IHOP 2012 Annual Report Download - page 62

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General and Administrative Expenses
General and administrative expenses increased $7.4 million, primarily due to a $9.1 million charge for settling certain litigation
that commenced prior to our 2007 acquisition of Applebee's. The settlement agreement was approved by the court November 1,
2012. Stock-based compensation expense increased $5.7 million primarily due to the impact of a higher stock price on both
liability-based and equity-based stock awards to employees and non-employee directors. Severance costs were $3.8 million higher,
primarily related to our staff reduction initiative implemented in the third quarter of 2012; however, the severance costs were more
than offset by lower salary and benefits as the result of the staff reductions, the refranchising of Applebee's company-operated
restaurants and payroll credits related to the relocation of the Applebee's Restaurant Support Center in the fourth quarter of 2011.
In total, employee compensation costs were essentially unchanged from 2011. Recruiting and relocation expenses were lower in
2012 primarily due to the hiring of more executive level positions in 2011 and the latter part of 2010 that impacted recruiting and
relocation expenses in 2011.
Interest Expense
The $18.4 million decrease in interest expense is due to our reduction of debt balances and an amendment to our Credit
Agreement that reduced the interest rate on term loan borrowings by 1.75% in February, 2010. During 2012, we repaid $210.5
million of Term Loans and $5.0 million of Senior Notes and our financing obligations were reduced by $114.4 million primarily
as the result of refranchising Applebee's company-operated restaurants. Average interest-bearing debt (Term Loans, Senior Notes
and financing obligations) outstanding during 2012 was approximately $260 million lower than the prior year.
Impairment and Closure Charges
Impairment and closure charges for the years ended December 31, 2012 and 2011 were as follows:
Year Ended
December 31,
2012 2011
(In millions)
Long-lived tangible asset impairment .............................................................. $ 1.9 $ 4.9
Lenexa lease termination.................................................................................. — 23.0
Other closure charges ....................................................................................... 2.3 2.0
Total impairment and closure charges.............................................................. $ 4.2 $ 29.9
On a quarterly basis, we assess whether events or changes in circumstances have occurred that potentially indicate the carrying
value of tangible long-lived assets, primarily assets related to company-operated restaurants, may not be recoverable. Recoverability
of a restaurant's assets is measured by comparing the assets' carrying value to the undiscounted future cash flows expected to be
generated over the assets' remaining useful lives or remaining lease terms, whichever is less. If the total expected undiscounted
future cash flows are less than the carrying amount of the assets, this may be an indicator of impairment. If it is decided that there
has been an impairment, the carrying amount of the asset is written down to the estimated fair value. The fair value is primarily
determined by discounting the future cash flows based on our cost of capital.
Impairment charges for the year ended December 31, 2012 primarily related to equipment at five IHOP franchise restaurants
whose lease agreements were prematurely terminated and the restaurants subsequently refranchised. Closure charges primarily
related to equipment at one franchise restaurant whose lease agreement was prematurely terminated and the restaurant closed, as
well as adjustments to the reserve for previously closed surplus IHOP properties.
Impairment and closure charges for the year ended December 31, 2011 were primarily comprised of closure costs of $23.0
million related to termination of our sublease of the commercial space occupied by Applebee’s Restaurant Support Center in
Lenexa, Kansas through October 31, 2011 and a $4.5 million impairment charge related to the furniture, fixtures and leasehold
improvements at that facility. Other closure charges primarily related to adjustments to the reserve for previously closed surplus
IHOP properties.
Amortization of Intangible Assets
Amortization of intangible assets relates to intangible assets arising from the November 2007 acquisition of Applebee's,
primarily franchising rights. Absent any impairment, amortization will begin to decline in 2015 as intangible assets with shorter
lives become fully amortized.