IHOP 2013 Annual Report Download - page 55

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34
Same-restaurant Traffic
Both of our brands have generally experienced a decline in customer traffic in recent years including the year ended
December 31, 2013. Based on data from Black Box Intelligence, a restaurant sales reporting firm, customer traffic declined in
2013 for the restaurant industry overall, as well as for the casual dining and family dining segments of the restaurant industry.
In the short term, a decline in customer traffic may be offset by an increase in average customer check resulting from an
increase in menu prices, a favorable change in product sales mix, or a combination thereof. A sustained decline in same-
restaurant customer traffic that cannot be offset by an increase in average customer check could have an adverse effect on our
business, results of operations and financial condition. We continue to evaluate and assess opportunities to drive same-
restaurant sales and traffic
Franchisee Matters
We consistently monitor individual franchisee health. However, from time to time, some of our franchisees may experience
financial difficulties, including bankruptcy, that may or may not relate to the financial performance of their franchised IHOP or
Applebee's restaurants.
In February 2013, an IHOP franchisee and its affiliated entities which owned and operated 19 restaurants located in the
states of Illinois, Wisconsin and Missouri filed for bankruptcy protection. As a result of an order issued by the bankruptcy
court, two of the 19 restaurants were returned to us in the third quarter of 2013. A non-cash charge of $0.5 million was recorded
in the Consolidated Statement of Comprehensive Income against deferred rental revenue associated with the leases for those
two restaurants. During the third quarter of 2013, we received favorable rulings from the bankruptcy court which, if upheld,
would allow the transfer of the remaining 17 restaurants to another franchisee. These rulings have been appealed by the current
franchisee and are presently subject to a continued stay order, pursuant to which the current franchisee is operating these
restaurants only on a day-to-day basis and is continuing to make payments to us pursuant to the terms of the original franchise
agreements. Accordingly, we are unable to determine the ultimate outcome of the bankruptcy proceedings at this time.
In an unrelated matter, in April 2013, an Applebee's franchisee which owned and operated 33 restaurants located in Illinois
filed for bankruptcy protection. Pursuant to the bidding procedures approved by the bankruptcy court, 15 of the restaurants
were sold in June 2013 to an affiliate of an existing franchisee and operated without interruption during the transition of
ownership. The remaining 18 restaurants were closed in June 2013. We received approximately $3.8 million in termination
payments and other fees in connection with the closure of these restaurants. We also have entered into a development
agreement with the franchisee that acquired the 15 restaurants to open additional restaurants in Illinois in the future.