NOTE 16 — FRANCHISE OPERATIONS

Franchise arrangements generally provide for initial fees and continuing royalty payments to us based upon a percentage of revenue. We generally charge an initial franchise fee for each new franchised restaurant that is added to our system, and in some cases, an area development fee, which grants exclusive rights to develop a specified number of restaurants in a designated geographic area within a specified time period. Similar fees are charged in connection with our international licensing operations. These fees are recognized ratably when substantially all the services required of us are complete and the restaurants covered by these agreements commence operations.

Certain franchisees purchase equipment from us. Prior to the outsourcing of our Carl's Jr. distribution center operations on July 2, 2010, certain franchisees also purchased food, packaging, and supplies from us. Additionally, franchisees may be obligated to remit lease payments for the use of restaurant facilities owned or leased by us, generally for periods up to 20 years. Under the terms of these leases, franchisees are generally required to pay related occupancy costs, which include maintenance, insurance and property taxes.

Franchised restaurants and other revenue consisted of the following:


	Successor				Predecessor
	Fiscal 2012		Twenty-Nine Weeks Ended January 31, 2011		Twenty-Four Weeks Ended July 12, 2010		Fiscal 2010
Royalties	$	93,776	$	49,482	$	40,007	$	84,447
Distribution centers - food, packaging and supplies		—		—		86,891		192,188
Distribution centers - equipment		24,927		9,664		9,220		21,630
Rent and other occupancy		35,611		20,303		14,616		33,596
Franchise fees		3,583		906		854		2,398

	$	157,897	$	80,355	$	151,588	$	334,259

Franchised restaurants and other expense consisted of the following:


	Successor				Predecessor
	Fiscal 2012		Twenty-Nine Weeks Ended January 31, 2011		Twenty-Four Weeks Ended July 12, 2010		Fiscal 2010
Distribution centers - food, packaging and supplies	$	—	$	—	$	86,170	$	189,346
Distribution centers - equipment		24,937		9,854		9,206		21,199
Rent and other occupancy		32,239		17,945		12,524		27,719
Other operating expenses		24,196		11,665		7,220		15,860

	$	81,372	$	39,464	$	115,120	$	254,124

Termination of Franchise Agreements

During the Successor twenty-nine weeks ended January 31, 2011, we terminated our franchise agreement with one Carl's Jr. and one Hardee's franchisee that operated 59 and 60 franchised restaurants, respectively, as a result of their inability to remedy, on a timely basis, certain defaults under the terms of their respective agreements. We entered into workout agreements with these franchisees, under which these franchisees were permitted to operate under temporary license agreements. As of January 31, 2012, 32 of these Carl's Jr. restaurants continue to operate under temporary license agreements.

During the third quarter of fiscal 2010, we terminated our franchise agreement with a Hardee's franchisee that operated six franchised restaurants as a result of its inability to remedy, on a timely basis, certain defaults under the terms of the agreements and allowed the franchisee to continue to operate under a temporary license agreement while it attempted to sell its restaurants. A new franchisee purchased the six restaurants from the former franchisee during the fourth quarter of fiscal 2011.