10-Q

;

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

FORM 10-Q

_____________________

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2014

OR

[  ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________to ________________

Commission File Number 0-18859

_____________________

SONIC CORP.

(Exact name of registrant as specified in its charter)

_____________________

Delaware	73-1371046
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

300 Johnny Bench Drive	73104
Oklahoma City, Oklahoma	(Zip Code)
(Address of principal executive offices)

(405) 225-5000

(Registrant’s telephone number, including area code)

_____________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☒  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer                  ☐
Non-accelerated filer   ☐ (Do no check if a smaller reporting company)	Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐  No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of January 2, 2015, approximately53,517,843shares of the registrant’s common stock, par value $0.01 per share, were outstanding.

SONIC CORP.

Index

		Page
		Number
PART I.  FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at November 30, 2014 and August 31, 2014	4
	Condensed Consolidated Statements of Income for the three months ended November 30, 2014 and 2013	5
	Condensed Consolidated Statements of Cash Flows for the three months ended November 30, 2014 and 2013	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17
PART II.  OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 6.	Exhibits	19

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

SONIC CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(Unaudited)
	November 30,		August 31,
	2014		2014
ASSETS
Current assets:
Cash and cash equivalents	$	45,221	$	35,694
Restricted cash		7,792		13,208
Accounts and notes receivable, net		28,089		32,833
Income taxes receivable		61		1,887
Prepaid expenses and other current assets		9,181		12,090
Total current assets		90,344		95,712
Noncurrent restricted cash		6,619		6,652
Notes receivable, net		7,898		8,155
Property, equipment and capital leases		773,331		771,019
Less accumulated depreciation and amortization		(336,563)		(329,050)
Property, equipment and capital leases, net		436,768		441,969
Goodwill		77,001		77,093
Other assets, net		22,987		21,391
Total assets	$	641,617	$	650,972
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	15,289	$	17,207
Franchisee deposits		1,459		2,678
Accrued liabilities		40,491		43,681
Income taxes payable		5,204		2,461
Current maturities of long-term debt and capital leases		13,236		13,484
Total current liabilities		75,679		79,511
Obligations under capital leases due after one year		22,430		23,050
Long-term debt due after one year		425,079		427,527
Deferred income taxes		38,420		37,611
Other non-current liabilities		18,538		20,598
Total non-current liabilities		504,467		508,786
Stockholders’ equity:
Preferred stock, par value $.01;1,000 shares authorized; none outstanding		-		-
Common stock, par value $.01;245,000 shares authorized;
118,309 shares issued (118,309 shares issued at August 31, 2014)		1,183		1,183
Paid-in capital		224,947		225,004
Retained earnings		811,341		801,202
Treasury stock, at cost; 64,874 shares (64,505 shares at August 31, 2014)		(976,000)		(964,714)
Total stockholders’ equity		61,471		62,675
Total liabilities and stockholders’ equity	$	641,617	$	650,972

The accompanying notes are an integral part of the consolidated financial statements.

4

SONIC CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
	Three months ended
	November 30,
	2014		2013
Revenues:
Company Drive-In sales	$	100,138	$	93,499
Franchise Drive-Ins:
Franchise royalties and fees		38,264		31,221
Lease revenue		1,065		886
Other		389		1,046
Total revenues		139,856		126,652
Costs and expenses:
Company Drive-Ins:
Food and packaging		28,573		26,236
Payroll and other employee benefits		35,271		33,340
Other operating expenses, exclusive of
depreciation and amortization included below		22,605		21,807
Total cost of Company Drive-In sales		86,449		81,383
Selling, general and administrative		18,788		17,005
Depreciation and amortization		11,660		10,034
Other operating (income) expense, net		421		(129)
Total costs and expenses		117,318		108,293
Income from operations		22,538		18,359
Interest expense		6,281		6,383
Interest income		(102)		(117)
Net interest expense		6,179		6,266
Income before income taxes		16,359		12,093
Provision for income taxes		6,274		3,885
Net income	$	10,085	$	8,208
Basic income per share	$	0.19	$	0.15
Diluted income per share	$	0.18	$	0.14

The accompanying notes are an integral part of the consolidated financial statements.

5

SONIC CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
	Three months ended
	November 30,
	2014		2013
Cash flows from operating activities:
Net income	$	10,085	$	8,208
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization		11,660		10,034
Stock-based compensation expense		952		828
Other		58		(1,383)
Decrease in operating assets:
Restricted cash		5,407		4,912
Accounts receivable and other assets		4,470		3,799
Increase (decrease) in operating liabilities:
Accounts payable		(179)		(3,088)
Accrued and other liabilities		(4,517)		(4,947)
Income taxes		5,763		9,700
Total adjustments		23,614		19,855
Net cash provided by operating activities		33,699		28,063
Cash flows from investing activities:
Purchases of property and equipment		(10,830)		(7,618)
Proceeds from sale of assets		605		616
Other		7,130		1,271
Net cash used in investing activities		(3,095)		(5,731)
Cash flows from financing activities:
Payments on debt		(2,447)		(2,446)
Purchases of treasury stock		(20,425)		(7,155)
Proceeds from exercise of stock options		7,679		5,961
Payment of dividends		(4,795)		-
Other		(1,089)		(695)
Net cash used in financing activities		(21,077)		(4,335)
Net increase in cash and cash equivalents		9,527		17,997
Cash and cash equivalents at beginning of period		35,694		77,896
Cash and cash equivalents at end of period	$	45,221	$	95,893
Supplemental cash flow information
Non-cash investing and financing activities:
Change in obligation to acquire treasury stock		(233)		355
Change in obligation for purchase of property and equipment		(1,625)		182

The accompanying notes are an integral part of the consolidated financial statements.

