Good day, ladies and gentlemen. Welcome to the Second Quarter DineEquity Earnings Conference Call. My name is Philip, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Ken Diptee, Executive Director of Investor Relations. Please proceed, sir.

Good morning, and thank you for participating on DineEquity's second quarter 2013 conference call. Today, I'm joined by Julia Stewart, Chairman and CEO; Tom Emrey, CFO; and Gregg Kalvin, Corp Controller. Before I turn the call over to Julia and Tom, let me remind you of our Safe Harbor regarding forward-looking information. Today, management may discuss information that is forward-looking, both known and unknown risks, uncertainties and other factors which can cause the actual results to be substantially different than those expressed or implied. We caution you to evaluate such forward-looking information and the context of these factors, which are detailed in today's press release, as well as in our most recent 10-Q filing with the SEC. The forward-looking information -- the forward-looking statements made today are made as of this date and assumes no obligation to supplement or update these statements. Additionally, we may refer to certain non-GAAP financial measures, which are described in our press release and are also available in DineEquity's Investor Relations website. With that, I'll turn the call over to Julia Stewart, Chairman and CEO. Julia?

Thanks, Ken, and good morning, everyone, and welcome to DineEquity's second quarter earnings call. By now, you've had the opportunity to review the press release we issued today. I'm going to provide a brief overview of the quarter, and then Tom will discuss our second quarter financial results before we open the call for questions. I'll start by saying I am very pleased with our stronger same-restaurant sales performance this quarter and the progress we're making at both IHOP and Applebee's. We continue to effectively manage our G&A and delivered solid results. Our disciplined approach to G&A management has enabled us to enhance operating performance and adjust our comp structure to support our fully franchised business model. We're continuing to make progress on foundational improvements and brand innovation by leveraging our shared services model. We're sharing best practices across both brands, enabling us to efficiently test innovative platforms at the restaurant. Our shared services and Centers of Excellence structure, which is a real differentiator, was designed to allocate our best resources toward our biggest opportunities and drive both brands forward, and we're doing just that. Now during the first half of 2013, we returned over $43 million combined to our stockholders, affirming our commitment to allocate capital. In the second quarter, we returned approximately $29 million through the combination of a meaningful dividend of $0.75 per share of common stock and share repurchases. In fact, our dividend yield of 4.6% is among the highest in the restaurant industry. And while we expect dividend payments and opportunistic share repurchases to be the primary components of our capital allocation strategy, we will also use our strong free cash flow to reduce debt if it's in the best interest of the company to do so. Managing our capital structure remains of the utmost…

Thanks, Julia. Good morning, everyone. Let me run through the income statement highlights, and then I'll take a few -- make a few brief comments on the balance sheet. First, it's great to say that both Applebee's and IHOP reported improved same-restaurant sales versus the second quarter of last year. We are encouraged by the results, but we have more work to do to achieve our objectives of consistent and sustainable same-restaurant sales and traffic growth. Now our franchise segment profit was up $5.7 million in the second quarter of 2013 compared to the same period of last year, and this is primarily due to Applebee's refranchising activity and restaurant development mainly by IHOP franchisees. For the first 6 months of 2013, franchise segment profit increased by $8.7 million compared to the first half of 2012. Regarding G&A, G&A expenses were $35.6 million in the second quarter of 2013. This compares to $37.2 million a year ago. The decline was mainly due to lower personnel costs as a result of refranchising, our comprehensive restructuring and lower stock-based compensation costs. For the first half of 2013, G&A expenses were $69.7 million compared to $76.9 million for the same period last year. Looking to the second half of the year now, G&A is expected to be higher than it was for the first 6 months of 2013, and this is driven by the timing of various expenses such as franchisee conventions and some additional consumer research. We actively manage G&A and we're pleased we're delivering meaningful savings, and we now see G&A coming in between $142 million and $146 million for 2013. This is a reduction from our previous guidance of $144 million to $147 million, with lower personnel costs being the main driver. On free cash flow, I want to clarify…

Thanks, Tom. In closing, we're very pleased with the performance of both brands, especially be improvement in IHOP same-restaurant sales. Again, in an uneven consumer environment, industry sales data has shown that both brands outperformed their respective categories in the second quarter. We will continue to execute on our plan to position the company for long-term success and create value for our stockholders. We are laser-focused on driving fundamental improvement and innovation across the organization, especially our brands. With that, Tom and I would be pleased to answer your questions. Operator?

