SONIC CORP (Form: 10-K, Received: 10/26/2012 16:57:06)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

LOGO

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

For the fiscal year ended: August 31, 2012

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

For the transition period from to

Commission File Number 0-18859

SONIC CORP.

(Exact name of registrant as specified in its charter)


Delaware		73-1371046
(State of incorporation)		(I.R.S. Employer Identification No.)
	300 Johnny Bench Drive
	Oklahoma City, Oklahoma	73104
	(Address of principal executive offices)	Zip Code

Registrant’s telephone number, including area code: (405) 225-5000

Securities registered pursuant to section 12(b) of the Act:

None

Securities registered pursuant to section 12(g) of the Act:

Common Stock, Par Value $.01 (Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes X . No .

(Facing Sheet Continued)

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes . No X .

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. .

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


Large accelerated filer .		Accelerated filer X .		Non-accelerated filer .		Smaller reporting company .

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

As of February 29, 2012, the aggregate market value of the 56,818,232 shares of common stock of the Company held by non-affiliates of the Company equaled $469,318,596 based on the closing sales price for the common stock as reported for that date.

As of October 15, 2012, the Registrant had 57,961,673 shares of common stock issued and outstanding.

Documents Incorporated by Reference

Part III of this report incorporates by reference certain portions of the definitive proxy statement which the Registrant will file with the Securities and Exchange Commission no later than 120 days after August 31, 2012.

FORM 10-K OF SONIC CORP.

TABLE OF CONTENTS

PART I


Item 1.	Business	1

Item 1A.	Risk Factors	6

Item 1B.	Unresolved Staff Comments	10

Item 2.	Properties	11

Item 3.	Legal Proceedings	11

Item 4.	Mine Safety Disclosures	11

Item 4A.	Executive Officers of the Company	11

PART II

Item 5.	Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	13

Item 6.	Selected Financial Data	14

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 8.	Financial Statements and Supplementary Data	28

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	28

Item 9A.	Controls and Procedures	28

Item 9B.	Other Information	31

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	31

Item 11.	Executive Compensation	31

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31

Item 13.	Certain Relationships and Related Transactions, and Director Independence	31

Item 14.	Principal Accounting Fees and Services	31

PART IV

Item 15.	Exhibits and Financial Statement Schedules	32

FORM 10-K

SONIC CORP.

PART I

Item 1. Business

General

Sonic Corp. operates and franchises the largest chain of drive-in restaurants (“Sonic Drive-Ins”) in the United States. References to “Sonic Corp.,” “Sonic,” “the Company,” “we,” “us” and “our” in this Form 10-K are references to Sonic Corp. and its subsidiaries.

The Sonic Drive-In restaurant chain began in the early 1950’s. Sonic Corp. was incorporated in the State of Delaware in 1990 in connection with its 1991 public offering of common stock. Our principal executive offices are located at 300 Johnny Bench Drive, Oklahoma City, Oklahoma 73104. Our telephone number is (405) 225-5000.

The Sonic Brand

At a standard Sonic Drive-In restaurant, a customer drives into one of 16 to 24 covered drive-in spaces, orders through an intercom speaker system and has the food delivered by a carhop. Most Sonic Drive-Ins have patio seating and more than half of all Sonic Drive-Ins have drive-thru lanes.

Sonic Drive-Ins feature Sonic signature items, such as specialty drinks including cherry limeades and slushes, ice cream desserts, made-to-order sandwiches and hamburgers, six-inch premium beef hot dogs, footlong quarter-pound coneys, hand-battered onion rings and tater tots. Sonic Drive-Ins also offer breakfast items that include a variety of breakfast burritos and sausage or bacon with egg and cheese Breakfast Toasters ^® . Sonic Drive-Ins serve the full menu all day.

Business Strategy

Our objective is to maintain our position as or to become a leading restaurant operator in all of our markets. We have developed and implemented a strategy designed to build the Sonic brand and to maintain high levels of customer satisfaction and repeat business. The key elements of that strategy are: (1) a unique drive-in concept focusing on a distinctive menu of quality made-to-order food products, including several signature items; (2) a commitment to customer service featuring personalized service by carhops; (3) the expansion of Sonic Drive-Ins within the continental United States; and (4) a commitment to strong franchisee relationships.

Restaurant Locations

As of August 31, 2012, the Company had 3,556 Sonic Drive-Ins in operation from coast to coast in 43 states, consisting of 409 Company Drive-Ins (“Company Drive-Ins”) and 3,147 Franchise Drive-Ins (“Franchise Drive-Ins”). Company Drive-Ins are owned and operated by Sonic Restaurants, Inc. (“SRI”), a wholly owned subsidiary of the Company. Franchise Drive-Ins are owned and operated by franchisees, as described below.

Expansion

During fiscal year 2012, we opened 37 Sonic Drive-Ins, which consisted of one Company Drive-In and 36 Franchise Drive-Ins. Expansion plans for fiscal year 2013 involve the opening of multiple Sonic Drive-Ins under area development agreements, as well as single-store development by franchisees. We believe that our existing as well as newly opened markets offer significant growth opportunities for both Company Drive-In and Franchise Drive-In expansion over the long term.

Restaurant Design and Construction

The typical Sonic Drive-In consists of a kitchen housed in a one-story building flanked by canopy-covered rows of 16 to 24 parking spaces, with each space having its own payment terminal, intercom speaker system and menu board. In addition, most new Sonic Drive-Ins incorporate drive-thru service and a patio seating area.

Marketing

We have designed our marketing program to differentiate Sonic Drive-Ins from our competitors by emphasizing high quality distinctive made-to-order menu items and personalized service featuring skating carhops. The marketing plan includes promotions for use throughout the Sonic chain. We support those promotions with television, radio, interactive media, point-of-sale materials and other media as appropriate. Those promotions generally center on products that highlight new product introductions for a limited time and signature menu items.

Each year, Sonic develops a marketing plan with the involvement of the Sonic Franchise Advisory Council. (Information concerning the Sonic Franchise Advisory Council is set forth on page 4 under Franchise Program – Franchise Advisory Council .) Funding for our marketing plan is provided by the System Marketing Fund, the Sonic Brand Fund and local advertising expenditures. The System Marketing Fund focuses on purchasing advertising on national cable and broadcast networks and other national media, sponsorship and brand enhancement opportunities. The Sonic Brand Fund is our national media production fund. Franchisees are also required to spend additional amounts on local advertising, typically through participation in the local advertising cooperative. Our franchise agreements require advertising contributions by franchisees of up to 5.9% of gross sales to these marketing funds and local advertising cooperatives.

Purchasing

We negotiate with suppliers for our primary food products and packaging supplies to obtain competitive prices and ensure adequate quantities of food and packaging for our Sonic Drive-Ins. We seek competitive bids from suppliers on many of our food and packaging items. We approve suppliers of those items and require them to adhere to our established product and food safety specifications. Suppliers manufacture several key products for Sonic under private label and sell them to authorized distributors for resale to Sonic Drive-Ins. We require all Sonic Drive-Ins to purchase from approved distributors.

Food Safety and Quality Assurance

To ensure the consistent delivery of safe, high-quality food, we created a food safety and quality assurance program. Sonic’s food safety program promotes the quality and safety of all products and procedures utilized by all Sonic Drive-Ins and provides certain requirements that must be adhered to by all suppliers, distributors and Sonic Drive-Ins. We also have a comprehensive, restaurant-based food safety program called Sonic Safe. Sonic Safe is a risk-based system that utilizes Hazard Analysis & Critical Control Points (HACCP) principles for managing food safety and quality. Our food safety program includes components to monitor and ensure the safety and quality of Sonic’s products and procedures at every stage of the food preparation and production cycle including, but not limited to, employee training, supplier product inspections and testing and unannounced drive-in food safety auditing by independent third parties. All Sonic Drive-In employees are required to be trained in food safety in their first stage of training, utilizing an internal training program, referred to as the STAR Training Program. This program includes specific training on food safety information and requirements for every station in the drive-in. We also require our drive-in managers and assistant managers to pass and maintain the ServSafe ^® certification. ServSafe ^® is the most recognized food safety training certification in the restaurant industry.

Information Systems

Sonic Drive-Ins are equipped with information technology systems that are designed to provide operational tools for sales and inventory. This technology includes industry-specific, off-the-shelf systems, as well as proprietary software that assist in managing food and beverage costs. These solutions are integrated with our point-of-sale systems to provide daily, weekly and period-to-date information that is important for managers to run efficient and effective operations. We have centralized financial and accounting systems for Company Drive-Ins. We also have systems that receive transaction level data from Franchise Drive-Ins. We believe these systems are

important in analyzing and improving profit margins and accumulating marketing information. In addition, we use a Pay-at-Your-Stall (PAYS) payment system, a network-based credit-card terminal at each stall of the drive-ins to facilitate credit and debit card transactions by the customer. We will continue to invest in our information technology as we improve existing systems and develop new ones that enhance the customers’ experience, as well as systems that improve operational efficiencies.

Company Operations

Ownership Structure. Company Drive-Ins are drive-in operations which are owned and operated by SRI, as the Company’s operating subsidiary. A typical Company Drive-In is operated by a manager, two to four assistant managers, and approximately 25 hourly employees, many of whom work part-time. The manager has responsibility for the day-to-day operations of the Company Drive-In. Supervisors oversee several Company Drive-Ins and supervise the managers of those Drive-Ins. The employee compensation program for Company Drive-Ins provides managers and supervisors a guaranteed base compensation with additional significant incentive compensation based on drive-in level performance. Prior to April 2010, Company Drive-Ins operated as individual limited liability companies or general partnerships in which the manager and the supervisor for the respective drive-in owned a noncontrolling interest. Under this form of ownership, managers and supervisors shared in the cash flow for their Company Drive-Ins, but were also responsible for their share of any losses incurred by the drive-ins. We are experiencing improved manager and supervisor retention under the current compensation program.

