Sonic 2007 Annual Report Download

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Multi-Layered
2007
Multi-Layered
GROWTH
GROWTH

Table of contents

  • Page 1
    2007 Multi-Layered GROWTH

  • Page 2
    ...of sales. 4 Changes in same-store sales based on drive-ins open for at least 15 months. Sonic Drive-Ins feature signature menu items, offering made-when-you-order Extra-Long Chili Cheese Coneys, hamburgers, wraps and other sandwiches, hand-battered Onion Rings, Tater Tots and a full breakfast menu...

  • Page 3
    Sonic's growth reflects success along several dimensions and aspects of its business. Key initiatives drive positive sales trends at its partner and franchise drive-ins, providing a strong underpinning of franchise income, and creating new opportunities for market expansion. It's what we call a ...

  • Page 4
    ... markets. We opened 175 new drive-ins in fiscal 2007, entered into five new states in the past two years and opened more than 900 driveins over the last five years. This growth continues to transform Sonic from a regional chain to a national one as we have experienced increasing success well...

  • Page 5
    ... of our strong balance sheet and cash flows to repurchase our common stock as part of our capital management strategy and to enhance earnings per share growth. Fiscal 2007 was no exception to this practice as we accelerated those efforts by repurchasing more than 25 million shares, valued at $578...

  • Page 6
    Go West. Ting and Patrick Vollmer of the Clarus Group are spearheading Sonic's expansion into eastern Washington State and now own and operate two drive-ins in Spokane, Washington, and Post Falls, Idaho. Pg. 4

  • Page 7
    ... unparalleled record in QSR for same-store sales growth and steady increases in drive-in level profitability, Sonic offers franchisees and partners a solid opportunity for personal and financial growth - the chance to build the best small businesses in America. These opportunities help account for...

  • Page 8
    ... Burritos, it's no wonder that Sonic's sales soar to new levels each year. We keep that momentum going with new product news, backed in 2007 by $175 million in system marketing funds, increasing to $190 million in fiscal 2008, that continually highlights our great menu selections and limited time...

  • Page 9
    What to eat? No arguments here! GROWTH Pg. 7

  • Page 10
    Good night. Our patio provides an inviting nighttime setting for relaxed, outdoor dining. It's a hit with the afternoon and after-dinner crowd - customers in two important non-traditional day parts that have been central to building our sales and traffic. Pg. 8

  • Page 11
    ...With fast Carhop service and growing drive-thru capabilities, Sonic fuels life no matter where it happens. The recent launch of our new premium roast coffee program is done the Sonic way with a complete line of real espressobased drinks, including iced and hot lattes as well as a frozen-blended Java...

  • Page 12
    ... assuring a Sonic experience they have come to know and enjoy. Surprise and delight. Since establishing the final elements of the retrofit program during fiscal 2006, we retrofitted more than 600 partner and franchise drive-ins through the end of fiscal 2007. Next year, we plan to complete 750-850...

  • Page 13
    Surprise and delight. Polishing our curb appeal. GROWTH Pg. 11

  • Page 14
    System-wide Drive-In Locations Core Markets Developing Markets 3 1 18 5 2 17 20 28 81 36 136 208 74 25 29 17 15 2 3 2 50 97 73 269 190 123 162 913 220 72 111 125 93 122 Sonic 51% Lunch/Dinner 19% Afternoon 18% After Dinner 12% Morning Day Part Mix QSR 71% 7% 6% 16% Lunch/Dinner ...

  • Page 15
    ... 2003 2,885 2004 3,039 2005 3,188 2006 3,343 2007 Multi-Layered Strategies Drive Change in System-wide Same-Store Sales System-wide Average Sales Per Drive-In (in thousands) System-wide Marketing Expenditures (in millions) Total National $90 3.5% 2002 0.3% 2003 6.5% 2004 6.0% 2005 4.5% 2006...

  • Page 16
    ... Data Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Stockholders' Equity (Deficit) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report...

