8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-KCURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

March 27, 2018

Date of Report (Date of earliest event reported)

SONIC CORP.

(Exact name of registrant as specified in its charter)

Delaware	0-18859	73-1371046
(State or other jurisdiction of	(Commission File Number)	(I.R.S.EmployerIdentification 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)

Check the appropriate box below if the form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[   ]	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[   ]	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[   ]	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[   ]	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter):

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Item2.02    Results of Operations and Financial Condition.

On March 27, 2018, Sonic Corp. (the “Registrant”) issued a press release announcing results for its second quarter of fiscal 2018. The information in the press release attached hereto as Exhibit 99 is furnished pursuant to this Item 2.02.

Item 9.01. Financial Statements and Exhibits.

(d)    Exhibits.

Exhibit No.	Description
99	Press Release, dated March 27, 2018, announcing results for the second quarter of fiscal 2018

SIGNATURE

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 hereunto duly authorized.

	REGISTRANT:
	SONIC CORP.
Date: March 27, 2018	By: /s/ Corey R. Horsch
	Corey R. Horsch,
	Vice President, Chief Financial Officer and Treasurer

EX-99

Contact:	Corey Horsch
	Vice President, Chief Financial Officer
	and Treasurer
	(405) 225-4800

SONIC REPORTS SECOND FISCAL QUARTER 2018 EARNINGS PER SHARE GROWTH

OKLAHOMA CITY (March 27, 2018) - Sonic Corp. (NASDAQ: SONC), the nation’s largest chain of drive-in restaurants, today announced results for its second fiscal quarter ended February 28, 2018.

Key highlights of the company’s second quarter of fiscal year 2018 included:

• Net income per diluted share increased 104% to $0.51 versus $0.25 in the prior-year period; adjusted net income per diluted share increased 13% to $0.17 versus $0.15 in the prior-year period;

• System same-store sales declined 2.9%, consisting of a 2.8%same-store sales decrease at franchise drive-ins and a 3.7% decrease at company drive-ins;

• Company drive-in margins were favorable by 40 basis points;

• 8 new drive-ins opened; and

• The company repurchased 1.2 million outstanding shares.

“Our second quarter same-store sales decline reflected unfavorable weather and continued aggressive discounting by the competition. Excluding the impact of weather, which was a particular challenge in January and February, same-store sales were flat, consistent with the first quarter and indicative of stable underlying sales performance during the first half of our fiscal year,” said Cliff Hudson, Sonic Corp. CEO. “We continued to support a simplified everyday value message via the Drive-In Duo in December and January, which featured a cheeseburger and shake for $3.99, and a Quarter-Pound Jr. Double Cheeseburger and Tots for $2.99 in February. These types of broadly appealing value offerings provide a compelling price point and highlight Sonic’s quality differentiation.

“Looking at the second half of fiscal 2018, updated media strategies are now in the marketplace, including new television creative, an increased number of consumer impressions and a retooled digital presence on both social media and proprietary channels. On the new product front, our Signature Slinger launched to considerable fanfare, inviting guests to enjoy a savory burger with none of the guilt; and our Pretzel Twist has been very well received by customers. March also saw the launch of the first full-market rollout of mobile order ahead, backed by the complete integration of digital and traditional marketing tools, which has shown strong operational results in the first few weeks. We expect this relentless focus on delighting our core guest to generate improved traffic, accelerating operating profit growth and generating strong free cash flow for shareholders.

“Finally, we continue to optimize our capital structure. During the quarter, we repurchased 1.2 million shares, bringing the total to 2.8 million shares through the first half of fiscal year 2018, or 6% of shares outstanding. Our targeted leverage range remains 3.5-4.5x net-debt-to-EBITDA, and we anticipate concluding the year at the higher end of the range.”

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Financial Overview

For the second fiscal quarter of 2018, the company’s net income totaled $19.6 million or $0.51 per diluted share compared to net income of $11.0 million or $0.25 per diluted share in the same period of the prior year. Excluding the items outlined below, net income decreased 1% and net income per diluted share totaled $0.17. The lower tax rate resulting from federal tax reform benefitted adjusted earnings per share by approximately $0.04. Excluding the total impact of federal tax reform, adjusted net income per diluted share declined 13% to $0.13 in the second quarter.

