Sonic 2014 Annual Report Download - page 22

Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Sources of Capital
Operating Cash Flows. Net cash provided by operating activities increased $15.7 million to $103.5 million for fiscal year 2014
as compared to $87.8 million in fiscal year 2013. This increase primarily resulted from the receipt of federal income tax refunds of
$9.2 million and lower income tax payments for fiscal year 2014 as compared to fiscal year 2013, mainly attributable to the timing
of estimated payments along with an $11.2 million increase in net income. These increases were partially offset by a $4.4 million
decrease due to the fiscal year 2013 loss from the early extinguishment of debt.
Investing Cash Flows. Cash used in investing activities increased $69.3 million to $70.5 million for fiscal year 2014 compared to
$1.2 million for fiscal year 2013. During fiscal year 2014, we used $79.0 million of cash for investments in property and equipment
as outlined in the table below.
The following table sets forth the components of our investments in property and equipment for fiscal year 2014 (in millions):
Replacement equipment and technology for existing drive-ins $ 59.8
Rebuilds, relocations, remodels and retrofits of existing drive-ins 5.1
Brand technology investments 5.1
Newly constructed Company Drive-Ins 4.5
Newly constructed drive-ins leased to franchisees 3.2
Acquisition of underlying real estate for drive-ins 1.3
Total purchases of property and equipment $ 79.0
These purchases increased $37.7 million compared to the same period last year, mostly related to our increased investments in
technology. Additionally, proceeds from the sale of assets declined $31.3 million primarily related to proceeds from a franchisee’s
purchase, during the second quarter of fiscal year 2013, of land and buildings previously leased or subleased from the Company.
Financing Cash Flows. Net cash used in financing activities increased $13.8 million to $75.2 million for fiscal year 2014 as
compared to $61.4 million in fiscal year 2013. This increase primarily relates to a $43.2 million increase in purchases of treasury
stock, partially offset by a $24.5 million decrease in debt payments and a $5.0 million decrease in debt issuance and extinguishment
costs during fiscal year 2014.
In the second quarter of fiscal year 2013, we made a debt prepayment, at par, of $20.0 million on our Series 2011-1 Senior
Secured Fixed Rate Notes, Class A-2 (“2011 Fixed Rate Notes”). In the fourth quarter of fiscal year 2013, in a private transaction
we refinanced $155 million of the 2011 Fixed Rate Notes with the issuance of $155 million of Series 2013-1 Senior Secured Fixed
Rate Notes, Class A-2 (the “2013 Fixed Rate Notes”), which bear interest at 3.75% per annum. The 2013 Fixed Rate Notes have
an expected life of seven years, interest payable monthly, with no scheduled principal amortization. As a result, mandatory debt
payments have decreased from $15.0 million to $9.8 million per year. Additionally, in the fourth quarter of fiscal year 2013, we
extended the renewal date of our Series 2011-1 Senior Secured Variable Funding Notes, Class A-1 (“2011 Variable Funding Notes”)
by two years to May 2018 and decreased the base spread from 3.75% to 3.50%.
At August 31, 2014, the balance outstanding under the 2011 Fixed Rate Notes and the 2013 Fixed Rate Notes, including accrued
interest, totaled $282.6 million and $155.2 million, respectively, and there was no outstanding balance under our 2011 Variable
Funding Notes. The weighted-average interest cost of the 2011 Fixed Rate Notes and 2013 Fixed Rate Notes was 5.7% and was
4.1%, respectively. The weighted-average interest cost includes the effect of the loan origination costs.
In fiscal year 2013, the debt prepayment and the partial debt refinancing resulted in a pro-rata write-off of loan origination
costs from the 2011 Fixed Rate Notes, representing a majority of the $4.4 million loss which is reflected in “Net loss from early
extinguishment of debt” on the Consolidated Statements of Income. An additional $4.1 million in debt origination costs were
capitalized in conjunction with the 2013 Fixed Rate Notes. Loan costs are being amortized over each note’s expected life. The
amount of loan costs expected to be amortized over the next 12 months is reflected in “Other current assets” on the Consolidated
Balance Sheets. For additional information on our 2011 Notes and 2013 Fixed Rate Notes, see note 10 – Debt, included in the Notes
to Consolidated Financial Statements in this Annual Report.
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