Sonic 2006 Annual Report Download - page 48

Download and view the complete annual report

Please find page 48 of the 2006 Sonic annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 60

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60

month LIBOR on a notional amount of $60,000.The differences to be paid or received under the interest rate swap
agreement are recognized as an adjustment to interest expense. By its terms, the agreement would expire in May 2010
and settle quarterly, however, as a result of the repayment of the line of credit that was being hedged by this
instrument, this derivative was terminated subsequent to August 31, 2006 resulting in an immaterial gain that will be
reflected immediately in income in the first quarter of fiscal year 2007.
In August 2006, the company entered into a forward starting swap agreement with the same financial institution
to hedge part of the exposure associated with the new debt related to the tender offer that is further discussed in
Note 18.The forward starting swap has been designated as a cash flow hedge, and is expected to be settled at the
time the debt refinancing is completed to provide us with an effective interest rate of 5.16% plus 90 to 110 basis
points for $400 million of the amount financed. The effectiveness of the instrument will be assessed quarterly and at
the time the financing closes and any ineffectiveness will be recorded as a charge or credit to earnings. As of August
31, 2006, there was no hedge ineffectiveness.
The following table presents the components of comprehensive income for the year ended August 31, 2006:
Net Income $78,705
Unrealized gains on interest rate swap agreement, net of tax (484)
Total comprehensive income $78,221
Maturities of long-term debt, reflecting the impact of the debt refinancing further described in Note 18, for each
of the five years after August 31, 2006 are $5,227 in 2007, $6,924 in 2008, $6,936 in 2009, $6,937 in 2010, $6,914 in
2011, and $89,461 thereafter.
10. Other Noncurrent Liabilities
Other noncurrent liabilities consist of the following at August 31, 2006 and 2005:
2006 2005
Minority interest in consolidated drive-ins $ 4,566 $ 4,182
Deferred area development fees 2,385 2,331
Other 5,553 3,565
$ 12,504 $ 10,078
11. Income Taxes
The company’s income before the provision for income taxes is classified by source as domestic income.
The components of the provision for income taxes consist of the following for the years ended August 31:
2006 2005 2004
Current:
Federal $ 42,629 $ 37,572 $ 30,388
State 4,163 3,269 2,185
46,792 40,841 32,573
Deferred:
Federal (1,127) 284 2,242
State (321) 96 395
(1,448) 380 2,637
Provision for income taxes $ 45,344 $ 41,221 $ 35,210
Sonic Corp. 2006 Annual Report
46
Notes to Consolidated
Financial Statements
August 31, 2006, 2005 and 2004
(In thousands, except per share data)