Sonic 2014 Annual Report Download - page 37

6. Other Operating Income and Expenses
During fiscal year 2013, the Company completed an assessment in advance of capital expenditures for planned 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 received the remaining $8.7 million through the combination of a
note receivable and a direct financing lease, all of which were repaid as of August 31, 2014. 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 a 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 Company has one significant master lease agreement with a franchisee as a result
of previously refranchised drive-ins. The land and building portions of all 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. For property owned by third parties, the
lease term runs concurrently with the term of the third-party lease arrangement. Most of the leases contain 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 November 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 the assignment of capital leases expiring through March 2018.
Components of net investment in direct financing leases are as follows at August 31:
2014 2013
Minimum lease payments receivable $ 717 $ 1,701
Less unearned income (82) (170)
Net investment in direct financing leases 635 1,531
Less amount due within one year (278) (344)
Amount due after one year $ 357 $ 1,187
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.
Future minimum rental payments receivable as of August 31, 2014, are as follows:
Direct
Operating Financing
Years ended August 31:
2015 $ 6,976 $ 319
2016 6,891 174
2017 6,919 133
2018 6,971 65
2019 6,930 14
Thereafter 34,254 12
$ 68,941 717
Less unearned income (82)
$ 635
Notes to Consolidated Financial Statements
August 31, 2014, 2013 and 2012 (In thousands, except per share data)
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