Company Drive-In Data . The following table provides certain financial information relating to Company Drive-Ins and the number of Company Drive-Ins opened and closed during the past five fiscal years and should be read in conjunction with the information in our Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7.


	2012			2011			2010			2009			2008
Average sales per Company Drive-In ( in thousands )	$	958		$	920		$	893		$	954		$	1,007
Number of Company Drive-Ins:
Total open at beginning of year		446			455			475			684			654
Newly opened and re-opened		1			3			5			11			29
Purchased from franchisees		–			1			–			–			18
Sold to franchisees ⁽¹⁾		(35	)		(6	)		(16	)		(205	)		(12	)
Closed (net of re-openings)		(3	)		(7	)		(9	)		(15	)		(5	)

Total open at end of year		409			446			455			475			684

(1)

The large number of drive-ins sold by Sonic in fiscal 2009 reflects the refranchising initiative which Sonic implemented in fiscal 2009 and includes 88 drive-ins in which Sonic retained a noncontrolling interest.

Franchise Program

General . As of August 31, 2012, we had 3,147 Franchise Drive-Ins in operation. A large number of successful multi-unit franchisee groups have developed during the Sonic system’s 59 years of operation. Those franchisees continue to develop new Franchise Drive-Ins in their franchise territories either through area development agreements or single-site development. Our franchisees opened 36 Franchise Drive-Ins during fiscal year 2012. We consider our franchisees a vital part of our continued growth and believe our relationship with our franchisees is good.

Franchise Agreements . For traditional drive-ins, the current franchise agreement provides for an initial franchise fee of $45,000 per drive-in, a royalty fee of up to 5% of gross sales on a graduated percentage basis, advertising fees of up to 5.9% of gross sales and a 20-year term. For fiscal year 2012, Sonic’s average royalty rate was equal to 3.72%.

From time to time, at our discretion, the Company offers incentives to franchisees to increase the development of Sonic Drive-Ins in certain markets. These incentives typically offer reduced or waived franchise fees and/or royalty fees upon certain conditions. We are currently offering franchisees development incentives that reduce the franchise fee from $45,000 to either $30,000 or $15,000, depending on the opening date of the Sonic Drive-In, and that reduce the royalty and advertising fees upon certain conditions.

Area Development Agreements . We use area development agreements to facilitate the planned expansion of the Sonic Drive-In restaurant chain through multiple unit development. While many existing franchisees continue to expand on a single drive-in basis, more than half of the new Franchise Drive-Ins opened during fiscal year 2012 occurred as a result of then-existing area development agreements. Each area development agreement gives a developer the exclusive right to construct, own and operate Sonic Drive-Ins within a defined area. In exchange, each developer agrees to open a minimum number of Sonic Drive-Ins in the area within a prescribed time period.

We offer development agreements for construction of one or more new Sonic Drive-Ins over a defined period of time and in a defined geographic area. Franchisees who enter into development agreements are required to pay a fee, a portion of which is credited against franchise fees due when Sonic Drive-Ins are opened in the future. Franchisees may forfeit such fees and lose their rights to future development if they do not maintain the required schedule of openings.

Franchise Drive-In Development. We assist each franchisee in selecting sites and developing Sonic Drive-Ins. Each franchisee has responsibility for selecting the franchisee’s drive-in location but must obtain our approval of each Sonic Drive-In design and each location based on accessibility and visibility of the site and targeted demographic factors, including population density, income, age and traffic. We provide our franchisees with the physical specifications for the typical Sonic Drive-In. As described above, we may offer incentives to franchisees from time to time, at our discretion, to increase the development of Sonic Drive-Ins.

Franchise Advisory Council. Our Franchise Advisory Council provides advice, counsel and input to Sonic on important issues impacting the business, such as marketing and promotions, operations, purchasing, building design, human resources, technology and new products. The Franchise Advisory Council currently consists of 23 members selected by Sonic. We have seven executive committee members who are selected at large and 16 regional members representing all regions of the country. We have four Franchise Advisory Council task groups comprised of 54 members who generally serve three-year terms and lend support on individual key priorities.

Franchise Drive-In Data . The following table provides certain financial information relating to Franchise Drive-Ins and the number of Franchise Drive-Ins opened, purchased from or sold to Sonic, and closed during Sonic’s last five fiscal years. The table should be read in conjunction with the information in our Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7.


	2012			2011			2010			2009			2008

Average sales per Franchise Drive-In ( in thousands )	$	1,081		$	1,054		$	1,043		$	1,122		$	1,154
Number of Franchise Drive-Ins:
Total open at beginning of year		3,115			3,117			3,069			2,791			2,689
New Franchise Drive-Ins		36			40			80			130			140
Sold to the Company		–			(1	)		–			–			(18	)
Purchased from the Company ⁽¹⁾		35			6			16			205			12
Closed (net of re-openings)		(39	)		(47	)		(48	)		(57	)		(32	)

Total open at end of year		3,147			3,115			3,117			3,069			2,791

(1)

Competition

We compete in the restaurant industry, specifically in the segment known as the quick-service restaurant (“QSR”) segment, a highly competitive industry in terms of price, service, location, and food quality. The restaurant industry is often affected by changes in consumer trends, economic conditions, demographics, traffic patterns, and concerns about the nutritional content of quick-service foods. We compete on the basis of distinctive food and service with signature food items and skating carhops and the method of food preparation (made-to-order). The quality of service, featuring Sonic carhops, constitutes one of our primary marketable points of difference from the competition. There are many well-established competitors with substantially greater financial and other resources. These competitors include a large number of national, regional, and local food service establishments, including QSRs,

casual-dining restaurants and convenience stores. A significant change in market conditions or in pricing or other marketing strategies by one or more of Sonic’s competitors could have an adverse impact on Sonic’s sales, earnings, and growth. Furthermore, the restaurant industry has few barriers to entry and new competitors may emerge at any time. In selling franchises, we also compete with many franchisors of QSR and other restaurants, in addition to franchisors of other business opportunities.

Seasonality

Our results during Sonic’s second fiscal quarter (the months of December, January and February) generally are lower than other quarters because of the lower temperatures in the locations of a number of Sonic Drive-Ins, which tends to reduce customer visits to our drive-ins.

Employees

As of August 31, 2012, we had 314 full-time corporate employees and approximately 11,200 full-time and part-time restaurant employees. None of our employees are subject to a collective bargaining agreement. We believe that we have good labor relations with our employees.

Intellectual Property

Sonic owns or is licensed to use valuable intellectual property including trademarks, service marks, patents, copyrights, trade secrets and other proprietary information, including the “Sonic” logo and trademark, which are of material importance to our business. Depending on the jurisdiction, trademarks and service marks generally are valid as long as they are used and/or registered. Patents, copyrights and licenses are of varying durations.

Customers

Our business is not dependent upon either a single customer or a small group of customers.

Government Contracts

No portion of our business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the U.S. government.

Environmental Matters

We are not aware of any federal, state or local environmental laws or regulations that will materially affect our earnings or competitive position or result in material capital expenditures. However, we cannot predict the effect on operations of possible future environmental legislation or regulations. During fiscal year 2012, there were no material capital expenditures for environmental control facilities and no such material expenditures are anticipated.

Available Information

We maintain a website with the address of www.sonicdrivein.com . Copies of the Company’s reports filed with, or furnished to, the Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K and any amendments to such reports are available for viewing and copying at such website, free of charge, as soon as reasonably practicable after filing such material with, or furnishing it to, the Securities and Exchange Commission. In addition, copies of Sonic’s corporate governance materials, including the Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate Governance Committee Charter, Code of Ethics for Financial Officers and Code of Business Conduct and Ethics are available for viewing and copying at the website, free of charge.

Forward-Looking Information

This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, principally in the sections captioned “Business,” “Legal Proceedings” and

“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. In some cases, forward-looking statements can be identified by words such as “anticipate,” “estimate,” “expect,” “goals,” “guidance,” “plan,” “may,” “will,” “would,” and similar expressions. Investors should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. These forward-looking statements are all based on currently available operating, financial and competitive information and are subject to various risks and uncertainties. Our actual future results and trends may differ materially depending on a variety of factors including, but not limited to, the risks and uncertainties discussed below. We undertake no obligation to publicly update or revise them, except as may be required by law.

Item 1A. Risk Factors

We caution you that our business and operations are subject to a number of risks and uncertainties. The factors listed below are important factors that could cause our actual results to differ materially from our historical results and from projections in forward-looking statement contained in this report, in our other filings with the Securities and Exchange Commission, in our news releases and in oral statements by our representatives. However, other factors that we do not anticipate or that we do not consider significant based on currently available information may also have an adverse effect on our results.

Events reported in the media, including social media, such as incidents involving food-borne illnesses or food tampering, whether or not accurate, can cause damage to our reputation and rapidly affect sales and profitability.

Reports, whether true or not, of food-borne illnesses or injuries caused by food tampering have in the past severely injured the reputations of participants in the restaurant industry and could affect us in the future. The potential for terrorism of our nation’s food supply also exists and, if such an event occurs, it could have a negative impact on our brand’s reputation and could severely hurt sales, revenues, and profits. Our ability to remain a trusted brand and increase sales and profits depends on our ability to manage the potential impact on Sonic of food-borne illnesses or reports of food-borne illnesses. We have implemented a food safety and quality assurance program to minimize the risk of food-borne illness. Nevertheless, these risks cannot be completely eliminated. Any outbreak of such illness attributed to our restaurants or within the food service industry, or any widespread negative publicity regarding our brand or the restaurant industry in general could materially harm our brand, sales and profitability.

