Item 2. Management’s Discuss
ion and Analysis of Financial Condition and Results of Operations
In the Quarterly Report on Form 10-Q, unless the context otherwise requires, the terms “Sonic Corp.,” “the Company,” “we,” “us” and “our” refer to Sonic Corp. and its subsidiaries.
Overview
Sy
stem-wide same-store sales increased
6.
5
%
during the
second
quarter
and increased
5
.9
%
for the first six months
of fiscal year 201
6
as compared to an increase of
11
.5
%
and 9.8%, respectively,
for the same period
s
last year. Same-store sales at Company Drive-Ins
increased
6.3
%
during
the
second
quarter
an
d
5.3
%
for the first six months
of fiscal year 201
6
as compared to an increase of
11.2
%
and 9.5%, respectively,
for the same period
s
last year
.
Approximately one percentage point of the increase in sales for the second quarter and
approximately
one-half percentage
point of the increase for the first six months of fiscal year 201
6
are attributable to one additional day of operations in February 201
6
versus February 201
5
, due to leap year.
Our continued positive same-store sales are a result of the successful implementation of initiatives, including product
quality improvements
and innovation
, a greater emphasis on personalized service
, new technology
,
a tiered pricing strategy
and a media strategy that have set a solid foundation for growth
.
All of these initiatives drive Sonic’s multi-layered growth strategy
,
which incorporates same-store sales growth
, operating leverage, deployment
of cash, an ascending royalty rate and new drive-in development. Same-store sales growth is the most important layer and drives operating leverage and increased operating cash flows.
Revenues increa
sed to
$
133.2
million
for the
second
quarter
and
$
279.0
million for the first six months
of fiscal year 201
6
from $
126.2
million
and $266.1 million, respectively,
for the same period
s
last year. The increase
in revenues was
primarily
attributable to
same-store sales growth at Company and
Franchise Drive-In
s.
Restaurant margins at Company Drive-Ins improved by
60
basis points during the
second
quarter
and
100
basis points for the first six months
of fiscal year 201
6
,
reflecting
the leverage of positive same-store sales and
continued improvement in
commodity costs
.
Second
quarter results for fisc
al year 201
6
reflected net income of $
10.8
million or $0.
2
2
per diluted share as compared to net income of $
7.7
million or $0.
1
4
per diluted share for the same period last year.
Excluding the non-GAAP adjustments further described below, net income and diluted earnings per share for the second quarter of fiscal year 2016 increased
29
% and
38
%,
respectively.
Net income and diluted earnings per share for the first six months of fiscal year 2016 were
$
23.3
million and $0.
46
, respectively, as compared to net income to $17.7 million and $0.32 per diluted share for the same period last year.
Excluding the non-GAAP adjustments further described belo
w, net income and diluted earnings per share for the first half of fiscal year 2016 would have increased
26
% and
3
5
%
, respectively.
The following analysis of non-GAAP adjustments is intended to supplement the presentation of the Company’s financial results in accordance with GAAP. We believe the exclusion of these items in evaluating the change in net income and diluted earnings per share for the periods below provides useful information to investors and management regarding the underlying business trends and the performance of our ongoing operations and is helpful for period-to-period and company-to-company comparisons, which management believes will assist investors in analyzing the financial results for the Company and predicting future performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Three months ended
|
|
|
February 29, 2016
|
|
February 28, 2015
|
|
|
Net
|
|
Diluted
|
|
Net
|
|
Diluted
|
|
|
Income
|
|
EPS
|
|
Income
|
|
EPS
|
Reported – GAAP
|
|
$
|
10,819
|
|
$
|
0.22
|
|
$
|
7,662
|
|
$
|
0.14
|
After-tax gain on sale of real estate
|
|
|
(1,211)
|
|
|
(0.03)
|
|
|
-
|
|
|
-
|
Retroactive benefit of Work Opportunity Tax Credit and resolution of tax matters
|
|
|
(585)
|
|
|
(0.01)
|
|
|
(666)
|
|
|
(0.01)
|
Adjusted - Non-GAAP
|
|
$
|
9,023
|
|
$
|
0.18
|
|
$
|
6,996
|
|
$
|
0.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
Six months ended
|
|
|
February 29, 2016
|
|
February 28, 2015
|
|
|
Net
|
|
Diluted
|
|
Net
|
|
Diluted
|
|
|
Income
|
|
EPS
|
|
Income
|
|
EPS
|
Reported – GAAP
|
|
$
|
23,277
|
|
$
|
0.46
|
|
$
|
17,747
|
|
$
|
0.32
|
After-tax gain on sale of real estate
|
|
|
(1,211)
|
|
|
(0.03)
|
|
|
-
|
|
|
-
|
Retroactive benefit of Work Opportunity Tax Credit and resolution of tax matters
|
|
|
(585)
|
|
|
(0.01)
|
|
|
(666)
|
|
|
(0.01)
|
Adjusted - Non-GAAP
|
|
$
|
21,481
|
|
$
|
0.42
|
|
$
|
17,081
|
|
$
|
0.31
|
The following table provides information regarding the number of
Company
Drive-Ins and Franchise Drive-Ins operati
ng
as of the end of the periods indicated as well as the system-wide
change
in sales and average unit volume.
