IHOP 2014 Annual Report Download - page 66

Download and view the complete annual report

Please find page 66 of the 2014 IHOP annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 131

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131

47
General and Administrative Expenses
The $19.6 million decrease in G&A expenses for the year ended December 31, 2013 compared to the same period of the
prior year was primarily due to compensation costs that were lower by approximately $11.6 million and to a $9.1 million
charge recorded in 2012 related to settlement of litigation that commenced prior to our acquisition of Applebee's. These
favorable variances were partially offset by a $1.2 million increase in consumer research costs.
The decline in compensation costs was primarily due to: (i) lower salaries and benefits resulting from the refranchising of
Applebee's company-operated restaurants and from the full-year effect of restructuring initiatives announced in the third quarter
of 2012; (ii) lower stock-based compensation costs and (iii) lower severance costs, partially offset by higher bonus expenses and
higher expenses for outsourced services.
Interest Expense
Interest expense for the year ended December 31, 2013 decreased by $14.1 million compared to the same period of the
prior year primarily due to a reduction of outstanding debt balances. Average interest-bearing debt outstanding (our long-term
debt and financing obligations) during the year ended December 31, 2013 was approximately $200 million lower than the same
period of the prior year. Additionally, the 50-basis-point-decline in the interest rate on our variable-rate long-term debt from
4.25% to 3.75% as a result of a debt modification in February 2013 contributed to the decrease in interest expense.
Amortization of Intangible Assets
Amortization of intangible assets relates to intangible assets arising from the November 2007 acquisition of Applebee's,
primarily franchising rights. Absent any impairment, amortization will begin to decline in 2015 as intangible assets with shorter
lives become fully amortized.
Closure and Impairment Charges
Closure and impairment charges for the years ended December 31, 2013 and 2012 were as follows:
Year Ended
December 31,
2013 2012
(In millions)
Long-lived tangible asset impairment .................................................................................. $ 1.0 $ 2.3
Other closure charges ........................................................................................................... 0.8 1.9
Total impairment and closure charges.................................................................................. $ 1.8 $ 4.2
On a regular basis, we assess whether events or changes in circumstances have occurred that potentially indicate the
carrying value of tangible long-lived assets, primarily assets related to company-operated restaurants, may not be recoverable.
Recoverability of a restaurant's assets is measured by comparing the assets' carrying value to the undiscounted future cash
flows expected to be generated over the assets' remaining useful lives or remaining lease terms, whichever is less. If the total
expected undiscounted future cash flows are less than the carrying amount of the assets, this may be an indicator of
impairment. If it is decided that there has been an impairment, the carrying amount of the asset is written down to the estimated
fair value. The fair value is primarily determined by discounting the future cash flows based on our cost of capital.
Closure charges for the year ended December 31, 2013 primarily related to adjustments to the estimated reserve for closed
IHOP and Applebee's restaurants. Long-lived tangible asset impairment charges for the year ended December 31, 2013 related
to three Applebee's company-operated restaurants in the Kansas City, Missouri area. We evaluated the causal factors of all
impairments of long-lived assets as they were recorded during 2013 and concluded they were based on factors specific to each
asset and not potential indicators of an impairment of other long-lived assets.
Closure charges for the year ended December 31, 2012 primarily related to equipment at one franchise restaurant whose
lease agreement was prematurely terminated and the restaurant closed, as well as adjustments to the reserve for previously
closed surplus IHOP properties. Impairment charges for the year ended December 31, 2012 primarily related to equipment at
five IHOP franchise restaurants whose lease agreements were prematurely terminated and the restaurants subsequently
refranchised.
See “Critical Accounting Policies and Estimates - Goodwill and Intangibles” for a description of our policy with respect to
the review for impairments of goodwill and indefinite life intangible assets. In carrying out that policy, we noted no indicators