6

SONIC CORP.

NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS

(In thousands, expect per share data)

(Unaudited)

1.BasisofPresentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements of Sonic Corp. (the “Company”).  In the opinion of management, these financial statements reflect all adjustments of a normal recurring nature, including recurring accruals, necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented in conformity with GAAP.  In certain situations, recurring accruals, including franchise royalties, are based on more limited information at interim reporting dates than at the Company’s fiscal year end due to the abbreviated reporting period.  Actual results may differ from these estimates.  These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended August 31, 2014, included in the Company’s Annual Report on Form 10-K.  Interim results are not necessarily indicative of the results that may be expected for a full year or any other interim period.

Principles of Consolidation

The accompanying financial statements include the accounts of the Company, its wholly owned subsidiaries and a number of Company Drive-Ins in which a subsidiary has a controlling ownership interest.  All intercompany accounts and transactions have been eliminated.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,”  which requires entities to recognize revenue in the way it expects to be entitled for the transfer of promised goods or services to customers.  The ASU will replace most of the existing revenue recognition requirements in U.S. GAAP when it becomes effective.  This pronouncement is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and is to be applied retrospectively, with early application not permitted.  The Company is currently evaluating the effect that this pronouncement will have on its financial statements and related disclosures.  

7

SONIC CORP.

NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS

(In thousands, expect per share data)

(Unaudited)

2.Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Three months ended
	November 30,
	2014		2013
Numerator:
Net income	$	10,085	$	8,208
Denominator:
Weighted average common shares outstanding– basic		53,360		56,292
Effect of dilutive employee stock options and
unvested restricted stock units		1,467		1,605
Weighted average common shares – diluted		54,827		57,897
Net income per common share – basic	$	0.19	$	0.15
Net income per common share – diluted	$	0.18	$	0.14
Anti-dilutive securities excluded(1)		455		967
—————————

(1)Anti-dilutive securities consist of stock options and unvested restricted stock units that were not included in the computation of diluted earnings per share because either the exercise price of the options was greater than the average market price of the common stock or the total assumed proceeds under the treasury stock method resulted in negative incremental shares and thus the inclusion would have been anti-dilutive.

3.Share Repurchase Program

In August 2014, the Company’s Board of Directors extended the Company’s share repurchase program, authorizing the Company to purchase up to $105million of its outstanding shares of common stock to be repurchased through August 31, 2015.  Share repurchases may be made from time to time in the open market or otherwise, including through an accelerated share repurchase program, under terms of a Rule 10b5-1 plan, in privately negotiated transactions or in round lot or block transactions.  The share repurchase program may be extended, modified, suspended or discontinued at any time.

In October 2014, the Company entered into an accelerated share repurchase agreement(“ASR”)with a financial institution to purchase $15 million of the Company’s common stock.  In exchange for a $15 million up-front payment, the financial institution delivered approximately 0.6million shares.  The actual number of shares repurchased will be determined upon completion of the program, which is expected to occur in January 2015.

The Company reflected the ASR transaction as a repurchase of common stock for purposes of calculating earnings per share and as a forward contract indexed to its own common stock.  The forward contract met all of the applicable criteria for equity classification.

Including repurchases under the ASR transaction described above, during the first three months of fiscal year 2015, approximately 0.8 million shares were repurchased for a total cost of $20.2 million, resulting in an average price per share of $24.82. 

The total remaining amount authorized under the share repurchase program, as of November 30, 2014, was $84.8 million. 

8

SONIC CORP.

NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS

(In thousands, expect per share data)

(Unaudited)

4.Income Taxes

The following table presents the Company’s provision for income taxes and effective income tax rate for the periods below:

	Three months ended
	November 30,
	2014			2013
Provision for income taxes	$	6,274		$	3,885
Effective income tax rate		38.4	%		32.1	%

The increase in the Company’s effective income tax rate during the first quarter of fiscal year 2015 was primarily attributable to a decrease in employment tax credits due to expired credit provisions and a decrease in unrecognized tax benefits resulting from the acceptance of a federal tax method change that took place during the first quarter of fiscal year 2014.

5.Contingencies

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.

OnDecember 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 November 30, 2014, the balance of the franchisee’s loan was $6.1million.

The Company has obligations under various operatinglease agreements with third-party lessors related to the real estate for certain CompanyDrive-In operationsthat 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 November 30, 2014, the amount remaining under these guaranteed lease obligationstotaled $8.9 million.  At this time, the Company does not anticipate any material defaults under the foregoing leases; therefore, no liability has been provided.

9

SONIC CORP.

NOTES TO CONDENSED CONSOLIDATED FINANICAL STATEMENTS

(In thousands, expect per share data)

(Unaudited)

6.Fair Value of Financial Instruments

The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties. The Company has no financial liabilities that are required to be measured at fair value on a recurring basis.

The Company categorizes its assets and liabilities recorded at fair value based upon the following fair value hierarchy established by the Financial Accounting Standards Board:

•Level 1 valuations use quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date. An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

•Level 2 valuations use inputs other than actively quoted market prices included within Level 1 that are observable for the asset or liability,either directly or indirectly. Level 2 inputs include: (a) quoted prices for similar assets or liabilities in active markets, (b) quoted prices for identical or similar assets or liabilities in markets that are not active, (c) inputs other thanquoted prices that are observable for the asset or liability such as interest rates and yield curves observable at commonly quoted intervals and (d) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•Level 3 valuations use unobservable inputs for the asset or liability. Unobservable inputs are used to the extent observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The Company’s cash equivalents are carried at cost which approximates fair value and totaled $36.3million at November 30, 2014and $34.4 million at August 31, 2014.  This fair value is estimated using Level 1  inputs.

