Good day, ladies and gentlemen, and welcome to the DineEquity Inc. Fourth Quarter and Fiscal 2011 Investor Conference Call. My name is Keith and I will be your operator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. And I would now like to turn the conference over to your host for today Mr. Ken Diptee, Executive Director of Investor Relations. Please go ahead, sir.

Good morning, and thank you for participating on DineEquity's Fourth Quarter and Fiscal 2011 and 2012 Guidance Investor Conference Call. Today I am joined by Julia Stewart, Chairman and CEO; and Tom Emrey, CFO. 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 and involves known and unknown risks, uncertainties and other factors which may cause the actual results to be materially different than those expressed or implied in such statements. We caution you to evaluate such forward-looking information in the context of these factors, which are detailed in today's press releases, as well as in our most recent 10-K filings with the Securities and Exchange Commission. The forward-looking statements made today are made as of the date hereof and assumes no obligation to update or supplement any forward-looking statements. Additionally, we may refer to certain non-GAAP financial measures. These non-GAAP financial measures are described in our press releases today, and are also available on 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. As you know, we issued 2 press releases this morning for earnings results and guidance. We'd like to use this call as an opportunity to provide additional commentary on the press releases and further amplify those items that we feel deserve additional attention. And after we've provided some color on this morning's news, we'll open the call up for your questions. We're pleased with our solid fourth quarter and fiscal 2011 performance. Since bringing our 2 iconic brands together, we have remained focused on delivering against our financial and operating priorities. One, since the Applebee's acquisition in 2007, we've reduced total debt by approximately $719 million or 29%. Two, we've refranchised 132 Applebee's company-operated restaurants in 2011 and additional 17 in the first quarter of 2012, bringing the total to 342 company-operated restaurants since the acquisition, now making DineEquity 95% franchised. Three, since 2007, we've reduced G&A by $38 million or 19%. And four, we've maintained annual free cash flow in excess of $100 million since fiscal 2009. In 2011, we made significant progress in delivering value to our shareholders. Excluding a one-time tax benefit for 2011, we reported adjusted EPS of $4.29, achieving the most optimistic end of our full-year guidance range. We also continue to progress with our ongoing efforts to deliver value to consumers, driving menu innovation and advancing operational excellence to enhance the guest experience. Our focus on these areas will continue throughout 2012. There's more that can be done. Now let me provide some details on the performance of both brands and let's start with Applebee's. We're pleased with the results at Applebee's. Domestic system-wide same-restaurant sales for the fourth quarter returned to positive territory. This marks sequential improvement from the third quarter of 2011. 2011 also marked the…

Thanks, Julia. I'd like to highlight a few key points of the press release you've read this morning. In fiscal 2011, we reduced our debt by over $300 million or 15%. For the full year, bank debt was reduced by $162 million, bond debt was reduced by $59 million and financing and capital lease obligations were reduced by $88 million. In the fourth quarter alone, we reduced debt by $116 million. Our year-end leverage ratio of 5.3x underscores our commitment to deliver shareholder value by generating substantial free cash flow to lower debt. As a result of paying down debt, our 2010 refinancing and the debt repricing in early 2011, we were able to reduce interest expense by $39 million in 2011 from the prior year. We remain focused on our operating priorities and generated free cash flow of $108 million in 2011. We believe this emphasizes the strength of our highly franchised model, and we will continue to use this free cash flow to pay down debt and strengthen our balance sheet. For fiscal 2011, adjusted net income available to common stockholders was $78 million or $4.29 per diluted share, excluding a one-time tax benefit, compared to $62 million or $3.50 per diluted share in 2010. The year-over-year increase of $16 million was primarily due to the redemption of the Series A perpetual preferred stock in 2010, lower cash interest expense and lower income taxes partially offset by lower segment profit due to refranchising. Now I'd like to elaborate on the one-time tax benefit I just referred to. The benefit was recorded as a result of an analysis of our legal and operating structure which was performed in 2011. As a result of eliminating our securitized debt, we were able to more clearly align our operating activities with our legal entity structure. This action during 2011 resulted in current year state tax savings and is expected to result in additional future state tax savings. This analysis was completed late in the fourth quarter of 2011. So our effective tax rate for fiscal 2011 was 32.6%. Including the one-time tax benefit, our fiscal 2011 tax rate was 28.4%. With respect to company-owned restaurant margins, for the full-year 2011, Applebee's company-operated restaurant margin was 14.5% compared to 14.8% in 2010. The decline was caused by higher labor and payroll expenses, commodity inflations and incremental investment and local advertising. These items were partially offset by the refranchising of lower margin restaurants, the realignment of our distribution centers and a higher average guest check. And now I'll turn the call back to Julia.

