Sonic 2003 Annual Report Download - page 39

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p.37
Notes to Consolidated Financial Statements
August 31, 2003, 2002 and 2001 (In thousands, except share data)
The changes in the carrying amount of goodwill for fiscal years ending August 31, 2003 and 2002 were as follows:
2003 2002
Balance as of September 1, $ 46,826 $ 38,850
Goodwill acquired during the year 32,391 8,174
Impairment losses ––
Goodwill disposed of related to the sale of restaurants (255) (198)
Balance as of August 31, $ 78,962 $ 46,826
6. Leases
Description of Leasing Arrangements
The company’s leasing operations consist principally of leasing certain land, buildings and equipment (including
signs) and subleasing certain buildings to franchise operators. The land and building portions of these leases are classified
as operating leases and expire over the next 15 years. The equipment portions of these leases are classified principally as
direct financing leases and expire principally over the next 10 years. These leases include provisions for contingent rentals
which may be received on the basis of a percentage of sales in excess of stipulated amounts. Income is not recognized on
contingent rentals until sales exceed the stipulated amounts. Some leases contain escalation clauses over the lives of the
leases. Most of the leases contain one to four renewal options at the end of the initial term for periods of five years.
These options enable the company to retain use of properties in desirable operating areas.
Certain company-owned restaurants lease land and buildings from third parties. These leases, which expire over the
next 18 years, include provisions for contingent rentals which may be paid on the basis of a percentage of sales in excess
of stipulated amounts. The land portions of these leases are classified as operating leases and the buildings portions are
classified as capital leases.
Direct Financing Leases
Components of net investment in direct financing leases are as follows at August 31, 2003 and 2002:
2003 2002
Minimum lease payments receivable $ 11,625 $ 12,390
Less unearned income 3,859 4,451
Net investment in direct financing leases 7,766 7,939
Less amount due within one year 943 802
Amount due after one year $ 6,823 $ 7,137
Initial direct costs incurred in the negotiations and consummations of direct financing lease transactions have not
been material. Accordingly, no portion of unearned income has been recognized to offset those costs.
Future minimum rental payments receivable as of August 31, 2003 are as follows:
Direct
Operating Financing
Year ending August 31:
2004 $ 751 $ 1,967
2005 823 1,942
2006 840 1,930
2007 842 1,866
2008 863 1,706
Thereafter 6,312 2,214
10,431 11,625
Less unearned income – 3,859
$ 10,431 $ 7,766