FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Applebees's International, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APPB)") else Response.Write("(Nasdaq: APPB)") end if %>
4551 West 107th Street
Overland Park, KS 66207
(913) 967-8196

UNION CITY, CA (February 24, 1997)/FOOLWIRE/ --- Applebee's International reported their fourth quarter and fiscal 1996 year end results on February 11th. Earnings for the year were $38 million or $1.22 per share, an increase of 39%. That's net of a fourth quarter after-tax charge of $0.05 per share, primarily for the disposition of their Colton and Fontana California restaurants as they've talked about before. Earnings for the year excluding this charge would have been $39.6 million or $1.27 per share. For the fourth quarter, and including the $0.05 per share charge, earnings were $9.1 million or $0.29 per share. Excluding the charge, net earnings in the fourth quarter would have been $10.6 million or $0.34 per share, an increase of 31%.

STORE COUNT. They closed the year with 819 Applebee's restaurants system-wide, comprising 148 company-owned or operated restaurants and 671 franchise-operated. They opened a total of 163 new Applebee's restaurants, including 29 company-owned and 134 franchised restaurants, of which 5 were international openings. Those 163 new units provided almost $300 million of new market share. It was a 25% unit growth on their base. They did that while achieving some of the best comps in the industry, and by that they mean flat.

SALES/MARGINS. System sales for they year were $1.54 billion, a 23% increase, and $399.5 million for the fourth quarter. They are exceedingly proud of these results, particularly in the context of 52 weeks in 1996 compared to 53 weeks in 1995. They think too much has been written and spoken of the tough competitive environment. Their comment on that subject was "Yes it is and so what?" They feel their job was and is to find ways to deliver the results they plan for, and they have done that again. They sought to achieve balance between guest satisfaction and margin improvement. At 17% before pre-opening, they have achieved their highest margin yet. Their customer service index is providing them with real customer feedback which, when trended, becomes predictive in nature and helps them find this right balance between margins and topline.

CONCEPT ENHANCEMENT. They have alluded to developments in their remodel standards. They have alluded to a smaller, more efficient Applebee's prototype, a smaller Rio Bravo prototype, enhancements in food and menu design. They will be introducing these concepts in mid-April.

ACQUISITIONS. They recently advised that they are acquiring their St. Louis franchisee. It is really a great strategic fit. The territory abuts AII's territory. They have had and continue to have a strong customer and margin focus. They have strong sales and margins, strong management, good demographics and incredible density, development momentum and development upside opportunities for both Applebee's and Rio Bravo. They think there is room for another 11-12 Applebee's.

MARKETING AND ADVERTISING STRATEGY. They think it is worth noting that, as the leader in their segment, they are going to speed up the pace in 1997. By that, they mean that as their competitors have tried and continue to try to duplicate Applebee's food promotions and advertising, Applebee's is adding two optional campaigns in which they believe the majority of the system will participate. These new campaigns fit strategically into calendar slots they considered in-need of strengthening. For example, the first of these is a lunch campaign that is going to fit between Winter foods, their current "break for steak" campaign, and Spring foods. The second of those campaigns will be a back-to-school promotion. While this strategy still provides them with 48 weeks of promotion, it does give them more reach, more focus, and more intensity. They will also be presenting these campaigns in April.

RIO BRAVO CANTINAS. They opened 14 new Rio Bravo Cantina restaurants -- 5 company and 9 franchise. Eight of those 14 were in the fourth quarter. The 14 new restaurants were opened on a base of 16, so their units grew about 90%. Same store sales for Rio Bravo grew 3.9% for the year. That put them at the end of the year at 30 Rio Bravos -- 21 company-owned and 9 franchised. They successfully moved out of the Southeast corridor that Rio Bravo started in (Georgia and Florida). They moved into Michigan, Minnesota, Kansas, Indiana, Kentucky, and Ohio, among others. Average unit volumes for company Rio Bravos continue to run in the $3.5 million range. New restaurant openings continue to exceed their pro forma expectations of $2.8-$3 million. They will be opening approximately 27 Rio Bravos in 1997, that's divided into 9 company and 18 franchise units.

