IHOP 2012 Annual Report Download - page 67

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49
Financing Operations
Year ended December 31, Favorable
(Unfavorable)
Variance %
Change(1)
2011 2010
(In millions)
Financing revenues.............................................................. $ 19.7 $ 16.4 $ 3.3 20.0 %
Financing expenses.............................................................. 6.0 2.0 (4.0) (203.4)%
Financing operations segment profit ................................... $ 13.7 $ 14.4 $ (0.7) (4.9)%
Segment profit as % of revenue(1)........................................ 69.7% 88.0%
____________________________________________________________
(1) Percentages are calculated on actual amounts, not the rounded amounts presented above
Substantially all of our financing operations relate to IHOP franchise restaurants developed under our business model in effect
prior to 2003. Financing operations revenue primarily consists of interest income from the financing of franchise fees and equipment
leases, as well as sales of equipment associated with refranchised IHOP restaurants. Financing expenses are primarily the cost of
restaurant equipment.
As noted above, 40 restaurants that previously had been operated by a former franchisee that defaulted on its obligations
under the franchise agreements were refranchised to an affiliate of an existing IHOP franchisee in the first quarter of 2011. The
equipment related to those restaurants was sold to the new operator and as a result, segment revenues and expenses for 2011
increased $5.0 million and $5.2 million, respectively, compared to the same period of 2010. The increase in revenue was partially
offset by a $1.4 million decrease in interest revenue primarily due to the progressive decline in note balances due to repayments
and a decline in refranchising activity other than that related to the defaulted franchisee. The increase in expense because of the
equipment sale was partially offset by a decline in refranchising activity other than that related to the defaulted franchisee.
The decline in financing operations segment profit was primarily due to the decrease in interest revenue resulting from the
progressive decline in note balances due to repayments.
Other Expense and Income Components
Year ended December 31 Favorable
(Unfavorable)
Variance %
Change(1)
2011 2010
(In millions)
General and administrative expenses .................................. $ 155.8 $ 160.3 $ 4.5 2.8 %
Interest expense ................................................................... 132.7 171.5 38.8 22.6 %
Impairment and closure charges.......................................... 29.9 4.3 (25.6) (597.0)%
Amortization of intangible assets........................................ 12.3 12.3 — —
Loss on extinguishment of debt and temporary equity ....... 11.2 107.0 95.8 89.6 %
Gain on disposition of assets............................................... (43.3)(13.6) 29.7 (218.6)%
Debt modification costs....................................................... 4.0 — (4.0) n.m.
Income tax provision (benefit) ............................................ 29.8 (9.3)(39.1) 420.8 %
___________________________________________________________________
(1) Percentages are calculated on actual amounts, not the rounded amounts presented above
n.m. - not meaningful
General and Administrative Expenses
General and administrative expenses decreased $4.5 million, primarily due to lower stock-based compensation costs, savings due
to the refranchising of Applebee's company-operated restaurants and lower expenses for legal and other professional services, partially
offset by increases in expenses for salaries and benefits, recruiting and relocation, and travel. Stock-based compensation costs decreased
primarily because expenses in 2010 related to the acceleration of equity grants due to the retirement of an executive and changes
related to vesting of certain equity grants to directors that did not recur and the impact of a lower stock price as of December 31, 2011
on equity grants accounted for as liabilities. The increase in salaries and benefits and recruiting and relocation expenses was primarily
due to the hiring of more executive level positions in 2011 and the latter part of 2010.