Thanks, Tom. Let's look at our performance expectations for 2012. We believe that the economy will continue to influence consumer discretionary spending. We recognize that differentiating our 2 iconic brands and offering value must remain paramount. Our guests return for the quality food, excellent service and great ambience. Applebee's is the leader in casual dining as measured by domestic system-wide sales. Our goal is to attain the highest marks in guest satisfaction, improve same-restaurant sales and traffic and be the franchisor of choice. We have a strategy in place and are focused on leveraging a combination of initiatives to achieve these objectives. Through a more comprehensive approach to marketing, menu innovation, operational improvements and our remodel program, we believe that Applebee's is poised for long-term success. These factors give us confidence that Applebee's will deliver domestic systemwide restaurant sales in the range of 0.5% to positive 2.5% in 2012. And from a development perspective, Applebee's franchisees are expected to build between 30 and 40 new restaurants this year, the majority of which are projected to be opened in the U.S. At IHOP, we've seen sequential improvement in domestic system-wide same-restaurant sales in the previous 2 quarters. Sales are not where we want them to be and there's still additional work that must be done. To that end, we'll continue working with our franchisees on improving operations, moving rapidly on product testing and innovation and ensuring we have the right value message. We are focusing on menu pipeline of new ideas that are relevant to the brand and compelling to our guests. Our culinary platform, which we discussed with you last quarter, continues to influence our work on signature items, health and wellness offerings while simplifying the menu. These initiatives will be complemented by ongoing consumer research. We believe these factors will position IHOP to deliver domestic system-wide same-restaurant sales in the range of negative 1.5% to positive 1.5% in 2012. Turning to the development, IHOP franchisees are expected to build between 45 and 55 new restaurants this year, the majority of which are projected to be opened in the U.S. We continue to strengthen our value proposition, innovation and service platform to regain momentum at IHOP. So as a recap, 2011 was a solid year for DineEquity in which we met or exceeded all of our performance metrics and while we still have work to do with both brands, I'm pleased with the progress we've made. We leveraged our shared services model to manage G&A and refranchised 132 Applebee's company-operated restaurants, which allowed us to significantly reduce our total debt. Looking ahead to this year, I am optimistic about our long-term strategy to drive shareholder value. We expect to use the majority of our free cash flow to pay down debt. With that, Tom and I will be pleased to answer any questions you may have. Operator?

[Operator Instructions] And your first question is from the line of Chris O'Cull with SunTrust bank.

My first question is just a point of clarification, was the 6% increase Applebee's gift card sales, was that for the year or during the holiday period?

That was for the year, Chris. That was the whole year.

Okay what was the holiday period if you looked at the fourth quarter?

I don't know if I have that at my fingertips.

I assume it was greater than 6%?

Chris, I'm going to have to get back to you. I do not have that at my fingertips.

Okay. That's fine. And then, Julia, would you maybe provide us an update on the progress IHOP is making on some of the service or guest satisfaction issues? Maybe just a number of stores that have already made some changes, what those changes were. And then as a follow up, how do you plan to monitor changes in guest satisfaction more closely going forward at IHOP?

