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Long-Term Debt | 6 Months Ended
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Jun. 30, 2012
Long-Term Debt [Abstract] |
Long-term debt | 6. Long-Term Debt Long-term debt consists of the following:
(In thousands) |  | June 30, 2012 |  |  | December 31, 2011 |
2011 Revolving Credit Facility (1) |  | $ | — |  |  | $ | — |
9.0% Senior Subordinated Notes due 2018 (the “9.0% Notes”) |  |  | 210,000 |  |  |  | 210,000 |
5.0% Convertible Senior Notes due 2029, redeemable in 2014 (the “5.0% Convertible Notes”) (2) |  |  | 134,905 |  |  |  | 155,055 |
Notes payable to a finance company bearing interest from 9.52% to 10.52% (with a weighted average of 10.19%) |  |  | 11,932 |  |  |  | 13,223 |
Mortgage notes to finance companies-fixed rate, bearing interest from 4.29% to 7.03% |  |  | 125,228 |  |  |  | 116,584 |
Mortgage notes to finance companies-variable rate, bearing interest at 1.25 to 3.50 percentage points above one-month LIBOR |  |  | 63,930 |  |  |  | 65,640 |
Net debt discount and premium (3) |  |  | (14,015 | ) |  |  | (18,635 | )
Other |  |  | 5,590 |  |  |  | 5,752 |
Total debt |  | $ | 537,570 |  |  | $ | 547,619 |
Less current maturities |  |  | (12,175 | ) |  |  | (11,608 | )
Long-term debt |  | $ | 525,395 |  |  | $ | 536,011 |
(1) | The interest rate on the revolving credit facility was 2.0% above LIBOR at June 30, 2012 and 2.25% above LIBOR at December 31, 2011.
(2) | See the heading “5.0% Senior Convertible Notes” below for discussion of the terms under which these notes may be redeemed in 2014.
(3) | June 30, 2012 includes $1.2 million discount associated with the 9.0% Notes, $13.0 million discount associated with the 5.0% Convertible Notes, $1.0 million premium associated with notes payable to a finance company and $0.8 million discount associated with mortgage notes payable. December 31, 2011 includes $1.2 million discount associated with the 9.0% Notes, $17.7 million discount associated with the 5.0% Convertible Notes, $1.2 million premium associated with notes payable to a finance company and $0.9 million discount associated with mortgage notes payable.
2011 Credit Facilities Sonic has a syndicated revolving credit agreement (the “2011 Revolving Credit Facility”) and a syndicated floor plan credit facility (the “2011 Floor Plan Facility”). The 2011 Revolving Credit Facility and 2011 Floor Plan Facility (collectively the “2011 Credit Facilities”) are scheduled to mature on August 15, 2016. Availability under the 2011 Revolving Credit Facility is calculated as the lesser of $175.0 million or a borrowing base calculated based on certain eligible assets plus 50% of the fair market value of 5,000,000 shares of common stock of Speedway Motorsports, Inc. (“SMI”) that are pledged as collateral, less the aggregate face amount of any outstanding letters of credit under the 2011 Revolving Credit Facility (the “2011 Revolving Borrowing Base”). The 2011 Revolving Credit Facility may be increased at Sonic’s option to $225.0 million upon satisfaction of certain conditions. A withdrawal of the pledge of SMI common stock by Sonic Financial Corporation (“SFC”), which holds the 5,000,000 shares of common stock of SMI, or a decline in the value of SMI common stock, could reduce the amount Sonic can borrow under the 2011 Revolving Credit Facility. Based on balances as of June 30, 2012, the 2011 Revolving Borrowing Base was approximately $175.0 million and Sonic had approximately $39.2 million in outstanding letters of credit resulting in total borrowing availability of approximately $135.8 million under the 2011 Revolving Credit Facility. Covenants Sonic was in compliance with the covenants under the 2011 Credit Facilities as of June 30, 2012. Financial covenants include required specified ratios (as each is defined in the 2011 Credit Facilities) of:
|  | Covenant |
|  | Consolidated Liquidity Ratio |  |  | Consolidated Fixed Charge Coverage Ratio |  |  | Consolidated Total Lease Adjusted Leverage Ratio |
Required ratio |  | ³ | 1.05 |  |  | ³ | 1.20 |  |  | £ | 5.50 |
June 30, 2012 actual |  |  | 1.16 |  |  |  | 1.56 |  |  |  | 3.88 |
The 2011 Credit Facilities contain events of default, including cross-defaults to other material indebtedness, change of control events and events of default customary for syndicated commercial credit facilities. Upon the future occurrence of an event of default, Sonic could be required to immediately repay all outstanding amounts under the 2011 Credit Facilities. In addition, many of Sonic’s facility leases are governed by a guarantee agreement between the landlord and Sonic that contains financial and operating covenants. The financial covenants are identical to those under the 2011 Credit Facilities with the exception of one financial covenant related to the ratio of EBTDAR to Rent (as defined in the lease agreements) with a required ratio of no less than 1.50 to 1.00. At June 30, 2012, the ratio was 2.94 to 1.00. 9.0% Senior Subordinated Notes The 9.0% Notes are unsecured senior subordinated obligations of Sonic that mature on March 15, 2018 and are guaranteed by Sonic’s domestic operating subsidiaries. Interest is payable semi-annually on March 15 and September 15 each year. Sonic may redeem the 9.0% Notes in whole or in part at any time after March 15, 2014 at the following redemption prices, which are expressed as percentages of the principal amount:
|  | Redemption Price |
Beginning on March 15, 2014 |  |  | 104.50 | %
Beginning on March 15, 2015 |  |  | 102.25 | %
Beginning on March 15, 2016 and thereafter |  |  | 100.00 | %
In addition, on or before March 15, 2013, Sonic may redeem up to 35% of the aggregate principal amount of the 9.0% Notes at par value plus accrued interest with proceeds from certain equity offerings. The Indenture also provides that holders of 9.0% Notes may require Sonic to repurchase the 9.0% Notes at 101% of the par value of the 9.0% Notes, plus accrued interest if Sonic undergoes a “change of control” as defined in the Indenture. The Indenture governing the 9.0% Notes contains certain specified restrictive covenants. Sonic has agreed not to pledge any assets to any third party lender of senior subordinated debt except under certain limited circumstances. Sonic also has agreed to certain other limitations or prohibitions concerning the incurrence of other indebtedness, capital stock, guarantees, asset sales, investments, cash dividends to stockholders, distributions and redemptions. Specifically, the indenture governing Sonic’s 9.0% Notes limits Sonic’s ability to pay quarterly cash dividends on Sonic’s Class A and B common stock in excess of $0.10 per share. Sonic may only pay quarterly cash dividends on Sonic’s Class A and B common stock if Sonic complies with the terms of the indenture governing the 9.0% Notes. Sonic was in compliance with all restrictive covenants as of June 30, 2012. 5.0% Convertible Senior Notes During the second quarter ended June 30, 2012, Sonic repurchased approximately $20.2 million in aggregate principal amount of its 5.0% Convertible Notes, which resulted in a loss of approximately $2.6 million recorded in other income (expense), net, in the accompanying Unaudited Condensed Consolidated Statements of Income. The 5.0% Convertible Notes bear interest at a rate of 5.0% per year, payable semiannually on April 1 and October 1 of each year. The 5.0% Convertible Notes mature on October 1, 2029. Sonic may redeem some or all of the 5.0% Convertible Notes for cash at any time subsequent to October 1, 2014 at a repurchase price equal to 100% of the outstanding principal amount of the notes. Upon the issuance of a redemption notice by Sonic, the holders may convert the 5.0% Convertible Notes prior to the redemption date at their option. Holders have the right to require Sonic to purchase the 5.0% Convertible Notes on each of October 1, 2014, October 1, 2019 and October 1, 2024 or in the event of a change in control for cash at a purchase price equal to 100% of the outstanding principal amount of the notes. Holders of the 5.0% Convertible Notes may convert their notes at their option prior to the close of business on the business day immediately preceding July 1, 2029 only under the following circumstances: (1) during any fiscal quarter commencing after December 31, 2009, if the last reported sale price of the Class A common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day; (2) during the five business day period after any 10 consecutive trading day period (the “Measurement Period”) in which the trading price (as defined below) per $1,000 principal amount of notes for each day of that Measurement Period was less than 98% of the product of the last reported sale price of Sonic’s Class A common stock and the applicable conversion rate on each such day; (3) if Sonic calls any or all of the notes for redemption, at any time prior to the close of business on the third scheduled trading day prior to the redemption date; or (4) upon the occurrence of specified corporate events. On and after July 1, 2029, to (and including) the close of business on the third scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances. As of June 30, 2012, the conversion rate was 75.3017 shares of Class A common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of approximately $13.28 per share of Class A common stock. The conversion rate may be adjusted in the future as a result of any future declaration of dividends on Sonic’s Class A common stock. The 5% Convertible Notes were convertible at the option of the holder during the second quarter ended June 30, 2012, however, none of the 5% Convertible Notes were presented by the holder for conversion. As of the June 30, 2012 measurement date, the 5% Convertible Notes did not meet any of the criteria for conversion. To recognize the equity component of a convertible borrowing instrument, upon issuance of the 5.0% Convertible Notes in September 2009, Sonic recorded a debt discount of approximately $31.0 million and a corresponding amount (net of taxes of approximately $12.8 million) to equity, based on an estimated non-convertible borrowing rate of 10.5%. The debt discount is being amortized to interest expense through October 2014, the earliest redemption date. The unamortized debt discount was approximately $13.0 million and $17.7 million at June 30, 2012 and December 31, 2011, respectively. Sonic incurred interest expense related to the 5.0% Convertible Notes of approximately $1.7 million and $3.7 million for the second quarter and six-month periods ended June 30, 2012, respectively, and $2.1 million and $4.3 million for the second quarter and six-month periods ended June 30, 2011, respectively, recorded to interest expense, other, net, in the