The restaurant industry is highly competitive, and that competition could lower our revenues, margins and market share.

The restaurant industry is intensely competitive with respect to price, service, location, personnel, dietary trends, including nutritional content of quick-service foods, and quality of food and is often affected by changes in consumer tastes and preferences, economic conditions, population and traffic patterns. We compete with international, regional and local restaurants, some of which operate more restaurants and have greater financial resources. We compete primarily through the quality, price, variety and value of food products offered and our distinctive service experience. Other key competitive factors include the number and location of restaurants, speed of service, attractiveness of facilities, effectiveness of advertising and marketing programs and new product development by us and our competitors. We cannot ensure that we will compete successfully in the restaurant industry on these factors. In addition, some of our competitors have substantially larger marketing budgets, which may provide them with a competitive advantage. Our system also competes within the QSR industry not only for customers but also for management and hourly employees, suitable real estate sites, and qualified franchisees.

Changing dietary preferences may cause consumers to avoid our products in favor of alternative foods.

The restaurant industry is affected by consumer preferences and perceptions. Although we monitor these changing preferences and strive to adapt to meet changing consumer needs, growth of our brand and, ultimately, system-wide sales depend on the sustained demand for our products. If dietary preferences and perceptions cause consumers to avoid certain products offered by Sonic Drive-Ins in favor of different foods, demand for our products may be reduced and our business could be harmed.

Our earnings and business growth strategy depends in large part on the success of our franchisees, who exercise independent control of their businesses.

We have significantly increased the percentage of restaurants owned and operated by our franchisees. A portion of our earnings comes from royalties, rents and other amounts paid by our franchisees. Franchisees are independent contractors, and their employees are not our employees. We provide training and support to, and monitor the operations of, our franchisees, but the quality of their drive-in operations may be diminished by any number of factors beyond our control. Franchisees may not successfully operate drive-ins in a manner consistent with our high standards and requirements, and they may not invest in facilities and initiatives as necessary to compete successfully in the restaurant industry. In addition, franchisees may not hire and train qualified managers and other restaurant personnel and may not adequately plan for and train their own successors. Any operational shortcoming of a Franchise Drive-In is likely to be attributed by consumers to the entire Sonic brand, thus damaging our reputation and potentially affecting revenues and profitability.

Changes in economic, market and other conditions could adversely affect Sonic and its franchisees, and thereby Sonic’s operating results.

The QSR industry is affected by changes in economic conditions, consumer tastes and preferences and spending patterns, demographic trends, consumer perceptions of food safety, weather, traffic patterns, the type, number and location of competing restaurants and the effects of war or terrorist activities and any governmental responses thereto. Factors such as interest rates, inflation, gasoline prices, energy costs, food and packaging costs, labor and benefit costs, legal claims and the availability of management and hourly employees also affect restaurant operations and administrative expenses. Economic conditions, including disruptions in the financial markets, interest rates and other government policies impacting land and construction costs and the cost and availability of borrowed funds, affect our ability and our franchisees’ ability to finance new restaurant development, improvements and additions to existing restaurants, and the acquisition of restaurants from, and sale of restaurants to, franchisees. Inflation can cause increased food, labor and benefits costs and can increase our operating expenses. As operating expenses increase, we recover increased costs by increasing menu prices, to the extent permitted by competition and the consumer environment, or by implementing alternative products or cost reduction procedures. We cannot ensure, however, that we will be able to recover increases in operating expenses in this manner.

Our financial results may fluctuate depending on various factors, many of which are beyond our control.

Our sales and operating results can vary from quarter to quarter and year to year depending on various factors, many of which are beyond our control. Certain events and factors may directly and immediately decrease demand for our products, and we cannot ensure that we will be able to respond to or address the events and factors sufficiently. If customer demand decreases rapidly, our results of operations, including store-level sales and profits, would also decline precipitously. These events and factors include:

•

sales promotions and product offerings by Sonic and its competitors;

•

changes in average same-store sales and customer visits;

•

the inability to purchase sufficient levels of media;

•

variations in the price, availability and shipping costs of supplies such as food products;

•

seasonal effects on demand for Sonic’s products;

•

unexpected slowdowns in new drive-in development or franchise agreement renewals;

•

changes in competitive conditions;

•

changes in economic conditions generally, including consumer spending;

•

consumer sensitivity to price and value;

•

changes in consumer tastes and preferences;

•

changes in the cost of labor; and

•

weather and other acts of God.

Shortages or interruptions in the supply or delivery of perishable food products or rapid price increases could adversely affect our operating results.

We are dependent on frequent deliveries of perishable food products that meet certain specifications. Shortages or interruptions in the supply of perishable food products may be caused by unanticipated demand, problems in production or distribution, acts of terrorism, financial or other difficulties of suppliers, disease or food-

borne illnesses, droughts, inclement weather or other conditions. We source large quantities of food and supplies, which can be subject to significant price fluctuations due to seasonal shifts, climate conditions, industry demand, energy costs, changes in international commodity markets and other factors. These shortages or rapid price increases could adversely affect the availability, quality and cost of ingredients, which would likely lower revenues and reduce our profitability.

Failure to successfully implement our growth strategy could reduce, or reduce the growth of, our revenue and net income.

We plan to continue to increase the number of Sonic Drive-Ins, but may not be able to achieve our growth objectives, and new drive-ins may not be profitable. The opening and success of drive-ins depend on various factors, including:

•

competition from other restaurants in current and future markets;

•

the degree of saturation in existing markets;

•

consumer interest in and acceptance of the Sonic brand in existing and new markets;

•

the identification and availability of suitable and economically viable locations;

•

sales and profit levels at existing drive-ins;

•

the negotiation of acceptable lease or purchase terms for new locations;

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permitting and regulatory compliance;

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the cost and availability of construction resources and financing;

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the ability to meet construction schedules;

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the availability of qualified franchisees and their financial and other development capabilities, including their desire and ability to access and commit capital;

•

the ability to hire and train qualified management personnel;

•

sufficient marketing efforts;

•

weather; and

•

general economic and business conditions.

If we are unable to open as many new drive-ins as planned, if the drive-ins are less profitable than anticipated or if we are otherwise unable to successfully implement our growth strategy, revenue and profitability may grow more slowly or even decrease.

Our outstanding and future leverage could have an effect on our operations.

On May 20, 2011, the Company closed on a securitized financing facility comprised of a $500 million fixed rate term loan and a $100 million variable rate revolving credit facility. As of August 31, 2012, we had $482.0 million in outstanding debt including accrued interest under the fixed rate notes at an interest rate of 5.4%. Our leverage could have the following consequences:

•

Our flexibility may be reduced in responding to changes in business, industry, regulatory or economic conditions.

•

Our ability to obtain additional financing in the future for acquisitions, working capital, capital expenditures and general corporate or other purposes could be impaired or any such financing may not be available on terms favorable to us.

•

Any substantial decrease in net operating cash flows or any substantial increase in expenses could make it difficult for us to meet our debt service requirements or force us to modify our operations or sell assets; as a result a substantial portion of our cash flows could be required for debt service and might not be available for our operations or other purposes.

•

In the unlikely event of a default or any other event of noncompliance with our debt obligations, the unpaid amounts outstanding could become immediately due and payable.

Sonic Drive-Ins are subject to health, employment, environmental and other government regulations, and failure to comply with existing or future government regulations could expose us to litigation, damage to our reputation and lower profits.

Sonic and its franchisees are subject to various federal, state and local laws affecting their businesses. The successful development and operation of restaurants depends to a significant extent on the selection and acquisition

of suitable sites, which are subject to zoning, land use (including the placement of drive-thru windows), environmental (including litter), traffic and other regulations. More stringent requirements of local and state governmental bodies with respect to zoning, land use and environmental factors could delay, prevent or make cost prohibitive the continuing operations of an existing restaurant or the development of new restaurants in particular locations. Restaurant operations are also subject to licensing and regulation by state and local departments relating to health, food preparation, sanitation and safety standards, federal and state labor and immigration laws (including applicable minimum wage requirements, overtime, working and safety conditions and work authorization requirements), federal and state laws prohibiting discrimination and other laws regulating the design and operation of facilities, such as the Americans with Disabilities Act. If we fail to comply with any of these laws, we may be subject to governmental action or litigation, and our reputation could be accordingly harmed. Injury to our reputation would, in turn, likely reduce revenues and profits.

In recent years, there has been an increased legislative, regulatory and consumer focus on nutrition and advertising practices in the food industry, particularly among restaurants. As a result, we have and will become subject to regulatory initiatives in the area of nutritional content, disclosure and advertising, such as requirements to provide information about the nutritional content of our food products, which could increase expenses. The operation of our franchise system is also subject to franchise laws and regulations enacted by a number of states and rules promulgated by the U.S. Federal Trade Commission. Any future legislation regulating franchise relationships may negatively affect our operations, particularly our relationship with our franchisees. Failure to comply with new or existing franchise laws and regulations in any jurisdiction or to obtain required government approvals could result in a ban or temporary suspension on future franchise sales. Changes in applicable accounting rules imposed by governmental regulators or private governing bodies could also affect our reported results of operations.

We are subject to the Fair Labor Standards Act, which governs such matters as minimum wage, overtime and other working conditions, along with the Americans with Disabilities Act, various family leave mandates and a variety of other laws enacted, or rules and regulations promulgated, by federal, state and local governmental authorities that govern these and other employment matters. We have experienced and expect further increases in payroll expenses as a result of government-mandated increases in the minimum wage, and although such increases are not expected to be material, there may be material increases in the future. Enactment and enforcement of various federal, state and local laws, rules and regulations on immigration and labor organizations may adversely impact the availability and costs of labor for our restaurants in a particular area or across the United States. In addition, our vendors may be affected by higher minimum wage standards or availability of labor, which may increase the price of goods and services they supply to us.