EXPANSION OUTLOOK. Their outlook for development is very strong. They have 35 company Applebee's and at least 100 franchise openings that they have committed to. Currently there are 26 Applebee's under construction system-wide with an additional 95 franchise sites approved.

PROFIT AND LOSS STATEMENT HIGHLIGHTS. Keep in mind that during 1996 they had a 52-week fiscal period and in 1995 had a 53-week fiscal period, and a 13-week quarter in the fourth quarter this year versus 14 weeks in the prior year. Starting with the topline of company restaurants, they had a reported increase of 10% and this is primarily due to the 14 weeks versus 13 weeks. When factoring out the 14th week in 1995, company sales were up 19% for the quarter and 22% for the full year. Company restaurant sales reflects 29 new openings in 1996, including 11 in the fourth quarter. Franchise income was $14.1 million for the quarter and $54.1 million for the year, there is the same relationship with the 53/52 week comparison. Factoring that out, franchise income was up 22% in the fourth quarter and 26% for the full year. Given the operating environment they are very pleased with their sales performance. During the fourth quarter comp sales were up 0.3% for the company stores and decreased 0.9% for franchise stores.

FOOD AND BAR COSTS. They had a 17% restaurant level operating margin before pre-opening in the fourth quarter and on a full year basis 16.1%. They are very pleased with the fourth quarter and their outlook is not that they would be running 17% on a full-year basis. That has unusually low advertising expenses compared to a full-year impact. Food and beverage costs were 27.6% for the quarter and 28% for the year. They continue to be pleased with their progress in that area. That is where they expect and want their food and bar costs to be. Commodities outlook continues to be good for Applebee's. They have locked in on all major commodities that are fixed price contracts and have availability lined up, including things like produce which is undergoing a little pressure in the general marketplace.

LABOR COSTS. Labor was 31.2% for the quarter and 31.5% for the year. Again, they are very pleased with the results especially considering the minimum wage increase in the fourth quarter. Their plan going into the minimum wage increase was to tightly control the trickle effect and to monitor the impact of it on their earnings. They expected, going into the quarter, that it would take a topline of 0.5% to 1.0% increase to absorb the impact of the minimum wage increase and that exactly what happened in the fourth quarter. They have done a very good job of controlling increases and really saw minimal effect in the fourth quarter. Going into 1997, they will continue to keep on top of the impact, especially with the next increase coming up in the Fall. Another area related to labor, they are quite pleased with their hourly labor percentage. It continues to trend positively. They have implemented their OSCAR technology program in the fourth quarter, which is their labor and schedule management technology. Early on, they are seeing that it is going to be a very good tool for them. One other area of labor is worker's compensation. They have continued to have very favorable progress in the area of claims control and claims experience. That continued throughout 1996. In the fourth quarter of 1996, they had an additional favorable adjustment for the policy period ending September 30, 1996 of $275,000 which was recorded in the fourth quarter. Of that adjustment, a majority of that belongs in 1996 as it was a 12-month policy period ending September 30th. That was a positive impact in the fourth quarter of about 0.3% on margins, but on a full-year basis it is properly reflected. They expect to continue to see the lower worker's comp as they put their safety and monitoring programs in place.

ADVERTISING EXPENSE. On the direct and occupancy line, the only thing to really mention there is the impact of advertising expense. For the quarter, direct and occupancy was 24.2%, basically flat or down slightly from the prior year and up 0.3% on a full-year basis. The increase on the full-year basis came earlier in the year from the increased level of advertising they put in early in the year. By way of history, their target for local advertising, advertising they did over and above the 1.5% national advertising, was about 2%. In 1996 they increased that to 2.5%. Going forward, they expect to keep it at 2.5%, but obviously with a growing revenue base that gives them additional dollars at the company level to spend on advertising -- somewhere in excess of $3 million additional advertising funds in the same number of markets. In 1996 in the fourth quarter and the full year, therefore, there was a full complement of advertising of 4%, 2.5% local and 1.5% national. That was spent primarily at a heavier rate in the first half of the year. In the last two quarters of the year, they were running well below 2.5% on the local -- it was 1.7% in both the third and fourth quarters. When looking at the 17% margin, keep in mind that advertising was lower in the fourth quarter and they are more comfortable on an ongoing basis with their target which they set this year and solidly achieved and that is a run-rate of 16%+ on the unit level margin before pre-openings.

