to ~~an affiliate~~the cost of ~~an existing IHOP franchisee. Certain equipment~~refranchising transactions related to the refranchised restaurants was sold to the new operator. Financing revenues and expenses in the first quarter of 2011 included $5.0 million and $5.2 million, respectively, related to the equipment sale.IHOP restaurants.

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Other Expense and Income Components


	Three Months Ended						Favorable (Unfavorable)						Three Months Ended				Favorable (Unfavorable)
	March 31,											June 30,					Favorable (Unfavorable)
	2012			2011			Favorable (Unfavorable)	Variance			% Change ⁽¹⁾			2012		2011		Variance			% Change ⁽¹⁾
	(In millions)												(In millions)
General and administrative expenses	$	39.7		$	38.0		$	(1.7	)	(4.4	)%		$	37.2	$	38.4	$	1.2		3.1	%
Interest expense	30.2			36.3			6.1			16.8	%		29.7		32.9		3.2			9.8	%
Impairment and closure charges	0.7			4.9			4.2			85.4	%		0.1		21.8		21.7			99.4	%
Amortization of intangible assets	3.1			3.1			—			0.0	%		3.1		3.1		—			0.0	%
Gain on disposition of assets	(16.7		)	(23.8		)	(7.1		)	(29.6	)%
Loss on disposition of assets													0.7		1.3		0.6			42.6	%
Loss on extinguishment of debt	2.6			6.9			4.3			62.4	%		—		0.9		0.9			100.0	%
Debt modification expenses	—			4.1			4.1			100.0	%
Income tax provision	17.7			11.5			(6.2		)	(54.3	)%		10.5		1.5		(9.0		)	(604.4	)%

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⁽¹⁾ Percentages calculated on actual amounts, not rounded amounts presented above

~~n.m. — percentage change not meaningful~~

General and Administrative Expenses

General and administrative expenses ~~increased~~decreased by $~~1.7~~1.2 million compared to the same period of the prior year, primarily due to ~~higher~~lower personnel costs and lower professional services expenses, partially offset by higher occupancy costs. The decrease in personnel costs was primarily lower stock-based compensation ~~severance,~~expense and ~~bonuses, partially offset by~~lower salaries and wages, in addition to payroll credits related to the relocation of the Applebee's Restaurant Support Center.

Interest Expense

Interest expense decreased by $~~6.1~~3.2 million compared to the same period of the prior year due to our reduction of debt ~~balances and the February 2011 amendment to our Credit Agreement that reduced the interest rate on term loan borrowings by 1.75%.~~balances. Average interest-bearing debt outstanding ~~(term loans,~~(our Term Loans, Senior Notes, capital lease obligations and financing obligations) during the three months ended ~~March 31,~~June 30, 2012 was approximately ~~$260~~$200 million lower than the same period of the prior year, which resulted in a decrease in interest expense of approximately $4.5 million. The additional decrease in interest expense was due to the 1.75% reduction of the interest rate on term loan borrowings.year.

Impairment and Closure Charges

Impairment and closure charges decreased by $~~4.2~~21.7 million compared to the same period of the prior year. The charges for the ~~first~~second quarter of 2012 ~~related to a parcel of land previously intended for future restaurant development and several individually insignificant franchise restaurant closures.~~were insignificant. Impairment and closure charges for the ~~first~~second quarter of 2011 were primarily comprised of ~~a $4.5~~$21.3 million ~~impairment charge~~ related to ~~furniture, fixtures and leasehold improvements at~~the termination of our sublease of the commercial space previously occupied by the Applebee's Restaurant Support Center in Lenexa, Kansas, ~~whose book value was not realizable as the result of the termination of the Company's sublease of the premises,~~ in addition to ~~$0.4~~$0.5 million ~~of costs~~in impairment and closure charges related to ~~several~~ individually insignificant ~~franchise restaurant closures.~~items.

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During the quarter ended ~~March 31,~~June 30, 2012, we performed our quarterly assessment of whether events or changes in circumstances have occurred that potentially indicate the carrying value of tangible long-lived assets may not be recoverable. No significant impairments were noted in performing that assessment. We also considered whether there were any indicators of potential impairment to our goodwill and indefinite-lived intangible assets ~~(primarily~~that primarily consist of our ~~tradename).~~trade name. No such indicators were noted.

~~Gain~~Loss on Disposition of Assets

We recognized a ~~gain~~loss on disposition of assets of $~~16.7~~0.7 million for the ~~quarter~~three months ended ~~March 31,~~June 30, 2012 compared to a ~~gain~~loss of $~~23.8~~1.3 million in the same period of 2011. ~~The gain~~There were no individually significant dispositions in 2012 was primarily due to the refranchising and sale of related restaurant assets of 17 Applebee's company-operated restaurants located in a six-state market area geographically centered around Memphis, Tennessee. The gain in 2011 was primarily due to the refranchising and sale of related restaurant assets of 36 Applebee's company-operated restaurants in the St. Louis area market and 29 Applebee's company-operated restaurants in the Washington, D.C. market.either period.

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Loss on Extinguishment of Debt

We did not recognize any loss on extinguishment of debt during the three months ended June 30, 2012. During the three months ended ~~March 31, 2012~~ ~~and~~ ~~March 31,~~June 30, 2011, ~~the Company~~we recognized ~~the following losses~~a loss on the extinguishment of ~~debt:~~debt of $0.9 million, comprised as follows:



Instrument Repaid/Retired	Face Amount Repaid/Retired		Cash Paid		Loss ⁽¹⁾

Senior Notes	$	7.5	$	8.2	$	0.9
Three months ended June 30, 2011	$	7.5	$	8.2	$	0.9

⁽¹⁾ Including write-off of the discount and deferred financing costs related to the debt retired.

