IHOP 2012 Annual Report Download - page 33

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• limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to
borrow additional funds; and
• result in an event of default if we fail to satisfy our obligations under our debt or fail to comply with the financial and
other restrictive covenants contained in our debt documents, which event of default could result in all of our debt becoming
immediately due and payable and could permit certain of our lenders to foreclose on our assets securing such debt.
In addition, we may incur substantial additional indebtedness in the future. If new debt is added to our current debt levels,
the related risks that we now face could intensify.
To service our indebtedness, we will require a significant amount of cash, which depends on many factors beyond our
control. There is no assurance that our business will generate sufficient cash flow from operations, or that future borrowings
will be available to us under our senior secured credit facility in amounts sufficient to enable us to fund our liquidity needs,
including with respect to our other indebtedness. As we are required to satisfy amortization requirements under our senior secured
credit facility or as other debt matures, we may also need to raise funds to refinance all or a portion of our debt when it becomes
due. Further, there is no assurance that we will be able to refinance any of our debt on attractive terms, commercially reasonable
terms or at all. Our future operating performance and our ability to service, extend or refinance our debt will be subject to future
economic conditions and to financial, business and other factors.
Declines in our financial performance could result in additional impairment charges in future periods. United States
generally accepted accounting principles ("U.S. GAAP") require annual (or more frequently if events or changes in circumstances
warrant) impairment tests of goodwill, intangible assets and other long-lived assets. Generally speaking, if the carrying value of
the asset is in excess of the estimated fair value of the asset, the carrying value will be adjusted to fair value through an impairment
charge. Fair values of goodwill and intangible assets are primarily estimated using discounted cash flows based on five-year
forecasts of financial results that incorporate assumptions as to same-restaurant sales trends, future development plans and brand-
enhancing initiatives, among other things. Fair values of long-lived tangible assets are primarily estimated using discounted cash
flows over the estimated useful lives of the assets. Significant underachievement of forecasted results could reduce the estimated
fair value of these assets below the carrying value, requiring non-cash impairment charges to reduce the carrying value of the
asset. As of December 31, 2012, our total stockholders' equity was $308.8 million. A significant impairment write-down of goodwill,
intangible assets or long-lived assets in the future could result in a deficit balance in stockholders' equity. While such a deficit
balance would not create an incident of default in any of our contractual agreements, the negative perception of such a deficit
could have an adverse effect on our stock price and could impair our ability to obtain new financing, or refinance existing
indebtedness on commercially reasonable terms or at all.
Many factors, including those over which we have no control, affect the trading volatility and price of our stock. Many
factors, in addition to our operating results, may have an impact on the trading volatility and price of our common stock. These
factors include general economic and market conditions, publicity regarding us, our competitors, or the restaurant industry generally,
changes in financial estimates by securities analysts, changes in financial or tax reporting and accounting principles or practices,
trading activity in our common stock, and the impact of our capital allocation initiatives, including any future stock repurchase
programs or dividend declarations. A number of these factors are outside of our control, and any failure to meet market expectations
whether for sales growth rates, earnings per share or other metrics could cause our share price to decline.
Our actual operating and financial results in any given period may differ from guidance we provide to the public, including
our most recent public guidance. From time to time, in press releases, SEC filings, public conference calls and other contexts,
we have provided guidance to the public regarding current business conditions and our expectations for our future financial results.
We expect that we will provide guidance periodically in the future. Our guidance is based upon a number of assumptions,
expectations and estimates that are inherently subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control. In providing our guidance, we also make various assumptions with respect
to our future business decisions, some of which will change. Our actual financial results, therefore, may vary from our guidance
due to our inability to meet the assumptions upon which our guidance is based and the impact on our business of the various risks
and uncertainties described in these risk factors and in our public filings with the SEC. Variances between our actual results and
our guidance may be material. To the extent that our actual financial results do not meet or exceed our guidance, the trading prices
of our securities may be materially adversely affected.
The restaurant industry is highly competitive, and that competition could lower our revenues, margins and market
share. The performance of individual restaurants may be adversely affected by factors such as traffic patterns, demographics
and the type, number and location of competing restaurants. The restaurant industry is highly competitive with respect to price,
service, location, personnel and the type and quality of food. Each Applebee's and IHOP restaurant competes directly and indirectly
with a large number of national and regional restaurant chains, as well as independent businesses. The trend toward convergence
in grocery, deli, and restaurant services, as well as the continued expansion of restaurants into the breakfast daypart, may increase
the number and variety of Applebee's and IHOP restaurants' competitors. In addition to the prevailing baseline level of competition,
major market players in non-competing industries may choose to enter the food services market which could decrease the market