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Delaware
(State or other jurisdiction of
incorporation or organization)
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73-1371046
(I.R.S.
Employer Identification No.)
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300 Johnny Bench Drive
Oklahoma City, Oklahoma
(Address of
principal
executive
offices)
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73104
(Zip Code)
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Large accelerated filer ☒
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Accelerated filer ☐
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Non-accelerated filer ☐ (Do not check if a smaller reporting company)
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Smaller reporting company ☐
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Emerging growth company ☐
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Page
Number
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Item 1.
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Item 2.
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Item 3.
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Item 4.
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Item 1.
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Item 1A.
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Item 2.
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Item 6.
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February 28,
2018 |
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August 31,
2017 |
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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64,238
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$
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22,340
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Restricted cash
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10,367
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19,736
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Accounts and notes receivable, net
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32,073
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33,758
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Prepaid expenses
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11,809
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5,455
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Other current assets
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3,523
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7,895
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Total current assets
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122,010
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89,184
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Noncurrent restricted cash
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8,729
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42,120
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Notes receivable, net
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14,128
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9,801
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Property, equipment and capital leases
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621,930
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616,001
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Less accumulated depreciation and amortization
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(311,807
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)
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(303,621
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)
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Property, equipment and capital leases, net
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310,123
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312,380
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Goodwill
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75,733
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75,756
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Debt origination costs, net
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1,407
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2,439
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Other assets, net
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29,406
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30,064
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Total assets
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$
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561,536
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$
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561,744
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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Current liabilities:
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Accounts payable
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$
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10,569
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$
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9,213
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Franchisee deposits
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705
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1,093
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Accrued liabilities
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34,719
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44,846
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Current maturities of long-term debt and capital leases
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2,586
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3,464
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Total current liabilities
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48,579
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58,616
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Obligations under capital leases due after one year
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14,283
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16,167
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Long-term debt, net
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706,534
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628,116
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Deferred income taxes
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26,205
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40,101
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Other non-current liabilities
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18,670
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20,502
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Total non-current liabilities
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765,692
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704,886
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Stockholders’ deficit:
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Preferred stock, par value $.01; 1,000 shares authorized; none outstanding
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—
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—
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Common stock, par value $.01; 245,000 shares authorized; 118,309 shares issued (118,309 shares issued at August 31, 2017)
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1,183
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1,183
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Paid-in capital
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235,088
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236,895
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Retained earnings
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952,708
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934,017
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Treasury stock, at cost; 80,638 shares (78,081 shares at August 31, 2017)
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(1,441,714
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)
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(1,373,853
