Sonic 2014 Annual Report Download - page 31

1. Summary of Significant Accounting Policies
Operations
Sonic Corp. (the “Company”) operates and franchises a chain of quick-service restaurants in the United States. It derives its
revenues primarily from Company Drive-In sales and royalty fees from franchisees. The Company also leases signs and real estate,
and receives equity earnings in noncontrolling ownership in a number of Franchise Drive Ins.
Principles of Consolidation
The accompanying financial statements include the accounts of the Company, its wholly owned subsidiaries and a number of
Company Drive-Ins in which a subsidiary has a controlling ownership interest. All intercompany accounts and transactions have
been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”)
in the United States (“U.S.”) 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.
Reclassifications
Certain amounts reported in previous years, which are not material, have been combined and reclassified to conform to the
current-year presentation.
Segment Reporting
In accordance with Accounting Standards Update (“ASU”) 280, “Segment Reporting,” the Company uses the management
approach for determining its reportable segments. The management approach is based upon the way that management reviews
performance and allocates resources. There were changes in the management structure and the manner in which Sonic
manages the business that were effective for fiscal year 2014. Additionally, the Company’s chief operating decision maker and
his management team review operating results on a consolidated basis for purposes of allocating resources and evaluating the
financial performance of the Sonic brand. Accordingly, the Company has determined that it has one operating segment, and
therefore, one reporting segment.
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, 2014, the Company had restricted cash balances totaling $19.9 million for funds required to be held in trust for
the benefit of senior noteholders under the Company’s debt arrangements. The current portion of restricted cash of $13.2 million
represents amounts to be returned to Sonic or paid to service current debt obligations. The noncurrent portion of $6.7 million
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 and recognizes income as it is collected. Interest accrues on
notes receivable based on the contractual terms of the respective note. The Company monitors all accounts and notes receivable
for delinquency and provides for estimated losses for specific receivables that are not likely to be collected. The Company assesses
credit risk for accounts and notes receivable of specific franchisees based on payment history, current payment patterns, the health
of the franchisee’s business, and an assessment of the franchisee’s ability to pay outstanding balances. In addition to allowances
for bad debt for specific franchisee receivables, a general provision for bad debt is estimated for the Company’s accounts receivable
based on historical trends. Account balances generally are charged against the allowance when the Company believes that the
collection is no longer reasonably assured. The Company continually reviews its allowance for doubtful accounts.
Notes to Consolidated Financial Statements
August 31, 2014, 2013 and 2012 (In thousands, except per share data)
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