IHOP 2014 Annual Report Download - page 91

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DineEquity, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements (Continued)
2. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
72
historical volatility of the Company's stock price. Cash-settled awards are classified as liabilities with the liability and
compensation expense related to cash-settled awards adjusted to fair value at each balance sheet date.
Net Income Per Share
Net income per share is calculated using the two-step method prescribed in U.S. GAAP. Basic net income per share is
computed by dividing the net income available to common stockholders for the period by the weighted average number of
common shares outstanding during the period. Diluted net income per share is computed by dividing the net income (loss)
available to common stockholders for the period by the weighted average number of common shares and potential shares of
common stock outstanding during the period if their effect is dilutive. The Company uses the treasury stock method to calculate
the weighted average shares used in the diluted earnings per share calculation. Potentially dilutive common shares include the
assumed exercise of stock options, assumed vesting of restricted stock and, during fiscal years in which Series B Preferred
Stock was outstanding, assumed conversion of Series B Preferred Stock using the if-converted method.
Other Comprehensive Income (Loss)
For the years ended December 31, 2014, 2013 and 2012, the income tax benefit or provision allocated to items of other
comprehensive income was not significant.
Treasury Stock
The Company may from time to time utilize treasury stock when vested stock options are exercised, when restricted stock
awards are granted and when restricted stock units settle in stock upon vesting. The cost of treasury stock re-issued is
determined using the first-in, first-out method.
Business Segments
The Company identifies its reporting segments based on the organizational units used by management to monitor
performance and make operating decisions. These reporting segments are as follows: franchise operations, company restaurant
operations, rental operations and financing operations. Within the franchise and company restaurant segments, the Company
operates two different restaurant concepts, Applebee's and IHOP. Applebee's has no material rental or financing operations.
Franchise Segment
As of December 31, 2014, the franchise operations segment consisted of 1,994 restaurants operated by Applebee's
franchisees in the United States, two United States territories and 15 countries outside of the United States and 1,639
restaurants operated by IHOP franchisees and area licensees in the United States, two United States territories and eight
countries outside of the United States. Franchise operations revenue consists primarily of franchise royalty revenues, sales of
proprietary products (primarily IHOP pancake and waffle dry-mixes) and the portion of the franchise fees allocated to IHOP
and Applebee's intellectual property. Additionally, franchise fees designated for IHOP's national advertising fund and local
marketing and advertising cooperatives are recognized as revenue and expense of franchise operations; however, due to
different contractual terms in Applebee's marketing agreements, Applebee's national advertising fund activity constitutes
agency transactions and therefore is not recognized as franchise revenue and expense.
Franchise operations expenses include IHOP advertising expense, the cost of proprietary products, pre-opening training
expenses and other franchise-related costs.
Company Segment
As of December 31, 2014, the company restaurant operations segment consisted of 23 Applebee's company-operated
restaurants, 10 IHOP company-operated restaurants and one IHOP restaurant reacquired from franchisees and operated by the
Company on a temporary basis until refranchised. All company-operated restaurants are located in the United States.
Company restaurant sales are retail sales at company-operated restaurants. Company restaurant expenses are operating
expenses at company-operated restaurants and include food, beverage, labor, benefits, utilities, rent and other operating costs.
Rental Segment
Rental operations revenue includes revenue from operating leases and interest income from direct financing leases. Rental
operations expenses are costs of operating leases and interest expense of capital leases on franchisee-operated restaurants. The
rental operations revenue and expenses are primarily generated by IHOP. Applebee's has an insignificant amount of rental
activity related to one property that was retained after refranchising a company-operated restaurant.