Sonic 2011 Annual Report Download - page 25

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Management's Discussion and Analysis of Financial Condition and Results of Operations
the $1.8 million tax benefit recognized in 2010 discussed earlier. 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.
Net Income - Noncontrolling Interests. As a result of the change to a new compensation program for Company Drive-
Ins, compensation costs that were formerly reflected as noncontrolling interests relating to store-level managers are now
included in payroll and other employee benefits. Primarily due to this change, net income - noncontrolling interests
decreased 79.6% to $0.9 million in fiscal year 2011 and decreased 69.8% to $4.6 million for fiscal year 2010.
Financial Position
Total assets decreased $57.6 million, or 7.8%, to $679.7 million during fiscal year 2011 from $737.3 million at the end
of fiscal year 2010. This decrease was primarily attributable to a $56.2 million decrease in current restricted and unrestricted
cash resulting from scheduled principal payments on our debt in addition to the repurchase of a portion of our 2006 Variable
Funding Notes in December 2010. Additionally, net property, equipment and capital leases decreased by $24.4 million
resulting primarily from depreciation during the year. These decreases were offset by a $12.8 million increase in our income
tax receivable and a $9.6 million net increase in debt origination costs related to our May 2011 refinancing. The income
tax receivable at August 31, 2011 consists of $10.1 million for prior-year deductions to be claimed on amended returns and
$2.7 million of current-year overpayments.
Total liabilities decreased $86.8 million, or 12.2%, to $627.9 million during fiscal year 2011 from $714.8 million at
the end of fiscal year 2010. This decrease was primarily the result of the repurchase of our 2006 Variable Funding Notes
discussed above and scheduled principal repayments of $45.4 million during fiscal year 2011.
Total stockholders’ equity increased $29.3 million, or 129.7%, to $51.8 million during fiscal year 2011 from $22.6
million at the end of fiscal year 2010. The increase was largely attributable to current year earnings of $19.2 million and
a $5.6 million increase in paid-in capital relating to stock-based compensation.
Liquidity and Sources of Capital
Operating Cash Flows. Net cash provided by operating activities increased $6.5 million to $84.1 million for fiscal year
2011 as compared to $77.6 million in fiscal year 2010. This increase primarily relates to an improvement in same-store
sales and a reduction in income tax payments during fiscal year 2011 as compared to the same period in the prior year.
These increases were partially offset by changes in restricted cash.
Investing Cash Flows. Cash used in investing activities increased $6.7 million to $16.1 million for fiscal year 2011 as
compared to $9.4 million in fiscal year 2010. The increase in cash used in investing activities during fiscal year 2011
primarily relates to a $8.9 million decrease of proceeds from the disposition of assets that were sold in fiscal year 2009
and became unrestricted in the first quarter of fiscal year 2010, partially offset by a $3.3 million decrease in purchases
of property and equipment. The following table sets forth the components of our investments in capital additions for fiscal
year 2011 (in millions):
Replacement equipment and technology for existing drive-ins and other $ 7.9
Corporate technology investments 6.0
Rebuilds, relocations and remodels of existing drive-ins 3.5
New Company Drive-Ins, including drive-ins under construction 3.1
Retrofits, drive-thru additions and LED signs in existing drive-ins 0.7
Total investing cash flows for capital additions $ 21.2
Financing Cash Flows. Net cash used in financing activities increased $4.8 million to $124.6 million for fiscal year 2011
as compared to $119.8 million in fiscal year 2010. During the third quarter of fiscal year 2011 we refinanced our previously
outstanding debt as described below, which was the primary reason for the increase. The overall increase in cash used in
financing activities was partially offset by a decrease in restricted cash related to our new debt obligations and purchases
of noncontrolling interests as our new compensation program was completed April 1, 2010.
On May 20, 2011, various subsidiaries of ours (the “Co-Issuers”) issued $500 million of Series 2011-1 Senior Secured
Fixed Rate Notes, Class A-2 (the “2011 Fixed Rate Notes”) in a private transaction which bears interest at 5.4% per annum.
The 2011 Fixed Rate Notes have an expected life of seven years with an anticipated repayment date in May 2018 based on
the terms of the debt agreement. At August 31, 2011, the balance outstanding under the 2011 Fixed Rate Notes including
accrued interest totaled $497.0 million and carried a weighted-average interest cost of 5.8%, including the effect of the loan
origination costs described below.