PRE-OPENINGS. They had a number of openings in the fourth quarter -- 11 Applebee's and 2 Rio Bravos. With that came high pre-opening dollars, especially on the Rio Bravo side where they continue to experience higher pre-openings as they enter new markets. They expect that to start to come down to about $150,000 per unit on Rio in 1997 and to continue at about $65,000 per unit on Applebee's. They ran a little bit higher in the fourth quarter also just due to the number of openings on the Applebee's side and they did relocate and remodel one restaurant which had pre-opening but wasn't tracked as a new opening.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were 10.6% of revenue in the quarter against 11.5% in the prior year and they ended the year in the mid-10s at 10.6%. This exceeded their expectations for G&A leverage for the year. Going into the year they thought they would be under 11% but they had very favorable trends and were quite pleased with their G&A controls to get them to 10.6%. Going forward in 1997, they expect to continue to improve from that 10.6% throughout the year, with a target of late in 1997 approaching 10% for those quarters. G&A in terms of dollars, in the quarter versus prior year, it looks about flat but that doesn't take the 14-week versus 13-week issue into account.

LOSS ON DISPOSITION OF RESTAURANTS. They took a $2.5 million reserve write-down in the fourth quarter ($2.5 million pre-tax, $1.6 million after tax) for the disposition of 2 restaurants in Southern California. This reserve of $2.5 million equated to 5%. During the fourth quarter they closed on the transaction selling 6 of these restaurants they previously ran as company restaurants in the San Bernardino area to a franchisee in the Riverside/San Bernardino counties of California. The franchisee took those over and they closed on it in October. They have two additional restaurants left in the L.A. area that the company owns. This reserve reflects the lease buyout and sub-lease that they are anticipating they will enter into in the near future. That pretty much takes care of the cost in Southern California as far as Los Angeles and they continue to look at their alternatives in San Diego where they operate 6 restaurants, including looking at franchising opportunities there.

EARNINGS. Pre-tax earnings were $14.4 million during the quarter against $13.1 million last year. That includes $2.5 million of pre-tax earnings on the California adjustment. Looking at the tax rate, they made a slight adjustment in the fourth quarter to bring their tax rate in at 37.4% effective rate for the full year. This was finalizing the impact of the state restructuring they did this year when they adjusted the rate after the second quarter to 37.5%. Again, refining that, it was 37.4%, a very small impact on a full-year basis of only $60,000 after-tax including in the quarter. That leads to the bottom line where they reported $9.1 million versus $8.1 million last year in the quarter. When you pull out the $0.05 per share impact of the California adjustment, true operating earnings increased 31% during the quarter and 39% for the year (pulling out both the CA adjustment and the merger costs in 1995 related to Rio Bravo). Earnings per share, excluding those issues, were $0.34 (reported $0.29) for the quarter against $0.26 per share last year. On a full year basis, they reported $1.22 per share (excluding one-time charges it would be $1.27 per share) against $1.00 last year (when excluding merger costs). So, they see a very positive trend of 30%+ increase in earnings per share and profit dollars.

SALES TRENDS AND OPERATING ENVIRONMENT. They will continue to make efforts to prevail and perform well in this environment. One of the things they have all learned a lot about is that the timing of New Years was different this year and was in the first quarter instead of the fourth quarter. They had a shorter holiday shopping period and one less weekend. But, dialing all of those into the equation, they still came through with a very strong performance on the company side of 0.3% and they are quite pleased with that. The more important part about those issues is, when you erase those things and take them out of the equation, they do not see a decline in trend. In the first quarter of 1996 they had detrimental Winter weather and were down 6-7% in that period. They expect they will have favorable comparisons this year as a result of the bad weather last year in the first quarter. They are looking for a flattish environment on same store sales in 1997.