The following analysis of non-GAAP adjustments is intended to supplement the presentation of the company’s financial results in accordance with GAAP.  The company believes the presentation of this analysis provides useful information to investors and management regarding the underlying business trends and the performance of the company’s 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 of the company and predicting future performance.

(In thousands, except per share amounts)

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	Three months ended						Three months ended
	February 28, 2018						February 28, 2017
	Net			Diluted			Net			Diluted			Net Income					Diluted EPS
	Income			EPS			Income			EPS			$ Change			% Change		$ Change		% Change
Reported – GAAP	$	19,607		$	0.51		$	10,963		$	0.25		$	8,644		79	%	$	0.26	104	%
Payment card breach expense (1)	228			0.01			—			—
Tax impact on payment card breach expense (2)	(67		)	0.00			—			—
Loss from debt transactions (3)	1,310			0.03			—			—
Tax impact on debt transactions (2)	(384		)	(0.01		)	—			—
Discrete impact of the Tax Cuts and Jobs Act	(14,120		)	(0.36		)	—			—
Net gain on refranchising transactions (4)	—			—			(6,788		)	(0.15		)
Tax impact on refranchising transactions (5)	—			—			2,445			0.05
Adjusted - Non-GAAP (6)	$	6,574		$	0.17		$	6,620		$	0.15		$	(46	)	(1	)%	$	0.02	13	%

________________

(1) Costs include legal fees, investigative fees and costs related to customer response.

(2) Tax impact during the period at a consolidated blended statutory tax rate of 29.3%.

(3) Includes a $0.7 million write-off of unamortized deferred loan fees related to the reduction of the company's variable funding note commitments, as well as a $0.4 million write-off of unamortized deferred loan fees related to the prepayment on its 2013 Fixed Rate Notes and 2016 Fixed Rate Notes. Additionally, as required by the terms of the 2016 Fixed Rate Notes, we paid a $0.2 million prepayment premium.

(4) During the second quarter of fiscal year 2017, we completed transactions to refranchise the operations of 54 company drive-ins.

(5) Tax impact during the period at an effective tax rate of 36.0%.

(6) Sum of per share data may not agree to the total amounts due to rounding.

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For the first six months of fiscal year 2018, the company’s net income totaled $31.0 million or $0.79 per diluted share compared to net income of $24.1 million or $0.53 per diluted share in the same period of the prior year. Excluding the items outlined below, net income increased 3% and net income per diluted share increased 21% to $0.47. The lower tax rate resulting from federal tax reform benefitted adjusted earnings per share by approximately $0.04. Excluding the total impact of federal tax reform, adjusted net income per diluted share improved 10% to $0.43 in the first six months of fiscal year 2018.

	Six months ended						Six months ended
	February 28, 2018						February 28, 2017
	Net			Diluted			Net			Diluted			Net Income				Diluted EPS
	Income			EPS			Income			EPS			$ Change		% Change		$ Change		% Change
Reported – GAAP	$	31,037		$	0.79		$	24,081		$	0.53		$	6,956	29	%	$	0.26	49	%
Payment card breach expense (1)	870			0.02			—			—
Tax impact on payment card breach expense (2)	(312		)	(0.01		)	—			—
Loss from debt transactions (3)	1,310			0.03			—			—
Tax impact on debt transactions (4)	(384		)	(0.01		)	—			—
Discrete impact of the Tax Cuts and Jobs Act	(14,120		)	(0.36		)
Net gain on refranchising transactions (5)	—			—			(5,831		)	(0.13		)
Tax impact on refranchising transactions (6)	—			—			2,105			0.04
Gain on sale of investment in refranchised drive-in operations (7)	—			—			(3,795		)	(0.08		)
Tax impact on sale of investment in refranchised drive-in operations (8)	—			—			1,350			0.03
Adjusted - Non-GAAP (9)	$	18,401		$	0.47		$	17,910		$	0.39		$	491	3	%	$	0.08	21	%

________________

(1) Costs include legal fees, investigative fees and costs related to customer response.

(2) Combined tax impact at consolidated blended statutory tax rates of 38.2% and 29.3% during the first and second quarters of fiscal year 2018, respectively.

