IHOP 2009 Annual Report Download - page 126

DineEquity, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
8. Debt (Continued)
Discount on Notes
The discount on notes reflects the difference between the proceeds received from the sale of the
notes and the face amount to be repaid over the life of the notes. The discount is being amortized as
additional interest expense over the estimated life of the notes under the effective interest method.
The proceeds received from the sale of the Applebee’s November 2007-1 Notes and the
Series 2007-3 FRN (collectively, the ‘‘Notes’’) are net of amounts paid to the purchaser of the Notes
who plans to resell these Notes.
Deferred Financing Costs
In connection with the March 2007 and November 2007 securitization transactions, the Company
recorded approximately $82.5 million of deferred financing costs. These deferred financing costs will be
amortized using the effective interest method over the estimated life of the related debt. Amortization
associated with the deferred financing costs included in interest expense for the years ended
December 31, 2009, 2008 and 2007 was $15.0 million, $17.0 million and $3.8 million, respectively. For
the years ended December 31, 2009 and 2008, amortization associated with deferred financing costs of
$2.4 million and $0.3 million, respectively, was included in the calculation of gain on retirement of debt.
As of December 31, 2009 and 2008, $42.5 million and $64.7 million respectively, of deferred financing
costs are reported as Other Assets in the consolidated balance sheet.
Interest Rate Swap
On July 16, 2007, the Company entered into an interest rate swap (the ‘‘Swap’’), which was
intended to hedge the interest payments on the securitized notes that were issued in November 2007 to
finance the Applebee’s acquisition. The Swap had a notional amount of $2.039 billion and a fixed
interest rate of 5.694%.
In connection with the closing of the November 2007 securitized financing transactions, the
Company settled the Swap at a cost of $124.0 million. As a result of the Swap settlement, the Company
incurred interest expense on the undesignated portion of the Swap in an amount of $62.1 million in
2007, and is amortizing the designated portion of the Swap of $61.9 million into interest expense over
the expected four-year life of the Applebee’s November 2007-1 Notes and five-year life of IHOP
Series 2007-3 FRN (see Note 16, Other Comprehensive Income (Loss)).
9. Financing Obligations
On May 19, 2008, the Company entered into a Purchase and Sale Agreement relating to the sale
and leaseback of 181 parcels of real property (the ‘‘Sale-Leaseback Transaction’’), each of which is
improved with a restaurant operating as an Applebee’s Neighborhood Grill and Bar (the ‘‘Properties’’).
On June 13, 2008, the closing date of the Sale-Leaseback Transaction, the Company entered into a
Master Land and Building Lease (‘‘Master Lease’’) for the Properties. The proceeds received from the
transaction were $337.2 million. The Master Lease calls for an initial term of twenty years and four
five-year options to extend the term.
The Company has an ongoing obligation related to the Properties until such time as the lease
related to each of the Properties is assigned to a qualified franchisee in a transaction meeting certain
parameters set forth in the Master Lease. Due to this continuing involvement, the transaction was
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