System-wide information includes both
Company Drive-In
and Franchise Drive-In information, which we believe is useful in analyzing the growth of the brand as well as the Company’s revenues
since franchisees pay royalties based on a percentage
of sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
System-wide Performance
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
February 29,
|
|
February 28,
|
|
February 29,
|
|
February 28,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Increase in total sales
|
|
|
7.8
|
%
|
|
|
12.8
|
%
|
|
|
6.7
|
%
|
|
|
10.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
System-wide drive-ins in operation
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at beginning of period
|
|
|
3,529
|
|
|
|
3,517
|
|
|
|
3,526
|
|
|
|
3,518
|
|
Opened
|
|
|
5
|
|
|
|
4
|
|
|
|
18
|
|
|
|
17
|
|
Closed (net of re-openings)
|
|
|
(6)
|
|
|
|
(13)
|
|
|
|
(16)
|
|
|
|
(27)
|
|
Total at end of period
|
|
|
3,528
|
|
|
|
3,508
|
|
|
|
3,528
|
|
|
|
3,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average sales per drive-in
|
|
$
|
280
|
|
|
$
|
264
|
|
|
$
|
585
|
|
|
$
|
554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in same-store sales
(2)
|
|
|
6.5
|
%
|
|
|
11.5
|
%
|
|
|
5.9
|
%
|
|
|
9.8
|
%
|
—————————
|
|
|
|
|
|
|
|
|
|
(1)
Drive-ins that are temporarily closed for various reasons (repairs, remodeling, relocations, etc.) are not considered closed unless the Company determines that they are unlikely to reopen within a reasonable time.
(2)
Represents percentage change for drive-ins open for a minimum of 15 months.
Results of Operations
Revenues
. The following table sets forth the components of revenue for the reported periods and the relative change between the comparable periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
Percent
|
|
|
February 29,
|
|
February 28,
|
|
Increase
|
|
Increase
|
|
|
2016
|
|
2015
|
|
(Decrease)
|
|
(Decrease)
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Drive-In sales
|
|
$
|
95,313
|
|
$
|
92,309
|
|
$
|
3,004
|
|
|
3.3
|
%
|
Franchise Drive-Ins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise royalties
|
|
|
35,807
|
|
|
32,236
|
|
|
3,571
|
|
|
11.1
|
|
Franchise fees
|
|
|
240
|
|
|
171
|
|
|
69
|
|
|
40.4
|
|
Lease revenue
|
|
|
1,399
|
|
|
979
|
|
|
420
|
|
|
42.9
|
|
Other
|
|
|
401
|
|
|
524
|
|
|
(123)
|
|
|
(23.5)
|
|
Total revenues
|
|
$
|
133,160
|
|
$
|
126,219
|
|
$
|
6,941
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
|
|
Percent
|
|
|
February 29,
|
|
February 28,
|
|
Increase
|
|
|
Increase
|
|
|
2016
|
|
|
2015
|
|
(Decrease)
|
|
|
(Decrease)
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Drive-In sales
|
|
$
|
199,196
|
|
$
|
192,447
|
|
$
|
6,749
|
|
|
3.5
|
%
|
Franchise Drive-Ins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise royalties
|
|
|
75,269
|
|
|
69,012
|
|
|
6,257
|
|
|
9.1
|
|
Franchise fees
|
|
|
700
|
|
|
1,659
|
|
|
(959)
|
|
|
(57.8)
|
|
Lease revenue
|
|
|
2,991
|
|
|
2,044
|
|
|
947
|
|
|
46.3
|
|
Other
|
|
|
807
|
|
|
913
|
|
|
(106)
|
|
|
(11.6)
|
|
Total revenues
|
|
$
|
278,963
|
|
$
|
266,075
|
|
$
|
12,888
|
|
|
4.8
|
%
|
The following table reflects the changes in sales and same-store sales at Company Drive-Ins. It also presents information about average unit volumes and the number of Company Drive-Ins, which is useful in analyzing
the growth of
Company Drive-In sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Drive-In Sales
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
February 29,
|
|
February 28,
|
|
February 29,
|
|
February 28,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Company Drive-In sales
|
|
$
|
95,313
|
|
|
$
|
92,309
|
|
|
$
|
199,196
|
|
|
$
|
192,447
|
|
Percentage increase
|
|
|
3.3
|
%
|
|
|
12.8
|
%
|
|
|
3.5
|
%
|
|
|
9.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Drive-Ins in operation
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at beginning of period
|
|
|
382
|
|
|
|
389
|
|
|
|
387
|
|
|
|
391
|
|
Opened
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Acquired from (sold to) franchisees
|
|
