Sonic 2009 Annual Report Download - page 23

Despite recent challenges with Partner Drive-In operations, operating cash flows remain healthy, and we believe that cash flows
from operations, along with existing cash balances, will be adequate for mandatory repayment of any long-term debt and funding of
planned capital expenditures in fiscal year 2010. See Note 10 of the Notes to Consolidated Financial Statements for additional information
regarding our long-term debt.
Our variable and fixed rate notes are subject to a series of covenants and restrictions customary for transactions of this type,
including (i) required actions to better secure collateral upon the occurrence of certain performance-related events, (ii) application of
certain disposition proceeds as note prepayments after a set time is allowed for reinvestment, (iii) maintenance of specified reserve
accounts, (iv) maintenance of certain debt service coverage ratios, (v) optional and mandatory prepayments upon change in control, (vi)
indemnification payments for defective or ineffective collateral, and (vii) covenants relating to recordkeeping, access to information and
similar matters. The notes are also subject to customary rapid amortization events and events of default. Although management does
not anticipate an event of default or any other event of noncompliance with the provisions of the debt, if such an event occurred, the
unpaid amounts outstanding could become immediately due and payable. See Note 1 – Restricted Cash of the Notes to Consolidated
Financial Statements for additional information regarding restrictions on cash.
We plan capital expenditures of approximately $30 to $40 million in fiscal year 2010.These capital expenditures primarily relate to
the development of additional Partner Drive-Ins, retrofit of existing Partner Drive-Ins and other drive-in level expenditures. We expect to
fund these capital expenditures through cash flow from operations as well as cash on hand.
As of August 31, 2009, our unrestricted cash balance of $137.6 million reflected the impact of the cash generated from operating
activities, borrowing activity, refranchising, and capital expenditures mentioned above. We believe that existing cash and funds generated
from operations, as well as borrowings under the 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 and lease agreements. See Note 17 of the Notes to
Consolidated Financial Statements for additional information about these guarantees. Other than such guarantees and various operating
leases, which are disclosed more fully in “Contractual Obligations and Commitments” below and Note 7 to our Consolidated Financial
Statements, the company has no other material off-balance sheet arrangements.
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, 2009 are summarized in the following table:
Payments Due by Period
Less than 1 – 3 3 – 5 More than
(In thousands) Total 1 Year Years Years 5 Years
Contractual Obligations
Long-term debt
(1)
$ 777,269 $ 80,789 $ 204,162 $ 492,235 $ 83
Capital leases 55,375 5,861 11,174 10,849 27,491
Operating leases 189,335 11,909 23,198 22,206 132,022
Total $ 1,021,979 $ 98,559 $ 238,534 $ 525,290 $ 159,596
(1)
The fixed-rate interest payments included in the table above assume that the related notes will be outstanding for the expected
six-year term, and all other fixed-rate notes will be held to maturity. Interest payments associated with variable-rate debt have not
been included in the table. Assuming the amounts outstanding under the variable-rate notes as of August 31, 2009 are held to
maturity, and utilizing interest rates in effect at August 31, 2009, the interest payments will be approximately $3 million on an
annual basis through December 2013.
Impact of Inflation
We have experienced impact from inflation. Inflation has caused increased food, labor and benefits costs and has increased our
operating expenses.To the extent permitted by competition, increased costs are recovered through a combination of menu price increases
and reviewing, then implementing, alternative products or processes, or by implementing other cost reduction procedures.
Management's Discussion and Analysis of Financial Condition and Results of Operations
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