At November 30, 2014, the fair value of theCompany’s Series 2011-1 Senior Secured Fixed Rate Notes, Class A-2 (the “2011 Fixed Rate Notes”) and Series 2013-1 Senior Secured Fixed Rate Notes, Class A-2 (the “2013 Fixed Rate Notes”) approximated the carrying value of $435.4million, including accrued interest.  At August31,2014, the fair value of the 2011 Fixed Rate Notes and 2013 Fixed Rate Notes approximated the carrying value of $437.8 million, including accrued interest.  The fair value of the 2011 Fixed Rate Notes and the 2013 Fixed Rate Notes is estimated using Level 2 inputs from market information available for public debt transactions for companies with ratings that are similar to the Company’s ratings and from information gathered from brokers who trade in the Company’s notes.

10

Item 2.  Management’s Discussion 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

System-wide same-store sales increased 8.5% during the first quarter of fiscal year 2015 as compared to an increase of 2.2% for the same period last year.  Same-store sales at Company Drive-Ins increased 7.9% during the first quarter of fiscal year 2015 as compared to an increase of 1.9% for the same period last year.Our continued positive same-store sales are a result of the successful implementation of initiatives, including product quality improvements, a greater emphasis on personalized service and a tiered pricing strategy, that have set a solid foundation for growth. Along with new technology initiatives implemented in Company Drive-Ins during fiscal 2014, we continue to focus on key initiatives such as increased media effectiveness and our innovative product pipeline  in supporting our layered day-part promotional strategy to drive same-store sales.  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.  Positive same-store sales is the most important layer and drives operating leverage and increased operating cash flows.

Revenues increased to $139.9 million for the firstquarter of fiscal year 2015 from $126.7 million for the same period last year.  The increase in revenues was primarily attributable to an increase in Company Drive-In sales and Franchise Drive-In royalties related to the growth of same-store sales.  Additionally, royalties and franchise fees increased due to license conversions that moved  approximately 900 Franchise Drive-Ins to a higher royalty rate.  Restaurant margins at Company Drive-Ins improved by70basis points during the firstquarter of fiscal year 2015,reflecting the leverage resulting from positive same-store sales.

First quarter results for fiscal year 2015 reflected net income of $10.1 million or $0.18 per diluted share, as compared to net income of $8.2 million or $0.14 per diluted share for the same period last year.  Excluding the non-GAAP adjustment further described below, net income and diluted earnings per share for the first quarter of fiscal year 2015 increased 31% and 38%, respectively.

The following non-GAAP adjustment is intended to supplement the presentation of the Company’s financial results in accordance with GAAP.  We believe the exclusion of this item 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
	November 30, 2014				November 30, 2013
	Net		Diluted		Net		Diluted
	Income		EPS		Income		EPS
Reported – GAAP	$	10,085	$	0.18	$	8,208	$	0.14
Tax benefit from the IRS' acceptance of a federal tax method change		-		-		(484)		(0.01)
Adjusted - Non-GAAP	$	10,085	$	0.18	$	7,724	$	0.13

11

The following table provides information regarding the number of Company Drive-Ins and Franchise Drive-Ins operating 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
	November 30,
	2014			2013
Increase (decrease) in total sales		9.2	%		2.4	%
System-wide drive-ins in operation(1):
Total at beginning of period		3,518			3,522
Opened		13			7
Closed (net of re-openings)		(14)			(12)
Total at end of period		3,517			3,517
Average sales per drive-in	$	290		$	266
Change in same-store sales(2)		8.5	%		2.2	%
—————————

(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
	November 30,				Increase		Increase
	2014		2013		(Decrease)		(Decrease)
Revenues:
Company Drive-In sales	$	100,138	$	93,499	$	6,639	7.1	%
Franchise Drive-Ins:
Franchise royalties		36,776		30,912		5,864	19.0
Franchise fees		1,488		309		1,179	381.6
Lease revenue		1,065		886		179	20.2
Other		389		1,046		(657)	(62.8)
Total revenues	$	139,856	$	126,652	$	13,204	10.4	%

12

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
	November 30,
	2014			2013
Company Drive-In sales	$	100,138		$	93,499
Percentage increase (decrease)		7.1	%		0.0	%
Company Drive-Ins in operation(1):
Total at beginning of period		391			396
Opened		1			-
Sold to franchisees		(2)			(7)
Closed (net of re-openings)		(1)			(1)
Total at end of period		389			388
Average sales per Company Drive-In	$	259		$	239
Change in same-store sales(2)		7.9	%		1.9	%
—————————

(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 7.9% for the first quarter of fiscal year 2015, as compared to an increase of 1.9% for the same period 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 and increased media effectiveness while benefitting from the implementation of new technology initiatives at Company Drive-Ins.  Company Drive-In sales increased $6.6 million during the first quarter of fiscal year 2015, as compared to the same period last year, mainly due to an increase of $7.2 million in same-store sales and $0.8 million in incremental sales from new drive-in openingsoffset by a $1.4 million decrease in sales related to drive-ins that were closed or refranchised during the preceding 12months.

