Sonic 2013 Annual Report Download - page 41

The gross carrying amount of franchise agreements, intellectual property, franchise fees and other intangibles
subject to amortization was $10.3 million and $10.2 million at August 31, 2013 and 2012, respectively.
Accumulated amortization related to these intangible assets was $4.1 million and $3.4 million at August 31, 2013
and 2012, respectively. Intangible assets amortization expense for the fiscal years ended August 31, 2013, 2012
and 2011 was $0.9 million, $0.8 million and $0.4 million, respectively. At August 31, 2013, the remaining weighted-
average life of amortizable intangible assets was approximately 11 years. Estimated intangible assets amortization
expense is $0.9 million annually for fiscal years 2014, 2015, 2016 and 2017 and $0.3 million for fiscal year 2018.
6. Other Operating Income and Expenses
During fiscal year 2013, the Company completed an assessment in advance of capital expenditures for pending
technology initiatives and closed 12 lower-performing Company Drive-Ins as of August 31, 2013, resulting in a loss
of $2.4 million. The loss included rent accruals for the remaining lease term, write-down of real estate and other
costs associated with store closures. Additionally, in the second quarter of fiscal year 2013, a franchisee purchased
land and buildings leased or subleased from the Company relating to previously refranchised drive-ins. At the time
of the sale, these assets had a carrying value of $38.4 million. The Company received $29.7 million in cash at
closing and is receiving the remaining $8.7 million (plus interest) over 24 months through the combination of a note
receivable and a direct financing lease. In conjunction with the sale and the assignment of third-party leases, the
Company removed its escalating lease liability related to the sold properties which resulted in the small gain and
partially offset the drive in closure loss described above.
7. Leases
Leasing Arrangements as a Lessor
The Company’s leasing operations consist principally of leasing certain land, buildings and signs as well as
subleasing certain buildings to franchise operators. The land and building portions of these leases are classified
as operating leases with lease terms expiring through September 2030. 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 sign portions of these leases are classified principally as direct
financing leases and expire through March 2021. Additional direct financing leases, entered into as a result of the
franchisee-exercised option discussed in note 6 – Other Operating Income and Expenses, include land and buildings
expiring in December 2014 and assignment of capital leases expiring through March 2018.
The Company has one significant master lease agreement with a franchisee as a result of previously
refranchised drive-ins. The lease consists of leasing land, buildings and signs for a period of 15 years and is classified
as an operating lease. There are four renewal options at the end of the primary term for periods of five years for
property that is owned by the Company. For property owned by third parties, the lease term runs concurrently with
the term of the third-party lease arrangement. The lease includes a provision for contingent rentals that may be
received on the basis of a percentage of sales in excess of stipulated amounts. The lease contains an escalation
clause based on sales over the life of the lease.
Components of net investment in direct financing leases are as follows at August 31:
2013 2012
Minimum lease payments receivable $ 1,701 $ 1,041
Less unearned income (170) (228)
Net investment in direct financing leases 1,531 813
Less amount due within one year (344) (233)
Amount due after one year $ 1,187 $ 580
Notes to Consolidated Financial Statements
August 31, 2013, 2012 and 2011 (In thousands, except per share data)
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