Sonic 2014 Annual Report Download - page 47

15. Commitments and Contingencies
Litigation
The Company is involved in various legal proceedings and has certain unresolved claims pending. Based on the information
currently available, management believes that all claims currently pending are either covered by insurance or would not have a
material adverse effect on the Company’s business, operating results or financial condition.
Note Repurchase Agreement
On December 20, 2013, the Company extended a note purchase agreement to a bank that serves to guarantee the repayment
of a franchisee loan, with a term through 2018, and also benefits the franchisee with a lower financing rate. In the event of default
by the franchisee, the Company would purchase the franchisee loan from the bank, thereby becoming the note holder and providing
an avenue of recourse with the franchisee. The Company recorded a liability for this guarantee which was based on the Company’s
estimate of fair value. As of August 31, 2014, the balance of the franchisee’s loan was $6.2 million.
Lease Commitments
The Company has obligations under various operating lease agreements with third-party lessors related to the real estate
for certain Company Drive-In operations that were sold to franchisees. Under these agreements, which expire through 2029, the
Company remains secondarily liable for the lease payments for which it was responsible as the original lessee. As of August 31,
2014, the amount remaining under these guaranteed lease obligations totaled $9.3 million. At this time, the Company does not
anticipate any material defaults under the foregoing leases; therefore, no liability has been provided.
Purchase Obligations
At August 31, 2014, the Company had purchase obligations of approximately $308 million which primarily related to its
estimated share of system-wide commitments for food products. The Company has excluded agreements that are cancelable
without penalty.
16. Selected Quarterly Financial Data (Unaudited)
First Quarter Second Quarter Third Quarter Fourth Quarter
2014 2013 2014 2013 2014 2013 2014 2013
Total revenues $ 126,652 $ 126,008 $ 109,741 $ 111,141 $ 152,187 $ 146,634 $ 163,769 $ 158,802
Income from operations 18,359 17,203 12,349 12,018 31,681 29,994 36,288 30,033
Net income(1)(2) $ 8,208 $ 6,133 $ 4,107 $ 3,577 $ 16,776 $ 14,793 $ 18,825 $ 12,198
Basic income per share(3) $ 0.15 $ 0.11 $ 0.07 $ 0.06 $ 0.31 $ 0.26 $ 0.35 $ 0.22
Diluted income per share(3) $ 0.14 $ 0.11 $ 0.07 $ 0.06 $ 0.30 $ 0.26 $ 0.34 $ 0.21
(1) Includes a $0.5 million tax benefit resulting from the IRS’ acceptance of a federal tax method change during the first quarter
of fiscal year 2014.
(2) Includes losses on early extinguishment of debt of $0.5 million and $3.9 million in the second and fourth quarter of fiscal
year 2013, respectively, a tax benefit of $0.7 million from the retroactive reinstatement of the Work Opportunity Tax Credit
(“WOTC”) and resolution of income tax matters in the second quarter of fiscal year 2013. Also includes a $2.4 million loss
on the closure of 12 lower-performing Company Drive-Ins as a result of an assessment in advance of capital expenditures
for pending technology initiatives and an impairment charge of $1.6 million related to the write-off of assets associated with
a change in the vendor for the Sonic system’s new point-of-sale technology in the fourth quarter of fiscal year 2013.
(3) The sum of per share data may not agree to annual amounts due to rounding.
Notes to Consolidated Financial Statements
August 31, 2014, 2013 and 2012 (In thousands, except per share data)
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