Sonic 2013 Annual Report Download - page 27

As mentioned above, in the second quarter of fiscal year 2013, we made a debt prepayment, at par, of $20.0
million on our 2011 Fixed Rate Notes. In the fourth quarter of fiscal year 2013, we refinanced $155 million of the
2011 Fixed Rate Notes with the issuance of $155 million of Series 2013-1 Senior Secured Fixed Rate Notes, Class
A-2 (the “2013 Fixed Rate Notes”) in a private transaction which bears interest at 3.75% per annum. The 2013
Fixed Rate Notes have an expected life of seven years, interest payable monthly, with no scheduled principal
amortization. As a result, mandatory debt payments will decrease from $15.0 million to $9.8 million per year.
Additionally, we extended our 2011 Variable Funding Note’s renewal date by two years to May 2018 and decreased
the base spread from 3.75% to 3.50% in the fourth quarter of fiscal year 2013.
At August 31, 2013, the balance outstanding under the 2011 Fixed Rate Notes and the 2013 Fixed Rate
Notes, including accrued interest, totaled $292.4 million and $155.2 million, respectively, and there was no
outstanding balance under our 2011 Variable Funding Notes. The weighted-average interest cost of the 2011 Fixed
Rate Notes and 2013 Fixed Rate Notes was 5.9% and was 4.1%, respectively. The weighted-average interest cost
includes the effect of the loan origination costs.
In fiscal year 2013, the debt prepayment and the partial debt refinancing resulted in a pro-rata write-off of loan
origination costs from the 2011 Fixed Rate Notes representing a majority of the $4.4 million loss which is reflected
in “Net loss from early extinguishment of debt” on the Consolidated Statements of Income and Comprehensive
Income. An additional $4.1 million in debt origination costs were capitalized in conjunction with the 2013 Fixed
Rate Notes. Loan costs are being amortized over each note’s expected life. The amount of loan costs expected
to be amortized over the next 12 months is reflected in “Other current assets” on the Consolidated Balance Sheets.
For additional information on our 2011 Notes and 2013 Fixed Rate Notes, see note 10 – Debt, included in the Notes
to Consolidated Financial Statements in this Annual Report.
We plan capital expenditures of approximately $65 to $70 million in fiscal year 2014. These capital expenditures
primarily relate to drive-in level expenditures for new point-of-sale and digital point-of-purchase technology. We expect
to fund these capital expenditures through cash flow from operations as well as cash on hand.
On October 13, 2011, our Board of Directors approved a $30 million share repurchase program. Under that
program, we were authorized to purchase up to $30 million of our outstanding shares of common stock through
August 31, 2012. During fiscal year 2012, we completed this share repurchase program.
On August 15, 2012, our Board of Directors approved a new share repurchase program. Under the new
program, we were authorized to purchase up to $40 million of our outstanding shares of common stock through
August 31, 2013. In January 2013, the Board of Directors increased the share repurchase authorization to $55
million. During fiscal year 2013, approximately 3.3 million shares were acquired pursuant to this program for a total
cost of $35.5 million; this is in addition to the approximately 0.1 million shares that were acquired for a total cost
of $1.1 million during the fourth quarter of fiscal year 2012. In August 2013, the Board of Directors extended the
share repurchase program through August 31, 2014, with a total authorization of up to $40.0 million, which was
available as of August 31, 2013. Share repurchases may be made from time to time in the open market or in
negotiated transactions, depending on share price, market conditions and other factors. The share repurchase
program may be extended, modified, suspended or discontinued at any time. Subsequent to the end of fiscal year
2013, we purchased approximately 250 thousand shares under this program for a cost of $4.5 million. We plan to
fund the share repurchase program from existing cash on hand at August 31, 2013, and cash flows from operations.
As of August 31, 2013, our total cash balance of $96.5 million ($77.9 million of unrestricted and $18.6 million
of restricted cash balances) reflected the impact of the cash generated from operating activities, cash used for share
repurchases, debt prepayment and capital expenditures mentioned above. We believe that existing cash, funds
generated from operations and the $100 million available under our 2011 Variable Funding Notes will meet our
needs for the foreseeable future.
Off-Balance Sheet Arrangements
The Company has obligations for guarantees on certain franchisee loans, which in the aggregate are immaterial,
and obligations for guarantees on certain franchisee lease agreements. Other than such guarantees and various
operating leases and purchase obligations, which are disclosed below in “Contractual Obligations and
Commitments” and in note 7 - Leases and note 16 – Commitments and Contingencies to our Consolidated Financial
Statements, the Company has no other material off-balance sheet arrangements.
Management's Discussion and Analysis of Financial Condition and Results of Operations
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