Sonic 2010 Annual Report Download - page 25

Investing Cash Flows. Net cash used in investing activities was $9.4 million in fiscal year 2010 as compared to net cash provided
by investing activities of $49.2 million in fiscal year 2009. The $58.6 million decrease primarily relates to a decrease in proceeds from
the sale of assets of $70.7 million related to refranchising drive-ins in fiscal years 2009 and 2010, partially offset by a decrease of
$11.7 million in purchases of property and equipment. Five Company-owned Drive-Ins were constructed and opened during fiscal
year 2010. The following table sets forth the components of our investments in capital additions for fiscal year 2010 (in millions):
New Company-owned Drive-Ins, including drive-ins under construction $ 3.4
Retrofits, drive-thru additions and LED signs in existing drive-ins 1.6
Rebuilds, relocations and remodels of existing drive-ins 2.0
Acquisition of real estate for underlying Company-owned Drive-Ins 5.0
Replacement equipment for existing drive-ins and other 12.5
Total investing cash flows for capital additions $ 24.5
Financing Cash Flows. Net cash used in financing activities was $119.8 million in fiscal year 2010 as compared to $53.4 million
in fiscal year 2009. The increase in cash used for financing activities in fiscal year 2010 as compared to fiscal year 2009 primarily
relates to the repayment of long-term debt combined with a $12.5 million reduction in proceeds from borrowings in fiscal year 2010.
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, 2010, 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. At this time, the company does not consider the $12.3 million to be available. Subsequent to August 31, 2010, the
credit rating for the company’s variable and fixed rate notes was downgraded by Standard & Poor’s. As a result of the downgrade,
the company will be required to pay an additional 0.5% premium to the company that guarantees payment of the debt.
Despite recent challenges with Company-owned 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 2011. 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. If certain covenants or restrictions are not met, the notes are 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 $20 to $25 million in fiscal year 2011. These capital expenditures primarily relate
to the development of additional Company-owned Drive-Ins, retrofit of existing Company-owned Drive-Ins and other drive-in level
expenditures, as well as technology infrastructure expenditures. We expect to fund these capital expenditures through cash flow
from operations as well as cash on hand.
As ofAugust 31, 2010, our unrestricted cash balance of $86.0 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.
Management's Discussion and Analysis of Financial Condition and Results of Operations
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