IHOP 2009 Annual Report Download - page 132

DineEquity, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
13. Commitments and Contingencies (Continued)
of December 31, 2009 and 2008, the Company has outstanding lease guarantees or is contingently liable
for approximately $119.0 million and $160.9 million, respectively. This amount represents the maximum
potential liability of future payments under these leases. These leases have been assigned to the buyers
and expire at the end of the respective lease terms, which range from 2010 through 2044. In the event
of default, the indemnity and default clauses in our sale or assignment agreements govern our ability to
pursue and recover damages incurred. No material liabilities have been recorded as of December 31,
2009.
In 2004, Applebee’s arranged for a third-party financing company to provide up to $250.0 million
to qualified franchisees for loans to fund development of new restaurants, subject to its approval. The
Company provided a limited guarantee of 10% of certain loans advanced under this program. The
Company will be released from its guarantee if certain operating results are met after the restaurant
has been open for at least two years. As of December 31, 2009, there were loans outstanding under this
program to four franchisees for approximately $33.6 million, net of any guarantees from which the
Company was released. The fair value of the Company’s guarantees under this financing program were
approximately $287,000 and $70,000 as of December 31, 2009 and 2008, respectively, and are recorded
in non-current liabilities in the consolidated balance sheet. This program expired on October 31, 2007;
however, the Company’s guarantee will remain outstanding until the provisions for release have been
satisfied, as defined in the related agreement.
Litigation, Claims and Disputes
The Company is subject to various 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 the Company’s business or consolidated financial statements.
Gerald Fast v. Applebee’s
The Company is currently defending a collective action filed under the Fair Labor Standards Act
styled Gerald Fast v. Applebee’s International, Inc., in which named plaintiffs claim that tipped workers
in company restaurants perform excessive amounts of non-tipped work for which they should be
compensated at the minimum wage. The court has conditionally certified a nationwide class of servers
and bartenders who have worked in company-operated Applebee’s restaurants since June 19, 2004.
Unlike a class action, a collective action requires potential class members to ‘‘opt in’’ rather than ‘‘opt
out.’’ On February 12, 2008, 5,540 opt-in forms were filed with the court.
In cases of this type, conditional certification of the plaintiff class is granted under a lenient
standard. On January 15, 2009, the Company filed a motion seeking to have the class de-certified and
the plaintiffs filed a motion for summary judgment, both of which were denied by the court. The
parties stipulated to a bench trial which was set to begin on September 8, 2009 in Jefferson City,
Missouri. Just prior to trial, however, the court vacated the trial setting in order to submit key legal
issues to the 8th Circuit for review on interlocutory appeal. Briefing on the issues for interlocutory
appeal was completed by the parties on October 2, 2009.
The Company believes it has strong defenses to the substantive claims asserted and intends to
vigorously defend this case. An estimate of the possible loss, if any, or the range of the loss cannot be
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