IHOP 2008 Annual Report Download - page 54

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capital leases on franchisee-operated restaurants. The rental operations segment is exclusively generated
by IHOP.
Financing operations revenue consists of the portion of franchise fees not allocated to IHOP
intellectual property, sales of equipment, as well as interest income from the financing of franchise fees
and equipment leases. Financing expenses are primarily the cost of restaurant equipment.
Captive Insurance Subsidiary
In connection with the acquisition of Applebee’s, the Company acquired Neighborhood
Insurance, Inc., a Vermont corporation and a wholly-owned captive insurance subsidiary of Applebee’s,
which provides Applebee’s and qualified Applebee’s franchisees with workers’ compensation and
general liability insurance. The captive insurance subsidiary ceased writing insurance prior to the
acquisition. Franchise operations expense includes costs related to the resolution of claims arising from
franchisee participation in our captive insurance program. Our consolidated balance sheets include the
following balances related to the captive insurance subsidiary as of December 31, 2008:
• franchise premium receivables of approximately $0.7 million included in receivables related to
captive insurance subsidiary;
• cash equivalents and other long-term investments restricted for the payment of claims of
approximately $5.6 million are included in restricted assets related to the captive insurance
subsidiary; and
• loss reserve related to captive insurance subsidiary of approximately $4.5 million, with
approximately $3.3 million and $1.2 million included in other current liabilities and other
non-current liabilities, respectively.
40