Sonic 2001 Annual Report Download - page 18

THE DAILY CRUISER PAGE 18
cash flows indicates that the remaining carrying amounts as of August 31, 2001 are
expected to be recovered. However, it is reasonably possible that the estimate of cash
flows may change in the near future resulting in the need to write-down one or more
of the identified assets to fair value.
4. Accounts and Notes Receivable
Accounts and notes receivable consist of the following at August 31, 2001 and
2000:
2001 2000
Royalties and other trade receivables $ 7,187 $ 5,168
Notes receivable—current 1,797 1,223
Other 4,039 3,787
13,023 10,178
Less allowance for doubtful accounts
and notes receivable 881 493
$ 12,142 $ 9,685
Notes receivable—noncurrent $ 7,761 $ 7,898
Less allowance for doubtful notes receivable 386 219
$ 7,375 $ 7,679
As of August 31, 2001 and 2000, notes receivable from one franchisee totaled
$3,725 and $4,007 respectively.
5. Goodwill, Intangibles and Other Assets
Goodwill, intangibles and other assets consist of the following at August 31, 2001
and 2000:
2001 2000
Goodwill $ 45,615 $ 20,966
Trademarks and trade names 8,872 8,872
Franchise agreements 1,870 1,870
Other intangibles 2,054 1,302
Other assets 976 1,233
59,387 34,243
Less accumulated amortization 12,637 9,966
$ 46,750 $ 24,277
On April 1, 2001, the company acquired 35 existing franchise restaurants located
in the Tulsa, Oklahoma market from a franchisee and other minority investors. The
acquisitions have been accounted for under the purchase method of accounting, with
the results of operations of these restaurants included with that of the company’s
commencing April 1, 2001. The company’s cash acquisition cost, prior to post-clos-
ing adjustments, of approximately $21.9 million consisted of the drive-ins’ operating
assets ($0.2 million), equipment ($4.4 million) and goodwill ($17.3 million). The
company also entered into long-term real estate leases on each of these drive-in
restaurants, which have future minimum rental payments aggregating $1.8 million
annually over the next 15 years ($5.1 million of which was recorded as capital leases
related to the buildings). The company funded this acquisition through the avail-
ability under its existing $80 million bank line of credit.
6. Leases
Description of Leasing Arrangements
The company’s leasing operations consist principally of leasing certain land, build-
ings 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 fifteen years. The equipment portions of these leases
are classified principally as direct financing leases and expire principally over the next
ten 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 rec-
ognized 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 nineteen years, include provisions for contin-
gent rentals which may be paid on the basis of a percentage of sales in excess of stipu-
lated 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, 2001 and 2000:
2001 2000
Minimum lease payments receivable $ 12,656 $ 13,189
Less unearned income 4,825 5,344
Net investment in direct financing leases 7,831 7,845
Less amount due within one year 683 625
Amount due after one year $ 7,148 $ 7,220
Initial direct costs incurred in the negotiation and consummation of direct financ-
ing 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, 2001 are as follows:
Direct
Operating Financing
Year ending August 31:
2002 $ 1,030 $ 1,721
2003 594 1,704
2004 601 1,671
2005 602 1,635
2006 615 1,619
Thereafter 3,854 4,306
7,296 12,656
Less unearned income – 4,825
$ 7,296 $ 7,831
Capital Leases
Components of obligations under capital leases are as follows at August 31, 2001
and 2000:
2001 2000
Total minimum lease payments $ 23,321 $ 11,754
Less amount representing interest
averaging 10% in 2001 and 12% in 2000 9,633 4,455
Present value of net minimum lease payments 13,688 7,299
Less amount due within one year 887 631
Amount due after one year $ 12,801 $ 6,668
Maturities of these obligations under capital leases and future minimum rental
payments required under operating leases that have initial or remaining noncance-
lable lease terms in excess of one year as of August 31, 2001 are as follows:
Operating Capital
Year ending August 31:
2002 $ 5,261 $ 2,142
2003 5,278 2,098
2004 4,623 2,097
2005 4,313 1,941
2006 4,287 1,875
Thereafter 32,014 13,168
55,776 23,321
Less amount representing interest - 9,633
$ 55,776 $ 13,688
Total minimum lease payments do not include contingent rentals on capital leases
which have not been material.
Total rent expense for all operating leases consists of the following for the years
ended August 31:
2001 2000 1999
Minimum rentals $ 5,012 $ 3,810 $ 3,573
Contingent rentals 108 126 134
Sublease rentals (135) (129) (176)
$ 4,985 $ 3,807 $ 3,531