We may continue to dedicate a portion of excess cash flow towards opportunistic debt retirement. Any retirement of debt results in a non-cash write-off of a pro rata portion of the discount and deferred financing costs related to the debt retired. Additionally, our Senior Notes are currently priced at a premium to their face value. Accordingly, future retirement of debt will likely result in losses associated with the retirement of either Term Loans or Senior Notes.

Provision for Income Taxes

The effective tax rate was 38.2% for the three months ended June 30, 2012 compared to 81.1% for the three months ended June 30, 2011.The effective tax rate in the prior year was higher due to an increase in unrecognized tax benefits and certain adjustments related to state deferred taxes.

Comparison of the Six Months EndedJune 30, 2012 and 2011

Results of Operations

Key components of changes in our financial results for the six months ended June 30, 2012 compared to the same period of 2011 are as follows:

Revenue decreased$93.6 million, primarily due to the refranchising of Applebee's company-operated restaurants and a 0.9%decrease in IHOP domestic same-restaurant sales, partially offset by higher franchise royalty revenues resulting from the increase in Applebee’s and IHOP effective franchise units and a 1.0%increase in Applebee's domestic system-wide same-restaurant sales.

Segment profit decreased$4.2 million, comprised as follows:



	Six Months Ended				Favorable (Unfavorable)
	June 30,				Favorable (Unfavorable)
	2012		2011		Variance
	(In millions)
Franchise operations	$	156.9	$	149.4	$	7.5
Company restaurant operations	30.9		40.3		(9.4		)
Rental operations	12.3		14.6		(2.3		)
Financing operations	6.7		6.7		—
Total	$	206.8	$	211.0	$	(4.2	)

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The decline in segment profit was primarily due to the refranchising of Applebee’s company-operated restaurants and the write-off of $2.5 million of deferred rental revenue associated with franchisee-operated restaurants whose lease agreements were prematurely terminated, partially offset by an increase in effective Applebee’s and IHOP franchise restaurants and a 1.0%increase in Applebee's domestic system-wide same-restaurant sales.

Impairment and closure charges decreased$26.0 million as costs of $26.8 million recorded in the first six months of 2011 related to the termination of our sublease of commercial space previously occupied by the Applebee's Restaurant Support Center in Lenexa, Kansas and the impairment of furniture, fixtures and leasehold improvements at that facility did not recur.

Interest expense decreased$9.3 million due to our reduction of debt balances as well as the February 2011 amendment to our Credit Agreement dated as of October 8, 2010 (the "Credit Agreement"), which reduced the interest rate on term loan borrowings by 1.75%.

Franchise Operations



	Six Months Ended						Favorable (Unfavorable)
	June 30,						Favorable (Unfavorable)
	2012			2011			Variance			% Change ⁽¹⁾
	(In millions)
Franchise Revenues
Applebee’s	$	93.8		$	88.2		$	5.6		6.4	%
IHOP	78.4			77.1			1.3			1.7	%
IHOP advertising	38.7			37.8			0.9			2.3	%
Total franchise revenues	210.9			203.1			7.8			3.8	%
Franchise Expenses
Applebee’s	1.9			1.6			(0.3		)	(21.9	)%
IHOP	13.4			14.3			0.9			6.3	%
IHOP advertising	38.7			37.8			(0.9		)	(2.3	)%
Total franchise expenses	54.0			53.7			(0.3		)	(0.6	)%
Franchise Segment Profit
Applebee’s	91.8			86.6			5.3			6.1	%
IHOP	65.1			62.8			2.2			3.5	%
Total franchise segment profit	$	156.9		$	149.4		$	7.5		5.0	%
Segment profit as % of revenue ⁽¹⁾	74.4		%	73.6		%

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⁽¹⁾ Percentages calculated on actual amounts, not rounded amounts presented above

The $5.6 millionincrease in Applebee’s franchise revenue was primarily attributable to increased royalty revenue resulting from the refranchising of 149 Applebee’s company-operated restaurants in the last eighteen months and a 0.8%increase in domestic same-restaurant sales. The $1.3 millionincrease in IHOP franchise revenue (other than advertising) was primarily attributable to a 3.1%increase in effective franchise restaurants partially offset by a decrease of (0.8)% in IHOP domestic franchise same-restaurant sales. The $0.9 milliondecrease in IHOP franchise expenses was due to lower bad debt expense.

The increase in franchise segment profit is primarily attributable to an increase in effective franchise restaurants due to the refranchising of Applebee’s company-operated restaurants and IHOP franchise development and an increase in Applebee's domestic franchise same-restaurant sales.

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Company Restaurant Operations



	Six Months Ended						Favorable (Unfavorable)
	June 30,						Favorable (Unfavorable)
	2012			2011			Variance			% Change ⁽¹⁾
	(In millions)
Company restaurant sales	$	194.7		$	289.3		$	(94.6	)	(32.7	)%
Company restaurant expenses	163.8			249.0			85.2			34.2	%
Company restaurant segment profit	$	30.9		$	40.3		$	(9.4	)	(18.0	)%
Segment profit as % of revenue ⁽¹⁾	15.9		%	13.9		%

⁽¹⁾ Percentages calculated on actual amounts, not rounded amounts presented above

As of June 30, 2012, company restaurant operations were comprised of 160 Applebee’s company-operated restaurants and 17 IHOP company-operated restaurants. The impact of the IHOP company-operated restaurants on all comparisons of the six months ended June 30, 2012 with the same period of 2011 was negligible.

