Sonic 2003 Annual Report Download - page 25

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Management’s Discussion and Analysis
borrowing commitment from $80.0 to $125.0 million and extend the maturity of the agreement by two years to July 2006.
The company refinanced $20.0 million of long-term debt, which matured on April 1, 2003, under its senior unsecured
notes with amounts available under its line of credit. We plan to use the line of credit to finance the opening of newly-
constructed restaurants, acquisitions of existing restaurants, purchases of the company’s common stock and for other
general corporate purposes. As of August 31, 2003, our outstanding borrowings under the line of credit were $79.3
million, at an effective borrowing rate of 2.8%, as well as $0.7 million in outstanding letters of credit. The amount
available under the line of credit as of August 31, 2003, was $45.0 million. See Note 9 of the Notes to Consolidated
Financial Statements for additional information regarding the company’s long-term debt.
We plan capital expenditures of $50.0 million in fiscal year 2004, excluding potential acquisitions and share
repurchases. These capital expenditures primarily relate to the development of additional company-owned restaurants,
stall additions, relocations of older restaurants, store equipment upgrades, and enhancements to existing financial and
operating information systems. We expect to fund these capital expenditures through borrowings under our existing line
of credit and cash flow from operations. We expect to generate free cash flow (which we define as net income plus
depreciation and amortization less capital expenditures, other than franchise acquisitions and share repurchases) of $40
million to $45 million during fiscal 2004. The company has long-term debt maturing in fiscal years 2004, 2005 and 2006
of $0.1 million, $34.6 million and $83.9 million, respectively. We expect to refinance amounts maturing in 2005 under
the senior unsecured notes with our line of credit and plan to extend the line of credit maturing in 2006 under existing
renewal options and to increase the amount available as needed. We believe that existing cash and funds generated from
operations, as well as borrowings under the line of credit, will meet the company’s needs for the foreseeable future.
We entered into an agreement with certain franchisees during fiscal year 2003, which provides them with the option to
sell 50 restaurants to us anytime during the period commencing January 1, 2004 and ending June 30, 2005. We estimate
that the cost of the acquisition, if it were to occur, would be in the range of $31 to $37 million and anticipate that the
acquisition would be funded through operating cash flows and borrowings under the company’s existing line of credit.
Contractual Obligations and Commitments
In the normal course of business, Sonic enters into purchase contracts, lease agreements and borrowing
arrangements. Our commitments and obligations as of August 31, 2003, are summarized in the following table:
Payments Due by Period
(In thousands)
Less than 1 – 3 3 – 5 More than
Contractual Obligations Total 1 year years Years 5 years
Long-term Debt $ 139,587 $ 82 $ 118,555 $ 8,186 $ 12,764
Capital Leases 44,533 3,711 7,022 6,555 27,245
Operating Leases 114,982 9,081 18,116 17,612 70,173
Vendor Purchase Agreements 44,632 44,632 – – –
Total $ 343,734 $ 57,506 $ 143,693 $ 32,353 $110,182
Impact of Inflation
Though increases in labor, food or other operating costs could adversely affect our operations, we do not believe that
inflation has had a material effect on income during the past several years.
Seasonality
We do not expect seasonality to affect operations in a materially adverse manner. Our results during our 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 company-owned and franchised restaurants.