[Operator Instructions] Your first question comes from the line of Will Slabaugh from Stephens Inc.

I want to ask for a little bit more detail on IHOP and the success that you saw there. Just wondering where you're crediting that traffic improvement for the quarter and either -- is that a day part prospective there or is there anywhere on the menu that you're particularly pleased with on this quarter?

Yes. I would really say it's across-the-board with the day parts. I wouldn't pick to any particular day part. I would say it had more to do with the 4 pillars. And in particular, the menu work, if you hadn't been in an IHOP recently, was pretty meaningful and dramatic. I mean, you'd have to see the menu to have a full appreciation. But the consumer feedback that we got was so overwhelmingly positive that it was so much easier to navigate, so much easier to find your favorite item or your -- a new item that we hadn't had before. That, in combination with everything else and, frankly, the foundation that we've been laying for over a year, it all really came together.

Got it. And just a quick follow-up on IHOP as well. If you could talk about the check there, what the effective pricing was in the quarter and then where customers, if they are, may be mixing up or down, either way.

Yes. The -- it's hard with us because, as you know, we don't know when franchisees are going to take price. But it looks as if from a full pricing perspective, the franchisees may have taken about 1%, 1.2% in pricing and then there was a mix shift of maybe closer to 0.4%. So it's hard to say, but it looks like, year-to-date, there was probably a 1.5%, 1.6% year-to-date measure with a slight increase in pricing and a slight increase in mix shift, which is pretty normal on a yearly basis. We usually see a 1% to 2% price increase over the course of a year.

Your next question comes from the line of Michael Kelter from New York.

Yes, I was wondering, maybe first off, if you could talk about Applebee's and any changes in consumer behavior late in the quarter. And I ask because, as you're aware, the Knapp Track or Black Box numbers have fallen off in June. It would be great to hear what you're seeing, even if it's just qualitative, on weekdays versus weekends, some regions versus others, beverage or dessert attach rate, anything that helps us understand what's going on with the consumer.

Yes, Michael. Ours is a pretty steady state. We've had real success at the day parts. There's no question that both lunch and dinner and late-night did well for us at Applebee's. And I think that has everything to do with sort of hitting on all fronts that we talked about, the value message, the enhanced advertising, the work we're doing on innovation. All of it sort of came together. I didn't notice any big particular shift or change over. The one thing, and I'm looking at the numbers, I think when I look at the differences, we saw improvement really throughout the regions and throughout the different scenarios. I think the one thing I didn't make a lot of mention of on the call, but that I've spoken about, is the remodels. I must say when you have -- almost by the end of the year we'll have 3/4 of the system remodeled, I've got to give credit both to the franchisees for spending the money and for the actual remodel itself. I mean if you've been by an Applebee's, on the outside, it's pretty dramatic and, on the inside, it's much more contemporary, much more willing to resonate with the guest, if you will. I don't want to undercount that importance as well.

And then maybe shifting to the capital structure stuff. I mean, first off, you said it wasn't the right time to refinance quite yet, and I'm just curious why not? Is it -- are you waiting for the penalty to come down over time, or are there other considerations? And then also on that topic, you mentioned that the penalty could be calculated based on prior filings, but without going back and digging that up, can you maybe remind us on what the penalty would look like to execute something if you were to do it today?

Well, the math is that the penalty, we think, is too big right now versus the savings that we think that we could get. The bet is that interest rates are not going to go up enough in the future to -- in the next year or 2, to offset the size of the penalty, which is well in excess of $100 million.

And would you consider taking on more debt at the time of the refinancing? I guess the question is, what do you view as your optimal capital structure, is it 4.5, 5x leveraged or might you do something more than that?

We don't know that yet right now. We think that our capital structure is okay for the current capital markets and where our business is now. At such point in time in the future, as we do the refinancing, if we're in a different market, we're in a different economy, then we would have to look at it again.

