IHOP 2010 Annual Report Download - page 20

Franchise Operations Segment
As of December 31, 2010, the franchise operations segment consisted of 1,701 restaurants operated
by Applebee’s franchisees in the United States, one United States territory and 16 countries outside of
the United States and 1,493 restaurants operated by IHOP franchisees and area licensees in the United
States, two United States territories and two countries outside of the United States. Franchise
operations revenue consists primarily of franchise royalty revenues, sales of proprietary products
(primarily IHOP pancake and waffle dry-mixes) and the portion of the franchise fees allocated to
IHOP and Applebee’s intellectual property. Additionally, franchise fees designated for IHOP’s national
advertising fund and local marketing and advertising cooperatives are recognized as revenue and
expense of franchise operations; however, Applebee’s national advertising fund activity constitutes
agency transactions and therefore is not recognized as franchise revenue and expense.
Franchise operations expenses include IHOP advertising expense, the cost of proprietary products,
pre-opening training expenses and other franchise-related costs.
Company Operations Segment
As of December 31, 2010, the company restaurant operations segment consisted of 309 company-
operated Applebee’s restaurants, 10 company-operated IHOP restaurants and one IHOP restaurant
reacquired from a franchisee and operated by IHOP on a temporary basis until refranchised. All
company-operated restaurants are in the United States.
Company restaurant sales are retail sales at company-operated restaurants. Company restaurant
expenses are operating expenses at company-operated restaurants and include food, beverage, labor,
benefits, utilities, rent and other restaurant operating costs.
Rental Operations Segment
Rental operations revenue includes revenue from operating leases and interest income from direct
financing leases. Rental operations expenses are costs of operating leases and interest expense on
capital leases on franchisee-operated restaurants. The rental operations revenue and expenses are
primarily generated by IHOP. Applebee’s has an insignificant amount of rental activity that only relates
to properties that are retained after franchising company-operated restaurants. Rental activity occurs
until such time as the properties can be disposed of by sale.
Financing Operations Segment
Financing operations revenue consists of the portion of franchise fees not allocated to IHOP
intellectual property, sales of equipment, as well as interest income from the financing of franchise fees
and equipment leases. Financing expenses are primarily the cost of restaurant equipment.
Financial information for our four operating segments for the last three fiscal years is set forth in
Note 22, Segment Reporting, of the Notes to the Consolidated Financial Statements included in this
report. Revenue derived from all foreign countries, in the aggregate, comprises less than 1% of total
consolidated revenue.
Restaurant Concepts
Applebee’s
We develop, franchise and operate restaurants in the bar and grill segment of the casual dining
category of the restaurant industry under the name ‘‘Applebee’s Neighborhood Grill & Bar.’’ With
2,010 system-wide restaurants as of December 31, 2010, Applebee’s Neighborhood Grill & Bar is the
4