We are implementing various aspects of the health care reform law enacted in 2010 in our business as they take effect. There are no assurances that a combination of cost management and price increases can accommodate all of the costs associated with compliance.

Litigation from customers, franchisees, employees and others could harm our reputation and impact operating results.

Claims of illness or injury relating to food content, food quality or food handling are common in the QSR industry. In addition, class action lawsuits have been filed, and may continue to be filed, against various QSRs alleging, among other things, that QSRs have failed to disclose the health risks associated with foods we serve and that QSR marketing practices have encouraged obesity and other health issues. In addition to decreasing our sales and profitability and diverting management resources, adverse publicity or a substantial judgment against us could negatively impact our reputation, hindering the ability to attract and retain qualified franchisees and grow the business.

Further, we may be subject to employee, franchisee and other claims in the future based on, among other things, discrimination, harassment, wrongful termination and wage, rest break and meal break issues, including those relating to overtime compensation.

We may not be able to adequately protect our intellectual property, which could decrease the value of our brand and products.

The success of our business depends on the continued ability to use existing trademarks, service marks and other components of our brand in order to increase brand awareness and further develop branded products. All of the steps we have taken to protect our intellectual property may not be adequate.

Our reputation and business could be materially harmed as a result of data breaches.

Unauthorized intrusion into portions of our computer systems or those of our franchisees that process and store information related to customer transactions may result in the theft of customer data. We rely on proprietary and commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as payment card and personal information. Further, the systems currently used for transmission and approval of payment card transactions, and the technology utilized in payment cards themselves, all of which can put payment card data at risk, are determined and legally mandated by payment card industry standards, not by us. Improper activities by third parties, advances in computer and software capabilities and encryption technology, new tools and discoveries and other events or developments may facilitate or result in a compromise or breach of our or our franchisees’ computer systems. Any such compromises or breaches could cause interruptions in our operations and damage to our reputation, subject us to costs and liabilities and hurt sales, revenues and profits.

Unreliable or inefficient drive-in technology and lack of support for drive-in technology could adversely impact operating results.

We rely on proprietary and commercially available technologies at our drive-ins, including point-of-sale and payment card systems. These systems may be unreliable or inefficient, and the technology vendors may limit or terminate product support and maintenance, which could impact the reliability of critical systems supporting drive-in operations. Additionally, replacement parts and support and maintenance skills may become scarce, cost prohibitive or non-existent. Any such deficiencies could impact sales and profitability by disrupting our operations, damaging our reputation or subjecting us to excessive costs and liabilities.

Ownership and leasing of significant amounts of real estate exposes us to possible liabilities and losses.

We own or lease the land and building for all Company Drive-Ins. Accordingly, we are subject to all of the risks associated with owning and leasing real estate. In particular, the value of our assets could decrease and our costs could increase because of changes in the investment climate for real estate, demographic trends and supply or demand for the use of our drive-ins, which may result from competition from similar restaurants in the area, as well as liability for environmental conditions. We generally cannot cancel the leases, so if an existing or future Sonic Drive-In is not profitable, and we decide to close it, we may nonetheless be committed to perform our obligations under the applicable lease including, among other things, paying the base rent for the balance of the lease term. In addition, as each of the leases expires, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could cause us to close drive-ins in desirable locations.

Catastrophic events may disrupt our business.

Unforeseen events, or the prospect of such events, including war, terrorism and other international conflicts, public health issues, including health epidemics or pandemics, and natural disasters such as hurricanes, earthquakes or other adverse weather and climate conditions, whether occurring in the United States or abroad, could disrupt our operations, disrupt the operations of franchisees, suppliers or customers, or result in political or economic instability. These events could reduce demand for our products or make it difficult or impossible to receive products from suppliers.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Of the 409 Company Drive-Ins operating as of August 31, 2012, we operated 187 of them on property leased from third parties and 222 of them on property we own. The leases expire on dates ranging from 2013 to 2030, with the majority of the leases providing for renewal options. All leases provide for specified monthly rental payments and/or additional rentals based on sales volume. Most leases require Sonic to maintain the property and pay the cost of insurance and taxes. We also own the real property on which 198 Franchise Drive-Ins are operated. These leases for Franchise Drive-Ins expire on dates ranging from 2013 to 2030, with the majority of the leases providing for renewal options. The majority of the leases for Franchise Drive-Ins provide for percentage rent based on sales volume, with a minimum base rent. These leases generally require the franchisee to maintain the property and pay the costs of insurance and taxes.

Our corporate headquarters is located in Oklahoma City. We have an existing lease to occupy approximately 83,000 square feet. This lease expires in November 2018 and has two five-year renewal options. Sonic believes its properties are suitable for the purposes for which they are being used.

Item 3. Legal Proceedings

The Company is involved in various legal proceedings and has certain unresolved claims pending. Based on the information currently available, management believes that all claims currently pending are either covered by insurance or would not have a material adverse effect on the Company’s business or financial condition.

Item 4. Mine Safety Disclosures

Not applicable.

Item 4A. Executive Officers of the Company

Identification of Executive Officers

The following table identifies the executive officers of the Company:


Name	Age	Position	Executive Officer Since

J. Clifford Hudson	57	Chairman of the Board of Directors and Chief Executive Officer	1985

W. Scott McLain	50	President of Sonic Corp. and President and Chief Strategy Officer of Sonic Industries Services Inc.	1996

Stephen C. Vaughan	46	Executive Vice President and Chief Financial Officer	1996

Omar Janjua	54	President of Sonic Restaurants, Inc. and Executive Vice President of Operations of Sonic Industries Services Inc.	2009

Craig J. Miller	51	Senior Vice President and Chief Information Officer of Sonic Industries Services Inc.	2011

James O’Reilly	46	Senior Vice President and Chief Marketing Officer	2012

Paige S. Bass	43	Vice President, General Counsel and Assistant Corporate Secretary	2007

Carolyn C. Cummins	54	Vice President of Compliance and Corporate Secretary	2004

Terry D. Harryman	47	Vice President and Controller	1999

Claudia San Pedro	43	Vice President of Investor Relations and Treasurer	2007

Business Experience

The following sets forth the business experience of the executive officers of the Company for at least the past five years:

J. Clifford Hudson has served as the Company’s Chairman of the Board since January 2000 and Chief Executive Officer since April 1995. Mr. Hudson served as President of the Company from April 1995 to January 2000 and reassumed that position from November 2004 until May 2008. He has served in various other offices with the Company since 1984. Mr. Hudson has served as a Director of the Company since 1993. Mr. Hudson has served on the Board of Trustees of the Ford Foundation since January 2006.

W. Scott McLain has served as President of the Company since May 2008. He also has served as Chief Strategy Officer of Sonic Industries Services Inc. since August 2012 and as its President since September 2004. Mr. McLain served as Executive Vice President of the Company from November 2004 until May 2008. He served as the Company’s Executive Vice President and Chief Financial Officer from January 2004 until November 2004 and as the Company’s Senior Vice President and Chief Financial Officer from January 2000 until January 2004. Mr. McLain joined the Company in 1996.

Stephen C. Vaughan has served as Executive Vice President of the Company and Chief Financial Officer since August 2008 and was the Company’s Vice President and Chief Financial Officer from November 2004 until August 2008. Mr. Vaughan also served as Treasurer of the Company from November 2001 until April 2005. He joined the Company in 1992.

Omar Janjua has served as President of Sonic Restaurants, Inc. since September 2009 and also as Executive Vice President of Operations of Sonic Industries Services Inc. since September 2010. He served as Executive Vice President and Chief Operating Officer for The Steak n Shake Company from June 2007 to September 2009. Prior to joining Steak n Shake, Mr. Janjua worked for 18 years with Yum Brands, Inc. in its Pizza Hut operations in various positions of increasing responsibility, the most recent of which was Vice President of Company Operations.

Craig J. Miller has served as Senior Vice President and Chief Information Officer of Sonic Industries Services Inc. since January 2010. He served as the Executive Vice President and Chief Information Officer for Movie Gallery, Inc., also known as Hollywood Video, from September 2008 until September 2009. In February 2010, Movie Gallery, Inc. filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Mr. Miller was Senior Vice President of Shared Information Services for Bank of America from February 2005 until July 2008.

James P. O’Reilly has served as Senior Vice President and Chief Marketing officer of Sonic Corp. since April 2012. He served as the Chief Concept Officer of Einstein Noah Restaurant Group, Inc. from April 2009 until joining Sonic. Prior to April 2009, Mr. O’Reilly served for 13 years in progressive roles throughout the YUM! system including Senior Vice President of US Marketing, Chief Marketing Officer of KFC – US and international roles with KFC, Taco Bell, Pizza Hut and Yum! Restaurants International.

Paige S. Bass has served as Vice President and General Counsel of the Company since January 2007 and has also served as Assistant Corporate Secretary since October 2008. Ms. Bass joined the Company as Associate General Counsel in April 2004. Prior to joining the Company, Ms. Bass was employed seven years as an associate with the law firm of Crowe & Dunlevy in Oklahoma City, Oklahoma.

Carolyn C. Cummins has served as the Company’s Corporate Secretary since January 2007 and as the Company’s Vice President of Compliance since April 2004. Ms. Cummins joined the Company as Assistant General Counsel in January 1999.

Terry D. Harryman has served as Vice President of the Company since January 2008 and as the Company’s Controller since January 1999. Mr. Harryman has also served as the Controller of Sonic Restaurants, Inc. and Sonic Industries Services Inc. since January 2002. Mr. Harryman joined the Company in 1996.

Claudia San Pedro has served as Vice President of Investor Relations of the Company since July 2010. She served as Vice President of Investor Relations and Brand Strategies from October 2009 until July 2010.

