IHOP 2014 Annual Report Download - page 101

DineEquity, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
7. Long-Term Debt (Continued)
82
Deferred Financing Costs
In connection with the Credit Agreement and the issuance of the Senior Notes, the Company recorded approximately $28.2
million of deferred financing costs. In connection with the increase to the Revolving Credit Facility, the Company recorded an
additional $0.8 million of deferred financing costs. These deferred financing costs are being amortized using the effective
interest method over the estimated life of the related debt. Amortization of the deferred financing costs associated with the
Credit Agreement and the issuance of the Senior Notes included in interest expense for the years ended December 31, 2014,
2013 and 2012 was $2.2 million, $2.7 million and $2.6 million, respectively. Additionally, $2.3 million of deferred issuance
costs were written off in connection with debt retirement for the year ended December 31, 2012 and is reflected in the loss on
extinguishment of debt in the Consolidated Statements of Comprehensive Income.
As of December 31, 2013, $14.0 million of deferred financing costs associated with the Credit Agreement and the issuance
of the Senior Notes was reported as other non-current assets, net in the Consolidated Balance Sheets.
Discount on Debt
The Company recorded a discount on debt from the October 2010 Refinancing of $29.6 million. In connection with
Amendment No. 1, the Company recorded an additional discount of $7.4 million. The discount on debt reflected the difference
between the proceeds received from the issuance of the debt and the face amount to be repaid over the life of the debt. The
discount will be amortized as additional interest expense over the weighted average estimated life of the debt under the
effective interest method. For the years ended December 31, 2014, 2013, and 2012, $2.8 million, $3.5 million and $3.4 million,
respectively, of the discount was amortized as additional interest expense under the effective interest method. Additionally, $2.7
million was written off in connection with debt retirement for the year ended December 31, 2012 and was reflected in the loss
on extinguishment of debt in the Consolidated Statements of Comprehensive Income.
2014 Refinancing of Long-term Debt
On September 30, 2014, the Company repaid the entire outstanding principal balance of $463.6 million of the Credit
Facility; there were no premiums or penalties associated with the repayment. On October 30, 2014, after a required 30-day
notice period, the Company repaid the entire outstanding $760.8 million principal balance of Senior Notes, along with a
required make-whole premium for early repayment of $36.1 million. All of our obligations under the Credit Facility and the
Senior Notes terminated upon the respective repayments thereof.
This transaction was accounted for as an extinguishment of debt under U.S. GAAP. We recognized a loss on debt
extinguishment of $64.9 million for the year ended December 31, 2014, comprised of the $36.1 million make-whole premium
on the Senior Notes and the write-off of the unamortized debt discount and the issuance costs associated with the extinguished
debt of $16.9 million and $11.9 million, respectively.
8. Financing Obligations
On May 19, 2008, the Company entered into a Purchase and Sale Agreement relating to the sale and leaseback of 181
parcels of real property (the “Sale-Leaseback Transaction”), each of which is improved with a restaurant operating as an
Applebee's Neighborhood Grill and Bar (the “Properties”). On June 13, 2008, the closing date of the Sale-Leaseback
Transaction, the Company entered into a Master Land and Building Lease (“Master Lease”) for the Properties. The proceeds
received from the transaction were $337.2 million. The Master Lease calls for an initial term of twenty years and four, five-year
options to extend the term.
The Company has an ongoing obligation related to the Properties until such time as the lease related to each of the
Properties is assigned to a qualified franchisee in a transaction meeting certain parameters set forth in the Master Lease. Due to
this continuing involvement, the Sale-Leaseback Transaction was recorded under the financing method in accordance with
U.S. GAAP. Accordingly, the value of the land and leasehold improvements will remain on the Company's books and the
leasehold improvements will continue to be depreciated over their remaining useful lives. The net proceeds received were
recorded as a financing obligation. A portion of the lease payments is recorded as a decrease to the financing obligation and a
portion is recognized as interest expense. In the event the lease obligation of any individual property or group of properties is
assumed by a qualified franchisee, the Company's continuing involvement will cease. At that time, that portion of the
transaction related to that property or group of properties is expected to be recorded as a sale in accordance with U.S. GAAP
and the net book value of those properties will be removed from the Company's books, along with a ratable portion of the
remaining financing obligation.