accompanying Unaudited Condensed Consolidated Statements of Income. In addition, Sonic recorded interest expense associated with the amortization of debt discount and deferred loan costs on the 5.0% Convertible Notes of approximately $1.4 million and $3.0 million for the second quarter and six-month periods ended June 30, 2012, respectively, and $1.7 million and $3.4 million for the second quarter and six-month periods ended June 30, 2011, respectively, recorded to interest expense, non-cash, convertible debt in the accompanying Unaudited Condensed Consolidated Statements of Income. See Note 10, “Subsequent Events,” for discussion of Sonic’s pending offer to repurchase all of its 5.0% Convertible Notes. Mortgage Notes Sonic has mortgage financing totaling approximately $189.2 million in aggregate, related to 20 of its dealership properties. These mortgage notes require monthly payments of principal and interest through maturity and are secured by the underlying properties. Maturity dates range between June 2013 and March 2031. The weighted average interest rate was 4.67% at June 30, 2012. Derivative Instruments and Hedging Activities Sonic has interest rate cash flow swap agreements to effectively convert a portion of its LIBOR-based variable rate debt to a fixed rate. The fair value of these swap positions at June 30, 2012 was a liability of approximately $37.5 million, with $25.0 million included in other accrued liabilities and $12.5 million included in other long-term liabilities in the accompanying Unaudited Condensed Consolidated Balance Sheets. Under the terms of these cash flow swaps, Sonic will receive and pay interest based on the following:
Notional Amount |  |  | Pay Rate |  |  | Receive Rate (1) |  | Maturing Date
(In millions) |  |  |  |  |  |  |  |
$ | 3.3 |  |  |  | 7.100 | % |  | one-month LIBOR + 1.50% |  | July 10, 2017
$ | 25.0 | (2) |  |  | 5.160 | % |  | one-month LIBOR |  | September 1, 2012
$ | 15.0 | (2) |  |  | 4.965 | % |  | one-month LIBOR |  | September 1, 2012
$ | 25.0 | (2) |  |  | 4.885 | % |  | one-month LIBOR |  | October 1, 2012
$ | 10.3 |  |  |  | 4.655 | % |  | one-month LIBOR |  | December 10, 2017
$ | 8.2 | (2) |  |  | 6.860 | % |  | one-month LIBOR + 1.25% |  | August 1, 2017
$ | 6.3 |  |  |  | 4.330 | % |  | one-month LIBOR |  | July 1, 2013
$ | 100.0 | (3) |  |  | 3.280 | % |  | one-month LIBOR |  | July 1, 2015
$ | 100.0 | (3) |  |  | 3.300 | % |  | one-month LIBOR |  | July 1, 2015
$ | 6.9 | (2) |  |  | 6.410 | % |  | one-month LIBOR + 1.25% |  | September 12, 2017
$ | 50.0 | (3) |  |  | 2.767 | % |  | one-month LIBOR |  | July 1, 2014
$ | 50.0 | (3) |  |  | 3.240 | % |  | one-month LIBOR |  | July 1, 2015
$ | 50.0 | (3) |  |  | 2.610 | % |  | one-month LIBOR |  | July 1, 2014
$ | 50.0 | (3) |  |  | 3.070 | % |  | one-month LIBOR |  | July 1, 2015
$ | 100.0 | (4) |  |  | 2.065 | % |  | one-month LIBOR |  | June 30, 2017
$ | 100.0 | (4) |  |  | 2.015 | % |  | one-month LIBOR |  | June 30, 2017
(1) | The one-month LIBOR rate was 0.243% at June 30, 2012.
(2) | Changes in fair value are recorded through earnings.
(3) | The effective date of these forward-starting swaps is July 2, 2012.
(4) | The effective date of these forward-starting swaps is July 1, 2015.
During the six-month period ended June 30, 2012, Sonic entered into two $100.0 million notional forward-starting interest rate cash flow swap agreements that become effective in July 2015 and terminate in June 2017. These interest rate swaps have been designated and qualify as cash flow hedges and, as a result, changes in the fair value of these swaps are recorded in other comprehensive income (loss), net of related income taxes, in the accompanying Unaudited Condensed Consolidated Statements of Comprehensive Income. For the cash flow swaps not designated as hedges (changes in the fair value are recognized through earnings) and amortization of amounts in accumulated other comprehensive income (loss) related to terminated cash flow swaps, certain benefits and charges were included in interest income (expense/amortization), non-cash, cash flow swaps, in the accompanying Unaudited Condensed Consolidated Statements of Income. For the cash flow swaps that qualify as cash flow hedges, the changes in the fair value of these swaps have been recorded in other comprehensive income (loss), net of related income taxes, in the accompanying Unaudited Condensed Consolidated Statements of Comprehensive Income. The incremental interest expense (the difference between interest paid and interest received) related to these cash flow swaps was approximately $2.5 million and $6.9 million for the second quarter and six-month periods ended June 30, 2012, respectively and $4.4 million and $8.8 million for the second quarter and six-month periods ended June 30, 2011, respectively, and is included in interest expense, other, net, in the accompanying Unaudited Condensed Consolidated Statements of Income. The estimated net expense expected to be reclassified out of accumulated other comprehensive income (loss) into results of operations during the next twelve months is approximately $7.7 million.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20, 22 -Article 5 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 129 -Paragraph 2, 4 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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