(3) Includes a $0.7 million write-off of unamortized deferred loan fees related to the reduction of the company's variable funding note commitments, as well as a $0.4 million write-off of unamortized deferred loan fees related to the prepayment on its 2013 Fixed Rate Notes and 2016 Fixed Rate Notes. Additionally, as required by the terms of the 2016 Fixed Rate Notes, we paid a $0.2 million prepayment premium.

(4) Tax impact during the period at a consolidated blended statutory tax rate of 29.3%.

(5) During the first and second quarters of fiscal year 2017, we completed transactions to refranchise the operations of 110 company drive-ins.

(6) Combined tax impact at effective tax rates of 35.6% and 36.0% during the first and second quarters of fiscal year 2017, respectively.

(7) Gain on sale of investment in refranchised drive-ins is related to minority investments in franchise operations retained as part of a refranchising transaction that occurred in fiscal year 2009.

(8) Tax impact during the period at an adjusted effected tax rate of 35.6%.

(9) Sum of per share data may not agree to the total amounts due to rounding.

Fiscal Year 2018Outlook

While the macroeconomic environment may impact results, the company now expects adjusted earnings per share for fiscal year 2018 to be between $1.43 and $1.50 inclusive of tax reform. Excluding the impact of tax reform, the company expects an increase of 2% to 7% year over year. The outlook for fiscal 2018 anticipates the following elements:

• Same-store sales for the system to be down 1% to up 1% year over year;

• Royalty revenue growth from new unit development;

• 55 to 65 new franchise drive-in openings;

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• Drive-in-level margins of 15.0% to 15.5%, depending upon the degree of same-store sales growth at company drive-ins;

• Selling, general and administrative expenses of $76 million to $78 million;

• Depreciation and amortization expense of $39 million to $41 million;

• Net interest expense of $32 million to $34 million;

• Capital expenditures of approximately $40 million;

• Free cash flow⁽¹⁾ of $60 million to $63 million;

• An income tax rate of approximately 25.0% to 26.0%;

• The repurchase of approximately $160 million in shares across the fiscal year; and

• An expected quarterly cash dividend of $0.16 per share.

Earnings Conference Call

The company will host a conference call to review financial results at 5:00 PM ET this evening.  The conference call can be accessed live over the phone by dialing (800) 263-0877 or (323) 794-2094 for international callers.  A replay will be available one hour after the call and can be accessed by dialing (844) 512-2921 or (412) 317-6671 for international callers; the conference ID is 4289913.  The replay will be available until Tuesday, April 3, 2018.  An online replay of the conference call will be available approximately two hours after the conclusion of the live broadcast. A link to this event will be available on the investor section of the company's website, sonicdrivein.com.

About Sonic

SONIC, America's Drive-In is the nation's largest drive-in restaurant chain serving approximately 3 million customers every day. Nearly 94 percent of SONIC's 3,500 drive-in locations are owned and operated by local business men and women. For 64 years, SONIC has delighted guests with signature menu items, 1.3 million drink combinations and friendly service by iconic Carhops. Since the 2009 launch of SONIC's Limeades for Learning philanthropic campaign in partnership with DonorsChoose.org, SONIC has donated $9.5 million to public school teachers nationwide to fund essential learning materials and innovative teaching resources to inspire creativity and learning in their students. To learn more about Sonic Corp. (NASDAQ/NM: SONC), please visit sonicdrivein.com and please visit or follow us on Facebook and Twitter. To learn about SONIC's Limeades for Learning initiative, please visit LimeadesforLearning.com.

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements reflect management’s expectations regarding future events and operating performance and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from those expressed in, or underlying, these forward-looking statements are detailed in the company’s annual and quarterly report filings with the Securities and Exchange Commission. The company undertakes no obligation to publicly release revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.

The tables that follow provide information regarding the number of company drive-ins, franchise drive-ins and system drive-ins in operation as of the end of the periods indicated.  In addition, these tables provide information regarding franchise sales, system growth in sales, and both franchise and system average drive-in sales and change in same-store sales.  System information includes both company and franchise drive-in information, which we believe is useful in analyzing the growth of our brand.  While we do not record franchise drive-in sales as revenues, we believe this information is important in understanding our financial performance since we calculate and record franchise royalties based on a percentage of franchise sales.  This information also is indicative of the financial health of our franchisees.