13

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
	November 30,
	2014			2013
Franchise Drive-In sales	$	908,276		$	829,995
Percentage increase		9.4	%		2.6	%
Franchise Drive-Ins in operation(1):
Total at beginning of period		3,127			3,126
Opened		12			7
Acquired from the Company		2			7
Closed (net of re-openings)		(13)			(11)
Total at end of period		3,128			3,129
Average sales per Franchise Drive-In	$	294		$	270
Change in same-store sales(2)		8.5	%		2.3	%
Franchising revenues(3)	$	39,329		$	32,107
Percentage increase (decrease)		22.5	%		2.2	%
Effective royalty rate(4)		4.05	%		3.72	%
—————————

(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, 2013.

(4)  Represents franchise royalties as a percentage of Franchise Drive-In sales.

Same-store sales for Franchise Drive-Ins increased 8.5% for the first quarter of fiscal year 2015, as compared to an increase of 2.3% for the same period last year.  Franchising revenues increased $7.2 million, or 22.5%, for the first quarter of fiscal year 2015, compared to the same period last year.  The increase in franchise revenues was primarily attributable to increases in royalties related to the growth of same-store sales and license conversions that moved approximately 900 Franchise Drive-Ins to a higher royalty rate.  In addition, franchise fees increased not only from the growth in Franchise Drive-In openings but also from the fees related to the license conversions mentioned above. 

14

Operating Expenses.  The 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
	November 30,				Percentage Points
	2014		2013		Increase (Decrease)
Costs and expenses:
Company Drive-Ins:
Food and packaging	28.5	%	28.1	%	0.4
Payroll and other employee benefits	35.2		35.6		(0.4)
Other operating expenses	22.6		23.3		(0.7)
Cost of Company Drive-In sales	86.3	%	87.0	%	(0.7)

Drive-in level marginsimproved by 70 basis points during the firstquarter of fiscal year 2015reflecting leverage from improved same-store sales.  Food and packaging costs were unfavorable by 40 basis points during the first quarter of fiscal year 2015 primarily as a result of increased beef and dairy costs.  Commodity costs are expected to continue to rise over the remainder of the year, resulting in expectations of slightly unfavorable food and packaging costs, compared to the prior year.  Payroll and other employee benefits, as well as other operating expenses, improved 110 basis points during the quarter mainly as a result of leveraging improved sales.

Selling, General and Administrative (“SG&A”).SG&A expenses increased $1.8 million, or 10.5%, to $18.8 million for the firstquarterof fiscal year 2015  as compared to the same period last year.  This increase is primarily related to salary and benefits as a result of additional headcount in support of the Company’s technology initiatives and higher variable compensation due to improved operating performance.

Depreciation and Amortization.Depreciation and amortization increased $1.7 million, or 16.2%, for the first quarter of fiscal year 2015 to $11.7 million,as compared to the same period last year.  This increase is primarily attributable to our increased investments in technology initiatives at Company Drive-Ins.

Other Operating Income and Expense, Net.The first quarter of fiscal year 2015 reflected $0.4 million in other operating expense compared to $0.1 million other operating income for the same period last year.  This change is primarily the result of a $0.4 million write-off, in the first quarter of fiscal year 2015, of test phase assets associated with the original point-of-purchase menu boards test market.

Net Interest Expense.  Net interest expense was flat in the first quarter of fiscal year 2015.  For additional information on long-term debt, see our Annual Report on Form 10-K for the year ended August 31, 2014.

Income Taxes.  The provision for income taxes reflects an effective tax rate of 38.4% for the first quarter of fiscal 2015 as compared to 32.1% for the same period in 2014.  The higher effective income tax rate was primarily attributable to a decrease in employment tax credits, due to expiration of the Work Opportunity Tax Credit (“WOTC”) program in fiscal year 2014, and a decrease in an unrecognized tax benefit resulting from the IRS’ acceptance of a federal tax method change during the first quarter of fiscal year 2014.  The WOTC program was extended through December 31, 2014 subsequent to the end of the first quarter of fiscal year 2015.  We expect to recognize the retroactive benefit from this program in the second fiscal quarter.  Going forward, our fiscal year 2015 tax rate may vary depending upon the reinstatement of employment tax credit programs that have now expired on December 31, 2014, and pending resolution of certain tax matters.  Further, 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.

15

Financial Position

Total assets decreased $9.4 million, or 1.4%, to $641.6 million during the first three months of fiscal year 2015 from $651 million at the end of fiscal year 2014.The decrease in total assets was primarily attributable to a decline in net property, equipmentand capital leases of $5.2 million.  This decrease was driven by depreciation, partially offset bypurchases of property and equipment.

Total liabilities decreased $8.2 million, or 1.4%, to $580.1 million during the first three months of fiscal year 2015 from $588.3 million at the end of fiscal year 2014.The decrease was partially attributable to the $4.9million dividend payableat August 31, 2014,that was paid in November 2014.  Additionally, $2.4 million of scheduled debt principal payments were made in the first quarter of fiscal year 2015.

Total stockholders’ equity decreased $1.2 million, or 1.9%, to $61.5 million during the first three months of fiscal year 2015 from $62.7 million at the end of fiscal year 2014.  This decrease was primarily attributable to $20.2 million in purchases of common stock during the first threemonths of the fiscal year partially offset bycurrent-year earnings of $10.1 million,  $7.7 million from the issuance of stock related to stock option exercises and $1.0 million of stock compensation expense.

Liquidity and Sources of Capital

Operating Cash Flows.  Net cash provided by operating activities increased $5.6million to $33.7million for the first three months of fiscal year 2015, as compared to $28.1 million for the same period in fiscal year 2014.  This increase primarily resulted from a change in working capital.  

Investing Cash Flows.Net cash used in investing activities during the first three months of fiscal year 2015decreased $2.6million to $3.1 million compared to $5.7 million for the same period in fiscal year 2014.