Consolidated company restaurant sales decreased$94.6 million. Applebee’s company restaurant sales decreased$96.1 million, primarily due to the refranchising of 149 company-operated restaurants in the last 18 months (65 in the first quarter 2011, one in the third quarter 2011, 66 in the fourth quarter 2011 and 17 in the first quarter 2012), partially offset by an increase in company same-restaurant sales of 3.5%.The change in same-restaurant sales was driven by an increase in average guest check due to an increase of approximately 2.2% in pricing and favorable product mix changes and an increase in customer ticket counts.

Consolidated company restaurant expenses decreased$85.2 million. Applebee’s company restaurant expenses decreased$87.6 million, of which $88.7 million was due to the refranchising of the 149 Applebee’s company-operated restaurants noted above, partially offset by increased food and beverage expense. The restaurant operating profit for Applebee’s company restaurant operations increased to 17.3% for the first quarter of 2012 compared to 14.5% for the same period of last year, as shown below:



					Favorable (Unfavorable)
	Six Months Ended						Components of Total Variance
Applebee's Company-Operated Expenses	June 30,				Total		Refranchising		Current
As Percentage of Restaurant Sales	2012		2011		Variance		and Closures		Restaurants
Revenue	100.0	%	100.0	%
Food and beverage	26.0	%	25.5	%	(0.5	)%	0.0	%	(0.5	)%
Labor	32.2	%	33.0	%	0.8	%	0.2	%	0.6	%
Direct and occupancy	24.5	%	27.0	%	2.5	%	0.6	%	1.9	%
Restaurant Operating Profit Margin ⁽¹⁾	17.3	%	14.5	%	2.8	%	0.8	%	2.0	%

⁽¹⁾ Percentages may not add due to rounding

The restaurant refranchising discussed above had a net favorable impact of 0.8% on margins, primarily because the markets sold had higher-than-average labor costs along with favorability due to cessation of depreciation on restaurants held for sale. Other margin changes in specific cost categories were as follows:

Food and beverage costs as a percentage of company restaurant sales increased 0.5% due to higher commodity costs impacting most products, partially offset by a reduction in waste.

Labor costs as a percentage of restaurant sales decreased by 0.6% due to improved productivity in hourly labor partially offset by increased bonus expense and management staffing.

Direct and occupancy costs as a percent of restaurant sales decreased 1.9% primarily due to lower depreciation expense resulting from a block of assets that became fully depreciated in 2011, favorable general liability insurance costs and favorable gift card discounts, partially offset by incremental investment in local media advertising.

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Rental Operations



	Six Months Ended						Favorable (Unfavorable)
	June 30,						Favorable (Unfavorable)
	2012			2011			Variance			% Change ⁽¹⁾
	(In millions)
Rental revenues	$	61.2		$	63.8		$	(2.6	)	(4.2	)%
Rental expenses	48.9			49.2			0.3			0.8	%
Rental operations segment profit	$	12.3		$	14.6		$	(2.3	)	(15.6	)%
Segment profit as % of revenue	20.2		%	22.9		%

⁽¹⁾ Percentages calculated on actual amounts, not rounded amounts presented above

Rental operations relate primarily to IHOP franchise restaurants. Rental revenues include income from operating leases and interest income from direct financing leases. Rental expenses consist of costs of prime operating leases and interest expense on prime capital leases on franchisee-operated restaurants.

The decrease in rental revenue and rental segment profit is primarily due to the write-off of $2.5 million of deferred lease rental revenue associated with franchise restaurants whose lease agreements were prematurely terminated.

Financing Operations



	Six Months Ended						Favorable (Unfavorable)
	June 30,						Favorable (Unfavorable)
	2012			2011			Variance			% Change ⁽¹⁾
	(In millions)
Financing revenues	$	8.3		$	12.3		$	(4.0	)	(32.8	)%
Financing expenses	1.6			5.6			4.0			71.8	%
Financing operations segment profit	$	6.7		$	6.7		$	—		(0.2	)%
Segment profit as % of revenue	80.9		%	54.5		%

⁽¹⁾ Percentages calculated on actual amounts, not rounded amounts presented above

All of our financing operations relate to IHOP franchise restaurants. The variance in both revenue and expense is primarily related to a 2011 transaction in which 40 restaurants operated by a former franchisee that defaulted on its obligations under the franchise agreement were refranchised to an affiliate of an existing IHOP franchisee. Certain equipment related to the refranchised restaurants was sold to the new operator. Financing revenues and expenses in the six months ended June 30, 2011 included $5.0 million and $5.2 million, respectively, related to that single equipment sale. Financing revenues and expenses in the six months ended June 30, 2012 included $1.6 million related to several individually insignificant equipment and franchise sales.