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)
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Total stockholders’ deficit
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(252,735
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)
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(201,758
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)
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Total liabilities and stockholders’ deficit
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$
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561,536
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$
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561,744
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Three months ended
February 28, |
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Six months ended
February 28, |
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2018
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2017
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2018
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2017
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Revenues:
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Company Drive-In sales
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$
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53,090
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$
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64,286
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$
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115,630
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$
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151,438
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Franchise Drive-Ins:
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Franchise royalties and fees
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33,737
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34,328
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74,515
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74,467
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Lease revenue
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1,401
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1,675
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3,085
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3,056
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Other
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(126
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)
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(131
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)
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300
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748
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Total revenues
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88,102
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100,158
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193,530
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229,709
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Costs and expenses:
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Company Drive-Ins:
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Food and packaging
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14,601
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17,616
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32,314
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41,732
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Payroll and other employee benefits
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21,083
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25,332
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43,857
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57,098
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Other operating expenses, exclusive of depreciation and amortization included below
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11,370
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14,278
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24,949
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33,704
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Total cost of Company Drive-In sales
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47,054
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57,226
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101,120
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132,534
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Selling, general and administrative
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16,846
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18,296
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36,615
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38,050
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Depreciation and amortization
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9,560
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9,734
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18,926
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20,011
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Other operating income, net
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(272
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)
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(7,725
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)
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(493
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)
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(10,565
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)
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Total costs and expenses
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73,188
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77,531
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156,168
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180,030
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Income from operations
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14,914
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22,627
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37,362
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49,679
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Interest expense
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8,138
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7,227
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15,813
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14,416
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Interest income
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(455
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)
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(262
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)
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(837
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)
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(756
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)
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Loss from debt transactions
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1,310
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—
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1,310
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—
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Net interest expense
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8,993
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6,965
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16,286
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13,660
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Income before income taxes
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5,921
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|
15,662
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21,076
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|
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36,019
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Provision for income taxes
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(13,686