The table below outlines our use of cash for investments in property and equipment for the first three months of fiscal year 2015 in millions:

Replacement equipment and technology for existing drive-ins	$	5.0
Brand technology investments		2.6
Newly constructed Company Drive-Ins		1.5
Rebuilds, relocations, remodels and retrofits of existing drive-ins		1.4
Newly constructed drive-ins leased to franchisees		0.3
Acquisition of underlying real estate for drive-ins		0.1
Total purchases of property and equipment	$	10.9

These purchases increased $3.3 million compared to the same period last year.  This increase was offset by a $5 million advance from a vendor during the first quarter of fiscal year 2015, which has subsequently been repaid. 

Financing Cash Flows.  Net cash used in financing activities increased $16.8million to $21.1million for the first three months of fiscal year 2015 as compared to $4.3 million for the same period in fiscal year 2014.  This increase primarily relates to a $13.3 million increase in purchases of treasury stock and the $4.8 million dividend payment, partially offset by a $1.7million increase in proceeds from stock option exercises.

In August 2014, our Board of Directors extended our share repurchase program, authorizing us to purchase up to $105 million of our outstanding shares of common stock during fiscal year 2015.  Share repurchases may be made from time to time in the open market or otherwise, including through an accelerated share repurchase program, under terms of a Rule 10b5-1 plan, in privately negotiated transactions or in round lot or block transactions.  The share repurchase program may be extended, modified, suspended or discontinued at any time.

In October 2014, we entered into an accelerated share repurchase agreement(“ASR”) with a financial institution to purchase $15 million of the Company’s common stock.In exchange for a $15 million up-front

16

payment, the financial institution delivered approximately 0.6million shares.  The actual number of shares repurchased will be determined upon completion of the program, which is expected to occur in January 2015.

Including repurchases under the ASR transaction described above, during the first three months of fiscal year 2015, approximately 0.8 million shares were repurchased for a total cost of $20.2 million, resulting in an average price per share of $24.82. 

The total remaining amount authorized under the share repurchase program, as of November 30, 2014, was $84.8 million.

As of November 30, 2014, our total cash balance of $59.6 million ($45.2 million of unrestricted and $14.4 million of restricted cash balances) reflected the impact of the cash generated from operating activities, stock option exercise proceeds, cash used for share repurchases, debt payments and capital expenditures mentioned above.  We believe that existing cash, funds generated from operations and the amount available under our Series 2011-1 Senior Secured Variable Funding Notes, Class A-1, 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.  There have been no material changes to the critical accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2014.  

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in the quantitative and qualitative market risks set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended August 31, 2014.

Item 4.  Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-14 under the Securities Exchange Act of 1934).  Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.  Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

There were no significant changes in the Company’s internal control over financial reporting during the quarter ended November 30, 2014, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 1.Legal Proceedings

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.

17

Item 1A.  Risk Factors

There has been no material change in the risk factors set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2014.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

(c) Issuer Purchases of Equity Securities

Shares repurchased during first quarter of fiscal year 2015 are as follows (in thousands, except per share amounts):

				Total Number
				of Shares	Maximum Dollar
				Purchased as	Value that May
	Total	Average		Part of Publicly	Yet Be
	Number of	Price		Announced	Purchased
	Shares	Paid per		Plans or	Under the
Period	Purchased(1)	Share		Programs	Program(2)
September 1, 2014 through September 30, 2014	237	$	21.78	237	$	99,834
October 1, 2014 through October 31, 2014	576		26.07	576		84,834
November 1, 2014 through November 30, 2014	-		-	-	$	84,834
Total	813	$	24.82	813
—————

(1)The total number of shares purchased for the period of October 1, 2014 through October 31, 2014 includes the delivery of approximately 0.6 million shares related to the accelerated share repurchase agreement (“ASR”).For additional information on this program see Note 3 – Share Repurchase Program.

(2)In August 2014, the Company’s Board of Directors extended the Company’s share repurchase program, authorizing the Company to purchase up to $105 million of its outstanding shares of common stock  to be repurchased through August 31, 2015.  Share repurchases may be made from time to time in the open market or otherwise, including through an accelerated share repurchase program, under terms of a Rule 10b5-1 plan, in privately negotiated transactions or in round lot or block transactions.  The share repurchase program may be extended, modified, suspended or discontinued at any time.

18

Item 6.  Exhibits

Exhibits.
31.01	Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14
31.02	Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14
32.01	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
32.02	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

19

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SONIC CORP.
By:	/s/ Stephen C. Vaughan
	Stephen C. Vaughan, Executive Vice President
	and Chief Financial Officer

Date:  January 8, 2015

EXHIBIT INDEX

Exhibit Number and Description

31.01	Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14
31.02	Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14
32.01	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
32.02	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

EX-31.01

Exhibit 31.01

CERTIFICATION PURSUANT TO

SEC RULE 13a-14

I, J. Clifford Hudson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sonic Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 8, 2015

/s/ J. Clifford Hudson

J. Clifford Hudson

Chief Executive Officer

EX-31.02

Exhibit 31.02

CERTIFICATION PURSUANT TO

SEC RULE 13a-14

I, Stephen C. Vaughan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sonic Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal control over financial reporting.

Date: January 8,2015

/s/ Stephen C. Vaughan

Stephen C. Vaughan

Chief Financial Officer

EX-32.01

Exhibit 32.01

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

The undersigned hereby certifies that to his knowledge the quarterly report of Sonic Corp. (the “Company”) filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly represents, in all material respects, the financial condition and results of operations of the Company.

