IHOP 2012 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 primarily 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 to test new remodel programs, operating procedures, products, technology, cooking platforms and service models.
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 2012, our franchisees
and area licensees financed and developed 48 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 detailed site selection process is completed. 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 2012, IHOP entered into 23 new franchise development agreements for the development of 55 IHOP restaurants. As of
December 31, 2012, we had signed commitments and options from franchisees to build 245 IHOP restaurants over the next 17 years,
comprised of 5 restaurants under single-restaurant or non-traditional development agreements, 120 restaurants under multi-
restaurant development agreements and 63 restaurants under international development agreements. The signed agreements include
options to build an additional 57 restaurants over the next 10 years.
During 2013, we expect our franchisees to open a total of 50 to 60 new IHOP restaurants, primarily in the domestic market.
The following table represents our IHOP restaurant development commitments, including options, as of December 31, 2012:
Number of
Signed
Agreements
at 12/31/12
Contractual Openings of Restaurants by Year
2013 2014 2015 2016 2017 and
thereafter Total
Single-restaurant development agreements.... 5 5 — — — — 5
Multi-restaurant development agreements ..... 43 38 28 23 6 25 120
Multi-restaurant development options............ 5 — — 3 8 34 45
International territory agreements................... 5 12 11 15 20 5 63
International territory options......................... 3 2 1 2 1 6 12
Total................................................................ 61 57 40 43 35 70 245
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.