That's a great question. So as I've said, the entire IHOP system will be on this new service platform, if you will, come June 2012. So right now, we've got a couple of hundred restaurants, we're seeing some very good progress in terms of speed of service, guests feeling like there's a team work going on. We really are making some progress. And so with the entire system on it by June, I think it's more of a pull-push strategy, feel very good about that. But as you know, there are many pieces to that service piece. And so we are clearly monitoring them with the raising of the bar in terms of the amount of ways [ph] that the guest work that we're doing, the consumer insights work we're doing, additional proprietary research, adding resources. So we're throwing a lot at it, if you will, in terms of both resources and support to the franchise community and actually looking at the results. So when you add it all up, we feel pretty good about where we are, I think that's a great question come the next investor call to see about the progress that we've met because by then, the large majority of the system will be on it.

Okay. Fair enough. And then one last one, are you seeing any changes to the composition of same-store sales at IHOP following the new 7 under $7 menu?

No, it's probably too soon to tell, Chris. I mean the real honest answer is, we had some initial good results. But remember, we were only on television with the 7 for $7 menu for like 3 weeks and then we went right into Lorax [ph]. So again that's probably a better look see come mid year.

Your next question is from the line of Peter Saleh with Telsey Advisory Group.

My question is on the alcohol sales at Applebee's. It sounds like 15% all-time high, just give us a little bit more color in terms of what's driving that. Is that all driven by Late Night or are you seeing more alcohol sales at dinner as well?

Yes, it's both. It's both literarily during the dinner day part, as well as the late night day part. We are just seeing more people purchasing a drink. If you think that, gosh, it's probably been a couple of years ago when we talked about a percentage of people that were either drinking water or not ordering a drink, today, with our suggested selling and the programs we put in place, we are seeing a lot more people even having that one drink.

Are you starting to see more consumers as well purchasing desserts and appetizers as well or is the mix starting to move higher?

That's stayed pretty much the same. The big jump in that was when we first introduced those -- if you've had that in the Applebee's restaurant, I'm addicted to the $1.99, those little small sundaes. When we first introduced that, we saw a blip and then it sort of stayed at a higher level since then. But there really hasn't been -- I haven't seen any huge changes. It has lot more to do with the liquor mix that we spoke of earlier.

And if you just give us some -- I don't know if there's anything changed on the credit markets and the ability of franchisees to access more capital if they need it?

We've always said that our franchisees, because they're such a robust group, we only have 40 of the Applebee's franchisees and they've always had access to capital. Now for a while, they may have complained about what the coupon rate was but they've always had pretty good access to capital.

There hasn't been any recent changes in habit we've noticed.

It's been pretty positive for a while.

Your next question comes from the line of Bryan Elliott with Raymond James.

I guess, I wanted to stay on IHOP and get a sense from you of what kind -- of the competitive landscape is out there. Obviously the family dining consumer continues to be under a lot of pressure with rising grocery bills and gas prices, et cetera. We've seen some decent size chains go into Chapter 11. Are you seeing anything from those guys specifically or competitors more generally getting more aggressive on pricing or couponing or if you could just give us a little more color on what you're seeing out there in that family dining segment.

Well, there's no question that the family dining segment is, I think at this point is, sort of flat if not slightly down overall. Certainly in family dining, you are drawing a little bit from other segments, not just family dining. But in the family dining category, there are some regional players that has been at a mixed result and there certainly been some entrepreneurs or independents that have gone down. But in general, it's more flattish. And in terms of anybody doing something dramatically differently, we really haven't seen that. If you look at the market share over the last several years and I think on our May call, we can have a better update on -- I don't have the numbers yet. It's just too soon in the year. But on the May call, I should be able to have market share for 2011 numbers. We usually get that right around April or May. I'll have a better sense for where the share went and how it was stolen and from whom. But in general, I don't see a lot of change there. Certainly, we've been trying to keep our focus on differentiating ourselves and coming up with unique and differentiated items. So that's really the focus for IHOP.

Your next question is from the line of Reza Vahabzadeh with Barclays Capital.

Julia, your same-store sales guidance for Applebee's for 2012 obviously favorable to the recent trends in 2011, but more cautious same-store sales outlook on IHOP. Can you just talk about the dipping [ph] position that those brands are at? Is it the category that makes you more cautious, is it store level execution, is it the end consumer?