Other Expense and Income Components



	Six Months Ended						Favorable (Unfavorable)
	June 30,						Favorable (Unfavorable)
	2012			2011			Variance			% Change ⁽¹⁾
	(In millions)
General and administrative expenses	$	76.9		$	76.4		$	(0.5	)	(0.6	)%
Interest expense	59.9			69.2			9.3			13.4	%
Impairment and closure charges	0.8			26.8			26.0			96.8	%
Amortization of intangible assets	6.2			6.2			—			0.0	%
Gain on disposition of assets	(16.0		)	(22.5		)	(6.5		)	(28.8	)%
Loss on extinguishment of debt	2.6			7.9			5.3			66.9	%
Debt modification expenses	—			4.1			4.1			100.0	%
Income tax provision	28.2			13.0			(15.2		)	(117.4	)%

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⁽¹⁾ Percentages calculated on actual amounts, not rounded amounts presented above

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General and Administrative Expenses

General and administrative expenses increased by $0.5 million compared to the same period of the prior year, primarily due to higher personnel costs (including stock-based compensation, severance, and bonuses), partially offset by payroll credits related to the relocation of the Applebee's Restaurant Support Center and lower salaries and wages because of lower headcount due to refranchising.

Interest Expense

Interest expense decreased by $9.3 million compared to the same period of the prior year due to our reduction of debt balances. Average interest-bearing debt outstanding (our Term Loans, Senior Notes, capital lease obligations and financing obligations) during the six months ended June 30, 2012 was approximately $260 million lower than the same period of the prior year, which resulted in a decrease in interest expense of approximately $9.0 million. The additional decrease in interest expense resulted from an amendment to our Credit Agreement that reduced the interest rate on term loan borrowings by 1.75% (see Debt Modification Expenses below).

Impairment and Closure Charges

Impairment and closure charges decreased by $26.0 million compared to the same period of the prior year. The charges for the first six months of 2012 related to a parcel of land previously intended for future restaurant development and several individually insignificant franchise restaurant closures. Impairment and closure charges for the first six months of 2011 were primarily comprised of $21.3 million related to the termination of our sublease of the commercial space previously occupied by the Applebee's Restaurant Support Center in Lenexa, Kansas and a $4.5 million impairment charge related to the furniture, fixtures and leasehold improvements at that facility.

During the quarter ended June 30, 2012, we performed our quarterly assessment of whether events or changes in circumstances have occurred that potentially indicate the carrying value of tangible long-lived assets may not be recoverable. No significant impairments were noted. We also considered whether there were any indicators of potential impairment to our goodwill and indefinite-lived intangible assets that primarily consist of our trade name. No such indicators were noted.

Gain on Disposition of Assets

We recognized a gain on disposition of assets of $16.0 million for the six months ended June 30, 2012 compared to a gain of $22.5 million in the same period of 2011. The gain in 2012 was primarily due to the refranchising and sale of related restaurant assets of 17 Applebee's company-operated restaurants located in a six-state market area geographically centered around Memphis, Tennessee. The majority of the gain in 2011 was due to the refranchising and sale of related restaurant assets of 36 Applebee's company-operated restaurants in the St. Louis area market and 29 Applebee's company-operated restaurants in the Washington, D.C. area market.

Loss on Extinguishment of Debt

During the six months ended June 30, 2012 and June 30, 2011, the Company recognized the following losses on the extinguishment of debt:



Instrument Repaid/Retired	Face Amount Repaid/Retired		Cash Paid		Loss ⁽¹⁾
	(In millions)
Term Loans	$	70.5	$	70.5	$	1.9
Senior Notes	5.0		5.5		0.7
Six months ended June 30, 2012	75.5		76.0		2.6

Term Loans	$	110.0	$	110.0	$	2.7
Senior Notes	39.8		43.5		5.2
Six months ended June 30, 2011	$	149.8	$	153.5	$	7.9

⁽¹⁾ Including write-off of the discount and deferred financing costs related to the debt retired.

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We may continue to dedicate a portion of excess cash flow towards opportunistic debt retirement. Any retirement of debt results in a loss due to the non-cash write-off of a pro rata portion of the discount and deferred financing costs related to the debt retired. Additionally, our Senior Notes are currently priced at a premium to their face value. Should that remain the case, future retirement of Senior Notes will also result in losses associated with any premium paid.

Debt Modification Expenses

On February 25, 2011, the Company entered into Amendment No. 1 (the ''Amendment'') to the Credit Agreement under which a senior secured credit facility was established among the Company, lenders and the agents named therein. Costs paid to third parties of $4.1 million in connection with the Amendment were expensed in accordance with U.S. GAAP guidance for debt modifications.

Provision for Income Taxes

The effective tax rate was ~~36.1%~~36.9% for the ~~three~~six months ended ~~March 31,~~June 30, 2012 compared to ~~27.9%~~30.1% for the ~~three~~six months ended ~~March 31, 2011.The~~June 30, 2011.The effective tax rate in the prior year was lower due to the release of liabilities for unrecognized tax benefits related to gift card income deferral as a result of the issuance of ~~new~~ guidance by the U.S. Internal Revenue Service.

Liquidity and Capital Resources

Credit Facilities

We have a $75.0 million Revolving Credit Facility (the "Revolving Facility") under our Credit Agreement. ~~There were no borrowings~~During the first six months of 2012, we borrowed and repaid a cumulative total of $35.0 million under the Revolving Facility. The highest balance outstanding under the Revolving Facility at any point during the first ~~first~~six ~~quarter~~months of 2012 was $25.0 million and there were no amounts outstanding under the Revolving Facility as of ~~March 31,~~June 30, 2012. Our available borrowing capacity under the Revolving Facility is reduced by outstanding letters of credit, which totaled ~~$13.8~~$13.8 million as of ~~March 31,~~June 30, 2012.

Based on our current level of operations, we believe that our cash flow from operations, available cash on hand and available borrowing capacity under our Revolving Facility will be adequate to meet our ~~liquidity needs~~investing and financing cash outflows over the next twelve months.