Ms. San Pedro has also served as Treasurer of the Company since January 2007 and as Treasurer of Sonic Industries Services Inc. and Sonic Restaurants, Inc. since November 2006. She served as the Director of the Oklahoma Office of State Finance from June 2005 through November 2006. From July 2003 to May 2005, Ms. San Pedro served as the Budget Division Director for the Office of State Finance.

PART II

Item 5. Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The Company’s common stock trades on the Nasdaq National Market (“Nasdaq”) under the symbol “SONC.” The following table sets forth the high and low sales price for the Company’s common stock during each fiscal quarter within the two most recent fiscal years as reported on Nasdaq.


Fiscal Year Ended August 31, 2012	High		Low		Fiscal Year Ended August 31, 2011	High		Low

First Quarter		$9.31	$	6.35	First Quarter		$9.82	$	7.30
Second Quarter	$	8.45	$	6.49	Second Quarter	$	11.53	$	8.71
Third Quarter	$	8.57	$	6.84	Third Quarter	$	11.86	$	8.50
Fourth Quarter	$	10.94	$	7.92	Fourth Quarter	$	11.45	$	8.19

Stockholders

As of October 15, 2012, the Company had 700 record holders of its common stock.

Dividends

The Company did not pay any cash dividends on its common stock during its two most recent fiscal years and does not intend to pay any dividends in the foreseeable future as profits are reinvested in the Company to fund expansion of its business, payments under the Company’s financing arrangements and other stockholder value-enhancing initiatives. As in the past, future payment of dividends will be considered after reviewing, among other factors, returns to stockholders, profitability expectations and financing needs.

Issuer Purchases of Equity Securities

Shares repurchased during the fourth quarter of fiscal 2012 are as follows (in thousands, except per share amounts):


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⁾
June 1, 2012 through June 30, 2012		506	$	8.82		506	$	–
July 1, 2012 through July 31, 2012		–		–		–		–
August 1, 2012 through August 31, 2012		117		9.42		117	$	38,898

Total		623	$	8.93		623

(1)

On October 13, 2011, the Company’s Board of Directors approved a $30 million stock repurchase program. Under that program, the Company was authorized to purchase up to $30 million of its outstanding shares of common stock through August 31, 2012. In June 2012, the Company purchased the remaining amount authorized and completed the stock repurchase program. On August 15, 2012, the Company’s Board of Directors approved a new stock repurchase program. Under the new program, the Company is authorized to purchase up to $40 million of its outstanding shares of common stock through August 31, 2013.

Item 6. Selected Financial Data

The following table sets forth selected financial data regarding the Company’s financial condition and operating results. One should read the following information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below in Part II, Item 7, and the Company’s Consolidated Financial Statements included elsewhere in this report.

Selected Financial Data

(In thousands, except per share data)


	Year ended August 31,
	2012		2011		2010			2009			2008

Income Statement Data:
Company Drive-In sales	$	404,443	$	410,820	$	414,369		$	567,436		$	671,151
Franchise Drive-Ins:
Franchise royalties		125,989		124,127		122,385			126,706			121,944
Franchise fees		2,024		1,744		2,752			5,006			5,167
Lease revenue		6,575		6,023		6,879			3,985			1,519
Other		4,699		3,237		4,541			3,148			1,978
Total revenues		543,730		545,951		550,926			706,281			801,759
Cost of Company Drive-In sales		347,470		356,236		354,659			464,876			526,180
Selling, general and administrative		65,173		64,943		66,847			63,358			61,179
Depreciation and amortization		41,914		41,225		42,615			48,064			50,653
Provision for impairment of long-lived assets		764		824		15,161			11,163			571
Total expenses		455,321		463,228		479,282			587,461			638,583
Other operating income (expense), net		531		585		(763	)		12,508			2,954
Income from operations		88,940		83,308		70,881			131,328			166,130
Interest expense, net ⁽ ¹ ⁾		30,978		54,929		36,073			35,657			47,927
Income before income taxes	$	57,962	$	28,379	$	34,808		$	95,671		$	118,203
Net income-including noncontrolling interests		36,085		19,225		25,839			64,793			82,241
Net income-noncontrolling interests		–		–		4,630			15,351			21,922
Net income-attributable to Sonic Corp.	$	36,085	$	19,225	$	21,209		$	49,442		$	60,319

Income per share:
Basic	$	0.60	$	0.31	$	0.35		$	0.81		$	1.00
Diluted	$	0.60	$	0.31	$	0.34		$	0.81		$	0.97
Weighted average shares used in calculation:
Basic		60,078		61,781		61,319			60,761			60,403
Diluted		60,172		61,943		61,576			61,238			62,270

Balance Sheet Data:

Working capital (deficit)	$	26,635	$	22,178	$	15,320		$	84,813		$	(13,115	)
Property, equipment and capital leases, net		443,008		464,875		489,264			523,938			586,245
Total assets		680,760		679,742		737,320			849,041			836,312
Obligations under capital leases (including current portion)		31,676		34,063		36,256			39,461			37,385
Long-term debt (including current portion)		481,793		497,013		591,621			699,550			759,422
Stockholders’ equity (deficit)		59,247		51,696		22,566			(2,352	)		(61,020	)
Cash dividends declared per common share		–		–		–			–			–

(1)

Includes net loss (gain) from early extinguishment of debt of $23.0 million, $0.3 million and $(6.4) million for fiscal years 2011, 2010 and 2009, respectively.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Description of the Business . Sonic operates and franchises the largest chain of drive-in restaurants in the United States. As of August 31, 2012, the Sonic system was comprised of 3,556 drive-ins, of which 12% were Company Drive-Ins and 88% were Franchise Drive-Ins. Sonic Drive-Ins feature signature menu items such as specialty drinks including cherry limeades and slushes, ice cream desserts, made-to-order sandwiches and hamburgers, six-inch premium beef hot dogs, footlong quarter pound coneys, hand-battered onion rings, tater tots and a unique breakfast menu. We derive our revenues primarily from Company Drive-In sales and royalties from franchisees. We also receive revenues from leasing real estate to franchisees, initial franchise fees, earnings from minority investments in franchise operations and other miscellaneous revenues.

Costs of Company Drive-In sales relate directly to Company Drive-In sales. Other expenses, such as depreciation, amortization and general and administrative expenses, relate to our franchising operations, as well as Company Drive-In operations. Our revenues and Company Drive-In expenses are directly affected by the number and sales volumes of Company Drive-Ins. Our revenues and, to a lesser extent, selling, general and administrative expenses also are affected by the number and sales volumes of Franchise Drive-Ins. Initial franchise fees and franchise royalties are directly affected by the number of Franchise Drive-In openings. Lease revenues are generated by the leasing of land and buildings for Company Drive-Ins that have been sold to franchisees.

Overview of Business Performance. Sales momentum for fiscal year 2012 continued to improve from fiscal year 2011. System-wide same-store sales increased 2.2% during fiscal year 2012 as compared to an increase of 0.5% for fiscal year 2011. Same-store sales at Company Drive-Ins increased by 2.8% during fiscal year 2012 as compared to an increase of 1.8% for 2011. We believe the initiatives we have implemented over the last few years, including product quality improvements, a greater emphasis on personalized service and a new creative strategy, have set a solid foundation for growth which is reflected in our operating results. We use a multi-layered growth strategy which incorporates sales growth, operating leverage, deployment of cash, an ascending royalty rate and new drive-in development to achieve earnings growth. Positive system-wide same-store sales is the most important layer and drives operating leverage and increased operating cash flows.

Revenues decreased slightly to $543.7 million for fiscal year 2012 from $546.0 million for the same period last year, which was primarily related to a decline in revenues resulting from the refranchising of 34 Company Drive-Ins during the second fiscal quarter of 2012, mostly offset by an increase in same-store sales. Restaurant margins at Company Drive-Ins improved by 80 basis points during fiscal year 2012, reflecting the leverage of positive same-store sales as well as moderating commodity cost inflation. Net income and diluted earnings per share for fiscal year 2012 were $36.1 million and $0.60, respectively, as compared to net income of $19.2 million or $0.31 per diluted share for fiscal year 2011. Excluding an after-tax net loss of $14.4 million from the early extinguishment of debt during fiscal year 2011 and a $1.1 million tax benefit recognized during the first quarter of fiscal year 2011 relating to the favorable settlement of state tax matters, net income and diluted earnings per share for fiscal year 2012 increased 11% and 13%, respectively.

Franchisees opened 36 new drive-ins and relocated or rebuilt 17 existing drive-ins during the fiscal year. While the number of new drive-in openings in fiscal year 2012 was down compared to the prior year, investments by franchisees in existing locations continued throughout the year, as evidenced by an increase in Franchise Drive-Ins relocated or rebuilt. We also continued our expansion in several new markets.

The growth and success of our business is built around implementation of our brand strategy, which features the following components:

•

Improved revenue and margin performance of Company Drive-Ins with consistent and improved operations execution; and

•

Same-store sales growth fueled by re-emphasizing our core brand strengths, including high-quality products, the introduction of new limited-time products and service differentiation with carhops.

The following non-GAAP adjustments are intended to supplement the presentation of the Company’s financial results in accordance with GAAP. We believe the exclusion of these items in evaluating the change in net

income and diluted earnings per share for the periods below provides useful information to investors and management regarding the underlying business trends and the performance of our ongoing operations and is helpful for period-to-period and company-to-company comparisons, which management believes will assist investors in analyzing the financial results for the Company and predicting future performance.