Well, there's no question that we said when we get all things going at Applebee's, all the different strategies, we felt pretty good about the results. And I think we are finally seeing the remodel, the advertising, the menu work, the operation, right. All of that is coming together at Applebee's in giving us a good sense of where we're going to be in 2012 and that's why I think we've got that solid forecast. On the IHOP side, we are not as far along in the differentiating as we are at Applebee's and I think we are building that momentum in 2012 and I think that gives us some amount of cautious optimism. But I think it would be prudent to be a little more cautious on where we are just in terms of timing and sequencing.

Yes. I think that's really the way you should take it is we're trying to make sure that we're being prudent about the guidance that we give for both of them.

Got it and then as far as your changing promotional strategy on Applebee's going to longer dated promotions from limited time offers, can you just talk about that for a while?

Sure. It's IHOP, not Applebee's. And IHOP had done 6 -- had been sort of notorious for historically doing 6 limited time offers on television and in store. And the way you should be thinking about this is starting in April, you'll have the regular menu in the restaurant but you'll also have a separate handout, which is a pretty aggressive handout that has both value items on it, it has new items on it, it features the under 600 calories for kids. Think of it as being a much more robust way to think about the menu and new items. And then you'll start to see that advertising talking about all the great stuff that we have at IHOP, not this limited time only to try to hurry up and bring people in for 4 weeks and then do something else. It's really featuring a lot more of our new innovation and creativity, which gets people used to the fact that ongoing, you get to see new items but they stay on the menu. Like you could come back any time and have them as opposed to hurry up, better do it in 3 weeks or it's gone. And I think that resonates better with guests and we're certainly seeing that on the Applebee's side, as well.

And they're all aligned with our pillars for menu development too.

Right. As I said earlier, you'll see health and wellness on the menu, you'll see innovation, you'll see better focus on signature. It really aligns with all the pillars we talked about. So in any given time, you're sort of meeting all of our guest needs, which is what we heard for from our research.

Got it. And then can you bring us up-to-date on potential supply chain savings in your distribution and overall supply chain platform in terms of consolidation of DCs or any other initiatives?

Yes. We've made some huge progress and we should be pretty much completely done by the end of this year, maybe with one area exception work under an old contract and the franchisees and the co-op have agreed we should probably wait for that contract to run out, which is in the South. But beyond that, we should be pretty much locked and loaded by the end of this year. So it's good news.

It is good news, and we're also looking for new areas where the co-op can be a benefit to ourselves and the franchisees as well.

They're always looking for new and innovative ways. And remember, I mentioned to you, it's a great question, I mentioned to you last year that once we had the food sort of in a good place, they'd start going after nonfood whether it was equipment, furniture, fixtures. I mean, they've got their sights on more than just the [indiscernible] commodities. Yes.

Is there an amount of savings or basis points of savings that the system is looking for from that supply chain efficiencies.

We've always said that in the first couple of years, they were looking to get 3% savings and they'll beat that mark. But in terms of -- one thing we've learned through some of our benchmarking, every single company in the restaurant space does it differently. Everybody starts with a different basis, everybody measures different things whether it savings, whether it's cost avoidance. So we thought going here would be a little confusing because it's something different for each chain and where they are individually. I can tell you that the co-op regularly communicates to all of its franchise constituencies at DineEquity and the franchisees are very pleased with the results that we're getting, both in the middle of their P&L in terms of just reduction and sheer cost. They've done some consolidation of particular items and contract signing that has been very, very useful. So the best way to think about it is our franchisees making more money year-over-year, and are they feeling good about their relationship with the co-op. And to that degree, the answer is yes and they do feel good about where they are with the co-op. Candidly, it doesn't really do much for us. We're down with such a de minimis amount of company restaurants, but it really does benefit the franchisees and they're pleased with the results.

Got it. And then forgive me if I missed this but how many Applebee's stores were franchised -- were remodeled by franchisees or the company in 2011?

We remodeled on the company side about 40 for the year and the franchisees did a couple of hundred. And then if you add it all up to date, it's over -- almost 550 that have been remodeled. And as I said, we'll be aggressive again this year.

Your next question is from the line of Destin Tompkins with Morgan Keegan.

