IHOP 2010 Annual Report Download - page 81

The EBITDA used in calculating these ratios is considered to be a non-U.S. GAAP measure. The
reconciliation between our loss before income taxes, as determined in accordance with U.S. GAAP, and
EBITDA used for covenant compliance purposes is as follows:
Trailing Twelve Months Ended December 31, 2010
(in thousands)
U.S. GAAP loss before income taxes ......................... $(12,080)
Interest charges ........................................ 190,739
Loss on retirement of debt and temporary equity ................ 107,003
Depreciation and amortization .............................. 61,427
Non-cash stock-based compensation .......................... 13,085
Impairment and closure charges ............................. 3,482
Other ................................................ 1,930
Gain on disposition of assets ............................... (13,573)
EBITDA .............................................. $352,013
We believe this non-U.S. GAAP measure is useful in evaluating our results of operations in
reference to compliance with the debt covenants discussed above. This non-U.S. GAAP measure is not
defined in the same manner by all companies and may not be comparable to other similarly titled
measures of other companies. Non-U.S. GAAP measures should be considered in addition to, and not
as a substitute for, the U.S. GAAP information contained within our financial statements.
Franchising of Applebee’s Company-Operated Restaurants
During 2010, we completed the franchising of 63 company-operated Applebee’s restaurants in the
Minnesota/Wisconsin market and 20 company-operated Applebee’s restaurants in the Roanoke/
Lynchburg markets in the state of Virginia. Proceeds from asset dispositions, including the 83
restaurants, totaled $51.6 million for the twelve months ended December 31, 2010, the majority of
which was used to redeem Series A Stock and retire debt.
Since the Applebee’s acquisition we have pursued a strategy to transition from the 74% franchised
Applebee’s system at the time of the acquisition to an approximately 98% franchised Applebee’s
system, similar to IHOP’s 99% franchised system. As of December 31, 2010, we have franchised 193
Applebee’s company-operated restaurants since the second quarter of 2008. Subsequent to
December 31, 2010 we franchised 36 restaurants in the St. Louis market in January 2011 and 29 of 30
restaurants in the Washington, D.C. market in February, 2011; the sale of the one remaining
Washington, D.C. restaurant is expected to close before the end of the second fiscal quarter of 2011.
Including the 65 restaurants franchised in the first quarter of 2011, the Applebee’s system is
approximately 89% franchised We are planning to franchise a significant majority of the remaining 243
company-operated Applebee’s over the next several years while retaining part of the Kansas City area
as a Company market. This heavily franchised business model is expected to require less capital
investment, improve margins and reduce the volatility of cash flow performance over time, while also
providing cash proceeds from the franchising of the restaurants for the retirement of debt. Under the
terms of the Credit Agreement, all of the proceeds of future asset dispositions must be used to repay
borrowings under the Term Facility and under certain conditions, we may be required to repurchase
Notes with excess proceeds of assets sales, as defined in the Indenture under which the Notes were
issued.
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