	Fiscal Year Ended August 31, 2012				Fiscal Year Ended August 31, 2011
	Net Income		Diluted EPS		Net Income			Diluted EPS
Reported – GAAP	$	36,085	$	0.60	$	19,225		$	0.31
After-tax net loss from early extinguishment of debt		–		–		14,439			0.24
Tax benefit from favorable tax settlement		–		–		(1,073	)		(0.02	)

Adjusted – Non-GAAP	$	36,085	$	0.60	$	32,591		$	0.53

The following table provides information regarding the number of Company Drive-Ins and Franchise Drive-Ins operating as of the end of the years indicated as well as the system-wide change in sales and average unit volume. System-wide information includes both Company Drive-In and Franchise Drive-In information, which we believe is useful in analyzing the growth of the brand as well as the Company’s revenues, since franchisees pay royalties based on a percentage of sales.

System-Wide Performance

($ in thousands)


	Year Ended August 31,
	2012			2011			2010

Percentage increase (decrease) in sales		2.7	%		1.9	%		(5.7	%)

System-wide drive-ins in operation ⁽¹⁾ :
Total at beginning of year		3,561			3,572			3,544
Opened		37			43			85
Closed (net of re-openings)		(42	)		(54	)		(57	)

Total at end of year		3,556			3,561			3,572


Average sales per drive-in:	$	1,066		$	1,037		$	1,023

Change in same-store sales ⁽²⁾ :		2.2	%		0.5	%		(7.8	%)

(1)	Drive-ins that are temporarily closed for various reasons (repairs, remodeling, relocations, etc.) are not considered closed unless the Company determines that they are unlikely to reopen within a reasonable time.

(2)	Represents percentage change for drive-ins open for a minimum of 15 months.

The following table provides information regarding drive-in development across the system.


	Year ended August 31,
	2012		2011		2010
New drive-ins:
Company		1		3		5
Franchise		36		40		80
System-wide		37		43		85
Rebuilds/relocations:
Company		1		3		–
Franchise		17		11		23
System-wide		18		14		23

Results of Operations

Revenues . The following table sets forth the components of revenue for the reported periods and the relative change between the comparable periods.


Revenues ($ in thousands)
								Percent
Year Ended August 31,	2012		2011		Increase (Decrease)			Increase (Decrease)

Revenues:
Company Drive-In sales	$	404,443	$	410,820	$	(6,377	)	(1.6%)
Franchise Drive-Ins:
Franchise royalties		125,989		124,127		1,862		1.5
Franchise fees		2,024		1,744		280		16.1
Lease revenue		6,575		6,023		552		9.2
Other		4,699		3,237		1,462		45.2

Total revenues	$	543,730	$	545,951	$	(2,221	)	(0.4%)


Year Ended August 31,	2011		2010		Increase (Decrease)			Percent Increase (Decrease)

Revenues:
Company Drive-In sales	$	410,820	$	414,369	$	(3,549	)	(0.9%)
Franchise Drive-Ins:
Franchise royalties		124,127		122,385		1,742		1.4
Franchise fees		1,744		2,752		(1,008	)	(36.6)
Lease revenue		6,023		6,879		(856	)	(12.4)
Other		3,237		4,541		(1,304	)	(28.7)

Total revenues	$	545,951	$	550,926	$	(4,975	)	(0.9%)

The following table reflects the changes in sales and same-store sales at Company Drive-Ins. It also presents information about average unit volumes and the number of Company Drive-Ins, which is useful in analyzing the growth of Company Drive-In sales.

Company Drive-In Sales

($ in thousands)


	Year Ended August 31,
	2012			2011			2010

Company Drive-In sales	$	404,443		$	410,820		$	414,369
Percentage decrease		(1.6	%)		(0.9	%)		(27.0	%)

Company Drive-Ins in operation ⁽¹⁾ :
Total at beginning of year		446			455			475
Opened		1			3			5
Sold to franchisees, net		(35	)		(5	)		(16	)
Closed (net of re-openings)		(3	)		(7	)		(9	)

Total at end of year		409			446			455


Average sales per Company Drive-In	$	958		$	920		$	893
Percentage increase (decrease)		4.1	%		3.0	%		(6.4	%)

Change in same-store sales ⁽²⁾		2.8	%		1.8	%		(8.8	%)

(1)	Drive-ins that are temporarily closed for various reasons (repairs, remodeling, relocations, etc.) are not considered closed unless the Company determines that they are unlikely to reopen within a reasonable time.

(2)	Represents percentage change for drive-ins open for a minimum of 15 months.

Same-store sales for Company Drive-Ins increased 2.8% for fiscal year 2012 and 1.8% for fiscal year 2011, an improving trend that we attribute to the initiatives we have implemented. In addition to the implementation of system-wide initiatives over the last few years, we have implemented a number of initiatives at Company Drive-Ins which have contributed to improved performance. These initiatives included restructuring our Company Drive-In operations to reduce excess management layers, revising the compensation program at the drive-in level, and implementing a customer service initiative to improve sales and profits. Company Drive-In sales decreased $6.4 million, or 1.6%, during fiscal year 2012 as compared to 2011. This decrease was primarily attributable to an $18.6 million reduction in sales from the refranchised drive-ins discussed earlier and a $2.3 million decrease related to drive-ins that were closed during or subsequent to fiscal year 2011 partially offset by a $11.0 million improvement in same-store sales and $3.5 million of incremental sales from new drive-in openings during fiscal year 2011.

For fiscal year 2011, Company Drive-In sales decreased $3.5 million, or 0.9%, as compared to 2010. This decrease was primarily attributable to a $7.2 million decrease in sales from the refranchising of 16 Company Drive-Ins in the second quarter of fiscal year 2010 and six drive-ins in fiscal year 2011 as well as a $4.4 million decrease related to drive-ins that were closed during or subsequent to fiscal year 2010. These decreases were partially offset by an $8.1 million increase from an improvement in same-store sales and, to a lesser extent, new drive-in openings during fiscal year 2011.

The following table reflects the change in franchising revenues (franchise royalties, franchise fees and lease revenues) as well as franchise sales, average unit volumes and the number of Franchise Drive-Ins. While we do not record Franchise Drive-In sales as revenues, we believe this information is important in understanding our financial performance since these sales are the basis on which we calculate and record franchise royalties. This information is also indicative of the financial health of our franchisees.

Franchise Information

($ in thousands)


	Year Ended August 31,
	2012			2011			2010

Franchising revenues ⁽¹⁾	$	134,588		$	131,894		$	132,016
Percentage increase (decrease)		2.0	%		(0.1	%)		(2.7	%)

Franchise Drive-Ins in operation ⁽²⁾ :
Total at beginning of year		3,115			3,117			3,069
Opened		36			40			80
Acquired from Company, net		35			5			16
Closed (net of re-openings)		(39	)		(47	)		(48	)

Total at end of year		3,147			3,115			3,117


Franchise Drive-In sales	$	3,386,218		$	3,278,208		$	3,205,507
Percentage change		3.3	%		2.3	%		(2.0	%)

Effective royalty rate		3.72	%		3.79	%		3.82	%

Average sales per Franchise Drive-In	$	1,081		$	1,054		$	1,043

Change in same-store sales ⁽³⁾		2.2	%		0.4	%		(7.6	%)

(1)

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” included in this Form 10-K.

(2)	Drive-ins that are temporarily closed for various reasons (repairs, remodeling, relocations, etc.) are not considered closed unless the Company determines that they are unlikely to reopen within a reasonable time.

(3)	Represents percentage change for drive-ins open for a minimum of 15 months.

Same-store sales for Franchise Drive-Ins increased 2.2% for fiscal year 2012 and 0.4% for fiscal year 2011, an improving trend that we attribute to the initiatives we have implemented. Franchising revenues increased $2.7 million, or 2.0%, for fiscal year 2012 as compared to 2011. The increase in franchising revenues was primarily driven by a $1.9 million increase in franchise royalties. Same-store sales increases combined with incremental royalties from newly constructed and refranchised drive-ins resulted in an increase in royalties of $3.2 million, which was partially offset by a $1.3 million decrease from a lower effective royalty rate. The lower effective royalty rate is due to a temporary reduction in royalty rates from various development incentives and certain franchisee restructuring efforts. Franchisees opened 36 new drive-ins during fiscal year 2012 compared to 40 in the prior year. Franchisee investment in existing drive-ins continued during fiscal year 2012 and included the relocation or rebuilding of 17 drive-ins versus 11 in the prior year.

Franchising revenues were relatively flat in fiscal year 2011 decreasing by $0.1 million, or 0.1%, to $131.9 million as compared to $132.0 million for fiscal year 2010. Franchise royalties increased $1.7 million for fiscal year 2011, which was comprised of a $2.0 million increase from same-store sales and incremental royalties from newly constructed and refranchised drive-ins, partially offset by a $0.3 million decrease from a lower effective royalty rate. Franchise fees declined $1.0 million to $1.7 million in fiscal year 2011, which was primarily related to franchisees opening fewer drive-ins during the year as a result of the weaker overall business environment. Franchisees opened 40 new drive-ins during fiscal year 2011, down from 80 in 2010.

Other revenues increased $1.5 million to $4.7 million in fiscal year 2012 and decreased $1.3 million to $3.2 million in fiscal year 2011 as compared to prior years, primarily due to changes in income from investments in franchise operations.

Operating Expenses . The following table presents the overall costs of drive-in operations as a percentage of Company Drive-In sales. Other operating expenses include direct operating costs such as marketing, telephone and utilities, repair and maintenance, rent, property tax and other controllable expenses.