AVERAGE UNIT VOLUMES. On company operated stores, full year 1996 average unit volume was right at $40,400 per week. This was an increase of 1.3% from the prior year, which shows strength in openings of new restaurants on the company-owned side as well as their favorable trend on comp sales. On a total system basis, average unit volume was at about $40,000 per week, which was down slightly from the prior year about 1.6%, and that was primarily driven by franchise average unit volumes of $39,900, which were down a little over 2% from the prior year.

ST. LOUIS ACQUISITION. They are excited about the St. Louis acquisition. They filed a short 8-K with the SEC which covers the details of the acquisition. They are purchasing 11 restaurants and expect to close early in the second quarter of 1997, hopefully before the end of April. In addition to the 11 operating units, there should be at least 2 restaurants opening this year in the first half of the year. There are about 5-6 restaurants in various stages of development including the two that will open early this year and some of those will open in 1998. Total sales for the 11 restaurants in 1996 was $27.9 million and that's including two of the 11 restaurants which opened in April and don't have a full year of sales. Average unit volumes from the St. Louis area are among the highest in the Applebee's system, with average unit volumes of $2.674 million in 1996, just at $2.7 million. Not only are these high volumes but they are pleased with the distribution of the sales levels within that group of 11. With an average of $2.7 million, three of the eleven restaurants averaged over $3 million last year and 7 were over system average. Only 1 restaurant out of 11 is performing at less than $2.1 million. The margins in the St. Louis area are also very strong, driven by strong management, a focus on the topline, and high volumes. Their margins are 20%+ at the operating level when pulling royalty out. Of the 11 restaurants, 6 are fully leased, land and building, 2 are ground leases with owned buildings on them, and 3 are full fee property, land, and building. They have had a steady history of opening restaurants. The first two in that market were open in 1990 with anywhere from 1-3 restaurants opening per year through 1996. The purchase price was $36.1 million. A small portion of that will be paid in notes receivable over two years. The remainder will be paid in cash at closing plus reimbursement for development costs. They expect about $25 million of goodwill from the transaction, which will be amortized over 20 years. The franchisee was also a franchisee in Portland Oregon and, concurrent with this transaction they have entered into a transaction to sell those restaurants to another existing Applebee's franchisee that operates in the Northern California and the Pacific Northwest. They have a great management team that is all coming with this acquisition.

CAPITAL EXPENDITURES, EXPANSION, AND LIQUIDITY. In 1996, they had capital expenditures of $66 million. They expect in 1997 $120-125 million of capital expenditures including $36 million related to St. Louis. Cap-Ex will be driven in large part by new restaurant openings, 35 Applebee's restaurants (company owned) and 9 company owned Rio Bravos. By quarter, those openings will run as follows: 2 Applebee's and 2 Rio Bravos in Q1, 6 Applebee's and 3 Rio Bravos in Q2, 15 Applebee's and 2 Rio Bravos in Q3, and 12 Applebee's and 2 Rio Bravos in Q4. They expect at least 100 franchise openings in 1997 distributed relatively evenly throughout the year. Included in their capital expenditure expectation for this year is to continue to direct capital funds towards the remodeling of restaurants and to continue to replenish the capital in existing restaurants by replacing equipment as necessary. They have earmarked $8 million for relocations, remodels, and replacement capital. They continue to invest in technology, expecting in excess of $3 million being dedicated to their field and corporate systems and $5 million will be used to buy out 3 purchase options on leases in the Philadelphia area. These were purchase options that came with the acquisition of those 5 restaurants. And, they expect to execute their purchase option on their joint venture in the Nevada area sometime in the first half of the year. They ended the year with over $57 million in capital liquid assets, a very strong balance sheet position, $20 million stand-by revolver that continues to be unused. Given the capital expenditure needs including St. Louis, they think their capital needs will be met by cash on hand, cash generated from operations, and the revolver. If additional funding is needed, they have a very healthy debt-to-total capitalization ratio of less than 10% at the end of the year and they remain poised to handily fund their expansion in 1997.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.