IHOP 2008 Annual Report Download - page 123

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DineEquity, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
11. Financing Obligations
On May 19, 2008, the Company entered into a Purchase and Sale Agreement relating to the sale
and leaseback of 181 parcels of real property (the ‘‘Sale-Leaseback Transaction’’), each of which is
improved with a restaurant operating as an Applebee’s Neighborhood Grill and Bar (the
‘‘Property(ies)’’). On June 13, 2008, the closing date of the Sale-Leaseback Transaction, the Company
entered into a Master Land and Building Lease (‘‘Master Lease’’) for the Properties. The proceeds
received from the transaction were $337.2 million. The Master Lease calls for an initial term of twenty
years and four five-year options to extend the term.
The Company has an ongoing obligation related to any Property until such time as the lease
related to that Property is assigned to a qualified franchisee in a transaction meeting certain
parameters set forth in the Master Lease. Due to this continuing involvement, the transaction was
recorded under the financing method in accordance with SFAS No. 98, Accounting for Leases:
Sale-Leaseback Transactions Involving Real Estate, Sales-Type Leases of Real Estate, Definition of the
Lease Term, and Initial Direct Costs of Direct Financing Leases—an amendment of FASB Statements
No. 13, 66, and 91 and a rescission of FASB Statement No. 26 and Technical Bulletin No. 79-11,
(‘‘SFAS 98’’) and SFAS No. 66, Accounting for Sales of Real Estate (‘‘SFAS 66’’). Accordingly, the value
of the land, buildings and improvements will remain on the Company’s books and the buildings and
improvements will continue to be depreciated over their remaining useful lives. The net proceeds
received have been recorded as a financing obligation. A portion of the lease payments is recorded as a
decrease to the financing obligation and a portion is recognized as interest expense. In the event the
lease obligation of any individual Property or group of Properties is assumed by a qualified franchisee,
the Company’s continuing involvement will cease. At that time, that portion of the transaction related
to that Property or group of Properties is expected to be recorded as a sale in accordance with
SFAS 98 and SFAS 66 and the net book value of those Properties will be removed from the Company’s
books, along with a ratable portion of the remaining financing obligation.
In July 2008, the Company entered into a sale-leaseback transaction with respect to its support
center in Lenexa, Kansas. In connection with this 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
support center, the transaction will be recorded under the financing method in accordance with SFAS
No. 98 described above.
During 2008, the Company’s continuing involvement with 24 Properties was ended by assignment
of the lease obligation to a qualified franchisee. In accordance with the accounting described above, the
transaction related to this property was recorded as a sale with property and equipment and financing
obligations each reduced by $45.9 million.
109