|
(7)
|
|
|
|
3
|
|
|
|
(9)
|
|
|
|
1
|
|
Closed (net of re-openings)
|
|
|
-
|
|
|
|
-
|
|
|
|
(3)
|
|
|
|
(1)
|
|
Total at end of period
|
|
|
375
|
|
|
|
392
|
|
|
|
375
|
|
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average sales per Company Drive-In
|
|
$
|
253
|
|
|
$
|
237
|
|
|
$
|
522
|
|
|
$
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in same-store sales
(2)
|
|
|
6.3
|
%
|
|
|
11.2
|
%
|
|
|
5.3
|
%
|
|
|
9.5
|
%
|
—————————
|
|
|
|
|
|
|
|
|
|
(1)
Drive-ins that are temporarily closed for various reasons (repairs, remodeling, relocations, etc.) are not considered closed unless the Company determines that they are unlikely to reopen within a reasonable time.
(2)
Represents percentage change for drive-ins open for a minimum of 15 months.
Same-store sales for Company Drive-Ins increased
6.3
% for the
second
quarter
and
5.3
% for the first six months
of fiscal year 201
6
,
as compared to an increase of
11.2
%
and 9.5%, respectively,
for the same period
s
last year, showing continued momentum from the Company’s successful implementation of initiatives to improve product quality, service and value perception. Furthermore, we continued to focus on our innovative product pipeline
, multi-day-part promotions
and increased media effectiveness while benefitting from the implementation of new technology initiatives. Company Drive-In sales increased $
3.
0
million during the
second
quarter
and $
6.7
million during the first six months
of fiscal
year 201
6
,
as compared to the same periods last year
. The increase in the second quarter and the first six months of fiscal year 2016 is
primarily
due to an increase in same-store sales of $
5.7
million
and $9.9 million, respectively
,
partially
offset by a
decrease related to stores sold to franchisees of
$2.
5
million
and $4.2 million, respectively.
The following table reflects the
change
in franchise sales, the number of Franchise Drive-Ins
, average unit volumes and franchising revenues
.
While we do not record Franchise Drive-In sales as revenues, we believe this information is important in understanding our financial performance since these sales are the basis on which we calculate and record franchise royalties.
This information is also indicative of the financial health of our franchisees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise Information
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
Six months ended
|
|
|
February 29,
|
|
February 28,
|
|
February 29,
|
|
February 28,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Franchise Drive-In sales
|
|
$
|
886,313
|
|
|
$
|
818,601
|
|
|
$
|
1,854,828
|
|
|
$
|
1,732,254
|
|
Percentage increase
|
|
|
8.3
|
%
|
|
|
12.9
|
%
|
|
|
7.1
|
%
|
|
|
11.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise Drive-Ins in operation
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at beginning of period
|
|
|
3,147
|
|
|
|
3,128
|
|
|
|
3,139
|
|
|
|
3,127
|
|
Opened
|
|
|
5
|
|
|
|
4
|
|
|
|
18
|
|
|
|
16
|
|
Acquired from (sold to) the company
|
|
|
7
|
|
|
|
(3)
|
|
|
|
9
|
|
|
|
(1)
|
|
Closed (net of re-openings)
|
|
|
(6)
|
|
|
|
(13)
|
|
|
|
(13)
|
|
|
|
(26)
|
|
Total at end of period
|
|
|
3,153
|
|
|
|
3,116
|
|
|
|
3,153
|
|
|
|
3,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average sales per Franchise Drive-In
|
|
$
|
283
|
|
|
$
|
267
|
|
|
$
|
593
|
|
|
$
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in same-store sales
(2)
|
|
|
6.5
|
%
|
|
|
11.5
|
%
|
|
|
5.9
|
%
|
|
|
9.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchising revenues
(3)
|
|
$
|
37,446
|
|
|
$
|
33,386
|
|
|
$
|
78,960
|
|
|
$
|
72,715
|
|
Percentage increase
|
|
|
12.2
|
%
|
|
|
22.3
|
%
|
|
|
8.6
|
%
|
|
|
22.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective royalty rate
(4)
|
|
|
4.04
|
%
|
|
|
3.94
|
%
|
|
|
4.06
|
%
|
|
|
3.98
|
%
|
—————————
|
|
|
|
|
|
|
|
|
|
(1) Drive-ins that are temporarily closed for various reasons (repairs, remodeling, relocations, etc.) are not considered closed unless the Company determines that they are unlikely to reopen within a reasonable time.