Date: January 8, 2015

/s/ J. Clifford Hudson

J. Clifford Hudson

Chief Executive Officer

EX-32.02

Exhibit 32.02

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

The undersigned hereby certifies that to his knowledge the quarterly report of Sonic Corp. (the “Company”) filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly represents, in all material respects, the financial condition and results of operations of the Company.

Date: January 8, 2015

/s/ Stephen C. Vaughan

Stephen C. Vaughan

Chief Financial Officer

XML

Income Taxes

3 Months Ended

Nov. 30, 2014

Income Taxes [Abstract]

Income Taxes

4.Income Taxes

The following table presents the Company’s provision for income taxes and effective income tax rate for the periods below:

	Three months ended
	November 30,
	2014			2013
Provision for income taxes	$	6,274		$	3,885
Effective income tax rate		38.4	%		32.1	%

The increase in the Company’s effective income tax rate during the first quarter of fiscal year 2015 was primarily attributable to a decrease in employment tax credits due to expired credit provisions and a decrease in unrecognized tax benefits resulting from the acceptance of a federal tax method change that took place during the first quarter of fiscal year 2014.

XML

Share Repurchase Program

3 Months Ended

Nov. 30, 2014

Share Repurchase Program [Abstract]

Share Repurchase Program

3.Share Repurchase Program

In August 2014, the Company’s Board of Directors extended the Company’s share repurchase program, authorizing the Company to purchase up to $105 million of its outstanding shares of common stock to be repurchased through August 31, 2015.  Share repurchases may be made from time to time in the open market or otherwise, including through an accelerated share repurchase program, under terms of a Rule 10b5-1 plan, in privately negotiated transactions or in round lot or block transactions.  The share repurchase program may be extended, modified, suspended or discontinued at any time.

In October 2014, the Company entered into an accelerated share repurchase agreement(“ASR”)with a financial institution to purchase $15 million of the Company’s common stock.  In exchange for a $15 million up-front payment, the financial institution delivered approximately 0.6 million shares.  The actual number of shares repurchased will be determined upon completion of the program, which is expected to occur in January 2015.

The Company reflected the ASR transaction as a repurchase of common stock for purposes of calculating earnings per share and as a forward contract indexed to its own common stock.  The forward contract met all of the applicable criteria for equity classification.

Including repurchases under the ASR transaction described above, during the first three months of fiscal year 2015, approximately 0.8 million shares were repurchased for a total cost of $20.2 million, resulting in an average price per share of $24.82. 

The total remaining amount authorized under the share repurchase program, as of November 30, 2014, was $84.8 million. 

XML

Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Nov. 30, 2014	Aug. 31, 2014
Current assets:
Cash and cash equivalents	$ 45,221	$ 35,694
Restricted cash	7,792	13,208
Accounts and notes receivable, net	28,089	32,833
Income taxes receivable	61	1,887
Prepaid expenses and other current assets	9,181	12,090
Total current assets	90,344	95,712
Noncurrent restricted cash	6,619	6,652
Notes receivable, net	7,898	8,155
Property, equipment and capital leases	773,331	771,019
Less accumulated depreciation and amortization	(336,563)	(329,050)
Property, equipment and capital leases, net	436,768	441,969
Goodwill	77,001	77,093
Other assets, net	22,987	21,391
Total assets	641,617	650,972
Current liabilities:
Accounts payable	15,289	17,207
Franchisee deposits	1,459	2,678
Accrued liabilities	40,491	43,681
Income taxes payable	5,204	2,461
Current maturities of long-term debt and capital leases	13,236	13,484
Total current liabilities	75,679	79,511
Obligations under capital leases due after one year	22,430	23,050
Long-term debt due after one year	425,079	427,527
Deferred income taxes	38,420	37,611
Other non-current liabilities	18,538	20,598
Total non-current liabilities	504,467	508,786
Stockholders' equity:
Preferred stock, par value $.01; 1,000 shares authorized; none outstanding
Common stock, par value $.01; 245,000 shares authorized; 118,309 shares issued (118,309 shares issued at August 31, 2014)	1,183	1,183
Paid-in capital	224,947	225,004
Retained earnings	811,341	801,202
Treasury stock, at cost; 64,874 shares (64,505 shares at August 31, 2014)	(976,000)	(964,714)
Total stockholders’ equity	61,471	62,675
Total liabilities and stockholders' equity	$ 641,617	$ 650,972

XML

Basis Of Presentation

3 Months Ended

Nov. 30, 2014

Basis Of Presentation [Abstract]

Basis Of Presentation

1.BasisofPresentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements of Sonic Corp. (the “Company”).  In the opinion of management, these financial statements reflect all adjustments of a normal recurring nature, including recurring accruals, necessary for the fair presentation of the Company’s financial position, results of operations and cash flows for the interim periods presented in conformity with GAAP.  In certain situations, recurring accruals, including franchise royalties, are based on more limited information at interim reporting dates than at the Company’s fiscal year end due to the abbreviated reporting period.  Actual results may differ from these estimates.  These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended August 31, 2014, included in the Company’s Annual Report on Form 10-K.  Interim results are not necessarily indicative of the results that may be expected for a full year or any other interim period. 

Principles of Consolidation

The accompanying financial statements include the accounts of the Company, its wholly owned subsidiaries and a number of Company Drive-Ins in which a subsidiary has a controlling ownership interest.  All intercompany accounts and transactions have been eliminated.

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which requires entities to recognize revenue in the way it expects to be entitled for the transfer of promised goods or services to customers.  The ASU will replace most of the existing revenue recognition requirements in U.S. GAAP when it becomes effective.  This pronouncement is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and is to be applied retrospectively, with early application not permitted.  The Company is currently evaluating the effect that this pronouncement will have on its financial statements and related disclosures.

