IHOP 2012 Annual Report Download - page 21

3
PART I
Item 1. Business
General
The Company was incorporated under the laws of the State of Delaware in 1976 with the name IHOP Corp. Effective June 2,
2008, the name of the Company was changed to DineEquity, Inc. (the "Company," "we," "our" or "us"). Our common stock is
listed on the New York Stock Exchange ("NYSE") and trades under the ticker symbol "DIN." Our principal executive offices are
located at 450 North Brand Boulevard, Glendale, California 91203-2306 and our telephone number is [phone]. Our Internet
address is www.dineequity.com.
We have a 52/53 week fiscal year ending on the Sunday nearest to December 31 of each year. For convenience, we refer to
all fiscal years as ending on December 31 and all interim fiscal quarters as ending on March 31, June 30 and September 30 of the
respective fiscal year. There were 52 weeks in our 2012, 2011 and 2010 fiscal years, which ended on December 30, 2012, January
1, 2012 and January 2, 2011, respectively.
Background
The first International House of Pancakes® ("IHOP®") restaurant opened in 1958 in Toluca Lake, California. Since that time,
the Company or its predecessors have engaged in the development, franchising and operation of IHOP restaurants. In November
2007, we completed the acquisition of Applebee's International, Inc., which became our wholly-owned subsidiary. Through various
subsidiaries we own, franchise and operate two restaurant concepts: Applebee's Neighborhood Grill & Bar®, ("Applebee's"), in
the bar and grill segment of the casual dining category of the restaurant industry, and IHOP, in the family dining category of the
restaurant industry. References herein to Applebee's and IHOP restaurants are to these two restaurant concepts, whether operated
by franchisees, area licensees or the Company. Retail sales at restaurants that are operated by franchisees and area licensees are
not attributable to the Company. Unless the context reflects otherwise, franchisees and area licensees are referred to collectively
as franchisees and restaurants operated by them are referred to collectively as franchise restaurants. With more than 3,600 restaurants
combined in 17 countries and over 400 franchisees, DineEquity is one of the largest full-service restaurant companies in the world.
We achieved a significant milestone in 2012. With the refranchising and sale of related assets of 154 Applebee's company-
operated restaurants during 2012, we realized our vision of becoming a 99% franchised company put in motion when we completed
the acquisition of Applebee's five years ago. We believe this highly franchised business model requires less capital investment
and general and administrative overhead, generates higher gross profit margins and reduces the volatility of free cash flow
performance, as compared to a model based on operating a significant number of company-owned restaurants.
This report should be read in conjunction with the cautionary statements on page 30 under "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations.—Forward Looking Statements."
Financial Information about Industry Segments
We identify our segments based on the organizational units used by management to monitor performance and make operating
decisions. Our segments, unchanged from prior years, are as follows: franchise operations, company restaurant operations, rental
operations and financing operations. IHOP operates within all four segments; Applebee's operates primarily in the franchise and
company operations segments.
Franchise Operations Segment
As of December 31, 2012, the franchise operations segment consisted of 2,011 restaurants operated by Applebee's franchisees
in the United States, one United States territory and 15 foreign countries and 1,569 restaurants operated by IHOP franchisees and
area licensees in the United States, two United States territories and five foreign countries. Franchise operations revenue consists
of franchise royalty revenues, sales of proprietary products (primarily IHOP pancake and waffle dry-mixes) and the portion of the
franchise fees allocated to IHOP and Applebee's intellectual property. Additionally, franchise fees designated for IHOP's national
advertising fund and local marketing and advertising cooperatives are recognized as revenue and expense of franchise operations;
due to differing contractual arrangements, Applebee's national advertising fund transactions constitute agency activity and therefore
are not recognized as franchise revenue and expense.
Franchise operations expenses include IHOP advertising expense, the cost of proprietary products, pre-opening training
expenses and other franchise-related costs.