Company Drive-In Margins


	Year ended August 31,		Percentage points (Decrease)
	2012	2011	Percentage points (Decrease)

Costs and expenses ⁽¹⁾ :
Company Drive-Ins:
Food and packaging	28.1%	28.1%	–
Payroll and other employee benefits ⁽²⁾	35.7	36.4	(0.7)
Other operating expenses	22.1	22.2	(0.1)

Cost of sales	85.9%	86.7%	(0.8)


	Year ended August 31,		Percentage points Increase (Decrease)
	2011	2010	Percentage points Increase (Decrease)

Costs and expenses ⁽¹⁾ :
Company Drive-Ins:
Food and packaging	28.1%	27.6%	0.5
Payroll and other employee benefits ⁽²⁾	36.4	35.2	1.2
Other operating expenses	22.2	22.8	(0.6)

Cost of sales	86.7%	85.6%	1.1

Noncontrolling interests ⁽²⁾	–	1.1%	(1.1)

Pro forma cost of sales, including noncontrolling interests	86.7%	86.7%	–

(1)	Calculated as a percentage of Company Drive-In sales.

(2)

Effective April 1, 2010, we revised our compensation program at the Company Drive-In level. As a result of these changes, noncontrolling interests are immaterial for fiscal years 2012 and 2011 and have been included in payroll and other employee benefits. We have included noncontrolling interests for fiscal year 2010 in the table for comparative purposes because we believe it is helpful in understanding the impact our new compensation program had on Company Drive-In margins.

Restaurant-level margins improved by 80 basis points during fiscal year 2012 reflecting leverage from improved same-store sales and, to a lesser extent, the refranchising of 34 lower performing Company Drive-Ins during the second quarter of fiscal year 2012. Food and packaging costs remained flat during fiscal year 2012, which was a combination of moderating commodity cost inflation during the latter half of the year, effective inventory management, and moderate price increases taken over the preceding twelve months. Payroll and other employee benefits as well as other operating expenses improved by a combined 80 basis points primarily as a result of leveraging labor with improved sales.

Restaurant-level margins remained flat in fiscal year 2011 as compared to 2010. Food and packaging cost increases during fiscal year 2011 were driven by investments in product quality improvements and higher commodity costs. Payroll and other employee benefit costs increased as a result of increased compensation costs associated with our new compensation program at the Company Drive-In level which was effective April 1, 2010. As a result of our new compensation program introduced as an alternative to our traditional ownership program, compensation costs that were formerly reflected as noncontrolling interests are now included in payroll and other employee benefits. Other operating expenses decreased, as a percentage of sales, attributable to leverage from positive same-store sales.

Selling, General and Administrative (“SG&A”) . SG&A expenses remained relatively flat for fiscal year 2012 as compared to the prior year, increasing by 0.4% to $65.2 million, and decreased 2.8% to $64.9 million during fiscal year 2011 as compared to fiscal 2010. The decrease in SG&A expense for fiscal year 2011 was largely attributable to a decline in stock compensation expense resulting from a revision in our long-term compensation strategy as well as declines in bad debt expense due to an improvement in sales trends.

Depreciation and Amortization . Depreciation and amortization expense increased 1.7% to $41.9 million in fiscal year 2012 and decreased 3.3% to $41.2 million in fiscal year 2011. Of the $0.7 million increase in fiscal year 2012, approximately $0.4 million was attributable to the amortization of intellectual property acquired during the second quarter of fiscal year 2012 relating to a point-of-sale system that is used by a majority of the Sonic system. The decrease in depreciation and amortization expense for fiscal year 2011 was primarily attributable to the provision for impairment of long-lived assets recorded in the fourth quarter of fiscal 2010 and, to a lesser extent, the refranchising of 16 Company Drive-Ins in fiscal year 2010.

Provision for Impairment of Long-Lived Assets . Provision for impairment of long-lived assets remained steady at $0.8 million for fiscal years 2012 and 2011 and decreased $14.3 million in fiscal year 2011 from 2010. This decrease was primarily the result of the $15.2 million non-cash impairment of long-lived assets recorded in fiscal year 2010 to reduce the carrying cost of the related operating assets to an estimated fair value. This provision primarily related to lower sales and profits for Company Drive-Ins resulting from the sustained economic downturn and weak results during fiscal 2010 for operating stores. Assets impaired included operating drive-ins, property leased to franchisees, surplus property and other assets.

Net Interest Expense . Net interest expense decreased in fiscal year 2012 as compared to the same period last year primarily as a result of a $28.2 million loss from the early extinguishment of debt related to the refinancing of our debt in May 2011. In addition, net interest expense for fiscal year 2011 included a $5.2 million gain from the early extinguishment of debt in the second quarter of fiscal year 2011, and net interest expense for fiscal year 2010 included a $0.3 million loss from the early extinguishment of debt during the third quarter of fiscal year 2010. Excluding the early extinguishments of debt, net interest expense decreased $0.9 million in fiscal year 2012 and $3.9 million in fiscal year 2011, primarily related to a decline in debt partially offset by a higher weighted average interest rate. See “Liquidity and Sources of Capital” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” below for additional information on factors that could impact interest expense.

Income Taxes . The provision for income taxes reflects an effective tax rate of 37.7% for fiscal year 2012 compared with 32.3% for fiscal year 2011. The higher effective income tax rate for fiscal year 2012 was primarily attributable to a $1.1 million favorable settlement of state tax audits during the first quarter of fiscal year 2011 and the expiration of tax credit programs during the second quarter of fiscal year 2012. The provision for income taxes, excluding income attributable to noncontrolling interests, reflects an effective tax rate of 29.7% for fiscal year 2010. The increase in the tax rate for fiscal year 2011 as compared to 2010 was primarily attributable to a $1.8 million tax benefit associated with the stock option exchange program that was implemented during the third quarter of fiscal year 2010, partially offset by the $1.1 million favorable state tax settlement during 2011 discussed earlier. Our tax rate may continue to vary significantly from quarter to quarter depending on the timing of stock option exercises and dispositions by option-holders, changes in tax credit legislation, changes to uncertain tax positions, and as circumstances on other tax matters change.

Net Income – Noncontrolling Interests . As a result of the change to a new compensation program for Company Drive-Ins in April 2010, compensation costs that were formerly reflected as noncontrolling interests relating to store-level managers are now immaterial and included in payroll and other employee benefits.

Financial Position

Total assets increased $1.0 million to $680.8 million during fiscal year 2012 from $679.7 million at the end of fiscal year 2011. Current assets increased $13.7 million during the year primarily due to an increase in cash from improved sales and profitability, partially offset by capital expenditures, debt repayments and purchases under our stock repurchase programs. Non-current assets decreased $12.7 million primarily due to a $21.9 million decrease in net property, equipment and capital leases resulting primarily from depreciation during the year partially offset by capital additions. The overall decrease in non-current assets was largely offset by the reclassification of our income tax receivable, which is explained further in note 11 – Income Taxes, included in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Total liabilities decreased $6.5 million, or 1.0%, to $621.5 million during fiscal year 2012 from $628.0 million at the end of fiscal year 2011. This decrease was primarily attributable to scheduled debt principal repayments of $15.2 million during fiscal year 2012, partially offset by an increase in income taxes payable.

Total stockholders’ equity increased $7.6 million, or 14.6%, to $59.2 million during fiscal year 2012 from $51.7 million at the end of fiscal year 2011. This increase was largely attributable to current year earnings of $36.1 million partially offset by $31.1 million in purchases of common stock under our stock repurchase programs during fiscal year 2012.

Liquidity and Sources of Capital

Operating Cash Flows . Net cash provided by operating activities increased $11.0 million to $95.1 million for fiscal year 2012 as compared to $84.1 million in fiscal year 2011. This increase primarily relates to an improvement in same-store sales and profitability.

Investing Cash Flows. Cash used in investing activities increased $8.0 million to $24.1 million for fiscal year 2012 compared to $16.1 million for fiscal year 2011. During fiscal year 2012, we used $24.2 million of cash for purchases of property and equipment as outlined in the table below as well as $3.4 million of cash to purchase intellectual property related to a point-of-sale system that is used by a majority of the Sonic system. These cash outflows were partially offset by $9.9 million in proceeds primarily related to the sale of operations and a portion of the real estate for 34 Company Drive-Ins. The balance of the change relates to an increase in notes receivable and other investments. The following table sets forth the components of our investments in property and equipment for fiscal year 2012 (in millions):


Replacement equipment and technology for existing drive-ins	$	9.5
Corporate technology investments		5.2
Acquisition of underlying real estate for drive-ins		4.5
Rebuilds, relocations and remodels of existing drive-ins		3.3
New Company Drive-Ins, including drive-ins under construction		1.3
Retrofits, drive-thru additions and LED signs in existing drive-ins		0.4

Total purchases of property and equipment	$	24.2

Financing Cash Flows. Net cash used in financing activities decreased $76.7 million to $47.9 million for fiscal year 2012 as compared to $124.6 million in fiscal year 2011. During the third quarter of fiscal year 2011 we refinanced our previously outstanding debt as described below, which was the primary reason for the decrease. Approximately $30 million of the decrease relates to a reduction in debt payments during fiscal year 2012 as compared to fiscal year 2011, primarily due to lower mandatory principal payments under our new financing. These decreases were offset by the use of $30 million of cash during the year to purchase outstanding common stock under our stock repurchase programs as discussed below, and by changes in restricted cash related to our new debt obligations.

On May 20, 2011, various subsidiaries of ours (the “Co-Issuers”) issued $500 million of Series 2011-1 Senior Secured Fixed Rate Notes, Class A-2 (the “2011 Fixed Rate Notes”) in a private transaction which bears interest at 5.4% per annum. The 2011 Fixed Rate Notes have an expected life of seven years with an anticipated repayment date in May 2018 based on the terms of the debt agreement. At August 31, 2012, the balance outstanding under the 2011 Fixed Rate Notes including accrued interest totaled $482.0 million and carried a weighted-average interest cost of 5.9%, including the effect of the loan origination costs described below.

