Sonic (SONC) 10-Q 8 Jan 16 2016 Q1 Quarterly report Financial data

Document And Entity Information

Document And Entity Information - shares	3 Months Ended
	Nov. 30, 2015	Jan. 04, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Nov. 30, 2015
Document Fiscal Year Focus	2,016
Document Fiscal Period Focus	Q1
Entity Registrant Name	SONIC CORP.
Entity Central Index Key	868,611
Current Fiscal Year End Date	--08-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		49,119,301

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Nov. 30, 2015	Aug. 31, 2015
Current assets:
Cash and cash equivalents	$ 36,821	$ 27,191
Restricted cash	7,872	13,246
Accounts and notes receivable, net	32,070	31,577
Income taxes receivable	848	1,741
Prepaid expenses and other current assets	9,095	11,683
Total current assets	86,706	85,438
Noncurrent restricted cash	6,493	6,524
Notes receivable, net	7,567	7,216
Property, equipment and capital leases	785,049	781,857
Less accumulated depreciation and amortization	(368,399)	(360,451)
Property, equipment and capital leases, net	416,650	421,406
Goodwill	77,039	77,076
Other assets, net	21,662	22,364
Total assets	616,117	620,024
Current liabilities:
Accounts payable	19,362	13,860
Franchisee deposits	671	870
Accrued liabilities	39,300	50,714
Income taxes payable	6,549	8,910
Current maturities of long-term debt and capital leases	13,396	13,467
Total current liabilities	79,278	87,821
Obligations under capital leases due after one year	19,835	20,763
Long-term debt due after one year	473,300	428,238
Deferred income taxes	41,178	43,549
Other non-current liabilities	23,263	22,220
Total non-current liabilities	$ 557,576	$ 514,770
Stockholders' equity (deficit):
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, 2015)	$ 1,183	$ 1,183
Paid-in capital	233,603	232,550
Retained earnings	858,718	851,715
Treasury stock, at cost; 69,025 shares (67,249 shares at August 31, 2015)	(1,114,241)	(1,068,015)
Total stockholders’ equity (deficit)	(20,737)	17,433
Total liabilities and stockholders' equity (deficit)	$ 616,117	$ 620,024

Condensed Consolidated Balance3

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Nov. 30, 2015	Aug. 31, 2015
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	69,025,000	67,249,000

Condensed Consolidated Statemen

Condensed Consolidated Statements Of Income - USD ($) $ in Thousands	3 Months Ended
	Nov. 30, 2015	Nov. 30, 2014
Revenues:
Company Drive-In sales	$ 103,883	$ 100,138
Franchise Drive-Ins:
Franchise royalties and fees	39,922	38,264
Lease revenue	1,592	1,065
Other	406	389
Total revenues	145,803	139,856
Costs and expenses:
Food and packaging	28,946	28,573
Payroll and other employee benefits	36,364	35,271
Other operating expenses, exclusive of depreciation and amortization included below	22,908	22,605
Total cost of Company Drive-In sales	88,218	86,449
Selling, general and administrative	20,940	18,788
Depreciation and amortization	10,999	11,660
Other operating (income) expense, net	(399)	421
Total costs and expenses	119,758	117,318
Income from operations	26,045	22,538
Interest expense	6,222	6,281
Interest income	(100)	(102)
Net interest expense	6,122	6,179
Income before income taxes	19,923	16,359
Provision for income taxes	7,465	6,274
Net income	$ 12,458	$ 10,085
Basic income per share	$ 0.25	$ 0.19
Diluted income per share	0.24	0.18
Cash dividends declared per common share	$ 0.11	$ 0.09

Condensed Consolidated Stateme5

Condensed Consolidated Statements Of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Nov. 30, 2015	Nov. 30, 2014
Cash flows from operating activities:
Net income	$ 12,458	$ 10,085
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,999	11,660
Stock-based compensation expense	956	952
Other	(722)	58
(Increase) decrease in operating assets:
Restricted cash	5,355	5,407
Accounts receivable and other assets	(105)	4,470
Increase (decrease) in operating liabilities:
Accounts payable	6,282	(179)
Accrued and other liabilities	(11,962)	(4,517)
Income taxes	2,507	5,763
Total adjustments	13,310	23,614
Net cash provided by operating activities	25,768	33,699
Cash flows from investing activities:
Purchases of property and equipment	(8,458)	(10,830)
Proceeds from sale of assets	1,615	605
Other	1,238	7,130
Net cash used in investing activities	(5,605)	(3,095)
Cash flows from financing activities:
Payments on debt	(32,948)	(2,447)
Proceeds from borrowings	78,000
Purchases of treasury stock	(49,572)	(20,425)
Proceeds from exercise of stock options	597	7,679
Payment of dividends	(5,448)	(4,795)
Other	(1,162)	(1,089)
Net cash used in financing activities	(10,533)	(21,077)
Net decrease in cash and cash equivalents	9,630	9,527
Cash and cash equivalents at beginning of period	27,191	35,694
Cash and cash equivalents at end of period	36,821	45,221
Non-cash investing and financing activities:
Change in obligation to acquire treasury stock	(2,457)	(233)
Change in obligation for purchase of property and equipment	$ 745	$ (1,625)

