IHOP 2010 Annual Report Download - page 91
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Please find page 91 of the 2010 IHOP annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.-
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At December 31, 2010, we had $844.0 million of variable rate debt (the Term Loan under our
Credit Agreement). If the interest rate on the Term Facility were to increase by 1% per annum, annual
interest expense would increase by approximately $8.4 million based on the outstanding Term Facility
balance at December 31, 2010. A decrease in interest rates from December 31, 2010 rates would have
no impact on interest expense as the current interest is at the floor rate as defined in the Credit
Agreement.
Commodity Prices
Many of the food products purchased by us and our franchisees and area licensees are affected by
commodity pricing and are, therefore, subject to unpredictable price volatility. Extreme changes in
commodity prices and/or long-term changes could affect our franchisees, area licensees and company-
operated restaurants adversely. We expect that, in most cases, the IHOP and Applebee’s systems would
be able to pass increased commodity prices through to our consumers via increases in menu prices.
From time to time, competitive circumstances could limit short-term menu price flexibility, and in those
cases, margins would be negatively impacted by increased commodity prices. We believe that any
changes in commodity pricing that cannot be adjusted for by changes in menu pricing or other
strategies would not be material to our financial condition, results of operations or cash flows.
In February 2009, the Company and owners of Applebee’s and IHOP franchise restaurants formed
CSCS to manage procurement activities for the Applebee’s and IHOP restaurants choosing to join the
Co-op. We believe the larger scale created by combining the supply chain requirements of both brands
under one organization can provide cost savings and efficiency in the purchasing function. As of
December 31, 2010, 100% of Applebee’s franchise restaurants and over 96% of IHOP franchise
restaurants are members of CSCS. While the majority of the food products utilized by IHOP and
Applebee’s systems are sourced through CSCS, in some instances, we enter into commitments to
purchase food and other items on behalf of the IHOP and Applebee’s systems. None of these food
product contracts or agreements is a derivative instrument. At December 31, 2010, our outstanding
purchase commitments for food products were less than $3 million.
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