Sonic 2002 Annual Report Download - page 29

Sonic 02 27
Notes to Consolidated Financial Statements
August 31, 2002, 2001 and 2000 (In thousands, except share data)
Advertising Costs
Costs incurred in connection with advertising and promotion of the company’s products are expensed as incurred.
Such costs amounted to $16,544, $13,283, and $11,531 for fiscal years 2002, 2001 and 2000, respectively.
Under the company’s license agreements, each drive-in, either company-owned or franchise, must contribute a
minimum percentage of revenues to a national media production fund (Sonic Advertising Fund) and spend an additional
minimum percentage of gross revenues on local advertising, either directly or through company-required participation in
advertising cooperatives. A portion of the local advertising contributions is redistributed to a System Marketing Fund,
which purchases advertising on national cable and broadcast networks and other national media and sponsorship
opportunities. As stated in the terms of existing license agreements, these funds do not constitute assets of the company
and the company acts with limited agency in the administration of these funds. Accordingly, neither the revenues and
expenses nor the assets and liabilities of the advertising cooperatives, the Sonic Advertising Fund, or the System
Marketing Fund are included in the company’s consolidated financial statements. However, all advertising contributions
by company-owned restaurants are recorded as expense on the company’s financial statements.
Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of three months or less from date of purchase.
2. Net Income Per Share
The following table sets forth the computation of basic and diluted earnings per share for the years ended August 31:
2002 2001 2000
Numerator:
Net income $ 47,692 $ 38,956 $ 32,627
Denominator:
Weighted average shares outstanding - basic 40,155,522 39,848,519 40,396,452
Effect of dilutive employee stock options 2,051,227 1,883,269 1,548,203
Weighted average shares – diluted 42,206,749 41,731,788 41,944,655
Net income per share – basic $ 1.19 $ .98 $ .81
Net income per share – diluted $ 1.13 $ .93 $ .78
Anti-dilutive employee stock options excluded 104,806 14,630 452,457
See Note 12 for information regarding shares available for grant under the 2001 Sonic Corp. Stock Option Plan
and the 2001 Sonic Corp. Directors’ Stock Option Plan.
3. Impairment of Long-Lived Assets
As of August 31, 2002 and 2001, the company had identified certain underperforming restaurants whose operating
results indicated that certain assets of these restaurants might be impaired. The buildings and improvements of these
restaurants had combined carrying amounts of $1,990 and $3,956 respectively. During fiscal years 2002 and 2001, the
company performed quarterly analyses of these and other restaurants which had incurred operating losses. As a result of
these analyses, the company determined that certain restaurants with then-existing carrying amounts of $1,139 and
$971, respectively, were impaired and wrote them down by $970 and $792, respectively, to their fair values. In addition,
estimates were revised on three stores which were previously impaired under FAS 121 resulting in additional provisions
totaling $291 in fiscal year 2002. Management’s estimate of undiscounted future cash flows indicates that the remaining
carrying amounts as of August 31, 2002 are expected to be recovered. However, it is reasonably possible that the
estimate of cash flows may change in the near future resulting in the need to write-down one or more of the identified
assets to fair value.