Sonic 2009 Annual Report Download - page 22

Management's Discussion and Analysis of Financial Condition and Results of Operations
Interest Expense and Other Expense, Net. Net interest expense decreased $12.3 million to $35.7 million in fiscal year 2009 and
increased $3.5 million to $47.9 million in fiscal year 2008. The primary cause for the decrease in fiscal year 2009 is the $6.4 million gain
from the early extinguishment of debt that resulted from purchasing $25.0 million of the company’s fixed rate notes at a discount.
Excluding the gain, the $5.9 million decrease in net interest expense relates to the reduction in debt due to scheduled amortization
payments on our fixed rate notes and a declining rate on our variable rate notes. The increase in fiscal year 2008 is the result of interest
on increased borrowings primarily used to fund share repurchases earlier in the year and drive-in acquisitions from franchisees.
Income Taxes. The provision for income taxes decreased for fiscal year 2009 with an effective federal and state tax rate of 38.4%
compared with 37.4% in fiscal year 2008 and 36.4% in fiscal year 2007.The higher rate in fiscal year 2009 related to an increase in the
valuation allowance of state net operating losses offset by a reduction in the liability for unrecognized tax benefits. Our tax rate may
continue to vary significantly from quarter to quarter depending on the timing of option exercises and dispositions by option-holders,
changes to uncertain tax positions and as circumstances on individual tax matters change.
Financial Position
During fiscal year 2009, current assets increased 103.3% to $202.1 million compared to $99.4 million as of the end of fiscal year
2008. Cash balances increased by $93.3 million primarily as a result of refranchising Partner Drive-Ins and advances under the company’s
variable funding notes. During fiscal year 2009, noncurrent assets decreased 12.2% to $646.9 million compared to $736.9 million as of
the end of fiscal year 2008. The decrease was primarily the result of a $62.3 million reduction of net property and equipment and a
decrease of $29.5 million in goodwill, resulting from depreciation and the refranchising of Partner Drive-Ins.
Total liabilities decreased $47.1 million or 5.2% during fiscal year 2009 compared to fiscal year 2008 primarily due to a $59.9
million decrease in long-term debt which resulted from payments on the company’s fixed rate notes.
Stockholders’ deficit decreased $59.8 million or 93.3% during fiscal year 2009. Earnings of $49.4 million, along with $10.4 million
for the combination of stock compensation and the proceeds and related tax decrement from the exercise of stock options, decreased
the stockholders’ deficit.
Liquidity and Sources of Capital
Operating Cash Flows. Net cash provided by operating was $88.7 million in fiscal year 2009 as compared to $127.1 million in fiscal
year 2008. This decrease generally resulted from a decrease in operating results as reflected by the decrease in net income.
Investing Cash Flows. Net cash provided by investing activities was $51.5 million in fiscal year 2009 as compared to net cash used
in investing activities of $107.1 million in fiscal year 2008. The purchase of property and equipment was more than offset by the proceeds
from the disposition of Partner Drive-In assets due to refranchising. During fiscal year 2009, we opened 11 newly constructed Partner
Drive-Ins and sold 205 drive-ins to franchisees. We also purchased the real estate for nine of the 11 newly constructed drive-ins.
The following table sets forth the components of our investments in capital additions for fiscal year 2009 (in millions):
New Partner Drive-Ins, including drive-ins under construction $ 18.6
Retrofits, drive-thru additions and LED signs in existing drive-ins 5.5
Rebuilds, relocations and remodels of existing drive-ins 4.5
Replacement equipment for existing drive-ins and other 7.5
Total investing cash flows for capital additions $ 36.1
Financing Cash Flows. Net cash used in financing activities was $46.9 million in fiscal year 2009 as compared to $1.2 million in
fiscal year 2008. The increase in cash used for financing activities in fiscal year 2009 primarily relates to the net repayment of long-term
debt compared to net borrowings in fiscal year 2008. The company has a securitized financing facility of Variable Funding Notes that
provides for the issuance of up to $200.0 million in borrowings and certain other credit instruments, including letters of credit. As of
August 31, 2009, our outstanding balance under the Variable Funding Notes totaled $187.3 million at an effective borrowing rate of 1.4%,
as well as $0.3 million in outstanding letters of credit. During fiscal year 2009, upon request of the company to draw down the remaining
$12.3 million in Variable Funding Notes from one of the lenders, the lender, which had previously filed for Chapter 11 bankruptcy, notified
the company that it could not meet its obligation. The company no longer considers the $12.3 million to be available.
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