IHOP 2009 Annual Report Download - page 101

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DineEquity, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
Other Restricted Assets
The Company has restricted assets related to its captive insurance subsidiary which are included in
non-current assets in the consolidated balance sheets. The captive insurance subsidiary was formed to
provide insurance coverage to Applebee’s and its franchisees. These restricted assets are primarily
investments use of which is restricted for the payment of insurance claims.
Investments
The Company’s investments comprise certificates of deposit, money market funds and auction rate
securities included in restricted assets related to the captive insurance subsidiary in the Consolidated
balance sheets. The Company has classified all investments as available-for-sale with any unrealized
gain or loss included in Other Comprehensive Income. The contractual maturity of the auction rate
security is 2030.
Inventories
Inventories consisting of food, beverages, merchandise and supplies are stated at the lower of cost
(on a first-in, first-out basis) or market. When necessary, the Company reserves for obsolescence and
shrinkage based upon inventory turnover trends, historical experience and the specific identification
method.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Equipment under
capital leases is stated at the present value of the minimum lease payments. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets or remaining useful lives.
Leasehold improvements and equipment under capital leases are amortized on a straight-line basis over
their estimated useful lives or the lease term, if less. The Company has capitalized certain costs
incurred in connection with the development of internal-use software which are included in property
and equipment and amortized over the expected useful life of the asset. The general ranges of
depreciable and amortizable lives are as follows:
Category Depreciable Life
Buildings and improvements . . . 25 - 40 years
Leaseholds and improvements . . Shorter of primary lease term or between three to 25 years
Equipment and fixtures ....... Between two to 10 years
Properties under capital leases . . Primary lease term or remaining primary lease term
Property and equipment are identified as assets held for sale when they meet the criteria of
U.S. GAAP. The Company ceases recording depreciation on assets that are classified as held for sale.
The Company capitalizes interest on borrowings during the active construction period of major
capital projects. Capitalized interest is added to the cost of qualified assets and is amortized over the
estimated useful lives of the assets.
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