Sonic 2015 Annual Report Download - page 21

Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Other Operating Income and Expense, Net. Fiscal year 2015 reflected $0.9 million in other operating income compared
to other operating income of $0.2 million for fiscal year 2014 and other operating net expense of $1.9 million for fiscal year
2013. The $2.1 million change for fiscal year 2014 was primarily the result of the loss recorded on the closure of 12 lower-
performing Company Drive Ins at the end of fiscal year 2013.
Net Interest Expense. Net interest expense decreased $0.2 million in fiscal year 2015 and $3.6 million in fiscal year 2014.
The decrease in fiscal year 2014 was primarily related to a decline in our weighted-average interest rate attributable to our
partial debt refinancing completed in the fourth quarter of fiscal year 2013 and a decline in our long-term debt balance. See
“Liquidity and Sources of Capital” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” below for
additional information on factors that could impact interest expense.
Income Taxes. The provision for income taxes reflects an effective tax rate of 29.7% for fiscal year 2015 compared
with 35.0% for fiscal year 2014. The lower effective income tax rate for fiscal year 2015 was primarily attributable to the
recognition of prior years’ federal tax deductions, a decrease in the valuation allowance for the deferred tax asset related to
state net operating losses and legislation that reinstated and extended the Work Opportunity Tax Credit (“WOTC”). The tax
rate for fiscal year 2014 increased slightly from the fiscal year 2013 rate of 34.8%, primarily due to legislation that reinstated
and extended the WOTC in fiscal year 2013 but expired in fiscal year 2014. Our fiscal year 2016 tax rate may vary depending
upon the reinstatement of the WOTC, which expired on December 31, 2014, and pending resolution of certain tax matters.
Further, our tax rate may continue to vary significantly from quarter to quarter depending on the timing of stock option
exercises and dispositions by option holders and as circumstances on other tax matters change.
Financial Position
Total assets decreased $31.0 million, or 4.8%, to $620.0 million during fiscal year 2015 from $651.0 million at the end
of fiscal year 2014. The decrease during the year was primarily attributable to a decline in cash and restricted cash of
$8.5 million. Additionally, there was a decrease in net property, equipment and capital leases of $20.6 million, driven by
depreciation and asset retirements, partially offset by purchases of property and equipment.
Total liabilities increased $14.3 million, or 2.4%, to $602.6 million during fiscal year 2015 from $588.3 million at the
end of fiscal year 2014. The increase was primarily attributable to an increase of $9.3 million in deferred tax liability that
relates to retroactive reinstatement of bonus depreciation. Additionally, the increase relates to the $10.5 million balance from
borrowing on the Company’s Series 2011-1 Senior Secured Variable Funding Notes, Class A-1 (the “2011 Variable Funding
Notes”) partially offset by $9.8 million of scheduled debt principal payments that were made in fiscal year 2015.
Total stockholders’ equity decreased $45.2 million, or 72.2%, to $17.4 million during fiscal year 2015 from $62.7 million
at the end of fiscal year 2014. This decrease was primarily attributable to $123.8 million in purchases of common stock under
our stock repurchase program and was partially offset by current-year earnings of $64.5 million and $18.7 million from the
issuance of stock related to stock option exercises during fiscal year 2015.
Liquidity and Sources of Capital
Operating Cash Flows. Net cash provided by operating activities increased $32.9 million to $136.4 million for fiscal year
2015 as compared to $103.5 million in fiscal year 2014. This increase resulted from changes in working capital along with a
$16.6 million increase in net income.
Investing Cash Flows. Cash used in investing activities decreased $45.2 million to $25.3 million for fiscal year 2015
compared to $70.5 million for fiscal year 2014. During fiscal year 2015, we used $42.2 million of cash for investments in
property and equipment as outlined in the table below (in millions).
Purchase and replacement of equipment and technology $ 12.2
Brand technology investments 11.2
Acquisition of underlying real estate for drive-ins 6.6
Newly constructed drive-ins leased or sold to franchisees 5.5
Rebuilds, relocations, remodels and retrofits of existing drive-ins 3.8
Newly constructed Company drive-ins 2.9
Total investments in property and equipment $ 42.2
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