IHOP 2008 Annual Report Download - page 109

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DineEquity, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
6. Property and Equipment
Property and equipment by category is as follows:
2008 2007
(In thousands)
Land ..................................................... $ 172,775 $ 213,583
Buildings and improvements .................................... 400,250 572,884
Leaseholds and improvements ................................... 274,577 290,789
Equipment and fixtures ........................................ 110,811 130,760
Construction in progress ....................................... 5,955 18,969
Properties under capital lease obligations ........................... 59,643 60,828
1,024,011 1,287,813
Less accumulated depreciation and amortization ...................... (199,529) (148,197)
Property and equipment, net .................................... $ 824,482 $1,139,616
The Company records capitalized interest in connection with the development of new restaurants
and amortizes it over the estimated useful life of the related asset. In 2008 and 2007, the Company
capitalized $457,000 and $191,000, respectively, of interest costs.
Accumulated depreciation and amortization includes accumulated amortization for properties
under capital lease obligations in the amount of $21.7 million and $19.2 million at December 31, 2008
and 2007, respectively.
In 2007, Applebee’s Services, Inc. (ASI), a subsidiary of Applebee’s International, Inc. entered into
a transaction with the City of Lenexa, Kansas, to lease the land, building and equipment for its new
corporate headquarters. In conjunction with the Applebee’s acquisition, the Company assumed this
lease. The transaction is designed to provide the Company with property tax exemptions for the facility
of up to 90% after the effect of payments in lieu of taxes paid to the City. In conjunction with the
lease, the City purchased the facility with the proceeds of up to $52 million in Industrial Revenue
Bonds (‘‘IRBs’’) due May 1, 2018, which will be funded periodically during the construction period. ASI
is the sole purchaser of the IRBs. The City has assigned the lease to the bond trustee for the benefit of
the bondholder. From inception, the Company has funded approximately $40.6 million of the IRBs and
has included this amount in property and equipment in the consolidated balance sheet. Due to the
bargain purchase option contained within the lease, the Company has classified this amount as a capital
lease.
On May 1, 2008, the Company paid off $4.1 million of the IRBs and surrendered $34.6 million of
the IRBs. The remaining $1.9 million of IRBs were transferred in July, 2008 as part of a sale-leaseback
transaction (see Note 11, Financing Obligations). In connection with the sale-leaseback transaction the
Company received approximately $39 million in proceeds. The initial term of the leaseback agreement
is 15 years. As the Company expects to have continuing involvement in the form of future subleasing of
a substantial portion of the corporate headquarters facility, the transaction was recorded under the
financing method in accordance with SFAS No. 98.
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