IHOP 2014 Annual Report Download - page 78

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Interest Rate Risk
All of our long-term debt outstanding at December 31, 2014 was issued at a fixed interest rate (see Note 7 of Notes to
Consolidated Financial Statements). We are only exposed to interest rate risk on borrowings under our Class A-1 Variable
Funding Notes. As of December 31, 2014, we had no outstanding borrowings under our Class A-1 Variable Funding Notes. We
do not engage in speculative transactions nor do we hold or issue financial instruments for trading purposes. We had no
outstanding derivative instruments as of December 31, 2014.
Investments in instruments earning a fixed rate of interest carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates. We currently do not hold any fixed rate investments.
Based on our cash and cash equivalents, restricted cash and long-term restricted investment holdings as of 2014, a 1%
increase in interest rates would increase our annual interest income by approximately $0.4 million. A 1% decline in interest
rates would decrease our annual interest income by less than $0.4 million as the majority of our cash and cash equivalents,
restricted cash and long-term investment holdings are currently yielding less than 1%.
Commodity Prices
Many of the food products purchased by us and our franchisees and area licensees are affected by commodity pricing and
are, therefore, subject to unpredictable price volatility. Extreme increases in commodity prices and/or long-term changes could
affect our franchisees, area licensees and company-operated restaurants adversely. We expect that, in most cases, the IHOP and
Applebee's systems would be able to pass increased commodity prices through to our consumers via increases in menu prices.
From time to time, competitive circumstances could limit short-term menu price flexibility, and in those cases, margins would
be negatively impacted by increased commodity prices. Since less than 1% of our restaurants are company-operated, we
believe that any changes in commodity pricing that cannot be adjusted for by changes in menu pricing or other strategies would
not be material to our financial condition, results of operations or cash flows.
The Company and owners of Applebee's and IHOP franchise restaurants are members of CSCS, a Co-op that manages
procurement activities for the Applebee's and IHOP restaurants that belong to the Co-op. We believe the larger scale created by
combining the supply chain requirements of both brands under one organization can provide cost savings and efficiency in the
purchasing function. As of December 31, 2014, 100% of Applebee's franchise restaurants and 99% of IHOP franchise
restaurants are members of CSCS. In some instances, IHOP and Applebee's may be required to guarantee their purchase of any
remaining inventory of certain food and other items purchased by CSCS for the purpose of supplying limited time promotions
on behalf of the Applebee's and IHOP systems as a whole. None of these food product guarantees is a derivative instrument. At
December 31, 2014, our outstanding guarantees for food product purchases were $23.8 million.
Foreign Currency Exchange Rate Risk
We have minimal exposure to foreign currency exchange rate fluctuations. Revenue derived from all foreign country
operations comprised less than 3% of total consolidated revenue for the year ended December 31, 2014, such that a
hypothetical 10% adverse change in the currency of every foreign country in which our franchisees operate restaurants would
have a negative impact of less that 0.3% of our consolidated revenue.