IHOP 2010 Annual Report Download - page 82

Cash Flows
In summary, our cash flows were as follows:
2010 2009 2008
(In millions)
Net cash provided by operating activities ............ $179.3 $ 157.9 $110.8
Net cash provided by investing activities ............ 53.5 18.8 35.2
Net cash used in financing activities ............... (212.8) (208.8) (58.4)
Net increase (decrease) in cash and cash equivalents . . . $ 20.0 $ (32.1) $ 87.6
Operating Activities
Cash provided by operating activities is primarily driven by revenues earned and collected from our
franchisees, operating earnings from our company-operated restaurants and profit from our rental
operations and financing operations. Franchise revenues consist of royalties, IHOP advertising fees and
sales of proprietary products for IHOP, each of which fluctuates with increases or decreases in franchise
retail sales. Franchise retail sales are impacted by the development of IHOP and Applebee’s
restaurants by our franchisees and by fluctuations in same-restaurant sales. Operating earnings from
company-operated restaurants are impacted by many factors which include but are not limited to
changes in traffic patterns, pricing activities and changes in operating expenses. Rental operations profit
is rental income less rental expenses. Rental income includes revenues from operating leases and
interest income from direct financing leases. Rental expenses are costs of prime operating leases and
interest expense on prime capital leases on franchisee-operated restaurants. 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.
Cash provided by operating activities totaled $179.3 million during the 12 months ended
December 31, 2010 compared to $157.9 million in the same period in 2009. Net income declined
$34.2 million; however, this was offset by an increase of $39.6 million in noncash adjustments (primarily
losses on debt extinguishment, depreciation, non-cash interest, gains on asset sales, deferred taxes and
impairment charges). Working capital changes used cash of $11.6 million during 2010 compared to a
$16.3 million use in 2009. The decrease in working capital used was due primarily to an increase in
interest payable and the timing of payments for advertising, partially offset by an increase in income tax
receivables that was primarily due to the income tax benefits associated with the loss recognized in the
October 2010 Refinancing. Cash paid for interest in 2010 was $141.1 million as compared to
$166.4 million in 2009.
Investing Activities
Net cash provided by investing activities in 2010 was primarily attributable to $51.6 million of
proceeds from dispositions of assets, primarily the franchising of 83 Applebee’s company-operated
restaurants, and $19.5 million of principal receipts from notes, equipment contracts and other long-term
receivables, partially offset by $18.7 million of capital expenditures. Capital expenditures increased from
$15.4 million in 2009 due primarily to increases in information technology infrastructure expenditures
and remodeling of company-operated restaurants. Capital expenditures are expected to be
approximately $26 million in fiscal 2011. The increase from 2010 is primarily due to expectation for the
remodeling of additional company-operated restaurants.
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