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)
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4,699
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(9,961
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)
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11,938
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|
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Net income
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$
|
19,607
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$
|
10,963
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$
|
31,037
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$
|
24,081
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Basic income per share
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|
$
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0.51
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$
|
0.25
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$
|
0.80
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|
|
$
|
0.54
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|
Diluted income per share
|
|
$
|
0.51
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|
|
$
|
0.25
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|
|
$
|
0.79
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|
|
$
|
0.53
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|
|
|
|
|
|
|
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|
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Cash dividends declared per common share
|
|
$
|
0.16
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|
|
$
|
0.14
|
|
|
$
|
0.32
|
|
|
$
|
0.28
|
|
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Six months ended
February 28, |
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2018
|
|
2017
|
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Cash flows from operating activities:
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|
|
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Net income
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|
$
|
31,037
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|
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$
|
24,081
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
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Depreciation and amortization
|
|
18,926
|
|
|
20,011
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|
||
Stock-based compensation expense
|
|
2,071
|
|
|
1,802
|
|
||
Loss from debt transactions
|
|
1,310
|
|
|
—
|
|
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Provision (benefit) for deferred income taxes
|
|
(13,895
|
)
|
|
(355
|
)
|
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Other
|
|
691
|
|
|
(9,617
|
)
|
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Change in operating assets and liabilities:
|
|
|
|
|
|
|
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(Increase) decrease in restricted cash
|
|
10,072
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|
|
7,159
|
|
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(Increase) decrease in accounts receivable and other assets
|
|
2,220
|
|
|
4,621
|
|
||
Increase (decrease) in accounts payable
|
|
1,444
|
|
|
(941
|
)
|
||
Increase (decrease) in accrued and other liabilities
|
|
(8,895
|
)
|
|
(15,605
|
)
|
||
Increase (decrease) in income taxes
|
|
(5,365
|
)
|
|
(3,581
|
)
|
||
Total adjustments
|
|
8,579
|
|
|
3,494
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|
||
Net cash provided by operating activities
|
|
39,616
|
|
|
27,575
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|
|
|
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Cash flows from investing activities:
|
|
|
|
|
|
|
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Purchases of property and equipment
|
|
(18,163
|
)
|
|
(27,772
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)
|
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Proceeds from sale of assets
|
|
4,990
|
|
|
27,073
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|
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Proceeds from sale of investment in refranchised drive-in operations
|
|
—
|
|
|
8,354
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|
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Issuance of notes receivable
|
|
(11,648
|
)
|
|
(944
|
)
|
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Collections on notes receivable
|
|
4,868
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|
|
7,934
|
|
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Other
|
|
366
|
|
|
4,589
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|
||
Net cash provided by (used in) investing activities
|
|
(19,587
|
)
|
|
19,234
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|
|
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Cash flows from financing activities:
|
|
|
|
|
|
|
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Purchases of treasury stock
|
|
(73,003
|
)
|
|
(97,318
|
)
|
||
Payment of dividends
|
|
(12,322
|
)
|
|
(12,431
|
)
|
||
Payments on debt
|
|
(171,000
|
)
|
|
(4,416
|
)
|
||
Proceeds from borrowings
|
|
253,000
|
|
|
29,000
|
|
||
Restricted cash for securitization obligations
|
|
32,688
|
|
|
332
|
|
||
Debt issuance costs and prepayment premiums
|
|
(5,116
|
)
|
|
(10
|
)
|
||
Proceeds from exercise of stock options
|
|
1,635
|
|
|
1,792
|
|
||
Other
|
|
(4,013
|
)
|
|
(1,960
|
)
|
||
Net cash provided by (used in) financing activities
|
|
21,869
|
|
|
(85,011
|
)
|
||
|
|
|
|
|
|
|
||
Net increase (decrease) in cash and cash equivalents
|
|
41,898
|
|
|
(38,202
|
)
|
||
Cash and cash equivalents at beginning of period
|
|
22,340
|
|
|
72,092
|
|
||
Cash and cash equivalents at end of period
|
|
$
|
64,238
|
|
|
$
|
33,890
|
|
|
|
|
|
|
|
|
||
Supplemental cash flow information
|
|
|
|
|
|
|
||
Cash paid during the period for:
|
|
|
|
|
|
|
||
Interest
|
|
$
|
14,296
|
|
|
$
|
13,410
|
|
Income taxes (net of refunds)
|
|
9,299
|
|
|
15,857
|
|
||
Non-cash investing and financing activities:
|
|
|
|
|
|
|
||
Net additions to capital lease obligations
|
|
$
|
97
|
|
|
$
|
1,433
|
|
Change in obligation to acquire treasury stock
|
|
(1,521
|
)
|
|
215
|
|
||
Stock options exercised by swap
|
|
2,697
|
|
|
—
|
|
1.
|
Basis
of
Presentation
|
2.
|
Earnings Per Share
|
|
|
Three months ended
February 28, |
|
Six months ended
February 28, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Numerator:
|
|
|
|
|
|
|
|
|
||||||||
Net income
|
|
$
|
19,607
|
|
|
$
|
10,963
|
|
|
$
|
31,037
|
|
|
$
|
24,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average common shares outstanding– basic
|
|
38,284
|
|
|
43,794
|
|
|
38,806
|
|
|
44,757
|
|
||||
Effect of dilutive employee stock options and unvested restricted stock units
|
|
413
|
|
|
756
|
|
|
485
|
|
|
790
|
|
||||
Weighted average common shares outstanding – diluted
|
|
38,697
|
|
|
44,550
|
|
|
39,291
|
|
|
45,547
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income per common share – basic
|
|
$
|
0.51
|
|
|
$
|
0.25
|
|
|
$
|
0.80
|
|
|
$
|
0.54
|
|
Net income per common share – diluted
|
|
$
|
0.51
|
|
|
$
|
0.25
|
|
|
$
|
0.79
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive securities excluded
(1)
|
|
1,417
|
|
|
1,100
|
|
|
1,352
|
|
|
961
|
|
(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
|
4.
|
Income Taxes
|
|
|
Three months ended
February 28, |
|
Six months ended
February 28, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Provision for income taxes
|
|
$
|
(13,686
|
)
|
|
$
|
4,699
|
|
|
$
|
(9,961
|
)
|
|
$
|
11,938
|
|
Effective income tax rate
|
|
(231.1
|
)%
|
|
30.0
|
%
|
|
(47.3
|
)%
|
|
33.1
|
%
|
•
|
Effective January 1, 2018, the U.S. corporate federal statutory income tax rate was reduced from
35%
to
21%
. Because of our fiscal year end, the Company's statutory federal tax rate is
25.7%
for fiscal year 2018 and
21%
for fiscal year 2019 and thereafter.
|
•
|
The Company remeasured its existing deferred tax assets and liabilities at the rate the Company expects to be in effect when those deferred taxes will be realized (either
25.7%
if in 2018 or
21.0%
thereafter). The Company recognized a discrete benefit from the deferred tax remeasurement of approximately
$14.1
million in the second quarter of fiscal year 2018.
