IHOP 2008 Annual Report Download - page 40

sublicensees will use the intellectual property assets in accordance with such guidelines. Franchisee and
sublicensee noncompliance with the terms and conditions of the governing franchise agreement or
other sublicense agreement may reduce the overall goodwill associated with our brands. Franchisees
and other sublicensees may refer to our intellectual property improperly in writings or conversation,
resulting in the weakening of the distinctiveness of our intellectual property. There can be no assurance
that the franchisees or other sublicensees will not take actions that could have a material adverse effect
on the reputation of the Applebee’s or IHOP intellectual property. Any such actions could have a
corresponding material adverse effect on our business and revenues.
In addition, even if the sublicensee product suppliers, manufacturers, distributors, or advertisers
observe and maintain the quality and integrity of the intellectual property assets in accordance with the
relevant sublicense agreement, any product manufactured by such suppliers may be subject to
regulatory sanctions and other actions by third parties which can, in turn, negatively impact the
perceived quality of our restaurants and the overall goodwill of our brands, regardless of the nature
and type of product involved. Any such actions could have a material adverse effect on our business, by
virtue of, among other things, reducing the public’s acceptance of Applebee’s or IHOP restaurants,
thereby reducing restaurant revenues and corresponding franchise payments to us.
We are heavily dependent on information technology and any material failure of that technology could
impair our ability to efficiently operate our business. We rely heavily on information systems across our
operations, including for examplepoint-of-sale processing in our restaurants, management of our supply
chain, collection of cash, payment of obligations and various other processes and procedures. Our
ability to efficiently manage our business depends significantly on the reliability and capacity of these
systems. The failure of these systems to operate effectively, problems with maintenance, upgrading or
transitioning to replacement systems, or a breach in security of these systems could cause delays in
customer service and reduce efficiency in our operations. Significant capital investments might be
required to remediate any problems.
Item 1B. Unresolved Staff Comments.
On December 2, 2008, the Company received a comment letter from the Staff of the SEC’s
Division of Corporation Finance (the ‘‘Staff’’) with respect to the Company’s Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 2008. The Company responded to the Staff’s
comments on December 30, 2008. On January 30, 2009, the Company received a follow-up comment
letter from the Staff that the Company responded to on February 18, 2009. The follow-up comments
are summarized as follows:
Consolidated Statements of Operations
• Explain why certain assets included in discontinued operations were not included under the
caption of ‘‘assets held for sale.’’ Explain why property and equipment is shown as being net
instead of at the lower of cost or fair value. Provide a description of the nature of the liabilities
classified as non-current liabilities related to discontinued operations.
Notes to Consolidated Financial Statements
• Address whether there has been a change in credit risk associated with franchisees or
distributors, and indicate whether there is a concentration of credit risk in any franchisee.
• Explain how the Company originally estimated the economic obsolescence factors that resulted
in a downward revision of the allocated value of Property & Equipment, and ensure that future
filings describe in clear terms the nature of these factors to better explain why the fair value
allocation has been written down.
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