IHOP 2010 Annual Report Download - page 140

DineEquity, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
17. Impairments and Closure Charges
Impairment and closure charges for the years ended December 31, 2010, 2009 and 2008 were as
follows:
Year Ended December 31,
2010 2009 2008
(In millions)
Goodwill impairment ........................... $— $ — $124.8
Tradename impairment .......................... — 93.5 44.1
Long-lived tangible asset impairment ................ 2.0 10.4 71.4
Closure charges ............................... 1.5 1.2 0.3
Total impairment and closure charges ................. $3.5 $105.1 $240.6
Goodwill Impairment
In accordance with U.S GAAP, goodwill must be evaluated for impairment, at a minimum, on an
annual basis, and more frequently if the Company believes indicators of impairment exist. Such
indicators include, but are not limited to, events or circumstances such as a significant adverse change
in the business climate, unanticipated competition, a loss of key personnel, adverse legal or regulatory
developments, or a significant decline in the market price of our common stock. In the process of the
annual impairment review, the Company primarily uses the income approach method of valuation that
uses a discounted cash flow model to estimate the fair value of reporting units. Significant assumptions
used in the discounted cash flow model include future trends in sales, operating expenses, overhead
expenses, depreciation, capital expenditures, and changes in working capital, along with an appropriate
discount rate. During the course of fiscal 2010, 2009 and 2008 the Company made periodic assessments
as to whether there were indicators of impairment, particularly with respect to the significant
assumptions underlying the discounted cash flow model. In each year the Company determined an
interim test of goodwill was not warranted. Accordingly, the Company performed the annual test of
goodwill impairment in the fourth quarter of 2010, 2009 and 2008. The impairment test of goodwill of
the Applebee’s company-operated restaurants unit (‘‘Applebee’s company unit’’) and Applebee’s
franchised restaurants unit (‘‘Applebee’s franchise unit’’), which hold the significant majority of the total
goodwill, was performed as of October 31 of each year. The impairment test of the goodwill of the
IHOP franchised restaurants unit (‘‘IHOP unit’’) was performed as of December 31 of each year, the
date as of which the analysis has been performed in prior years.
In performing the first step of the impairment test, the estimated fair value of both the IHOP and
Applebee’s franchised restaurant units exceeded their respective carrying values and the Company
concluded there was no impairment of goodwill in either 2010 or 2009. In the 2008, the Company
concluded the fair the IHOP unit and the Applebee’s franchise unit was in excess of their respective
net carrying values and no impairment of goodwill was warranted. However, the fair value of the
Applebee’s company unit was less than the net carrying value of its assets assigned, requiring the
second step of the impairment test. In performing the second step of the impairment test the Company
concluded that the goodwill allocated to the Applebee’s company unit was fully impaired and an
impairment charge of $113.5 million was recorded. No tax benefit is associated with the impairment of
goodwill. During the fourth quarter of 2008 the commercial real estate market continued to weaken,
the credit markets continued constrained, economic forecasts were uncertain as to how long the
recessionary period would last, and the Company’s stock price declined. The Company revised the
124