|
|
Six months ended
February 28, 2018 |
|
Six months ended
February 28, 2017 |
||
U.S. federal statutory income tax rate
|
25.7
|
%
|
|
35.0
|
%
|
State income taxes, net of federal tax benefit
|
3.9
|
%
|
|
2.9
|
%
|
Federal tax benefit of statutory tax deduction
|
(1.5
|
)%
|
|
(1.4
|
)%
|
Employment related and other tax credits, net
|
(1.6
|
)%
|
|
(1.7
|
)%
|
Stock option excess tax benefit
|
(6.6
|
)%
|
|
(2.1
|
)%
|
Deferred tax revaluation
|
(67.0
|
)%
|
|
—
|
%
|
Other
|
(0.2
|
)%
|
|
0.4
|
%
|
Effective tax rate
|
(47.3
|
)%
|
|
33.1
|
%
|
5.
|
Accounts and Notes Receivable
|
|
|
February 28,
2018 |
|
August 31,
2017 |
||||
Current accounts and notes receivable:
|
|
|
|
|
||||
Royalties and other trade receivables
|
|
$
|
15,591
|
|
|
$
|
19,571
|
|
Notes receivable from franchisees
|
|
1,966
|
|
|
1,441
|
|
||
Receivables from system funds
|
|
8,540
|
|
|
6,360
|
|
||
Other
|
|
6,934
|
|
|
7,475
|
|
||
Accounts and notes receivable, gross
|
|
33,031
|
|
|
34,847
|
|
||
Allowance for doubtful accounts and notes receivable
|
|
(958
|
)
|
|
(1,089
|
)
|
||
Current accounts and notes receivable, net
|
|
$
|
32,073
|
|
|
$
|
33,758
|
|
|
|
|
|
|
|
|
||
Noncurrent notes receivable:
|
|
|
|
|
|
|
||
Receivables from franchisees
|
|
$
|
8,541
|
|
|
$
|
6,810
|
|
Receivables from system funds
|
|
5,692
|
|
|
3,033
|
|
||
Allowance for doubtful notes receivable
|
|
(105
|
)
|
|
(42
|
)
|
||
Noncurrent notes receivable, net
|
|
$
|
14,128
|
|
|
$
|
9,801
|
|
6.
|
Contingencies
|
7.
|
Fair Value of Financial Instruments
|
•
|
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.
|
8.
|
Debt
|
9.
|
Other Operating Income
|
10.
|
Refranchising Initiative
|
|
Three months ended
February 28, 2017 |
|
Six months ended
February 28, 2017 |
||||
Number of refranchised Company Drive-Ins
|
54
|
|
|
110
|
|
||
|
|
|
|
||||
Proceeds from sales of Company Drive-Ins
|
$
|
11,086
|
|
|
$
|
20,036
|
|
|
|
|
|
||||
Assets sold, net of retained minority investment
(1)
|
(3,277
|
)
|
|
(8,738
|
)
|
||
Initial and subsequent lease payments for real estate option
(2)
|
414
|
|
|
(3,396
|
)
|
||
Goodwill related to sales of Company Drive-Ins
|
(589
|
)
|
|
(966
|
)
|
||
Deferred gain for real estate option
(3)
|
(1,040
|
)
|
|
(1,040
|
)
|
||
Gain (loss) on assets held for sale
|
194
|
|
|
(65
|
)
|
||
Refranchising initiative gains, net
|
$
|
6,788
|
|
|
$
|
5,831
|
|
(1)
|
Net assets sold consisted primarily of equipment.
|
(2)
|
During the first quarter of fiscal year 2017, as part of a
53
drive-in refranchising transaction, the Company entered into a direct financing lease which included an option for the franchisee to purchase the real estate within the next 24 months. In accordance with lease accounting requirements, because the exercise of this option could occur at any time within 24 months, the portion of the proceeds from the refranchising attributable to the fair value of the option was applied as the initial minimum lease payment for the real estate. The franchisee exercised the option in the last six months of fiscal year 2017. Until the option was fully exercised, the franchisee made monthly lease payments which were included in other operating income, net of sub-lease expense.