Julia, forgive me if I missed some of your prepared remarks. But I want to follow up on the commentary around Applebee's sales momentum. And you mentioned a lot of things, the remodel, the advertising menu, all that stuff coming together. Do you feel like there was at least the fourth quarter improvement. Do you feel like a portion of that was a weather benefit and how do you gauge kind of the underlying trend in the business? And then I guess as it relates to, I think you also had a press release out about a new advertising agency. If you could just kind of help put some context into some of those items, it would be helpful.

Sure. So we talked about this the last couple of days, this whole notion of the weather and I don't have -- I'm looking at Tom. I don't have a quantifiable number on the weather but I mean, intuitively, it had to have had some positive effects, but I would tell you that I can't quantify it yet, and I don't know if we're ever going to be able to. But in general, the franchisees are saying look, it's been a mild winter although certainly not this week, but I would say that it's probably had some effect. I don't know how meaningful that is. We're certainly looking at it. Frankly, I would say, if anything, it would have more of a first quarter impact than a fourth quarter. Most of the winter doesn't start in our world until December, but I can't quantify that. I mean it's a great question. It's got to have, but I didn't --

It clearly had an impact but we don't think it was a determining factor what happened in the fourth quarter.

And on your other question, which is to remind everyone was about advertising. Great question. On the Applebee's side, I think they felt, and we at DineEquity certainly supported the fact, that they've probably gotten their best work done with the agency and felt it was appropriate while they were doing well to at least consider a change. And as they went through the sourcing of that, they really -- I think they're going to announce that tomorrow -- found somebody that they thought would take them to a whole different level. And I think that was the notion of making a change and we all are very supportive of that to go to sort of the next level of creativity and differentiating. I talked about this for a couple of years and certainly when I worked there before, this notion of neighborhood really is something very, very unique and special that nobody else can own and we are known for that. If you do any kind of focus group work, it's usually the first word that comes out. And you think they're looking for the creativity that can take that to a whole different level. So we are all very excited about the notion of sort of taking that branding work and that brand promise work and that differentiation to a whole another level.

Okay. Great. And then on the guidance for the restaurant operating margin at Applebee's, how much of that is just the mix of company-owned restaurants that's left over versus improvements that you're seeing. And if you are seeing improvements, kind of what are the drivers there?

Well, basically the way I'd look at it, and I don't want to guide on each individual component piece of it but just to sort of summarize it, there is a lift that we'll see in 2012 from -- the remaining restaurants having a higher margin rates than the ones that we got rid of, the ones that we refranchised. We expect a margin improvement from higher sales. We expect a modest benefit from a couple of other things like depreciation and so forth that just happen to be -- start to hit in 2012. Those are the main pieces of why we see the margins improving as we move from 2011 to 2012. But it's important to point out that as we refranchised, which is our expectation as to move to 2012 more that, that margin rate will move up and down based on the composition of the restaurants remaining in our portfolio.

Your next question is from the line of John Ivankoe with JPMorgan.

I'd like to get back to the Applebee's comps a little bit. I mean especially within the fourth quarter, I mean I guess, a couple of things. Company versus franchise comps, I understand the comparisons are very different last year but what, if anything, we should read into company doing different in franchisees in the fourth quarter that maybe franchisees are lapping and the company is benefiting from is the first point. And secondly, on that consolidated comp that you reported, I mean it's not a great number versus the industry, which generally showed some improving results specially through December. So I just wanted to get a sense of how you felt Applebee's did relative to the industry and what might change for you to kind of get back from share, which I think is part of your long-term plan for the business.

