Sonic 2008 Annual Report Download - page 66

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1. Summary of 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 owns a minority interest in several Franchise Drive-Ins.
From time to time, the company has purchased existing Franchise Drive-Ins with proven track records in
core markets from franchisees and other minority investors as a means to deploy excess cash generated from
operating activities and provide a foundation for future earnings growth.
Principles of Consolidation
The accompanying financial statements include the accounts of the company, its wholly owned subsidiaries
and its majority-owned Partner Drive-Ins, organized as general partnerships and limited liability companies. All
significant intercompany accounts and transactions have been eliminated.
Certain amounts have been reclassified in the Consolidated Financial Statements to conform to the fiscal
year 2008 presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the amounts
reported and contingent assets and liabilities disclosed in the financial statements and accompanying notes.
Actual results may differ from those estimates, and such differences may be material to the financial statements.
Cash Equivalents
Cash equivalents consist of highly liquid investments, primarily money market accounts that mature in three
months or less from date of purchase, and depository accounts.
Restricted Cash
As of August 31, 2008, the company had restricted cash balances totaling $26,126 for funds required to be
held in trust for the benefit of senior note holders under the company’s debt arrangements. The current portion
of restricted cash of $14,934 represents amounts to be returned to Sonic or paid to service current debt
obligations. The noncurrent portion of $11,192 represents interest reserves required to be set aside for the
duration of the debt.
Accounts and Notes Receivable
The company charges interest on past due accounts receivable at a rate of 18% per annum. Interest accrues
on notes receivable based on contractual terms. The company monitors all accounts for delinquency and
provides for estimated losses for specific receivables that are not likely to be collected. In addition, a general
provision for bad debt is estimated based on historical trends.
Inventories
Inventories consist principally of food and supplies that are carried at the lower of cost (first-in, first-out
basis) or market.
Property, Equipment and Capital Leases
Property and equipment are recorded at cost, and leased assets under capital leases are recorded at the
present value of future minimum lease payments. Depreciation of property and equipment and capital leases
is computed by the straight-line method over the estimated useful lives or the lease term, including cancelable
option periods when appropriate, and are combined for presentation in the financial statements.
Note  Consolidate nancia Satement
August 31, 2008, 2007 and 2006 (In thousands, except per share data)
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Sonic Corp. 2008 Annual Report