IHOP 2008 Annual Report Download - page 66

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Impairment and Closure Charges
Impairment and closure charges increased to $4.3 million in 2007 from $43,000 in 2006.
Impairment and closure charges in 2007 included the impairment of long lived assets for three
restaurants closed in 2007, and two currently operated restaurants in Cincinnati. Impairment charges in
2006 were primarily for the impairment of long lived assets on three restaurants. The decision to close
or impair the restaurants in 2007 and 2006 was a result of a comprehensive analysis that examined
restaurants not meeting minimum return on investment thresholds and certain other operating
performance criteria and represented a change in strategy from prior practices. The assets for these
restaurants were written down to their estimated fair value.
Loss on Extinguishment of Debt
The loss on extinguishment of debt of $2.2 million in 2007 resulted from early debt retirement with
funds generated by the securitization transactions for IHOP. These costs include the write-off of
deferred financing costs in the amount of $1.0 million, and $1.2 million for prepayment penalties as a
result of paying off IHOP’s pre-existing debt.
Provision for Income Taxes
We recognized a tax benefit of $2.2 million in 2007 as compared to a tax provision of $28.3 million
in 2006. The change was primarily due to the release of certain unrecognized tax benefits as a result of
the lapse of statute of limitations, higher compensation related income tax credits, and claims for the
refund of income taxes paid in previous years partially offset by changes in state tax rates and state tax
laws. These adjustments have a significant impact on the effective tax rate in 2007 because of the
decrease in our pretax book income.
Pro Forma Comparison of the fiscal years ended December 31, 2008, 2007 and 2006—Applebee’s
The following section illustrates certain financial results of Applebee’s on a stand-alone basis
comparing 2008 as consolidated into the Company with 2007 information comprised of the 11-month
data from Applebee’s prior to the acquisition date of November 29, 2007 and the one-month data of
Applebee’s subsequent to the acquisition date (‘‘Pro Forma 2007’’). Pro Forma 2007 is also compared
with 2006 information representing data derived from Applebee’s prior to the acquisition date
(‘‘Predecessor Applebee’s’’).
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