Sonic 2004 Annual Report Download - page 21

Forward-looking Statements
This annual report contains various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking statements represent our
expectations or beliefs concerning future events, including the following: any statements
regarding future sales or expenses, any statements regarding the continuation of
historical trends,and any statements regarding the sufficiency of our working capital and
cash generated from operating and financing activities for our future liquidity and capital
resource needs. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," and similar expressions are intended to identify forward-looking
statements. We caution that those statements are further qualified by important
economic and competitive factors that could cause actual results to differ materially from
those in the forward-looking statements, including, without limitation, risks of the
restaurant industry, including risks of and publicity surrounding food-borne illness, a
highly competitive industry and the impact of changes in consumer spending patterns,
consumer tastes, local, regional and national economic conditions,weather, demographic
trends, traffic patterns, employee availability and cost increases. In addition, the opening
and success of new drive-ins will depend on various factors, including the availability of
suitable sites for new drive-ins, the negotiation of acceptable lease or purchase terms for
new locations, permitting and regulatory compliance, our ability to manage the
anticipated expansion and hire and train personnel, the financial viability of our
franchisees, particularly multi-unit operators, and general economic and business
conditions.Accordingly, such forward-looking statements do not purport to be
predictions of future events or circumstances and may not be realized.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates on debt and notes
receivable, as well as changes in commodity prices.
Our exposure to interest rate risk currently consists of our senior notes, outstanding
line of credit, and notes receivable. The senior notes bear interest at fixed rates which
average 6.8%. The aggregate balance outstanding under the senior notes as of August
31, 2004 was $59.0 million. Should interest rates increase or decrease, the estimated fair
value of these notes would decrease or increase, respectively. As of August 31, 2004, the
estimated fair value of the senior notes exceeded the carrying amount by approximately
$1.6 million. The line of credit bears interest at a rate benchmarked to U.S. and European
short-term interest rates. The balance outstanding under the line of credit was $14.1
million as of August 31, 2004. The impact on our results of operations of a one-point
interest rate change on the outstanding balances under the line of credit as of the end of
fiscal year 2004 would be approximately $0.1 million. We have made certain loans to our
franchisees totaling $7.5 million as of August 31, 2004. The interest rates on these notes
are generally between 7.8% and 10.5%. We believe the fair market value of these notes
approximates their carrying amount.
The Company and its franchisees purchase certain commodities such as beef,
potatoes,chicken and dairy products. These commodities are generally purchased based
upon market prices established with vendors. These purchase arrangements may contain
contractual features that limit the price paid by establishing price floors or caps; however,
we have not made any long-term commitments to purchase any minimum quantities
under these arrangements. We do not use financial instruments to hedge commodity
prices because these purchase agreements help control the ultimate cost and any
commodity price aberrations are generally short term in nature.
This market risk discussion contains forward-looking statements. Actual results may
differ materially from this discussion based upon general market conditions and changes
in financial markets.
Management's Discussion and Analysis of Financial Condition and Results of Operations
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