Sonic 2009 Annual Report Download - page 38

Notes to Consolidated Financial Statements
August 31, 2009, 2008 and 2007 (In thousands, except per share data)
The company’s receivables are primarily due from franchisees, all of whom are in the restaurant business. The notes receivable from
advertising funds represent transactions in the normal course of business. Substantially all of the notes receivable from franchisees are
collateralized by real estate or equipment.
5. Goodwill, Trademarks, Trade Names and Other Intangibles
The gross carrying amount of franchise agreements, franchise fees and other intangibles subject to amortization was $7,823 and
$8,013 at August 31, 2009 and 2008, respectively. The estimated amortization expense for each of the five years after August 31, 2009
is approximately $395.Accumulated amortization related to these intangible assets was $1,856 and $1,639 at August 31, 2009 and 2008,
respectively. The carrying amount of trademarks and trade names not subject to amortization was $6,044 at August 31, 2009 and 2008.
The entire balance of the company’s goodwill relates to Partner Drive-Ins. The changes in the carrying amount of goodwill for fiscal
years ending August 31, 2009 and 2008 were as follows:
2009 2008
Balance as of September 1, $ 105,762 $ 102,628
Goodwill acquired during the year 1,354 4,422
Goodwill acquired for minority interests in Partner Drive-Ins – 4,007
Goodwill disposed of for minority interests in Partner Drive-Ins (2) (3,229)
Goodwill disposed of related to the sale of Partner Drive-Ins (30,815) (2,066)
Balance as of August 31, $ 76,299 $ 105,762
6. Refranchising of Partner Drive-Ins
During fiscal year 2009, the company refranchised the operations of 205 Partner Drive-Ins and recorded a $13.2 million gain. We
retained a minority operating interest in 88 of these refranchised drive-ins.
7. 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 16 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 18 years, include
provisions for contingent rentals that may be paid on the basis of a percentage of sales in excess of stipulated amounts. For the majority
of leases, the land portions 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, 2009 and 2008:
2009 2008
Minimum lease payments receivable $ 2,807 $ 3,292
Less unearned income 747 792
Net investment in direct financing leases 2,060 2,500
Less amount due within one year 537 899
Amount due after one year $ 1,523 $ 1,601
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.
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