SONC-F

(1) Free cash flow is defined as net income plus depreciation, amortization and stock compensation expenses, less capital expenditures net of spending on build-to-suit drive-in development.

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SONIC CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
	Three months ended February 28,						Six months ended February 28,
	2018			2017			2018			2017
Revenues:
Company Drive-In sales	$	53,090		$	64,286		$	115,630		$	151,438
Franchise Drive-Ins:
Franchise royalties and fees	33,737			34,328			74,515			74,467
Lease revenue	1,401			1,675			3,085			3,056
Other	(126		)	(131		)	300			748
Total revenues	88,102			100,158			193,530			229,709
Costs and expenses:
Company Drive-Ins:
Food and packaging	14,601			17,616			32,314			41,732
Payroll and other employee benefits	21,083			25,332			43,857			57,098
Other operating expenses, exclusive of depreciation and amortization included below	11,370			14,278			24,949			33,704
Total cost of Company Drive-In sales	47,054			57,226			101,120			132,534
Selling, general and administrative	16,846			18,296			36,615			38,050
Depreciation and amortization	9,560			9,734			18,926			20,011
Other operating income, net	(272		)	(7,725		)	(493		)	(10,565		)
Total costs and expenses	73,188			77,531			156,168			180,030
Income from operations	14,914			22,627			37,362			49,679
Interest expense	8,138			7,227			15,813			14,416
Interest income	(455		)	(262		)	(837		)	(756		)
Loss from debt transactions	1,310			—			1,310			—
Net interest expense	8,993			6,965			16,286			13,660
Income before income taxes	5,921			15,662			21,076			36,019
Provision for income taxes	(13,686		)	4,699			(9,961		)	11,938
Net income	$	19,607		$	10,963		$	31,037		$	24,081
Basic income per share	$	0.51		$	0.25		$	0.80		$	0.54
Diluted income per share	$	0.51		$	0.25		$	0.79		$	0.53
Weighted average basic shares	38,284			43,794			38,806			44,757
Weighted average diluted shares	38,697			44,550			39,291			45,547

໿

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SONIC CORP.
Unaudited Supplemental Information
	Three months ended February 28,				Six months ended February 28,
	2018		2017		2018		2017
Drive-Ins in Operation:
Company:
Total at beginning of period	228		286		228		345
Opened	—		1		—		1
Sold to franchisees	(6	)	(54	)	(6	)	(110	)
Closed (net of re-openings)	—		—		—		(3	)
Total at end of period	222		233		222		233
Franchise:
Total at beginning of period	3,360		3,273		3,365		3,212
Opened	8		9		13		23
Acquired from the company	6		54		6		110
Closed (net of re-openings)	(9	)	(7	)	(19	)	(16	)
Total at end of period	3,365		3,329		3,365		3,329
System:
Total at beginning of period	3,588		3,559		3,593		3,557
Opened	8		10		13		24
Closed (net of re-openings)	(9	)	(7	)	(19	)	(19	)
Total at end of period	3,587		3,562		3,587		3,562

	Three months ended February 28,						Six months ended February 28,
	2018			2017			2018			2017
Sales Analysis:
Company Drive-Ins:
Total sales	$	53,090		$	64,286		$	115,630		$	151,438
Average drive-in sales	234			236			508			506
Change in same-store sales	(3.7		)%	(8.9		)%	(3.4		)%	(5.5		)%
Franchised Drive-Ins:
Total sales	$	851,183		$	856,514		$	1,848,318		$	1,830,399
Average drive-in sales	256			262			557			566
Change in same-store sales	(2.8		)%	(7.3		)%	(2.1		)%	(4.5		)%
System:
Change in total sales	(1.8		)%	(6.2		)%	(0.9		)%	(3.5		)%
Average drive-in sales	$	255		$	260		$	554		$	561
Change in same-store sales	(2.9		)%	(7.4		)%	(2.2		)%	(4.6		)%

Note:  Change in same-store sales based on restaurants open for a minimum of 15 months.