So let me try to answer a couple of those and feel free to jump in here. So on the company's side, we, as you'll see, as you saw from the detail, we did do some things on the company side, especially investing in local advertising, which was a test to see how that would work and we have shared those results with our franchisees. So many of those are picking up. The best way to think about it is just some different ways of doing the work locally, which obviously have a positive impact on company-operated top line sales, which has been sort of interesting. That's your best hope that R&D restaurants can test some things in front of others. So that's part of it. And certainly, we saw the momentum come back that we lost some of it in the third quarter. And we feel that as we look out to 2012 and doing all the right things, I think we feel very good about where we were in our momentum. And some of the direct competitors that certainly hadn't had the success that we had, had in the last year and a half, so it doesn't surprise me that there were some catch-up there. And I think that's all about how do you stay the course and stay in the momentum. And that's what I feel best about is our results for the last couple of years have really been, as you know, outpacing and outstripping the competitive set. And one quarter doesn't make or break a trend. So I feel pretty good about that. And I think clearly that's why we have the guidance where we do the -- we're going to be prudent and respectful but we feel good about where we are in 2012 with them.

And in terms of like where we even are in the current quarter. I mean is it like a performance in line, you could perform better. In other words, maybe it was just a share issue in the fourth quarter. I mean we should expect that to kind of change in the near term?

I think the way -- again, I certainly -- we don't guide quarterly and it's for that very reason, things up and down, but I think the best way you should think about it is we feel really good about the full-year 2012, what's in the pipeline, what the plan is, the franchisees being so focused and being aggressive with the remodels, the work we're doing with advertising and marketing, the pipeline. For me, I look at the year and say, it's robust, we feel good about it, we're very confident. And that's the way you should think about it. I think spending too much time quarter-to-quarter can--

Or within a quarter.

Right. Or in a quarter, it can be difficult. Yes.

And if I just may continue. I mean it does look like that or I would assume that mix would've been positive in the fourth quarter given the fact that your alcohol sales were up. I mean others in the industry I guess, it's a little bit mixed, but it's not necessarily a negative mixed environment, I guess is what I'll say. Where are you kind of in your average ticket right now both on the pricing in the mix side and what do you think it means for 2012? I mean, your guidance might suggest that traffic could even be flat. I don't want to over-interpret that, but what's your sense on average ticket?

On the Applebee's side, we've been hovering right around $12.75, $12.80. Yes, almost $13. And on the IHOP side, we've been hovering just under $10. We haven't seen a huge amount of movement. I mean in any given promo or a quarter, you might see a little bit up, a little bit down but not huge movement. I think it's a slight uptick, nothing huge or dramatic.

Okay. So I guess, average ticket is flat year-on-year. I mean in the fourth quarter and that's also your expectation for '12?

Not flat. I'm looking at the check, it's slightly up at both IHOP and Applebee's.

And on the Applebee's side, Julia, what type of pricing do you think is right for the current economic and competitive environment?

As you know, we don't predict pricing and nor do we -- we can't set it. Franchisees do their own thing. I think what I've maintained for the last couple of years is what I would say again for 2012. On both brands, franchisees feel comfortable they can price with inflation, and I would suggest that would happen again this year. There's nothing, I've heard nothing from the franchisees to suggest that they want to be aggressively pricing. They know this is a price value-oriented consumer. They want to ensure good value, but I also think they would be very comfortable pricing with inflation. And nothing we see from our consumer research would suggest we can't price with inflation.

Your next question is from the line Will Slabaugh with Stephens Inc.

This is J.R. [indiscernible] on for Will Slabaugh. I was just wondering if you all could -- I know in prior quarters that you've discussed franchisees and averaging roughly mid-single-digit comp growth from remodels. Are you continuing to see these similar returns from the remodels?

Yes. On the Applebee's side, the pre-post net of control is hovering right around that low-single-digit, mid-single-digit that we've spoken of. It doesn't appear to any change, in the few remodels we did on the company's side, we saw very much the same thing.

Okay. And I have a follow up, mainly touching on the same thing but with the new units that you've added, are the metrics similar in both concepts seeing a trend of positive growth?

We don't comment on inter-quarter but on fourth quarter, you did see improvement at both brands.

Your next question is from the line of Jordan Hughes with Goldman Sachs.

It seems to me like you talked a little bit more about value offerings at Applebee's last quarter. I was just wondering if you could talk about your plans for fiscal '12 for really value on the menu, and has there been any kind of a change in what you are expecting there?

