IHOP 2014 Annual Report Download - page 22

3
PART I
Item 1. Business
DineEquity, Inc., together with its subsidiaries (referred to as the “Company,” “we,” “our” and “us,”), owns, franchises and
operates two restaurant concepts: Applebee's Neighborhood Grill & Bar® (“Applebee's®”), in the bar and grill segment within
the casual dining category of the restaurant industry, and International House of Pancakes® (“IHOP®”), in the family dining
category of the restaurant industry. References herein to Applebee's and IHOP restaurants are to these two restaurant concepts,
whether operated by franchisees, area licensees or by us. As of December 31, 2014, 99% of our 3,667 restaurants across both
brands were franchised. We believe this highly franchised business model requires less capital investment and general and
administrative overhead, generates higher gross profit margins and reduces the volatility of free cash flow performance, as
compared to owning a significant number of company-operated restaurants.
We generate revenue from four reporting segments, comprised of:
• Franchise operations - primarily royalties, fees and other income from 1,994 Applebee’s franchised restaurants
and 1,639 IHOP franchised and area licensed restaurants;
• Rental operations - primarily rental income derived from lease or sublease agreements covering 709 IHOP
franchised restaurants and one Applebee’s franchised restaurant;
• Company restaurant operations - retail sales from 23 Applebee’s company-operated restaurants and 11 IHOP
company-operated restaurants; and
• Financing operations - primarily interest income from approximately $110 million of receivables for equipment
leases and franchise fee notes generally associated with IHOP franchised restaurants developed before 2003.
Most of our revenue is derived from domestic operations within these four reporting segments, with approximately 88% of
our total 2014 revenues being generated from our franchise and rental operations. Revenue derived from all foreign country
operations comprised less than 3% of total consolidated revenue for the year ended December 31, 2014. At December 31, 2014,
there were no long-lived assets located in foreign countries. See Note 17, Segment Reporting, of the Notes to the Consolidated
Financial Statements included in this report for further segment information.
This report should be read in conjunction with the cautionary statements under “Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Cautionary Statement Regarding Forward-Looking Statements.”
Our Key Strategies
We are focused on building our brands to create value for our stockholders and franchisees. To build on our achievements
we are focused on the following key strategic priorities:
• Drive higher growth from our existing brands;
• Enable an increase in franchisee restaurant development;
• Maintain strong financial discipline; and
• Drive stockholder value by generating strong free cash flow, the majority of which we intend to return to our
stockholders.
Our fundamental approach to brand building centers on a strategic combination of menu, media, remodel and development
initiatives to continually innovate and evolve both brands. Our shared services operating platform allows our senior
management to focus on key factors that drive both our brands while leveraging the resources and expertise of our scalable,
centralized support structure. We believe this closely integrated approach is a competitive point of difference that we expect
will strengthen brand performance and generate growth in free cash flow.
Our History
The first IHOP restaurant opened in 1958 in Toluca Lake, California. Since that time, the Company and its predecessors
have engaged in the development, franchising and operation of IHOP restaurants. Prior to 2003, new IHOP restaurants were
generally developed by us, and we were involved in all aspects of the construction and financing of the restaurants. We
typically identified and leased or purchased the restaurant sites for new company-developed IHOP restaurants, built and
equipped the restaurants and then franchised them to franchisees. In addition, we typically financed as much as 80% of the
franchise fee for periods ranging from five to eight years and leased the restaurant and equipment to the franchisee over a 25-
year period. We refer to this method of operation as our “Previous IHOP Business Model,” which accounts for most of the
activity in our rental and financing segments.