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SONIC CORP.
Unaudited Supplemental Information
	Three months ended February 28,						Six months ended February 28,
	2018			2017			2018		2017
	(In thousands)
Revenues:
Company Drive-In sales	$	53,090		$	64,286		$	115,630	$	151,438
Franchise Drive-Ins:
Franchise royalties	33,595			34,138			74,222		74,021
Franchise fees	142			190			293		446
Lease revenue	1,401			1,675			3,085		3,056
Other	(126		)	(131		)	300		748
Total revenues	$	88,102		$	100,158		$	193,530	$	229,709

	Three months ended February 28,				Six months ended February 28,
	2018		2017		2018		2017
Margin Analysis (percentage of Company Drive-In sales):
Company Drive-Ins:
Food and packaging	27.5	%	27.4	%	28.0	%	27.6	%
Payroll and employee benefits	39.7		39.4		37.9		37.7
Other operating expenses	21.4		22.2		21.6		22.2
Cost of Company Drive-In sales	88.6	%	89.0	%	87.5	%	87.5	%

	February 28,			August 31,
	2018			2017
	(In thousands)
Selected Balance Sheet Data:
Cash and cash equivalents	$	64,238		$	22,340
Current assets	122,010			89,184
Property, equipment and capital leases, net	310,123			312,380
Total assets	$	561,536		$	561,744
Current liabilities, including capital lease obligations and long-term debt due within one year	$	48,579		$	58,616
Obligations under capital leases due after one year	14,283			16,167
Long-term debt due after one year, net of debt issuance costs	706,534			628,116
Total liabilities	814,271			763,502
Stockholders' deficit	$	(252,735	)	$	(201,758	)

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The following analysis of non-GAAP adjustments is intended to supplement the presentation of the company’s financial results in accordance with GAAP.  The company believes the presentation of this analysis provides useful information to investors and management regarding the underlying business trends and the performance of the company’s 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 of the company and predicting future performance.

(In thousands)

	Three months ended February 28, 2018										Three months ended February 28, 2017
	Reported GAAP			Adjustments				Adjusted Non-GAAP			Reported GAAP			Adjustments				Adjusted Non-GAAP
Total Revenues	$	88,102		$	—			$	88,102		$	100,158		$	—			$	100,158
Total cost of Company Drive-in sales	47,054			—				47,054			57,226			—				57,226
Selling, general and administrative	16,846			(228		)	(1)	16,618			18,296			—				18,296
Depreciation and amortization	9,560			—				9,560			9,734			—				9,734
Other operating income, net	(272		)	—				(272		)	(7,725		)	6,788			(2)	(937		)
Total cost and expenses	73,188			(228		)		72,960			77,531			6,788				84,319
Income from Operations	$	14,914		$	228			$	15,142		$	22,627		$	(6,788	)		$	15,839

________________

(1) Payment card breach expenses recorded in the second quarter of fiscal year 2018.

(2) Includes the $6,788 thousand pretax gain on refranchising transactions.

	Six months ended February 28, 2018										Six months ended February 28, 2017
	Reported GAAP			Adjustments				Adjusted Non-GAAP			Reported GAAP			Adjustments				Adjusted Non-GAAP
Total Revenues	$	193,530		$	—			$	193,530		$	229,709		$	—			$	229,709
Total cost of Company Drive-in sales	101,120			—				101,120			132,534			—				132,534
Selling, general and administrative	36,615			(870		)	(1)	35,745			38,050			—				38,050
Depreciation and amortization	18,926			—				18,926			20,011			—				20,011
Other operating income, net	(493		)	—				(493		)	(10,565		)	9,626			(2)	(939		)
Total cost and expenses	156,168			(870		)		155,298			180,030			9,626				189,656
Income from Operations	$	37,362		$	870			$	38,232		$	49,679		$	(9,626	)		$	40,053

________________

(1) Payment card breach expenses recorded in the first and second quarters of fiscal year 2018.

(2) Includes the $5,831 thousand pretax net gain on refranchising transactions during the first and second quarters of fiscal year 2017 and the $3,795 thousand pretax gain on the sale of investment in refranchised drive-in operations during the first quarter of fiscal year 2017.

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