Basis Of Presentation

Basis Of Presentation	3 Months Ended
	Nov. 30, 2015
Basis Of Presentation [Abstract]
Basis Of Presentation	1. Basis of Presentation 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, 2015 , 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. 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, 2017, including interim periods within that reporting period. The update permits the use of either the retrospective or cumulative effect transition method, with early application not permitted. The Company is currently evaluating the effect that this pronouncement will have on its financial statements and related disclosures. In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” This update requires debt issuance costs to be presented in the balance sheet as a reduction of the related liability rather than an asset. This pronouncement is effective for reporting periods beginning after December 15, 2015, including interim periods within that reporting period, and is to be applied retrospectively; early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial statements. In April 2015, the FASB issued ASU No. 2015-05, “Customer's Accounting for Fees Paid in a Cloud Computing Arrangement.” The guidance provides clarification on whether a cloud computing arrangement includes a software license. If a software license is included, the customer should account for the license consistent with its accounting of other software licenses. If a software license is not included, the arrangement should be accounted for as a service contract. The update is effective for reporting periods beginning after December 15, 2015. The Company is currently evaluating the effect that this pronouncement will have on its financial statements and related disclosures. In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” as part of their simplification initiatives. The update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The update is effective for financial periods beginning after December 15, 2017; however, early application is permitted. The Company adopted this standard in the first quarter of fiscal year 2016. The Company’s current deferred tax asset balance of $2.2 million is classified as noncurrent and netted with noncurrent deferred tax liabilities as of November 30, 2016. No prior periods were retrospectively adjusted.

Earnings Per Share

Earnings Per Share	3 Months Ended
	Nov. 30, 2015
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, 2015 2014 Numerator: Net income $ $ Denominator: Weighted average common shares outstanding– basic Effect of dilutive employee stock options and unvested restricted stock units Weighted average common shares – diluted Net income per common share – basic $ $ Net income per common share – diluted $ $ Anti-dilutive securities excluded (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.

Share Repurchase Program

Share Repurchase Program	3 Months Ended
	Nov. 30, 2015
Share Repurchase Program [Abstract]
Share Repurchase Program	3. Share Repurchase Program In August 2015, the Company’s Board of Directors extended the Company’s share repurchase program, authorizing the Company to purchase up to $145 million of its outstanding shares of common stock to be repurchased through August 31, 2016. 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. During the first three months of fiscal year 2016, approximately 1.8 million shares were repurchased for a total cost of $47.1 million, resulting in an average price per share of $ 25.73 . The total remaining amount authorized under the share repurchase program, as of November 30, 2015 , was $ 79.1 million.

Income Taxes

Income Taxes	3 Months Ended
	Nov. 30, 2015
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, 2015 2014 Provision for income taxes $ $ Effective income tax rate % % The decrease in the Company’s effective income tax rate during the first quarter of fiscal year 2016 was primarily attributable to a federal tax benefit from a statutory tax deduction.

Contingencies

Contingencies	3 Months Ended
	Nov. 30, 2015
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 . 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, 2015 , the balance of the franchisee’s loan was $ 5.9 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, 2015 , the amount remaining under these guaranteed lease obligations totaled $ 7.5 million. At this time, the Company does not anticipate any material defaults under the foregoing leases; therefore, no liability has been provided.

Fair Value Of Financial Instrum

Fair Value Of Financial Instruments	3 Months Ended
	Nov. 30, 2015
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 $ 38.1 million at November 30, 2015 and $41.1 million at August 31, 2015 . This fair value is estimated using Level 1 inputs. At November 30, 2015 , 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 $ 425.6 million, including accrued interest. At November 30, 2015, the fair value of the Company’s Series 2011-1 Senior Secured Variable Funding Notes, Class A-1 (the “ 2011 Variable Funding Notes”) approximated the carrying value of $ 58.1 million, including accrued interest. The fair value of the 2011 Fixed Rate Notes, 2013 Fixed Rate Notes and 2011 Variable Funding 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.

