IHOP 2008 Annual Report Download - page 44

Company- Area
Location Franchise Operated License Total
Utah .................................................. 19 — — 19
Virginia ................................................ 51 — — 51
Washington .............................................. 29 — — 29
West Virginia ............................................. 6 — — 6
Wisconsin ............................................... 15 — — 15
Wyoming ............................................... 3 — — 3
International
Mexico ................................................. 3 — — 3
Canada ................................................. 1 — 12 13
Totals .................................................. 1,225 11 160 1,396
As of December 31, 2008, we operated 406 Applebee’s restaurants and 11 IHOP restaurants for a
total of 417 company-operated restaurants. Of these restaurants, we leased the building for 66 sites,
owned the building and leased the land for 182 sites, owned the land and building for 12 sites and
leased the land and building for 157 sites.
Of the 1,225 franchisee-operated IHOP restaurants, 62 were located on sites owned by us, 705
were located on sites leased by us from third parties and 458 were located on sites owned or leased by
franchisees. All of the IHOP restaurants operated by the area licensee and all of the franchisee-
operated Applebee’s restaurants were located on sites owned or leased by the area licensee or the
franchisee.
Leases of IHOP restaurants generally provide for an initial term of 20 to 25 years, with most
having one or more five-year renewal options. Leases of Applebee’s restaurants generally have an
initial term of 10 to 20 years, with renewal terms of 5 to 20 years. In addition, a substantial portion of
the leases for both IHOP and Applebee’s restaurants include provisions calling for the periodic
escalation of rents during the initial term and/or during renewal terms. The leases typically provide for
payment of rents in an amount equal to the greater of a fixed amount or a specified percentage of
gross sales and for payment of taxes, insurance premiums, maintenance expenses and certain other
costs. Historically, it has been our practice to seek to extend, through negotiation, those leases that
expire without renewal options. However, from time to time, we choose not to renew a lease or are
unsuccessful in negotiating satisfactory renewal terms. When this occurs, the restaurant is closed and
possession of the premises is returned to the landlord.
Under our Applebee’s franchise agreements, we have certain rights to gain control of a restaurant
site in the event of default under the franchise agreement. Because most IHOP franchised restaurants
developed by us under our Previous Business Model are subleased to the franchisees, IHOP has the
ability to regain possession of the subleased restaurant if the franchisee defaults in the payment of rent
or other terms of the sublease.
We currently lease our principal corporate offices and IHOP restaurant support center in
Glendale, California, under a lease expiring in June 2010. The Applebee’s restaurant support center is
located in the Kansas City metropolitan area under a lease expiring in July 2023. We also lease small
executive suite space in various cities across the United States for use as regional offices.
Item 3. Legal Proceedings.
In addition to those matters described in previous filings, we are subject from time to time to
lawsuits, claims and governmental inspections or audits arising in the ordinary course of business. Some
of these lawsuits purport to be class actions and/or seek substantial damages. In the opinion of
management, these matters are adequately covered by insurance or, if not so covered, are without
merit or are of such a nature or involve amounts that would not have a material adverse impact on our
business or consolidated financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the fourth quarter of the
fiscal year covered by this report.
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