  • Page 17
    ...Financial Statements included elsewhere in this report. Year ended August 31, 2005(1) (In thousands, except per share data) 2007 Income Statement Data: Partner Drive-In sales Franchise Drive-Ins: Franchise royalties Franchise fees Other Total revenues Cost of Partner Drive-In sales Selling, general...

  • Page 18
    ...unit volume. System-wide information includes both Partner Drive-In and Franchise Drive-In information, which we believe is useful in analyzing the growth of the brand as well as the company's revenues since franchisees pay royalties based on a percentage of sales. System-wide Performance Year Ended...

  • Page 19
    Sonic Corp. 2007 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations System-wide same-store sales increased 3.1% during fiscal year 2007 as a result of growth in average check, offset somewhat by a slight decrease in traffic (number of transactions ...

  • Page 20
    ... months. Franchise fees and royalties (1) Percentage increase Franchise Drive-Ins in operation (2): Total at beginning of period Opened Acquired from (sold to) company, net Closed Total at end of period Franchise Drive-In sales Percentage increase Effective royalty rate Average sales per Franchise...

  • Page 21
    ... Corp. 2007 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations (1) (2) (3) See Revenue Recognition Related to Franchise Fees and Royalties in the Critical Accounting Policies and Estimates section of MD&A. Drive-ins that are temporarily closed...

  • Page 22
    ... Corp. 2007 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations Partner Drive-In sales reflecting our partners' share of the increased operating costs experienced during the period. During fiscal year 2006, minority interest increased $3.7 million...

  • Page 23
    Sonic Corp. 2007 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations restricted cash of $11.4 million was an increase associated with the securitized cash flows. Net property, equipment and capital leases increased by $52.9 million primarily as a ...

  • Page 24
    ... the second fiscal quarter (the months of December, January and February) generally are lower than other quarters because of the climate of the locations of a number of Partner and Franchise Drive-Ins. Critical Accounting Policies and Estimates The Consolidated Financial Statements and Notes to...

  • Page 25
    ...forms of license agreement. As a result, we accrue royalty revenue in the month earned based on estimates of Franchise Drive-Ins sales. These estimates are based on projections of average unit volume growth at Franchise Drive-Ins collected from a majority of Franchise Drive-Ins. Accounting for Stock...

  • Page 26
    Sonic Corp. 2007 Annual Report Management's Discussion and Analysis of Financial Condition and Results of Operations income tax returns several months after our fiscal year end. Income tax returns are subject to audit by federal, state and local governments, typically several years after the ...

  • Page 27
    Sonic Corp. 2007 Annual Report Consolidated Balance Sheets August 31, 2007 Assets Current assets: Cash and cash equivalents ...Restricted cash ...Accounts and notes receivable, net ...Net investment in direct financing leases ...Inventories ...Deferred income taxes ...Prepaid expenses and other ...

  • Page 28
    Sonic Corp. 2007 Annual Report Consolidated Statements of Income 2007 Revenues: Partner Drive-In sales ...Franchise Drive-Ins: Franchise royalties ...Franchise fees ...Other ... Year ended August 31, 2006 (In thousands, except per share data) 2005 $ 646,915 111,052 4,574 7,928 770,469 $ 585,...

  • Page 29
    Sonic Corp. 2007 Annual Report Consolidated Statements of Stockholders' Equity (Deficit) Common Stock Shares Amount Balance at August 31, 2004 ...Exercise of common stock options ...Stock-based compensation expense ...Tax benefit related to exercise of employee stock options ...Purchase of ...

  • Page 30
    ...impairment of long-lived assets ...Excess tax benefit from exercise of employee stock options ...Debt extinguishment and other costs ...Payment for hedge termination ...Amortization of debt costs to interest expense ...Other ...Decrease (increase) in operating assets: Restricted cash ...Accounts and...

  • Page 31
    ...Excess tax benefit from exercise of employee stock options ...Net cash used in financing activities ...Net increase (decrease) in cash and cash equivalents ...Cash and cash equivalents at beginning of the year ...Cash and cash equivalents at end of the year ...Supplemental cash flow information Cash...