|
(3)
|
The deferred gain of
$1.0 million
is recorded in other non-current liabilities as a result of a real estate purchase option extended to the franchisee in the second quarter of fiscal year 2017. The deferred gain will continue to be amortized into income through January 2020 when the option becomes exercisable.
|
System Performance
($ in thousands) |
||||||||||||||||
|
|
|
|
|
||||||||||||
|
|
Three months ended
February 28, |
|
Six months ended
February 28, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
Increase (decrease) in total sales
|
|
(1.8
|
)%
|
|
(6.2
|
)%
|
|
(0.9
|
)%
|
|
(3.5
|
)%
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
System drive-ins in operation
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|||||
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
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Average sales per drive-in
|
|
$
|
255
|
|
|
$
|
260
|
|
|
$
|
554
|
|
|
$
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in same-store sales
(2)
|
|
(2.9
|
)%
|
|
(7.4
|
)%
|
|
(2.2
|
)%
|
|
(4.6
|
)%
|
(1)
|
Drive-ins that are temporarily closed for various reasons (repairs, remodeling, relocations, etc.) are not considered closed unless the Company determines they are unlikely to reopen within a reasonable time.
|
(2)
|
Represents percentage change for drive-ins open for a minimum of 15 months.
|
Revenues
($ in thousands)
|
|||||||||||||||
|
|
|
|
|
|
|
|||||||||
|
|
Three months ended
February 28, |
|
Increase
(Decrease) |
|
Percent
Increase (Decrease) |
|||||||||
|
|
2018
|
|
2017
|
|
|
|||||||||
Company Drive-In sales
|
|
$
|
53,090
|
|
|
$
|
64,286
|
|
|
$
|
(11,196
|
)
|
|
(17.4
|
)%
|
Franchise Drive-Ins:
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Franchise royalties
|
|
33,595
|
|
|
34,138
|
|
|
(543
|
)
|
|
(1.6
|
)%
|
|||
Franchise fees
|
|
142
|
|
|
190
|
|
|
(48
|
)
|
|
(25.3
|
)%
|
|||
Lease revenue
|
|
1,401
|
|
|
1,675
|
|
|
(274
|
)
|
|
(16.4
|
)%
|
|||
Other
|
|
(126
|
)
|
|
(131
|
)
|
|
5
|
|
|
(3.8
|
)%
|
|||
Total revenues
|
|
$
|
88,102
|
|
|
$
|
100,158
|
|
|
$
|
(12,056
|
)
|
|
(12.0
|
)%
|
|
|
Six months ended
February 28, |
|
Increase
(Decrease) |
|
Percent
Increase (Decrease) |
|||||||||
|
|
2018
|
|
2017
|
|
|
|||||||||
Company Drive-In sales
|
|
$
|
115,630
|
|
|
$
|
151,438
|
|
|
$
|
(35,808
|
)
|
|
(23.6
|
)%
|
Franchise Drive-Ins:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Franchise royalties
|
|
74,222
|
|
|
74,021
|
|
|
201
|
|
|
0.3
|
%
|
|||
Franchise fees
|
|
293
|
|
|
446
|
|
|
(153
|
)
|
|
(34.3
|
)%
|
|||
Lease revenue
|
|
3,085
|
|
|
3,056
|
|
|
29
|
|
|
0.9
|
%
|
|||
Other
|
|
300
|
|
|
748
|
|
|
(448
|
)
|
|
(59.9
|
)%
|
|||
Total revenues
|
|
$
|
193,530
|
|
|
$
|
229,709
|
|
|
$
|
(36,179
|
)
|
|
(15.7
|
)%
|
Company Drive-In Sales
($ in thousands)
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
Three months ended
February 28, |
|
Six months ended
February 28, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Company Drive-In sales
|
|
$
|
53,090
|
|
|
$
|
64,286
|
|
|
$
|
115,630
|
|
|
$
|
151,438
|
|
Percentage increase (decrease)
|
|
(17.4
|
)%
|
|
(32.6
|
)%
|
|
(23.6
|
)%
|
|
(24.0
|
)%
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Company Drive-Ins in operation
(1)
:
|
|
|
|
|
|
|
|
|
||||||||
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
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Average sales per Company Drive-In
|
|
$
|
234
|
|
|
$
|
236
|
|
|
$
|
508
|
|
|
$
|
506
|
|
|
|
|
|
|
|
|
|
|
||||||||
Change in same-store sales
(2)
|
|
(3.7
|
)%
|
|
(8.9
|
)%
|
|
(3.4
|
)%
|
|
(5.5
|
)%
|
(1)
|
Drive-ins that are temporarily closed for various reasons (repairs, remodeling, relocations, etc.) are not considered closed unless the Company determines they are unlikely to reopen within a reasonable time.
