IHOP 2010 Annual Report Download - page 98

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DineEquity, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
other assumptions that are believed to be reasonable under the circumstances. Actual results could
differ from those estimates.
Concentration of Credit Risk
The Company’s cash, cash equivalents, receivables and investments are potentially subject to
concentration of credit risk. Cash, cash equivalents and investments are placed with financial
institutions that management believes are creditworthy. The Company does not believe that it is
exposed to any significant credit risk on cash and cash equivalents. At times, cash and cash equivalent
balances may be in excess of FDIC insurance limits.
Receivables are derived from revenues earned from franchisees and distributors located primarily
in the United States. The Company is subject to a concentration of credit risk with respect to
Applebee’s franchisee receivables. As of December 31, 2010, Applebee’s franchisees operated 1,553
Applebee’s restaurants in the United States (which comprised 83% of the total Applebee’s restaurants
in the United States). Of those restaurants, the nine largest Applebee’s franchisees owned 851
restaurants, representing 55% of all franchised Applebee’s restaurants in the United States. Receivables
from all Applebee’s franchisees totaled $27.0 million at December 31, 2010.
The Company maintains an allowance for doubtful accounts based upon our historical experience
taking into account current economic conditions.
Cash and Cash Equivalents
The Company considers all highly liquid investment securities with remaining maturities at the date
of purchase of three months or less to be cash equivalents. These cash equivalents are stated at cost
which approximates market value.
Restricted Assets
Restricted Cash
The Company entered into three separate securitization transactions in 2007. The proceeds
received from these transactions primarily were used to fund the acquisition of Applebee’s and to fund
certain cash accounts as required by the indentures and other agreements related to the securitization
transactions (‘‘Securitization Agreements’’). These cash accounts were to be used only for the purposes
specified in the Securitization Agreements. The Company presented these cash accounts as restricted
cash in both the current and non-current asset sections of the consolidated balance sheets while
borrowings subject to the indentures were outstanding. All obligations under the indentures were
satisfied and discharged on October 19, 2010 (see Note 8), including the maintenance of restricted cash
accounts. Restricted cash balances as of December 31, 2010 relate primarily to certain advertising
funds.
Other Restricted Assets
The Company has restricted assets related to its captive insurance subsidiary which are included in
non-current assets in the consolidated balance sheets. The captive insurance subsidiary was formed to
provide insurance coverage to Applebee’s and its franchisees. These restricted assets are primarily
investments, use of which is restricted to the payment of insurance claims.
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