  • Page 32
    ... Significant Accounting Policies Operations Sonic Corp. (the "company") operates and franchises a chain of quick-service drive-ins in the United States. It derives its revenues primarily from Partner Drive-In sales and royalty fees from franchisees. The company also leases signs and real estate, and...

  • Page 33
    ...Fees and Royalties Revenue from Partner Drive-In sales is recognized when food and beverage products are sold. Initial franchise fees are recognized in income when all material services or conditions relating to the sale of the franchise have been substantially performed or satisfied by the company...

  • Page 34
    Sonic Corp. 2007 Annual Report Notes to Consolidated Financial Statements August 31, 2007, 2006 and 2005 (In thousands, except per share data) advertising contributions by Partner Drive-Ins are recorded as expense on the company's financial statements. Stock-Based Compensation In accordance with ...

  • Page 35
    Sonic Corp. 2007 Annual Report Notes to Consolidated Financial Statements August 31, 2007, 2006 and 2005 (In thousands, except per share data) 3. Impairment of Long-Lived Assets During the fiscal years ended August 31, 2007, 2006 and 2005, the company identified impairments for certain drive-in ...

  • Page 36
    Sonic Corp. 2007 Annual Report Notes to Consolidated Financial Statements August 31, 2007, 2006 and 2005 (In thousands, except per share data) Initial direct costs incurred in the negotiations and consummations of direct financing lease transactions have not been material. Accordingly, no portion ...

  • Page 37
    ...,000, including receivables for royalties, Partner Drive-In real estate, intangible assets, loan origination costs and restricted cash balances of $24,875. The Class A1 and Class A-2 notes are secured by Sonic's franchise royalty payments, certain lease and other payments and fees and, as a result...

  • Page 38
    ... related to direct financing leases and different year ends for financial and tax reporting purposes (13,466) Capital loss carryover 1,695 State net operating losses 3,319 Property, equipment and capital leases (2,720) Allowance for doubtful accounts and notes receivable 97 Deferred income...

  • Page 39
    ... market value and will be determined by the company's board of directors. Stock-Based Compensation The Sonic Corp. 2006 Long-Term Incentive Plan (the "2006 Plan") provides flexibility to award various forms of equity compensation, such as stock options, stock appreciation rights, performance shares...

  • Page 40
    Sonic Corp. 2007 Annual Report Notes to Consolidated Financial Statements August 31, 2007, 2006 and 2005 (In thousands, except per share data) Stock Repurchase Program The company has a stock repurchase program that is authorized by the Board of Directors. In addition to the ongoing stock ...

  • Page 41
    Sonic Corp. 2007 Annual Report Notes to Consolidated Financial Statements August 31, 2007, 2006 and 2005 (In thousands, except per share data) 16. Selected Quarterly Financial Data (Unaudited) First Quarter 2007 2006 Income statement data: Partner Drive-In sales Other Total revenues Partner Drive-...

  • Page 42
    ... respects, the consolidated financial position of Sonic Corp. at August 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended August 31, 2007, in conformity with U.S. generally accepted accounting principles. We also...

  • Page 43
    Sonic Corp. 2007 Annual Report Management's Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting The Board of Directors and Stockholders of Sonic Corp. We have audited Sonic Corp.'s internal control...

  • Page 44
    ...2007 Annual Report Directors and Officers Board of Directors J. Clifford Hudson Chairman, Chief Executive Officer and President Sonic Corp. Leonard Lieberman 1, 3 Private Investor Michael J. Maples 1, 3 Former Executive Vice President and Member of the Office of the President Microsoft Corporation...

  • Page 45
    ...Vice President and Chief Financial Officer, at our Corporate Offices. In addition, we make available free of charge through our Web site at www.sonicdrivein.com annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports filed with or...

  • Page 46
    Sonic Corp. 300 Johnny Bench Drive Oklahoma City, OK 73104 405/225-5000 www.sonicdrivein.com