|
(2)
|
Represents percentage change for drive-ins open for a minimum of 15 months.
|
Franchise Information
($ in thousands)
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
|
Three months ended
February 28, |
|
Six months ended
February 28, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
Franchise Drive-In sales
|
|
$
|
851,183
|
|
|
$
|
856,514
|
|
|
$
|
1,848,318
|
|
|
$
|
1,830,399
|
|
Percentage increase
|
|
(0.6
|
)%
|
|
(3.4
|
)%
|
|
1.0
|
%
|
|
(1.3
|
)%
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Franchise Drive-Ins in operation
(1)
:
|
|
|
|
|
|
|
|
|
||||||||
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
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Average sales per Franchise Drive-In
|
|
256
|
|
|
262
|
|
|
557
|
|
|
566
|
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Change in same-store sales
(2)
|
|
(2.8
|
)%
|
|
(7.3
|
)%
|
|
(2.1
|
)%
|
|
(4.5
|
)%
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Franchising revenues
(3)
|
|
$
|
35,138
|
|
|
$
|
36,003
|
|
|
$
|
77,600
|
|
|
$
|
77,523
|
|
Percentage increase
|
|
(2.4
|
)%
|
|
(3.9
|
)%
|
|
0.1
|
%
|
|
(1.8
|
)%
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Effective royalty rate
(4)
|
|
3.95
|
%
|
|
3.99
|
%
|
|
4.02
|
%
|
|
4.04
|
%
|
(1)
|
Drive-ins that are temporarily closed for various reasons (repairs, remodeling, relocations, etc.) are not considered closed unless the Company determines 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, 2017
.
|
(4)
|
Represents franchise royalties as a percentage of Franchise Drive-In sales.
|
Company Drive-In Margins
|
||||||||
|
|
|
|
|
||||
|
|
Three months ended
February 28, |
|
Percentage Points
Increase (Decrease) |
||||
|
|
2018
|
|
2017
|
|
|||
Costs and expenses
|
|
|
|
|
|
|
|
|
Company Drive-Ins:
|
|
|
|
|
|
|
|
|
Food and packaging
|
|
27.5
|
%
|
|
27.4
|
%
|
|
0.1
|
Payroll and other employee benefits
|
|
39.7
|
|
|
39.4
|
|
|
0.3
|
Other operating expenses
|
|
21.4
|
|
|
22.2
|
|
|
(0.8)
|
Cost of Company Drive-In sales
|
|
88.6
|
%
|
|
89.0
|
%
|
|
(0.4)
|
|
|
Six months ended
February 28, |
|
Percentage Points
Increase (Decrease) |
||||
|
|
2018
|
|
2017
|
|
|||
Costs and expenses
|
|
|
|
|
|
|
|
|
Company Drive-Ins:
|
|
|
|
|
|
|
|
|
Food and packaging
|
|
28.0
|
%
|
|
27.6
|
%
|
|
0.4
|
Payroll and other employee benefits
|
|
37.9
|
|
|
37.7
|
|
|
0.2
|
Other operating expenses
|
|
21.6
|
|
|
22.2
|
|
|
(0.6)
|
Cost of Company Drive-In sales
|
|
87.5
|
%
|
|
87.5
|
%
|
|
—
|
|
|
Three months ended
February 28, 2018 |
|
Three months ended
February 28, 2017 |
||||||||||||
|
|
Net
Income |
|
Diluted
EPS |
|
Net
Income |
|
Diluted
EPS |
||||||||
Reported – GAAP
|
|
$
|
19,607
|
|
|
$
|
0.51
|
|
|
$
|
10,963
|
|
|
$
|
0.25
|
|
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
|
|
(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 2016 Variable Funding Notes 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.