Not really, but the 2 things -- good question -- the 2 things I would say is that, just to refresh everyone's memory, we put 2 for $20 on the menu at Applebee's. Gosh, it's probably been a couple of years ago now. And what we do on the 2 for $20 on the menu is every 3 or 4 months, if not sooner, we rotate new items in and out. So people still get the 2 for $20 and the notion of value, which is still running 18%, 20% of the mix. It changes a little bit if we advertise it on television, it goes slightly up. But I think people come to expect that 2 for $20 value, 2 entrees and an appetizer, it's a mainstay. But I think the notion that we keep updating that creatively and bringing in new items gives people that fresh interest and appeal. So we'll see that throughout 2012 and without giving away too much competitive information. You'll also see some ongoing value commitments and communication on our advertising, but I think we'll rotate that in and out with new items if you think about that. And frankly that's the same with IHOP. This work we're doing on the menu handout, you'll always see a value message for the balance of the year. So very similar. And that's obviously new for IHOP. So that's the way to think about both of them continuing the value message, both on the menu and periodically in communicating to the guest via television. More of that is new news on the IHOP side.

And just one question on the balance sheet. I mean you reduced that by about $300 million this year. Do you have any target for what you kind of hope to reduce that by in fiscal 12?

We don't guide on that but obviously debt reduction is the most important thing we have going on from a financial perspective and we continue to comply with all of our covenants and pay down debt on a rapid basis with the free cash flow that we generate.

[Operator Instructions] And your next question is from the line of Bryan Hunt with Wells Fargo Securities.

It's Kevin McClure in for Bryan. Most of my questions have been answered but I did one broad question about advertising. Are you changing your channels in which you're choosing to advertise? And what have you found to be the most effective channel to get your message out?

So on the IHOP side, you recall midyear last year, we talked about the fact that we had tried some new things at the beginning of last year. We were going back to our original strategy, which have a lot more to do with cable and some of the work we had done on the channels there and less about network because we didn't have enough to make it meaningful. I did say on my prepared remarks that we were going to do more social media this year with IHOP because we saw that as an important factor in our work and being relevant with our guests. We're always looking at, as we media buy, we are always looking at being the best steward for the brand, obviously because it's not our money, it's the franchisees' money. We're always looking at what's the best way to think about putting that on television, and a lot of that frankly has to do with what's the latest and greatest and whether you move it from NBC to CBS to ABC or Network. It has everything to do with the results and we are very blessed to work with great partners that help us look at that each and every day. So I would tell you there are fluxes and there are changes.

It's continually evolving.

Yes. But always within the mindset of, in their industry, what's working. So it's not in my mind. I don't think meaningful enough to say, oh my gosh, it's a huge change, but certainly both brands spending more time, effort, resources and money, again, social media.

And your final question comes from the line of Michael Gallo with CL King.

My question, Julia, is just on 7 for $7. I was wondering what you're seeing in terms of mix on that and then also what kind of impact you might expect that to have on check particularly as you put some media weight on it.

Unfortunately, I don't comment on inter-quarter results but feel free to please ask that question on our next investor call. Not only will I be able to give you mix and what it's done to average check, but it would've been at that point more than 3 weeks. So as I said earlier, it's pretty early in the phase to talk about it, but we don't comment inter-quarter other than I said I was encouraged about how it's been reflected in the marketplace.

Just question for Tom. Tom, what should we model for depreciation for 2012?

That's not an item we guide on. And it will continue to get smaller as we refranchise so that's something we'll have to look at as we move through time. It can get down to a relatively small number.

But just to reiterate, each time we sell company restaurants, we reissue these guidance [ph], right? So we promise you, each time we do that, we've always reguided changing the numbers and we will absolutely give you an update, right?

And ladies and gentlemen, that concludes the question-and-answer portion of our call. And with that, I'd like to turn the call back over to management for closing remarks.

Thanks, operator, and thank you all very much for joining us this morning. Our first quarter 2012 reporting date is May 1, 2012. If you have any questions, please feel free to call Ken, Tom or myself. We're here for you and we thank you very much for your time today.

Ladies and gentlemen, that concludes today's conference. Thank you for joining us and you may now disconnect. Have a great rest of the day.