Sonic 2005 Annual Report Download - page 42

The Company’s receivables are primarily due from franchisees, all of whom are in the restaurant business.
Substantially all of the notes receivable are collateralized by real estate or equipment. The Company collects royalties
from franchisees and provides for estimated losses for receivables that are not likely to be collected. General
allowances for uncollectible receivables are estimated based on historical trends.
5. Goodwill, Intangibles and Other Assets
The gross carrying amount of franchise agreements, franchise fees and other intangibles subject to amortization
was $749 and $2,505 at August 31, 2005 and 2004, respectively. Accumulated amortization related to these intangible
assets was $359 and $2,099 at August 31, 2005 and 2004, respectively. The carrying amount of trademarks and trade
names not subject to amortization was $6,044 at August 31, 2005 and 2004.
The changes in the carrying amount of goodwill for fiscal years ending August 31, 2005 and 2004 were as
follows:
2005 2004
Balance as of September 1, $ 87,420 $ 77,551
Goodwill acquired during the year 468 11,374
Goodwill acquired (disposed of) related to the acquisitions and
dispositions of minority interests in Partner Drive-Ins, net 733 (929)
Goodwill disposed of related to the sale of Partner Drive-Ins (150) (576)
Balance as of August 31, $ 88,471 $ 87,420
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 that 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. The Company classifies income from leasing operations as other revenue in the
Consolidated Statements of Income.
Certain Partner Drive-Ins lease land and buildings from third parties. These leases, which expire over the next 19
years, include provisions for contingent rentals that 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 building portions are
classified as capital leases.
Direct Financing Leases
Components of net investment in direct financing leases are as follows at August 31, 2005 and 2004:
2005 2004
Minimum lease payments receivable $ 8,619 $ 10,313
Less unearned income 2,412 3,152
Net investment in direct financing leases 6,207 7,161
Less amount due within one year 1,174 1,054
Amount due after one year $5,033 $6,107
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.
Notes to Consolidated Financial Statements
August 31, 2005, 2004 and 2003 (In thousands, except share data)
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