IHOP 2011 Annual Report Download - page 28

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10
We highly value good franchisor/franchisee relations and strive to maintain positive working relationships with our
franchisees. We sponsor the IHOP Franchise Leadership Council, an elected and appointed body of IHOP franchisees formed to
advise and assist IHOP management with respect to a broad range of matters relating to the operation of IHOP restaurants. The
group meets with IHOP management at least three times a year to discuss operational issues, marketing matters, development and
construction issues, information technology and many other topics.
Company-Operated Restaurants
Company-operated IHOP restaurants are essentially comprised of our IHOP-owned restaurants in the Cincinnati, Ohio
market. In addition, from time to time, franchise restaurants may be returned by franchisees to us and these restaurants may be
operated by us for an indefinite period until they can be refranchised. We utilize the company-operated restaurants in the Cincinnati
market primarily for testing of new remodel designs, new menu items and equipment, new operational procedures and new
marketing, brand and design elements.
Restaurant Development
The Current Business Model relies on franchisees to obtain their own financing to develop IHOP restaurants. We review
and approve the franchisees' proposed sites but do not contribute capital or become the franchisees' landlord. Under the Current
Business Model, substantially all new IHOP restaurants are financed and developed by franchisees or area licensees. In 2011, our
franchisees and area licensees financed and developed 58 new restaurants. We do not currently intend to build additional company-
operated IHOP restaurants in the Cincinnati market.
New IHOP restaurants are only developed after a stringent site selection process. All restaurant development is approved
by the Franchise Review Committee comprised of senior management. We expect our franchisees to add restaurants to the IHOP
system in major markets where we already have a core guest base. We believe that concentrating growth in existing markets allows
us to achieve economies of scale in our supervisory and advertising functions. We also look to have our franchisees strategically
add restaurants in new markets in which we currently have no presence or our presence is limited.
Future Restaurant Development
In 2011, IHOP entered into 13 new franchise development agreements for the development of 60 IHOP restaurants. The
most significant new agreement was a multi-restaurant franchise agreement for the development of 40 new IHOP restaurants in
Kuwait, the Kingdom of Saudi Arabia, Jordan, Lebanon, Qatar, the United Arab Emirates, Oman, Bahrain and Egypt.
As of December 31, 2011, we had signed commitments and options from franchisees to build 292 IHOP restaurants over
the next 18 years, comprised of 7 restaurants under single-store or non-traditional development agreements, 137 restaurants under
multi-store development agreements and 64 restaurants under international development agreements. The signed agreements
include options to build an additional 84 restaurants over the next 16 years.
In 2012, we expect to open a total of 45 to 55 new IHOP restaurants, primarily in the domestic market.
The following table represents our IHOP restaurant development commitments, including options, as of December 31, 2011:
Contractual Openings of Restaurants by Year
Single-store development agreements
Multi-store development agreements
Multi-store development options
International territory agreements
International territory options
Total
Number of
Signed
Agreements
at 12/31/11
7
47
7
6
4
71
2012
6
39
—
7
—
52
2013
1
31
—
9
2
43
2014
—
24
1
10
1
36
2015
—
15
4
13
2
34
2016 and
thereafter
—
28
57
25
17
127
Total
7
137
62
64
22
292
The actual number of openings in any period may differ from both our expectations and the number of signed commitments.
Historically, the actual number of restaurants developed in a particular year has been less than the total number committed to be
developed due to various factors including weather-related delays, other construction delays, difficulties in obtaining timely
regulatory approvals, franchisee noncompliance with development agreements and various economic factors.