IHOP 2012 Annual Report Download - page 86

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68
DineEquity, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements
1. The Company
The first International House of Pancakes restaurant opened in 1958 in Toluca Lake, California. Shortly thereafter, the
Company's predecessor began developing and franchising additional restaurants. The Company was incorporated under the laws
of the State of Delaware in 1976 with the name IHOP Corp. In November 2007, the Company completed the acquisition of
Applebee's International, Inc., which became a wholly-owned subsidiary of the Company. Effective June 2, 2008, the name of the
Company was changed to DineEquity, Inc. ("DineEquity"). The Company owns, franchises and operates two restaurant concepts:
Applebee's Neighborhood Grill and Bar® ("Applebee's"), in the bar and grill segment of the casual dining category of the restaurant
industry, and International House of Pancakes® ("IHOP®"), in the family dining category of the restaurant industry.
As of December 31, 2012, there were a total of 1,581 IHOP restaurants, of which 1,404 were subject to franchise agreements,
165 were subject to area license agreements and 12 were company-operated restaurants. IHOP restaurants were located in all 50
states of the United States, the District of Columbia, two United States territories and five countries outside of the United States.
As of December 31, 2012, there were a total of 2,034 Applebee's restaurants, of which 2,011 were subject to franchise agreements
and 23 were company-operated restaurants. Applebee's restaurants were located in 49 states, one United States territory and 15
countries outside of the United States.
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 owned by franchisees and area licensees are not attributable to
the Company.
2. Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of DineEquity, Inc. and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
Fiscal Periods
The Company has a 52/53 week fiscal year that ends on the Sunday nearest to December 31 of each year. In a 52-week fiscal
year, each fiscal quarter contains 13 weeks, comprised of two, four-week fiscal months followed by a five-week fiscal month. In
a 53-week fiscal year, the last month of the fourth fiscal quarter contains six weeks. For convenience, the Company refers to all
fiscal years as ending on December 31 and fiscal quarters as ending on March 31, June 30 and September 30. The 2012, 2011 and
2010 fiscal years presented herein ended December 30, 2012, January 1, 2012 and January 2, 2011, respectively, and each contained
52 weeks.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles
("U.S. GAAP") requires the Company's management to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities, if any, at the date of the consolidated financial statements, and the
reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates,
including those related to provisions for doubtful accounts, legal contingencies, income taxes, and the valuation of goodwill and
intangible assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to
be reasonable under the circumstances. Actual results could differ from those estimates.
Concentration of Credit Risk
The Company's cash, cash equivalents, accounts receivable and investments are potentially subject to concentration of credit
risk. Cash, cash equivalents and investments are placed with financial institutions that management believes are creditworthy. The
Company does not believe that it is exposed to any significant credit risk on cash and cash equivalents. At times, cash and cash
equivalent balances may be in excess of FDIC insurance limits.
Accounts receivable are derived from revenues earned from franchisees and area licensees located primarily in the United
States. Financing receivables arise from the financing of restaurant equipment, leases or franchise fees by IHOP franchisees. The
Company is subject to a concentration of credit risk with respect to receivables from franchisees that own a large number of
Applebee's or IHOP restaurants. As of December 31, 2012, there are 15 franchisees that own 59 or more restaurants each (12
Applebee's franchisees and three IHOP franchisees). These franchisees operated 1,556 Applebee's and IHOP restaurants in the