XML

Earnings Per Share

3 Months Ended

Nov. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share

2.Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share:

	Three months ended
	November 30,
	2014		2013
Numerator:
Net income	$	10,085	$	8,208
Denominator:
Weighted average common shares outstanding– basic		53,360		56,292
Effect of dilutive employee stock options and
unvested restricted stock units		1,467		1,605
Weighted average common shares – diluted		54,827		57,897
Net income per common share – basic	$	0.19	$	0.15
Net income per common share – diluted	$	0.18	$	0.14
Anti-dilutive securities excluded(1)		455		967
—————————

(1)Anti-dilutive securities consist of stock options and unvested restricted stock units that were not included in the computation of diluted earnings per share because either the exercise price of the options was greater than the average market price of the common stock or the total assumed proceeds under the treasury stock method resulted in negative incremental shares and thus the inclusion would have been anti-dilutive.

XML

Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Nov. 30, 2014	Aug. 31, 2014
Condensed Consolidated Balance Sheets [Abstract]
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	245,000,000	245,000,000
Common stock, shares issued	118,309,000	118,309,000
Treasury stock, shares	64,874,000	64,505,000

XML

Income Taxes (Schedule Of Provision (Benefit) For Income Taxes And Effective Income Tax Rate) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Nov. 30, 2014	Nov. 30, 2013
Income Taxes [Abstract]
Provision for income taxes	$ 6,274	$ 3,885
Effective income tax rate	38.40%	32.10%

XML

Document And Entity Information	3 Months Ended
	Nov. 30, 2014	Jan. 02, 2015
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Nov. 30, 2014
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1
Entity Registrant Name	SONIC CORP.
Entity Central Index Key	0000868611
Current Fiscal Year End Date	--08-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		53,517,843
Entity Well-known Seasoned Issuer	Yes
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No

XML

Contingencies (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Nov. 30, 2014
Note Repurchase Agreement [Member]
Loss Contingencies [Line Items]
Guaranteed obligations	$ 6.1
Guarantor Obligations, Term	2018
Guarantee Operating Lease Obligations [Member]
Loss Contingencies [Line Items]
Guaranteed obligations	8.9
Guaranteed liability, carrying value	$ 0
Guarantor Obligations, Term	2029

XML

Condensed Consolidated Statements Of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Nov. 30, 2014	Nov. 30, 2013
Revenues:
Company Drive-In sales	$ 100,138	$ 93,499
Franchise Drive-Ins:
Franchise royalties and fees	38,264	31,221
Lease revenue	1,065	886
Other	389	1,046
Total revenues	139,856	126,652
Costs and expenses:
Food and packaging	28,573	26,236
Payroll and other employee benefits	35,271	33,340
Other operating expenses, exclusive of depreciation and amortization included below	22,605	21,807
Total cost of Company Drive-In sales	86,449	81,383
Selling, general and administrative	18,788	17,005
Depreciation and amortization	11,660	10,034
Other operating (income) expense, net	421	(129)
Total costs and expenses	117,318	108,293
Income from operations	22,538	18,359
Interest expense	6,281	6,383
Interest income	(102)	(117)
Net interest expense	6,179	6,266
Income before income taxes	16,359	12,093
Provision for income taxes	6,274	3,885
Net income	$ 10,085	$ 8,208
Basic income per share	$ 0.19	$ 0.15
Diluted income per share	$ 0.18	$ 0.14

XML

Basis Of Presentation (Policy)

3 Months Ended

Nov. 30, 2014

Basis Of Presentation [Abstract]

Principles Of Consolidation

Principles of Consolidation

The accompanying financial statements include the accounts of the Company, its wholly owned subsidiaries and a number of Company Drive-Ins in which a subsidiary has a controlling ownership interest.  All intercompany accounts and transactions have been eliminated.

New Accounting Pronoucements

New Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which requires entities to recognize revenue in the way it expects to be entitled for the transfer of promised goods or services to customers.  The ASU will replace most of the existing revenue recognition requirements in U.S. GAAP when it becomes effective.  This pronouncement is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and is to be applied retrospectively, with early application not permitted.  The Company is currently evaluating the effect that this pronouncement will have on its financial statements and related disclosures.

XML

Fair Value Of Financial Instruments

3 Months Ended

Nov. 30, 2014

Fair Value Of Financial Instruments [Abstract]

Fair Value Of Financial Instruments

6.Fair Value of Financial Instruments

The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties.  The Company has no financial liabilities that are required to be measured at fair value on a recurring basis.

The Company categorizes its assets and liabilities recorded at fair value based upon the following fair value hierarchy established by the Financial Accounting Standards Board:

•Level 1 valuations use quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.  An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

•Level 2 valuations use inputs other than actively quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs include:  (a) quoted prices for similar assets or liabilities in active markets, (b) quoted prices for identical or similar assets or liabilities in markets that are not active, (c) inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves observable at commonly quoted intervals and (d) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•Level 3 valuations use unobservable inputs for the asset or liability.  Unobservable inputs are used to the extent observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The Company’s cash equivalents are carried at cost which approximates fair value and totaled $36.3 million at November 30, 2014 and $34.4 million at August 31, 2014.  This fair value is estimated using Level 1 inputs.

