Sonic 2009 Annual Report Download - page 37

Notes to Consolidated Financial Statements
August 31, 2009, 2008 and 2007 (In thousands, except per share data)
3. Assets Held for Sale and Impairment of Long-Lived Assets
Assets held for sale consist of Partner Drive-Ins that we expect to sell within one year. Such assets are classified as assets held for
sale upon meeting the requirements of SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” These assets are
recorded at the lower of the carrying amount or fair value less costs to sell. Assets are no longer depreciated once classified as held for
sale. These assets are included in the prepaid expenses and other account and classified as current assets on the consolidated balance
sheet. The following table sets forth the components of assets held for sale:
August 31,
2009 2008
Assets:
Property, equipment and capital leases, net $ 1,531 $–
Goodwill, net 1,274 –
Other 134 –
Total assets held for sale $ 2,939 $–
During the third quarter of fiscal year 2009, a potential buyer expressed an intent to purchase certain assets of the company. As a
result, the assets were classified as held for sale. However, the transaction was not consummated. Management has determined it is
no longer probable that a sale of the assets will be completed within one year, and that the assets do not meet the criteria to remain
classified as held for sale. As a result, the assets have been reclassified as held and used and are reflected in “property, equipment and
capital leases, net” and “goodwill, net” in the August 31, 2009 consolidated balance sheet. Depreciation has been retroactively applied
to these assets.
During the fiscal years ended August 31, 2009, 2008 and 2007, the company identified impairments for certain drive-in assets and
surplus property through regular quarterly reviews of long-lived assets. The recoverability of Partner Drive-Ins is assessed by estimating
the undiscounted net cash flows expected to be generated over the remaining life of the Partner Drive-Ins. This involves estimating
same-store sales and margins for the cash flows period. The amount of impairment, if any, is measured based on projected discounted
future net cash flows. When impairment exists, the carrying value of the asset is written down to fair value. The company experienced
declining sales and cash flows in certain drive-ins in the current economic environment. The assumptions on future sales and estimated
cash flows were also updated. During fiscal year 2009, these analyses resulted in provisions for impairment totaling $11,163, including
$7,462 to write down the carrying amount of building and leasehold improvements on underperforming drive-ins, $3,276 to write down
the carrying amount of equipment on underperforming drive-ins and $425 to reduce the carrying amount of six surplus properties down
to fair value. During fiscal year 2008, these analyses resulted in provisions for impairment totaling $571, including $99 to write down
the carrying amount of building and leasehold improvements on an underperforming drive-in, and $472 to reduce the carrying amount
of five surplus properties down to fair value. During fiscal year 2007, these analyses resulted in provisions for impairment totaling
$1,165, including $412 to reduce the carrying amount of assets in excess of fair value for two drive-ins, and $753 to reduce to fair value
the carrying amount of assets for three properties leased to franchisees.
4. Accounts and Notes Receivable
Accounts and notes receivable consist of the following at August 31, 2009 and 2008:
2009 2008
Current Accounts and Notes Receivable:
Royalties and other trade receivables $ 16,775 $ 14,556
Notes receivable from franchisees 1,740 2,387
Notes receivable from advertising funds 3,881 2,587
Other 5,994 10,922
28,390 30,452
Less allowance for doubtful accounts and notes receivable 805 614
$ 27,585 $ 29,838
Noncurrent Notes Receivable:
Notes receivable from franchisees $ 7,753 $ 3,266
Less allowance for doubtful notes receivable 74 103
$ 7,679 $ 3,163
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