Segments

The Company has four operating segments: franchise operations (an aggregation of Applebee’s and IHOP franchise operations), rental operations, company-operated restaurant operations and financing operations. The Company views all operating segments as reportable segments regardless of whether any segment exceeds 10% of consolidated revenues, segment profit or total assets.

As of June 30, 2017, the franchise operations segment consisted of (i) 1,968 restaurants operated by Applebee’s franchisees in the United States, two U.S. territories and 14 countries outside the United States and (ii) 1,752 restaurants operated by IHOP franchisees and area licensees in the United States, three U.S. territories and 12 countries outside the United States. Franchise operations revenue consists primarily of franchise royalty revenues, sales of proprietary products to franchisees (primarily pancake and waffle dry mixes for the IHOP restaurants), franchise advertising fees from domestic IHOP restaurants and international restaurants of both brands and franchise fees. Franchise operations expenses include advertising expenses from domestic IHOP restaurants and international restaurants of both brands, the cost of IHOP proprietary products, IHOP and Applebee's pre-opening training expenses and other franchise-related 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 from capital leases on franchisee-operated restaurants.

Company restaurant sales are retail sales at company-operated restaurants. Company restaurant expenses are operating expenses at company-operated restaurants and include food, labor, utilities, rent and other restaurant operating costs. In June 2017, the Company refranchised nine of ten company-operated restaurants in the Cincinnati, Ohio market area; the one restaurant not refranchised was permanently closed. As a result, the Company no longer operates any IHOP restaurants on a permanent basis. The Company has not presented these restaurants as discontinued operations as defined by U.S. GAAP because the refranchising of nine restaurants out of a total of over 3,700 restaurants did not represent a strategic shift that had a major effect on the Company's operations.

From time to time, the Company may operate IHOP restaurants reacquired from franchisees on a temporary basis until those restaurants are refranchised. There were no IHOP restaurants under temporary operation at June 30, 2017.

Financing operations revenue primarily consists of interest income from the financing of franchise fees and equipment leases and sales of equipment associated with refranchised IHOP restaurants. Financing expenses are primarily the cost of restaurant equipment associated with refranchised IHOP restaurants.

Information on segments is as follows:



	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
	(In millions)
Revenues from external customers:
Franchise operations	$	119.6		$	122.5		$	239.1		$	247.5
Rental operations	30.1			30.8			60.6			62.2
Company restaurants	3.4			4.5			7.5			9.3
Financing operations	2.1			2.5			4.2			4.8
Total	$	155.2		$	160.3		$	311.4		$	323.8

Interest expense:
Rental operations	$	2.6		$	3.0		$	5.4		$	6.1
Company restaurants	0.1			0.1			0.2			0.2
Corporate	15.8			15.4			31.1			30.7
Total	$	18.5		$	18.5		$	36.7		$	37.0

Depreciation and amortization:
Franchise operations	$	2.7		$	2.6		$	5.4		$	5.2
Rental operations	3.0			3.2			6.0			6.3
Company restaurants	—			0.1			0.1			0.2
Corporate	2.0			1.6			3.9			3.8
Total	$	7.7		$	7.5		$	15.4		$	15.5

Gross profit, by segment:
Franchise operations	$	82.4		$	87.5		$	165.2		$	176.8
Rental operations	7.5			7.8			15.3			16.0
Company restaurants	(0.1		)	(0.2		)	(0.3		)	(0.6		)
Financing operations	2.1			2.3			4.2			4.6
Total gross profit	91.9			97.4			184.4			196.8
Corporate and unallocated expenses, net	(52.2		)	(57.7		)	(120.4		)	(116.0		)
Income before income tax provision	$	39.7		$	39.7		$	64.0		$	80.8