Debt Covenants

Pursuant to our Credit Agreement, we are required to comply with a maximum consolidated leverage ratio and a minimum consolidated cash interest coverage ratio. Our current required maximum consolidated leverage ratio of total debt (net of unrestricted cash not to exceed $75 million) to adjusted EBITDA is 7.25x. Our current required minimum ratio of adjusted EBITDA to consolidated cash interest is 1.5x. Compliance with each of these ratios is required quarterly, on a trailing four-quarter basis. The ratio thresholds become more rigorous over time. The maximum consolidated leverage ratio, which began at 7.5x, declines in annual 25-basis-point decrements beginning with the first quarter of 2012 to 6.5x by the first quarter of 2015, then to 6.0x for the first quarter of 2016 until the Credit Agreement expires in October 2017. The minimum consolidated cash interest coverage ratio

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began at 1.5x and will increase to 1.75x ~~commencing in~~beginning with the first quarter of 2013 and to 2.0x ~~commencing in~~beginning with the first quarter of 2016 and remain at that level until the Credit ~~agreement~~Agreement expires in October 2017. These thresholds are subject to step-downs or step-ups, as applicable, over time. There are no financial maintenance covenants associated with our Senior Notes due October 2018 (the "Senior Notes").

For the trailing four quarters ended ~~March 31,~~June 30, 2012, our consolidated leverage ratio was ~~5.2~~5.3x and our consolidated cash interest coverage ratio was 2.4x (see Exhibit 12.1).

The EBITDA used in calculating these ratios is considered to be a non-U.S. GAAP measure. The reconciliation between our loss before income taxes, as determined in accordance with U.S. GAAP, and EBITDA used for covenant compliance purposes is as follows:

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Trailing Twelve Months Ended ~~March 31,~~June 30, 2012


	(In thousands)			(In thousands)
U.S. GAAP income before income taxes	$	112,870		$	138,460
Interest charges	144,876			141,386
Loss on retirement of debt	6,824			5,885
Depreciation and amortization	47,394			44,837
Non-cash stock-based compensation	11,418			11,002
Impairment and closure charges	25,371			3,110
Other	3,697			4,833
Gain on sale of assets	(36,233		)	(36,783		)
EBITDA	$	316,217		$	312,730

We believe this non-U.S. GAAP measure is useful in evaluating our results of operations in reference to compliance with the debt covenants discussed above. This non-U.S. GAAP measure is not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-U.S. GAAP measures should be considered in addition to, and not as a substitute for, the U.S. GAAP information contained within our financial statements.

The Senior Notes, our term loans under the Credit Agreement (the "Term Loans") and the Revolving Facility are also subject to affirmative and negative covenants considered customary for similar types of facilities, including, but not limited to, covenants with respect to incremental indebtedness, liens, restricted payments (including dividends), investments, affiliate transactions, and capital expenditures. These covenants are subject to a number of important limitations, qualifications and exceptions. Certain of these covenants will not be applicable to the Senior Notes during any time that the Senior Notes maintain investment grade ratings.

Refranchising of Applebee’s Company-Operated Restaurants

During the ~~three~~six months ended ~~March 31,~~June 30, 2012, we completed the refranchising and sale of related assets of 17 Applebee’s company-operated restaurants located in a six-state market area geographically centered around Memphis, Tennessee. Proceeds from asset dispositions, primarily from the sale of restaurant assets associated with the 17 restaurants refranchised, totaled $~~21.4~~21.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2012, of which $16.0 million was used to retire debt.

As previously discussed under ~~“Franchise~~“Overview - Franchise Business ~~Model” above,~~Model,” since the completion of the Applebee’s acquisition, we have ~~refranchised 342 Applebee’s company-operated restaurants since~~been pursuing a strategy to transition Applebee's from a system that was 74% franchised at the time of the acquisition ~~of Applebee’s. We plan~~ to ~~refranchise and sell the related restaurant assets of the remaining 160~~a 99% franchised Applebee's company-operated restaurants over the next several years, except for 20-30 restaurants in the Kansas City area that will be retained as a Company market, when such refranchising and sale transactions are in alignment with our business strategy.system, similar to IHOP’s 99% franchised system. We believe a highly franchised business model requires less capital investment, generates higher gross and operating profit margins (as a percentage of sales) and reduces the volatility of free cash flow performance over time, as compared to a model based on operating a significant number of company restaurants, while also providing cash proceeds from the sale of assets of Applebee’s company-operated restaurants that have been refranchised for the retirement of debt.

OnDuring the six months ended June 30, 2012, we completed the refranchising and sale of related restaurant assets of 17 Applebee's company-operated restaurants in a six-state market area geographically centered around Memphis, Tennessee. In April ~~30,~~ 2012, ~~the Company~~we entered into an asset purchase agreement for the refranchising and sale of related restaurant assets of 39 Applebee's company-operated restaurants located in ~~Virgina. This transaction is~~Virginia. In May 2012, we entered into an asset purchase agreement for the refranchising and sale of related restaurant assets of 33 Applebee's company-operated restaurants located primarily in Missouri and Indiana. In July, 2012, we entered into an asset purchase agreement for the refranchising and sale of related restaurant assets of 65 Applebee's company-operated restaurants located in Michigan. All of these transactions are expected to close by the end of fiscal 2012. Upon consummation of these transactions, we will have refranchised all Applebee's company-operated restaurants, except for 23 restaurants in the ~~fiscal third quarter~~Kansas City area that will be retained as a Company market; upon consummation of ~~2012.~~these transactions, 99% of DineEquity's restaurants will be franchised.