Your next question comes from the line of John Ivankoe from JPMorgan. John W. Ivankoe - JP Morgan Chase & Co, Research Division: Actually maybe even just 2 follow-ups on Mike's question. Firstly, your comments that the penalty is in excess of $100 million, can you please kind of put that in the context of your bonds, which I think have a coupon of 9.5%? I mean, it seems like -- and I don't want you to give a number, but whether if you save 300 or 400 basis points, and I don't exactly what it would be, obviously. I mean, it seems like that you could kind of make up to that $100 million in just a couple of years, and that kind of the NPD [ph] of paying a penalty of that size might make sense. Can you just help us a little bit more with the mechanics of how you're thinking about interest savings versus that penalty and maybe what kind of return, if you will, that you need to see in order to make that big cash outlay?

That's kind of theoretical because it forces me to sort of forecast what interest rates look like in the future, and that's really the opportunity cost decision that we're making. So right now, our math internally is that we don't think this is the right time to do it. But we are, like I said, continuing to evaluate it. And I can't really get into all the specifics of those calculations.

Yes. But one thing, I think, that's worth saying is -- and I think this is public filings, John, is if you look over the next 12 to 16 months, you look at how that penalty goes dramatically down. I think that's the way you should really think about it. It's not like it stays at over $100 million indefinitely. I mean, there is a pretty dramatic slope here by the end of -- and we've said this very publicly, by the end of 2014, the slope goes down dramatically.

That's right.

So you should think about us looking at it all the time and evaluating it all the time, but also looking at that dramatic decline in the slope rate. And you're thinking it's a huge decline in terms of what the fee would be.

It goes down by 60%, 70%, right?

Right. So I think that's the way to think about it. And we're looking at it all the time.

And that's just the point. And that's really part of the opportunity cost decision, too, is that it does go down over time. John W. Ivankoe - JP Morgan Chase & Co, Research Division: Okay. Yes. And I think we do understand that. And then secondly, the question was asked kind of about how you were trending in June. And I know it's not your style, but since we're in a public forum, could you give us a little bit of color about July? I mean as people kind of moaned about June, it seems like July got -- took a step function down. I mean is there anything about your business that would have allowed you to kind of get outside of what seems to be a fairly pronounced industry trend?

Well, it's good that you say that we don't comment inter-quarter, we don't. I think the thing I would say is that you think about our pillars and our strategies and the foundational work that we did on both brands at the end of last year and early this year, and then our success that we've had, I think that's what you should look towards and evaluate us on the balance of the year. John W. Ivankoe - JP Morgan Chase & Co, Research Division: Okay. And when we think about 2012, I mean do you think things like the election and the Olympics, does it give you like kind of easy comparisons, if you will, or do you think we still have to just basically slug it out for the next 3 or 4 months? Classically, they're negatives for casual dining, which is why I asked, and we're just about to come across those numbers.

It's so interesting that you say that. I read all about it. It depends where the Olympics are, it depends when they're on television. I've heard all the factors, positive and negative. I think we look at the balance of the year and say, "We've got our work cut out for us."

We're still in a lumpy and bumpy environment anyway [ph].

Yes. And I don't like the operators use it as an excuse, either way, on whether or -- I mean, we just -- we look at it and say, "We've got our work cut out for us the balance of the year and we're staying focused on it." So I would say no. I mean, that's certainly not come up in conversation, that's for certain.

[Operator Instructions] And your next question comes from the line of Jeff Farmer from Wells Fargo.

I just want to know from John's last question, I absolutely understand the reluctance to speak to July, but I might have missed this, but can you guys provide some -- any type of inter-quarter same-store sales trend commentary at Applebee's as it relates to sort of how you went through April, May and June considering that June was a pretty material underperformance for the sector relative to the first 2 months? Any color there, just directionally, would be helpful.

Yes. What I've said earlier -- first of all, we don't comment on inter-quarter, but what I said earlier is we had a robust scenario across the country and we had a robust scenario across the day parts, so there wasn't anything dramatic one way or the other. It was just a good solid quarter on Applebee's end and, obviously, an excellent quarter on IHOP's end.

Okay. And then you're absolutely reporting to the marketing strategy or the shift in marketing strategy as a key top line driver at Applebee's in the second quarter. Can you just provide a little bit more color in terms of what potentially the consumer was seeing, what the real change was for the consumer?