(2) Represents percentage change for drive-ins open for a minimum of 15 months.
(3) Consists of revenues derived from franchising activities, including royalties, franchise fees and lease revenues. See
Revenue Recognition Related to Franchise Fees and Royalties
in the
Critical Accounting Policies and Estimates
section of Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended August 31, 201
5
.
(4) Represents franchise royalties as a percentage of Franchise Drive-In sales.
Same-store sales for Franchise Drive-Ins
increased
6.5
% for
the
second
quarter
and
5.9
% for the first six months
of fiscal year 201
6
,
as compared to an increase of
11.5
%
and 9.8%, respectively,
for the same period
s
last
year. Franchising revenues increased $
4.1
million, or
12.2
%, for the
second
quarter
and increased $
6.2
million, or
8.6
%, for the first six months
of fiscal year 201
6
, compared to the same period
s
last year. The increase in franchise revenues was primarily attributable to increases in royalties
related to the growth of same-store sales
.
Operating Expenses
. T
he following table presents the overall costs of drive-in operations as a percentage of Company Drive-In sales. Other operating expenses include direct operating costs such as marketing, telephone and utilities, repair and maintenance, rent, property tax and other controllable expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Drive-In Margins
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
February 29,
|
|
February 28,
|
|
Percentage Points
|
|
|
2016
|
|
2015
|
|
Increase (Decrease)
|
Costs and expenses
:
|
|
|
|
|
|
|
|
|
Company Drive-Ins:
|
|
|
|
|
|
|
|
|
Food and packaging
|
|
27.5
|
%
|
|
28.0
|
%
|
|
(0.5)
|
Payroll and other employee benefits
|
|
37.1
|
|
|
36.7
|
|
|
0.4
|
Other operating expenses
|
|
21.1
|
|
|
21.6
|
|
|
(0.5)
|
Cost of Company Drive-In sales
|
|
85.7
|
%
|
|
86.3
|
%
|
|
(0.6)
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
|
February 29,
|
|
February 28,
|
|
Percentage Points
|
|
|
2016
|
|
2015
|
|
Increase (Decrease)
|
Costs and expenses
:
|
|
|
|
|
|
|
|
|
Company Drive-Ins:
|
|
|
|
|
|
|
|
|
Food and packaging
|
|
27.7
|
%
|
|
28.3
|
%
|
|
(0.6)
|
Payroll and other employee benefits
|
|
36.0
|
|
|
35.9
|
|
|
0.1
|
Other operating expenses
|
|
21.6
|
|
|
22.1
|
|
|
(0.5)
|
Cost of Company Drive-In sales
|
|
85.3
|
%
|
|
86.3
|
%
|
|
(1.0)
|
Dr
ive-in level margins improved by
60
basis points during the
second
quarter
and
100
basis points in the first six months
of fiscal year 201
6
. The margin improvement for the quarter is attributable to
the leverage of positive same-store sales and continued
commodity cost improvement
.
Food and packaging costs were favorable by
50
basis points during the
second
quarter
and
60
basis points during the first half
of fiscal year 201
6
. C
ontinued commodity cost improvement
resulted in the favorable impact to food and packaging costs for the first
six
months of fiscal year 201
6
. Payroll and other employee benefits were
un
favorable by
40
basis points for the
second
quarter
and
10
basis points for the first six months
of fiscal year 201
6
reflecting
initiatives intended to attract and retain employees at the drive-in level
. Other operating expenses improved
50
basis points during the
second
quarter
and the first half
of fiscal year 201
6
mainly as a result of leveraging improved sales.