Under the terms of the Credit Agreement, all of the after-tax proceeds (with certain exceptions) of future asset dispositions must be used to repay Term Loans and under certain conditions, we may be required to repurchase Senior Notes with excess proceeds of assets sales, as defined in the Indenture under which the Senior Notes were issued. We estimate the three transactions discussed above will generate after-tax proceeds of approximately $105 million that will be used to retire debt. Retirement of debt will result in the reduction

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of interest expense. Refranchising of additional Applebee’s company-operated restaurants also will result in a reduction of general and administrative expenses and reduced requirements for capital investment.

~~A range~~

Table of factors, including the overall market for restaurant franchises, the availability of financing and the financial and operating performance of Applebee’s company-owned restaurants, can impact the likelihood and timing of the completion of future refranchising transactions as well as the ultimate proceeds we may receive from the sale of assets related to Applebee’s company-operated restaurants that have been refranchised. We may choose to suspend or revise our refranchising strategy for Applebee’s company-operated restaurants if we do not believe that conditions will lead to satisfactory proceeds from the sale of assets related to Applebee’s company-operated restaurants.Contents

Cash Flows

In summary, our cash flows were as follows:


	Three Months Ended									Six Months Ended
	March 31,									June 30,
	2012			2011			Variance			2012			2011			Variance
	(In millions)									(In millions)
Net cash provided by operating activities	$	44.7		$	50.5		$	(5.8	)	$	36.4		$	48.2		$	(11.8	)
Net cash provided by investing activities	21.4			54.0			(32.6		)	16.6			48.5			(31.9		)
Net cash used in financing activities	(78.1		)	(156.4		)	78.3			(81.3		)	(164.5		)	83.2
Net decrease in cash and cash equivalents	$	(12.0	)	$	(51.9	)	$	39.9		$	(28.3	)	$	(67.8	)	$	39.5

Operating Activities

Cash provided by operating activities is primarily driven by revenues earned and collected from our franchisees, operating earnings from our company-operated restaurants and profit from our rental operations and financing operations. Franchise revenues consist of royalties, IHOP advertising fees and sales of proprietary products to IHOP restaurants, each of which fluctuate with increases or decreases in franchise retail sales. Franchise retail sales are impacted by the development of IHOP and Applebee’s restaurants by our franchisees and by fluctuations in same-restaurant sales. Operating earnings from company-operated restaurants are impacted by many factors which include but are not limited to changes in traffic patterns, pricing activities and changes in operating expenses. Rental operations profit is rental income less rental expenses. Rental income includes revenues from operating leases and interest income from direct financing leases. Rental expenses are costs of prime operating leases and interest expense on prime capital leases on franchisee-operated restaurants. Financing operations revenue primarily consists of interest income from the financing of franchise fees and equipment leases, as well as sales of equipment associated with refranchised IHOP restaurants and a portion of franchise fees for restaurants taken back from franchisees not allocated to IHOP intellectual property. Financing expenses are primarily the cost of restaurant equipment.

Cash provided by operating activities decreased $~~5.8~~11.8 million to $~~44.7~~36.4 million for the ~~three~~six months ended ~~March 31,~~June 30, 2012 from $~~50.5~~48.2 million for the ~~three~~six months ended ~~March 31,~~June 30, 2011. The ~~primary reason~~main reasons for the decrease in cash from operations is a decline in ~~company operations~~ segment profit ~~as the result of~~resulting from the refranchising of 149 Applebee’s company-operated restaurants during the last ~~fifteen months.~~18 months, and an increase in income taxes paid in cash, partially offset by a decrease in cash payments for interest. Our net income tax payments increased during the first six months of 2012 compared with the comparable prior year period primarily because we had received a tax refund of approximately $20 million in January 2011. Our interest payments are lower because of lower debt balances. Net changes in working capital ~~provided~~used cash of $~~19.6~~16.4 million in ~~both~~the first six months of 2012 ~~and~~compared to a use of $26.1 million in the first six months of 2011, a favorable change of $9.6 million.

Investing Activities

Net cash provided by investing activities of $~~21.4~~16.6 million for the ~~three~~six months ended ~~March 31,~~June 30, 2012 was primarily attributable to $~~21.4~~21.5 million in proceeds from sales of property and equipment and $~~3.4~~6.6 million in principal receipts from notes, equipment contracts and other long-term receivables, partially offset by $~~4.1~~10.7 million in capital expenditures. Capital expenditures are expected to range between approximately $18 million and $20 million in fiscal 2012.

Financing Activities

Financing activities used net cash of $~~78.1~~81.3 million for the ~~three~~six months ended ~~March 31,~~June 30, 2012. Cash used in financing activities primarily consisted of $76.0 million in repayments of long-term debt and repayments of capital lease and financing obligations of $~~3.0~~6.1 million. Of the long-term debt repayments, $70.5 million related to the repayment of Term Loans and $5.5 million related to the repurchase of $5.0 million face amount of Senior Notes at a $0.5 million premium to face value. Cash provided by financing activities primarily consisted of $~~2.0~~3.1 million in proceeds from the exercise of stock options. We may continue to dedicate a portion of cash flow to opportunistic debt retirement and purchases of treasury stock.

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Free Cash Flow

We define "free cash flow" for a given period as cash provided by operating activities, plus receipts from notes, equipment contracts and other long-term receivables (collectively, "long-term receivables"), less additions to property and equipment. We believe this information is helpful to investors to determine our cash available for general corporate and strategic purposes, including the retirement of long-term debt.