Basis Of Presentation (Policy)

Basis Of Presentation (Policy)	3 Months Ended
	Nov. 30, 2015
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 Pronouncements	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, 2017, including interim periods within that reporting period. The update permits the use of either the retrospective or cumulative effect transition method, with early application not permitted. The Company is currently evaluating the effect that this pronouncement will have on its financial statements and related disclosures. In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” This update requires debt issuance costs to be presented in the balance sheet as a reduction of the related liability rather than an asset. This pronouncement is effective for reporting periods beginning after December 15, 2015, including interim periods within that reporting period, and is to be applied retrospectively; early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s financial statements. In April 2015, the FASB issued ASU No. 2015-05, “Customer's Accounting for Fees Paid in a Cloud Computing Arrangement.” The guidance provides clarification on whether a cloud computing arrangement includes a software license. If a software license is included, the customer should account for the license consistent with its accounting of other software licenses. If a software license is not included, the arrangement should be accounted for as a service contract. The update is effective for reporting periods beginning after December 15, 2015. The Company is currently evaluating the effect that this pronouncement will have on its financial statements and related disclosures. In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes” as part of their simplification initiatives. The update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The update is effective for financial periods beginning after December 15, 2017; however, early application is permitted. The Company adopted this standard in the first quarter of fiscal year 2016. The Company’s current deferred tax asset balance of $2.2 million is classified as noncurrent and netted with noncurrent deferred tax liabilities as of November 30, 2016. No prior periods were retrospectively adjusted.

Earnings Per Share (Tables)

Earnings Per Share (Tables)	3 Months Ended
	Nov. 30, 2015
Earnings Per Share [Abstract]
Computation Of Basic And Diluted Earnings Per Share	Three months ended November 30, 2015 2014 Numerator: Net income $ $ Denominator: Weighted average common shares outstanding– basic Effect of dilutive employee stock options and unvested restricted stock units Weighted average common shares – diluted Net income per common share – basic $ $ Net income per common share – diluted $ $ Anti-dilutive securities excluded (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.

Income Taxes (Tables)

Income Taxes (Tables)	3 Months Ended
	Nov. 30, 2015
Income Taxes [Abstract]
Schedule Of Provision (Benefit) For Income Taxes And Effective Income Tax Rate	Three months ended November 30, 2015 2014 Provision for income taxes $ $ Effective income tax rate % %

Earnings Per Share (Details)

Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		3 Months Ended
		Nov. 30, 2015	Nov. 30, 2014
Earnings Per Share [Abstract]
Net income		$ 12,458	$ 10,085
Weighted average common shares outstanding – basic		50,221	53,360
Effect of dilutive employee stock options and unvested restricted stock units		1,104	1,467
Weighted average common shares - diluted		51,325	54,827
Net income per common share - basic		$ 0.25	$ 0.19
Net income per common share - diluted		$ 0.24	$ 0.18
Anti-dilutive securities excluded	[1]	412	455
[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.

Share Repurchase Program (Detai

Share Repurchase Program (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended
	Nov. 30, 2015	Aug. 31, 2015
Share Repurchase Program [Abstract]
Shares repurchase authorized amount		$ 145
Shares acquired through stock repurchase program	1.8
Purchase of treasury stock	$ 47.1
Remaining amount authorized for repurchase through share repurchase program	$ 79.1
Weighted-average price per share	$ 25.73

Income Taxes (Schedule Of Provi

Income Taxes (Schedule Of Provision (Benefit) For Income Taxes And Effective Income Tax Rate) (Details) - USD ($) $ in Thousands	3 Months Ended
	Nov. 30, 2015	Nov. 30, 2014
Income Taxes [Abstract]
Provision for income taxes	$ 7,465	$ 6,274
Effective income tax rate	37.50%	38.40%

Contingencies (Details)

Contingencies (Details) $ in Millions	3 Months Ended
	Nov. 30, 2015USD ($)
Note Repurchase Agreement [Member]
Loss Contingencies [Line Items]
Guaranteed obligations	$ 5.9
Guarantor Obligations, Term	2,018
Guarantee Operating Lease Obligations [Member]
Loss Contingencies [Line Items]
Guaranteed obligations	$ 7.5
Guaranteed liability, carrying value	$ 0
Guarantor Obligations, Term	2,029

Fair Value Of Financial Instr19

Fair Value Of Financial Instruments (Narrative) (Details) - USD ($) $ in Millions	Nov. 30, 2015	Aug. 31, 2015
Fair Value Disclosure [Line Items]
Cash equivalents carried at cost	$ 38.1	$ 41.1
2013 and 2011 Fixed Rate Notes [Member]
Fair Value Disclosure [Line Items]
Long-term Debt, fair Value	425.6
Long-term debt, carrying value, including accrued interest	425.6
2011 Variable Rate Notes [Member]
Fair Value Disclosure [Line Items]
Long-term Debt, fair Value	58.1
Long-term debt, carrying value, including accrued interest	$ 58.1