|
|
|
Six months ended
February 28, 2018 |
|
Six months ended
February 28, 2017 |
||||||||||||
|
|
Net
Income |
|
Diluted
EPS |
|
Net
Income |
|
Diluted
EPS |
||||||||
Reported – GAAP
|
|
$
|
31,037
|
|
|
$
|
0.79
|
|
|
$
|
24,081
|
|
|
$
|
0.53
|
|
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
|
|
(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 2016 Variable Funding Notes 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.
|
Acquisition of real estate
|
$
|
7.6
|
|
Brand technology investments
|
6.2
|
|
|
Purchase and replacement of equipment and technology
|
2.6
|
|
|
Rebuilds, relocations and remodels of existing drive-ins
|
1.0
|
|
|
Newly constructed drive-ins leased or sold to franchisees
|
0.8
|
|
|
Total investments in property and equipment
|
$
|
18.2
|
|
Period
|
|
Total
Number of Shares Purchased |
|
Average
Price Paid per Share |
|
Total Number
of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
Maximum Dollar
Value that May Yet Be Purchased Under the Program (1) |
||||||
December 1, 2017 through December 31, 2017
|
|
320
|
|
|
$
|
27.84
|
|
|
320
|
|
|
$
|
110,296
|
|
January 1, 2018 through January 31, 2018
|
|
358
|
|
|
26.65
|
|
|
358
|
|
|
100,756
|
|
||
February 1, 2018 through February 28, 2018
|
|
494
|
|
|
24.75
|
|
|
494
|
|
|
88,519
|
|
||
Total
|
|
1,172
|
|
|
|
|
|
1,172
|
|
|
|
|
(1)
|
In August 2017, the Company’s Board of Directors extended the Company’s share repurchase program, authorizing the Company to purchase up to $160.0 million of its outstanding shares of common stock through August 31, 2018. 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. Please refer to note 3 – Share Repurchase Program included in Part I, Item 1, “Financial Statements” in this Quarterly Report on Form 10-Q for additional information.
|
|
|
SONIC CORP.
|
|
|
|
|
|
|
|
By:
|
/s/ Corey R. Horsch
|
|
|
Corey R. Horsch
Vice President, Chief Financial Officer
and Treasurer
|
|
|
10.01
|
Stock Option Award Agreement under Sonic Corp. 2006 Long-Term Incentive Plan
|
10.02
|
Director Stock Option Award Agreement under Sonic Corp. 2006 Long-Term Incentive Plan
|
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
|
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.
|
|
|
By: /s/ Clifford Hudson
|
Clifford Hudson
|
Chief Executive Officer
|
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.
|
|
|
By: /s/ Corey R. Horsch
|
Corey R. Horsch
|
Chief Financial Officer
|
|
|
By: /s/ Clifford Hudson
|
Clifford Hudson
|
Chief Executive Officer
|
|
|
By: /s/ Corey R. Horsch
|
Corey R. Horsch
|
Chief Financial Officer
|