Free cash flow is considered to be a non-U.S. GAAP measure. Reconciliation of the cash provided by operating activities to free cash flow is as follows:


	Three Months Ended									Six Months Ended
	March 31,									June 30,
	2012			2011			Variance			2012			2011			Variance
	(In millions)									(In millions)
Cash flows provided by operating activities	$	44.7		$	50.5		$	(5.8	)	$	36.4		$	48.2		$	(11.8	)
Principal receipts from long-term receivables	3.4			3.4			—			6.6			7.1			(0.5		)
Additions to property and equipment	(4.1		)	(3.8		)	(0.3		)	(10.7		)	(13.5		)	2.8
Free cash flow	$	44.0		$	50.1		$	(6.1	)	$	32.3		$	41.8		$	(9.5	)

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This non-U.S. GAAP measure is not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-U.S. GAAP measures should be considered in addition to, and not as a substitute for, the U.S. GAAP information contained within our financial statements.

Dividends

Dividends representing the change in accreted value of our Series B Convertible Preferred Stock were $~~0.7~~1.3 million for the ~~three~~six months ended ~~March 31,~~June 30, 2012.

Off-Balance Sheet Arrangements

As of ~~March 31,~~June 30, 2012, we had no off-balance sheet arrangements, as defined in Item 303(a)(4) of SEC Regulation S-K.

Contractual Obligations and Commitments

There were no material changes to the contractual obligations table as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, other than the repayments of long-term debt noted under "Financing Activities" above.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. GAAP requires we make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenues and expenses in the reporting period. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. We continually review the estimates and underlying assumptions to ensure they are appropriate for the circumstances. Accounting assumptions and estimates are inherently uncertain and actual results may differ materially from our estimates.

A summary of our critical accounting estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2011. During the first ~~three~~six months of 2012, there were no significant changes in our estimates and critical accounting policies.

See Note 3, “Accounting Policies,” in the Notes to Consolidated Condensed Financial Statements for a discussion of recently adopted accounting standards and newly issued accounting standards.

~~Table of Contents~~

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

There were no material changes from the information contained in the Company’s Annual Report on Form 10-K as of December 31, 2011.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting.

There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings.

We are subject ~~from time~~ to ~~time to~~various lawsuits, ~~claims~~administrative proceedings, audits, and ~~governmental inspections or audits~~claims arising in the ordinary course of business. Some of these lawsuits purport to be class actions and/or seek substantial damages. InWe are required to record an accrual for litigation loss contingencies that are both probable and reasonably estimable. Legal fees and expenses associated with the ~~opinion~~defense of ~~management, these matters~~all of our litigation are ~~adequately covered by~~expensed as such fees and expenses are incurred. Management regularly assesses our insurance ~~or, if~~deductibles, analyzes litigation information with our attorneys and evaluates our loss experience in connection with pending legal proceedings. While we do not ~~so covered,~~presently believe that any of the legal proceedings to which we are ~~without merit or are of such~~currently a ~~nature or involve amounts that would not~~party will ultimately have a material adverse impact ~~on our business~~upon us, there can be no assurance that we will prevail in all the proceedings we are party to, or ~~consolidated financial position.~~that we will not incur material losses from them.

Gerald Fast v. Applebee’s

We are currently defending a collective action in United States District Court for the Western District of Missouri, Central Division filed on July 14, 2006 under the Fair Labor Standards Act, Gerald Fast v. Applebee's International, Inc., in which named plaintiffs claim that tipped ~~workers~~servers and bartenders in ~~company~~Applebee's company-operated restaurants ~~perform excessive amounts~~spend more than 20% of ~~non-tipped~~their time performing general preparation and maintenance duties, or “non-tipped work,” for which they should be compensated at the minimum wage. ~~The~~On June 19, 2007, the court ~~has conditionally certified~~granted conditional certification of a nationwide class of servers and bartenders who ~~have~~had worked in Applebee's company-operated ~~Applebee's~~ restaurants since June 19, 2004. ~~Unlike a class action, a collective action requires~~As of February 2008, there were 5,540 potential class members who had opted into the collective action. Under this action, plaintiffs currently are seeking unpaid wages and other relief of up to ~~“opt in” rather than “opt out.” On February 12, 2008, 5,540 opt-in forms were filed with the court.~~

~~In cases of this type, conditional certification of the plaintiff class is granted under a lenient standard. On January 15, 2009, we filed a motion seeking to have the class de-certified~~$17 million plus plaintiffs' attorneys' fees and ~~the plaintiffs filed a motion for summary judgment, both of which were denied by the court.~~

The parties stipulated to a bench trial which was set to begin on September 8, 2009 in Jefferson City, Missouri. Just prior to trial, however, the court vacated the trial setting in order to submit key legal issues to the Eighth Circuit Court of Appeals for review on interlocutory appeal. On April 21, 2011, the Eighth Circuit affirmed the trial court's denial of our motion for summary judgment. On July 6, 2011, the Eighth Circuit denied our petition for rehearing.

On October 4, 2011, we filed a petition for certiorari asking the United States Supreme Court to review the decision of the Eighth Circuit. On January 17, 2012, the Supreme Court declined to review the case.expenses. The bench trial is currently scheduled to begin on September 10, 2012.

We believe we have meritorious defenses and intend to vigorously defend this case. ~~An estimate of~~Due to the ~~possible loss~~inherent uncertainty in litigation, however, there can be no guarantee that we ultimately will be successful. Substantial losses from or ~~a range of the loss, if any, cannot be made and, therefore, we have not accrued a loss contingency~~costs related to this ~~matter.~~legal proceeding could have a material impact on us.