At November 30, 2014, the fair value of the Company’s Series 2011-1 Senior Secured Fixed Rate Notes, Class A-2 (the “2011 Fixed Rate Notes”) and Series 2013-1 Senior Secured Fixed Rate Notes, Class A-2 (the “2013 Fixed Rate Notes”) approximated the carrying value of $435.4 million, including accrued interest.  At August 31, 2014, the fair value of the 2011 Fixed Rate Notes and 2013 Fixed Rate Notes approximated the carrying value of $437.8 million, including accrued interest.  The fair value of the 2011 Fixed Rate Notes and the 2013 Fixed Rate Notes is estimated using Level 2 inputs from market information available for public debt transactions for companies with ratings that are similar to the Company’s ratings and from information gathered from brokers who trade in the Company’s notes.

XML

Fair Value Of Financial Instruments (Narrative) (Details) (USD $) In Millions, unless otherwise specified	Nov. 30, 2014	Aug. 31, 2014
Fair Value Of Financial Instruments [Abstract]
Cash equivalents carried at cost	$ 36.3	$ 34.4
Fixed Rate Notes, fair value	435.4	437.8
Fixed rate notes, carrying value, including accrued interest	$ 435.4	$ 437.8

XML

Earnings Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Nov. 30, 2014		Nov. 30, 2013
Earnings Per Share [Abstract]
Net income	$ 10,085		$ 8,208
Weighted average common shares outstanding – basic	53,360		56,292
Effect of dilutive employee stock options and unvested restricted stock units	1,467		1,605
Weighted average common shares - diluted	54,827		57,897
Net income per common share - basic	$ 0.19		$ 0.15
Net income per common share - diluted	$ 0.18		$ 0.14
Anti-dilutive securities excluded	455	[1]	967	[1]

[1] Anti-dilutive securities consist of stock options and unvested restricted stock units that were not included in the computation of diluted earnings per share because either the exercise price of the options was greater than the average market price of the common stock or the total assumed proceeds under the treasury stock method resulted in negative incremental shares and thus the inclusion would have been anti-dilutive.

XML

Earnings Per Share (Tables)

3 Months Ended

Nov. 30, 2014

Earnings Per Share [Abstract]

Computation Of Basic And Diluted Earnings Per Share

	Three months ended
	November 30,
	2014		2013
Numerator:
Net income	$	10,085	$	8,208
Denominator:
Weighted average common shares outstanding– basic		53,360		56,292
Effect of dilutive employee stock options and
unvested restricted stock units		1,467		1,605
Weighted average common shares – diluted		54,827		57,897
Net income per common share – basic	$	0.19	$	0.15
Net income per common share – diluted	$	0.18	$	0.14
Anti-dilutive securities excluded(1)		455		967
—————————

(1)Anti-dilutive securities consist of stock options and unvested restricted stock units that were not included in the computation of diluted earnings per share because either the exercise price of the options was greater than the average market price of the common stock or the total assumed proceeds under the treasury stock method resulted in negative incremental shares and thus the inclusion would have been anti-dilutive.

XML

Income Taxes (Tables)

3 Months Ended

Nov. 30, 2014

Income Taxes [Abstract]

Schedule Of Provision (Benefit) For Income Taxes And Effective Income Tax Rate

	Three months ended
	November 30,
	2014			2013
Provision for income taxes	$	6,274		$	3,885
Effective income tax rate		38.4	%		32.1	%

XML

Share Repurchase Program (Details) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended	1 Months Ended
	Nov. 30, 2014	Oct. 31, 2014	Aug. 31, 2014
Share Repurchase Program [Line Items]
Shares repurchase authorized amount			$ 105.0
Shares acquired through stock repurchase program	0.8
Purchase of treasury stock	20.2
Remaining amount authorized for repurchase through share repurchase program	84.8
Weighted-average price per share	$ 24.82
Accelerated Share Repurchase Program [Member]
Share Repurchase Program [Line Items]
Shares repurchase authorized amount		15.0
Shares acquired through stock repurchase program		0.6
Purchase of treasury stock		$ 15.0

XML

Condensed Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Nov. 30, 2014	Nov. 30, 2013
Cash flows from operating activities:
Net income	$ 10,085	$ 8,208
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	11,660	10,034
Stock-based compensation expense	952	828
Other	58	(1,383)
Decrease in operating assets:
Restricted cash	5,407	4,912
Accounts receivable and other assets	4,470	3,799
Increase (decrease) in operating liabilities:
Accounts payable	(179)	(3,088)
Accrued and other liabilities	(4,517)	(4,947)
Income taxes	5,763	9,700
Total adjustments	23,614	19,855
Net cash provided by operating activities	33,699	28,063
Cash flows from investing activities:
Purchases of property and equipment	(10,830)	(7,618)
Proceeds from sale of assets	605	616
Other	7,130	1,271
Net cash used in investing activities	(3,095)	(5,731)
Cash flows from financing activities:
Payments on debt	(2,447)	(2,446)
Purchases of treasury stock	(20,425)	(7,155)
Proceeds from exercise of stock options	7,679	5,961
Payment of dividends	(4,795)
Other	(1,089)	(695)
Net cash used in financing activities	(21,077)	(4,335)
Net increase in cash and cash equivalents	9,527	17,997
Cash and cash equivalents at beginning of period	35,694	77,896
Cash and cash equivalents at end of period	45,221	95,893
Non-cash investing and financing activities:
Change in obligation to acquire treasury stock	(233)	355
Change in obligation for purchase of property and equipment	$ (1,625)	$ 182

XML

Contingencies

3 Months Ended

Nov. 30, 2014

Contingencies [Abstract]

Contingencies

5.Contingencies

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.

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 November 30, 2014, the balance of the franchisee’s loan was $6.1 million.

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 November 30, 2014, the amount remaining under these guaranteed lease obligations totaled $8.9 million.  At this time, the Company does not anticipate any material defaults under the foregoing leases; therefore, no liability has been provided.