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IHOP swings to a loss on Applebee’s-related expenses

GLENDALE Calif. Expenses related to its pending $2.3 billion acquisition of Applebee’s International Inc. left IHOP Corp. with a loss of $11.6 million for the third quarter ended Sept. 30, the company reported Tuesday. The 69-cent-per-share shortfall compares with a net profit of $11.3 million, or 62 cents per share, for the same period of the prior year.

Revenues for the most recent quarter rose year over year by 3.8 percent, to $91.4 million. Same-store sales increased 2 percent on the strength of a higher average check, which countered a decline in traffic, IHOP said.

The quarterly results reflected a $35.6 million non-cash expense stemming from an interest rate swap transaction that had previously been disclosed by the company. "The swap is intended to hedge IHOP's exposure to interest rate fluctuations on its planned securitizations associated with the acquisition of Applebee's," IHOP said in a statement.

Excluding the swap expense, operating income decreased 10.1 percent, to $10.2 million, the family-restaurant company said.

IHOP agreed on July 16 to acquire Applebee's for $25.50 per share, pending an approval by the casual-dining company's shareholders on Oct. 30. The acquisition is being funded by a whole-business securitization of Applebee's.

IHOP said it expects the deal to close by Nov. 29.

The company franchises most of the 1,328 IHOP restaurants worldwide that were in operation as of Sept. 30. The acquisition of franchise rights to more than 1,400 Applebee's units would make the breakfast specialist one of the industry's largest franchisors of full-service restaurants. It has already indicated that it plans to refranchise Applebees 508 company-operated outlets.

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