~~Table of Contents~~

Item 1A. Risk Factors.

There were no material changes from the risk factors set forth under Item 1A of Part I of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

													Purchases of Equity Securities by the Company
Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs (b)	Approximate dollar value of shares that may yet be purchased under the plans or programs (b)		Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs (b)	Approximate dollar value of shares that may yet be purchased under the plans or programs (b)
January 2 – January 29, 2012 (a)	77	$	48.25	—	$	23,830,346
January 30 – February 26, 2012 (a)	14,430	$	52.21	—	$	23,830,346
February 27 – April 1, 2012 (a)	1,972	$	51.58	—	$	23,830,346
April 2 – April 29, 2012 (a)							1,068	$	46.87	—	$	23,830,346
April 30 – May 27, 2012							—	$	—	—	$	23,830,346
May 28 – July 1, 2012 (a)							9,903	$	44.01	—	$	23,830,346
Total	16,479	$	52.11	—	$	23,830,346	10,971	$	44.29	—	$	23,830,346

(a) These amounts represent shares owned and tendered by employees to satisfy tax withholding obligations on the vesting of restricted stock awards.

(b) On August 15, 2011 we announced that our Board of Directors authorized the repurchase of up to ~~$45~~$45.0 million of DineEquity common stock. Repurchases are subject to prevailing market prices and may take place in open market transactions and in privately negotiated transactions, based on business, market, applicable legal requirements and other considerations. The program does not require the repurchase of a specific number of shares and may be terminated at any time.

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Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine ~~and~~ Safety ~~Disclosure.~~Disclosures.

Not Applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.



3.1			Restated Certificate of Incorporation of DineEquity, Inc. (Exhibit 3.1 to DineEquity, Inc.’s Report on Form 8-K filed June 2, 2008 is incorporated herein by reference).
3.2			Amended Bylaws of DineEquity, Inc. (Exhibit 3.2 to DineEquity, Inc.’s Report on Form 8-K filed June 2, 2008 is incorporated herein by reference).
10.1			Asset Purchase Agreement dated as of July 20, 2012 by and among Restaurants Mid-Atlantic, LLC, Applebee's Restaurants, Inc., and TSFR Apple Venture LLC.* (Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby undertakes to furnish copies of any of the omitted schedules and exhibits upon request by the U.S. Securities and Exchange Commission.)
12.1			Computation of Consolidated Leverage Ratio and Cash Interest Coverage Ratio for the trailing twelve months ended ~~March 31,~~June 30, 2012.*
31.1			Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2			Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1			Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.2			Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS			XBRL Instance Document.***
101.SCH			XBRL Schema Document.***
101.CAL			XBRL Calculation Linkbase Document.***
101.DEF			XBRL Definition Linkbase Document.***
101.LAB			XBRL Label Linkbase Document.***
101.PRE			XBRL Presentation Linkbase Document.***

* Filed herewith.

** The certifications attached as Exhibits 32.1 and 32.2 accompany this Quarterly Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

*** Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES

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 thereunto duly authorized.



	DineEquity, Inc. (Registrant)


~~May 1,~~July 31, 2012	BY:	/s/ Julia A. Stewart
(Date)		Julia A. Stewart Chairman and Chief Executive Officer (Principal Executive Officer)


~~May 1,~~July 31, 2012		/s/ Thomas W. Emrey
(Date)		Thomas W. Emrey Chief Financial Officer (Principal Financial Officer)


~~May 1,~~July 31, 2012		/s/ Greggory Kalvin
(Date)		Greggory Kalvin Senior Vice President, Corporate Controller (Principal Accounting Officer)

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	Three Months Ended March 31,
	2012			2011			2012			2011
	Applebee's						IHOP
	(unaudited)
Restaurant Data
Effective restaurants(a)
Franchise	1,855			1,738			1,374			1,329
Company	163			271			13			10
Area license	—			—			164			165
Total	2,018			2,009			1,551			1,504
System-wide(b)
Sales percentage change(c)	1.7		%	4.4		%	2.9		%	1.3		%
Domestic same-restaurant sales percentage change(d)	1.2		%	3.9		%	(0.5		)%	(2.7		)%
Franchise(b)(e)(g)
Sales percentage change(c)	7.2		%	13.1		%	2.8		%	1.4		%
Domestic same-restaurant sales percentage change(d)	1.0		%	4.3		%	(0.5		)%	(2.7		)%
Average weekly domestic unit sales (in thousands)	$	50.1		$	50.1		$	35.0		$	35.2
Company (f)(g)
Sales percentage change(c)	(36.2		)%	(31.6		)%	n/a			n/a
Same-restaurant sales percentage change(d)	3.9		%	0.7		%	n/a			n/a
Average weekly domestic unit sales (in thousands)	$	45.1		$	42.5		n/a			n/a
Area License(e)
Sales percentage change(c)	—			—			3.4		%	0.3		%



	Number of	Contractual Openings of Restaurants by Year
	Signed Agreements at 3/31/12	Rest of 2012	2013	2014	2015	2016 and thereafter	Total
Single-store development agreements	7	6	1	—	—	—	7
Multi-store development agreements	45	31	35	27	21	28	142
Multi-store development options	6	—	—	—	3	57	60
International territory agreements	6	6	9	10	13	23	61
International territory options	3	—	2	1	2	7	12
Total	67	43	47	38	39	115	282