The consumer saw 2 things. It's a great question. The consumer saw 2 major things different at Applebee's. One, it saw for the first time, in a fairly significant time frame, it saw us talking about lunch in a very different way on television. And that was uniquely different. And I think sometimes we get a little hung up when we go on television and talk about lunch that we're just going to get lunch sales, but I don't believe that's the case. I think it had a halo effect into the other day parts, which is your ultimate compliment, right, that the brand has that ability. The Take Two platform being well received in this whole notion of what we're talking about. And then I also think, I mentioned it earlier, this notion of lots of people went in from lots of Applebee's restaurants and saw remodeled restaurants. So as we finish up this remodel, I don't want to underestimate the power of this remodeled restaurant, both on the exterior and on the interior. I think it resonates with guests and is far more relevant and contemporary. So I want to give credit to the franchisees for spending that kind of money and for getting that kind of return.

All right. That's helpful. And just 2 more quick ones, a little bit more granular on the model. One of the things I wasn't sure about, it looks like you've guided to $34 million to $35 million on the rental and financing segment profit. Looks like you've achieved a big part of that in the first half of the year, so in terms of thinking about that number decelerating in the back half of the year, what are some of the pushes and pulls? Why would that number fall off in the back half of the year?

There's some contingency for what we talked about with respect to these bankruptcies that are in there, for the bankruptcy on the IHOP side. It may or may not come to pass.

Right. So just based on my model, it looks like I would need to have lower rental income or financing revenues relative to the first half of the year. Is that a fair comment?

Right.

Okay. And then final one. It looks like -- and it doesn't look like it's from bankruptcies, but you've had a little bit bigger number of restaurant closures than I would have expected in the second quarter. Can you provide some color on that and what we should expect moving forward with some of these closures?

Yes. That was all about the Applebee's side where we had our normal couple that we do throughout the year, and then we had the 18 closures from the bankruptcy.

So it was related to that?

Yes.

Yes. To the bankruptcy.

It was all related to Applebee's bankruptcy. We certainly had openings, but we also have that -- a high level of closures, which is unusual.

[Operator Instructions] And your next question comes from the line of Bryan Elliott from Raymond James. Bryan C. Elliott - Raymond James & Associates, Inc., Research Division: Julia, in the lunch discussion, you did not mention the test that was discussed, I believe, on the last call of kind of the to-go dedicated -- to-go order and pickup station. Could you update us on if that has helped your lunch business or how that's going?

Sure. Great question. So think of that as in our test market, which is the Kansas City company-operated market. And we are working not only on the operational aspects of that, but also on the mix profile, what are the right items to actually market and how to go to market. I'm very comfortable with the work the guys have done. But before we take that beyond just the Kansas City R&D market, we want to make certain that we have a proposition that can be quickly exploited outside Kansas City. So we're still a work in progress but feel really good about the progress the guys are making.

Your next question comes from the line of Michael Gallo from CL King. Michael W. Gallo - CL King & Associates, Inc., Research Division: Just a question on IHOP. Obviously, it was nice to see the significant improvement in same-store sales in the quarter. I was wondering if you can give us any more color on where you saw the drivers of that, whether it was consistent across midweek lunch and weekend or midweek breakfast and weekend breakfast, and then also what you saw in terms of limited time offer response. It seemed like Brioche French Toast did pretty well. So I was wondering if you could give us any further color on just what you saw out of the improvement in IHOP trends.

Yes. It really was, Michael, across all of the day parts. We saw increases across the country, across the day parts. And I think that has a lot to do with what I said earlier, sort of working on all tracks on the pillars. We had done the foundational work last year, and then it really began to come together this year. And I think we want to stay on that track with both the menu work, the operations work, the advertising work, the media work. And clearly, those promotions that you were speaking of, Brioche French Toast, the signature pancakes and this whole notion of the Griddle Melt which, in my humble opinion is like the best tasting breakfast sandwich in America, all worked. So it's really all of it coming together. There wasn't anything that I would highlight. I think it all worked in conjunction with each other.

Ladies and gentlemen, this will conclude the portion of the question-and-answer session of today's conference. I would now like to turn the call over to Julia Stewart for closing remarks.

So I just wanted to say thank you again for participating. Our third quarter 2013 reporting date is October 29. If you have any questions, I want you to please feel free to contact Ken, Tom or myself. And thanks, again, for everyone's time today.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, and you may now disconnect. Have a wonderful day.