Other operating expenses are expected to rise over the second half of the fiscal year as Company Drive-Ins
will pay
a
n ongoing
technology
fe
e
effective March 1, 2016
,
as
a result of
the newly established
Brand Technology Fund.
The fee will be
a set fee of
0.
25
%
of calendar year 2015
sales
.
The impact to other operating expens
es for fiscal year 2016 is
expected to be an increase of approximately
13
basis points.
For more information, see note 7-Subsequent Events
, included in Part I, Item 1, “Financial Statements”
in this Quarterly Report on Form 10-Q.
Selling
, General and Administrative (“SG&
A
”)
.
SG&
A expenses increased $
2.6
million, or
14.6
%, to $
20.8
million for the
second
quarter
and $
4.8
million, or
13.0
%, to $
41.7
million for the first six months
of fiscal year 201
6
,
as compared to the same period last year. This increase
is primarily
related to the costs of additional headcount in support of the Company’s technology initiatives and higher variable compensation due to strong operating performance.
Depreciation and Amortization
.
Depreciation and
amortization
decreased
$0.
5
million, or
4.2
%, to $11.
1
million for the
second
quarter
and $
1.1
million, or
4.9
%, to $
22.1
million for the first six months
of fiscal year 201
6
,
as compare
d
to the same period last year. This
decrease
is primarily attributable to
asset
s that fully depreciated
in the prior fiscal year
.
Net Interest Expense
.
Net interest
expense was flat in
the
second
quarter
and first half
of fiscal year 201
6
. For additional information on long-term debt, see our Annual Report on Form 10-K for the year ended August
31,
201
5
.
Income Taxes
.
The
provision for income taxes reflects an effective tax rate of 31.7% for the second quarter of fiscal 2016 as compared to 28.9% for the same period in
fiscal year
2015.
The effective tax rate for both quarters reflects the retroactive extension of certain tax credits, primarily
the
Work Opportunity Tax Credit (“WOTC”).
The tax credit amounts are fixed amounts and as a result impact the effective tax rate for the quarters. The tax credit amounts in the second quarter of fiscal year 2016 were less than the same period
in the
prior year
,
resulting in a higher effective tax rate for the second quarter of fiscal 2016 compared to the same period for fiscal
year
2015.
Excluding the retroactive portion of WOTC attributable to the prior fiscal year, the effective tax rates would have been 35.4% for the second quarter of fiscal
year
2016 and 35.
1
% for the second quarter of fiscal
year
2015.
The provision for income taxes reflects an effective tax rate of 34.9% for the first six months of fiscal
year
2016 compared to 34.6% for the same period in
fiscal year
2015. Our tax rate may continue to vary from quarter to quarter depending on the timing of stock option dispositions by option-holders and as circumstances on other tax matters change
.
Financial Position
Total assets
decreased $13.3
million, or 2.1%, to $606.7
million during the first six months of fiscal year 2016 from $620
.0
million
at the end of fiscal year 2015
.
The decrease in total assets was primarily attributable to a
decrease in net property, equipment and capital leases of $
10.2
million, driven by depreciation
as well as
asset retirements
and sales
, partially offset by purchases of property and equipment
.
Additionally, there was a $
3.2
million decrease in prepaid expenses and other current assets primarily related to the adoption of Accounting Standards Update No. 2015-17, “Balance Sheet Classification of Deferred Taxes
.
”
This update require
d
the current deferred tax asset be classified as noncurrent and netted with noncurrent deferred tax liabilities.
There was also a $3.2 million decrease in royalty receivables due to the seasonality of the business.
Th
e decreases were
offset by an increase in cash and restricted cash of $4.2 million.
Total liabilities
increased $37.4 million, or 6.2%, to $640
.0
million during the first six months of fiscal year 2016 from $602.6
million at the end of fiscal
year 2015.
The increase was primarily attributable
to $
61
.5
million
net
borrowing on the Company’s Series 2011-1 Senior Secured Variable Funding Notes, Class A-1 (the "2011 Variable
Funding Notes")
offset by $
4
.
9
million in scheduled principal payments
on the
Company’s Series 2011-1 Senior Secured Fixed Rate Notes, Class A-2
.
T
his was
partially
offset by a decrease of $
10.7
million
in
accrued liabilities, primarily driven by payment of bonuses and other liabilities
that were accrued as of August 31, 2015
,
as well as
a decrease in income taxes payable of
$8.9 million
mainly from tax payments during the first six months of fiscal year 2016.
Total stockholders’ equity
(deficit)
decreased $50.
6
million, or 290.6%, to
a deficit of
$33.2
million during fiscal year 2016 from
equity of
$17.4
million at the end of fiscal year 2015.
This decrease was primarily attributable to $
71
.
7
million in purchases of common stock during the first
six
months of the fiscal year
and the payment of $
10.9
million in dividends,
partially offset by current-year earnings of $
23.3
million
and $
6.4
million
from the issuance of stock
related to
stock option exercises
and the related tax benefits
.
Liquidity and Sources of Capital
Operating Cash Flows
. Net cash provided by operating activities
decreased
$
18.0
million to $
38.8
million for the first
six
months of fiscal year 201
6
as compared to $
56.8
million for
the same period in fiscal year 201
5
.
The decrease was driven by changes in working capital during the first
six
months of fiscal
year
2016 related to the pay-out of increased incentive compensation due to improved business performance when compared to prior year, as well as
the
timing of
payments and receipts for both
operational and tax
transactions
.
The decrease was partially of
fset by
increase
d
net income.
Investing
Cash Flows
.
Net cash used in investing activities during the first
six
months of fiscal year 201
6
de
creased
$
1
2.
8
million to $
5
.
1
million
compared to $
17.9
million for the same period in fiscal year 201
5
.
The table below outlines our use of cash
in millions
for investments in property and equipment for the first
six
months of fiscal year 201
6
:
|
|
|
Purchase and replacement of equipment and technology
|
$
|
6.2
|
Brand technology investments
|
|
5.6
|
Rebuilds, relocations and remodels of existing drive-ins
|
|
3.8
|
Newly constructed drive-ins leased or sold to franchisees
|
|
2.1
|
Newly constructed Company Drive-Ins
|
|
0.1
|
Total investments in property and equipment
|
$
|
17.8
|
These
investments
decreased $
5.5
million compared to the same period last year mainly due to
decreased
spending
for
technology initiatives
and
from
acquisition
s
of
drive-in
real estate of
$
3.8
million
that occurred in the
second quarter of fiscal year 2015
.
Additionally, proceeds from the sale of assets increased
$
7.
2
million, primarily related to stores sold to franchisees during the first six months of fiscal year 2016
.
Financing Cash Flows
. Net cash used in financing activities
de
creased $
22
.
6
million to $
24.
7
million f
or the first
six
months of fiscal year 201
6
as compared to $
47.3
million for the same period in fiscal year 201
5
. This
de
crease primarily relates
to
a decrease in
stock option exercise proceeds of $10.6 million and a decrease in purchases of treasury stock of $21.3 million.
This is partially offset by a
n
increase
of $13.0 million in net
proceeds
related to changes in funding from the 2011 Variable Funding Notes
.
In August 201
5
, our Board of Directors extended the Company’s share repurchase program, authorizing the purchase of up to $1
4
5
.0
million of our outstanding shares of common stock
through August
31,
201
6
. Share repurchases may be made from time to time in the open market or otherwise. The share repurchase program may be extended, modified,
suspended or discontinued at any time.
D
uring the first
six
months of fiscal year 201
6
, approximately
2
.
7
million shares were repurchased for a total cost of $
71.7
million
.
As of
February 29, 2016
, our total cash balance of $
51.1
million ($
36.
1
million of unrestricted and $
15.0
million of restricted cash balances)
reflected the impact of the cash generated from operating activities, stock option exercise proceeds, 2011 Variable Funding Notes borrowing proceeds, cash used for share repurchases,
dividends,
debt payments and capital expenditures mentioned above.
We believe that existing cash, funds generated from operations and the amount available under our 2011 Variable Funding Notes will meet our needs for the foreseeable future.
Critical Accounting Policies and Estimates
Critical accounting policies are those the Company believes are most important to portraying its financial conditions and results of operations and also require the greatest amount of subjective or complex judgments by management.
Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions.
T
here have been no material changes to the critical accounting policies previously disclosed in the Company’s
Annual Report on
Form
1
0-K for the fiscal year ended
August 31, 2015
.