In connection with the issuance of the 2011 Fixed Rate Notes, the Co-Issuers also entered into a securitized financing facility of Series 2011-1 Senior Secured Variable Funding Notes, Class A-1 (the “2011 Variable Funding Notes”). This revolving credit facility allows for the issuance of up to $100 million of 2011 Variable Funding Notes and certain other credit instruments, including letters of credit. The 2011 Variable Funding Notes have an expected life of five years with an anticipated repayment date in May 2016 based on the terms of the debt agreement. Interest on the 2011 Variable Funding Notes is based on the one-month London Interbank Offered Rate or Commercial Paper, depending on the funding source, plus 3.75% per annum. There is a 0.5% annual commitment fee payable monthly on the unused portion of the 2011 Variable Funding Notes facility. As of August 31, 2012, there was no outstanding balance under our 2011 Variable Funding Notes.

We used the $535 million of net proceeds from the issuance of the 2011 Fixed Rate Notes and 2011 Variable Funding Notes (collectively, the “2011 Notes”) to repay our existing debt in full and to pay the costs

associated with the securitized financing transaction, including the existing noteholder and insurer make-whole premiums.

Before the refinancing, during the second quarter of fiscal year 2011, we repurchased $62.5 million of our prior variable funding notes in a privately negotiated transaction. We recognized a gain of $5.2 million on the extinguishment of these notes during the second fiscal quarter of 2011.

Mandatory principal payments of $15 million annually under the new financing versus mandatory principal payments paid in fiscal year 2011 of $45.4 million will significantly increase the amount of our available free cash flow which we define as net income plus depreciation, amortization, and stock compensation expense, less capital expenditures. For additional information on our 2011 Notes, see note 9 – Debt, included in Part II, Item 8, “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

We plan capital expenditures of approximately $30 to $40 million in fiscal year 2013. These capital expenditures primarily relate to drive-in level expenditures, technology infrastructure expenditures, the development of additional Company Drive-Ins, the implementation of a new point-of-sale system at Company Drive-Ins, and the implementation of a new supply chain management tool for use by the entire Sonic system. We expect to fund these capital expenditures through cash flow from operations as well as cash on hand.

On October 13, 2011, our Board of Directors approved a $30 million stock repurchase program. Under that program, we were authorized to purchase up to $30 million of our outstanding shares of common stock through August 31, 2012. During fiscal year 2012, we completed this stock repurchase program.

On August 15, 2012, our Board of Directors approved a new stock repurchase program. Under the new program, we are authorized to purchase up to $40 million of our outstanding shares of common stock through August 31, 2013. As of August 31, 2012, the total remaining amount authorized for repurchase was $38.9 million. Share repurchases may be made from time to time in the open market or in negotiated transactions, depending on share price, market conditions and other factors. The stock repurchase program may be extended, modified, suspended or discontinued at any time. We plan to fund the stock repurchase program from existing cash on hand at August 31, 2012 and cash flows from operations.

As of August 31, 2012, our total cash balance of $70.8 million ($52.6 million of unrestricted and $18.1 million of restricted cash balances) reflected the impact of the cash generated from operating activities, cash used for stock repurchases, refranchising, and capital expenditures mentioned above. We believe that existing cash, funds generated from operations and the $100 million available under our 2011 Variable Funding Notes will meet our needs for the foreseeable future.

Off-Balance Sheet Arrangements

The Company has obligations for guarantees on certain franchisee loans, which in the aggregate are immaterial, and obligations for guarantees on certain franchisee lease agreements. Other than such guarantees and various operating leases and purchase obligations, which are disclosed below in “Contractual Obligations and Commitments” and in note 6 – Leases and 15 – Commitments and Contingencies to our Consolidated Financial Statements, the Company has no other material off-balance sheet arrangements.

Contractual Obligations and Commitments

In the normal course of business, Sonic enters into purchase contracts, lease agreements and borrowing arrangements. The following table presents our commitments and obligations as of August 31, 2012 (in thousands):


			Payments Due by Fiscal Year
	Total		Less than 1 Year (2013)		1 – 3 Years (2014 to 2015)		3 – 5 Years (2016 to 2017)		More than 5 Years (2018 and thereafter)
Contractual Obligations
Long-term debt ⁽¹⁾	$	618,312	$	40,986		$ 79,446		$ 75,879		$ 422,001
Capital leases		41,296		5,845		11,484		9,347		14,620
Operating leases		160,886		11,877		23,451		21,221		104,337
Purchase obligations ⁽²⁾		76,842		28,391		46,604		1,847		–
Other ⁽³⁾		14,820		–		–		–		–
Total	$	912,156	$	87,099		$ 160,985		$ 108,294		$ 540,958

(1)	Includes scheduled principal and interest payments on our 2011 Fixed Rate Notes and assumes these notes will be outstanding for the expected seven-year life with an anticipated repayment date in May 2018.

(2)	Purchase obligations primarily relate to the Company’s estimated share of system-wide commitments to purchase food products. We have excluded agreements that are cancelable without penalty. These amounts require estimates and could vary due to the timing of volumes and changes in market pricing.

(3)

Includes $5.5 million of unrecognized tax benefits related to uncertain tax positions and $9.3 million related to guarantees of franchisee leases and loan agreements. As we are not able to reasonably estimate the timing or amount of these payments, if any, the related balances have not been reflected in the “Payments Due by Fiscal Year” section of the table.

Impact of Inflation

We are impacted by inflation which has caused increases in our food, labor and benefits costs and has increased our operating expenses. To the extent permitted by competition, increased costs are recovered through a combination of menu price increases and reviewing, then implementing, alternative products or processes, or by implementing other cost reduction procedures.

Critical Accounting Policies and Estimates

The Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this document contain information that is pertinent to management’s discussion and analysis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to use its judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. These assumptions and estimates could have a material effect on our financial statements. We evaluate our assumptions and estimates on an ongoing basis using historical experience and various other factors that are believed to be relevant under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We perform an annual review of our financial reporting and disclosure practices and accounting policies to ensure that our financial reporting and disclosures provide accurate and transparent information relative to the current economic and business environment. We believe the following significant accounting policies and estimates involve a high degree of risk, judgment and/or complexity.

Impairment of Long-Lived Assets . We review Company Drive-In assets for impairment when events or circumstances indicate they might be impaired. We test for impairment using historical cash flows and other relevant facts and circumstances as the primary basis for our estimates of future cash flows. This process requires the use of estimates and assumptions, which are subject to a high degree of judgment. These impairment tests require us to estimate fair values of our drive-ins by making assumptions regarding future cash flows and other factors. It is reasonably possible that our estimates of future cash flows could change resulting in the need to write down to fair value certain Company Drive-In assets.

We assess the recoverability of goodwill and other intangible assets related to our brand and drive-ins at least annually and more frequently if events or changes in circumstances occur indicating that the carrying amount of the asset may not be recoverable or as a result of allocating goodwill to Company Drive-Ins that are sold. Goodwill impairment testing first requires a comparison of the fair value of each reporting unit to the carrying value. We estimate fair value based on a comparison of two approaches: an income approach, using the discounted cash flow method, and a market approach, using the guideline public company method. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, capital expenditures, weighted average cost of capital, and future economic and market conditions. In addition, the market approach includes significant assumptions such as the use of projected cash flow and revenue multiples derived from a comparable set of public companies as well as a control premium based on recent market transactions. These assumptions are significant factors in calculating the value of the reporting units and can be affected by changes in consumer demand, commodity pricing, labor and other operating costs, our cost of capital and changes in guideline public company market multiples. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. The amount of the impairment is the difference between the carrying value of the goodwill and the “implied” fair value, which is calculated as if the reporting unit had just been acquired and accounted for as a business combination.

During the fourth quarter of fiscal year 2012, we performed our annual assessment of recoverability of goodwill and other intangible assets and determined that no impairment was indicated. As of the impairment testing date, the fair value of the Company Drive-In reporting unit exceeded the carrying value by approximately 12%. As of August 31, 2012, the Company had $77.0 million of goodwill, of which $71.0 million was attributable to the Company Drive-Ins segment and $6.0 million was attributable to the Franchise Operations segment. If cash flows generated by our Company Drive-Ins were to decline significantly in the future or there were negative revisions to key assumptions, we may be required to record impairment charges to reduce the carrying amount of goodwill.

Revenue Recognition Related to Franchise Fees and Royalties . Initial franchise fees are recognized in income when we have substantially performed or satisfied all material services or conditions relating to the sale of the franchise and the fees are nonrefundable. Area development fees are nonrefundable and are recognized in income on a pro-rata basis when the conditions for revenue recognition under the individual area development agreements are met. Both initial franchise fees and area development fees are generally recognized upon the opening of a Franchise Drive-In or upon termination of the agreement between Sonic and the franchisee.

Our franchisees are required under the provisions of the license agreements to pay royalties to Sonic each month based on a percentage of actual sales. However, the royalty payments and supporting financial statements are not due until the following month under the terms of our franchise agreements. As a result, we accrue royalty revenue in the month earned.

Accounting for Stock-Based Compensation . We account for stock-based compensation in accordance with Accounting Standards Codification (“ASC”) Topic 718, Stock Compensation. We estimate the fair value of options granted using the Black-Scholes option pricing model along with the assumptions shown in note 12 – Stockholders’ Equity in the Notes to the Consolidated Financial Statements in this Form 10-K. The assumptions used in computing the fair value of stock-based payments reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control. We estimate expected volatility based on historical daily price changes of the Company’s stock for a period equal to the current expected term of the options. The expected option term is the number of years the Company estimates that options will be outstanding prior to exercise considering vesting schedules and our historical exercise patterns. If other assumptions or estimates had been used, the stock-based compensation expense that was recorded could have been materially different. Furthermore, if different assumptions are used in future periods, stock-based compensation expense could be materially impacted.

Income Taxes . We estimate certain components of our provision for income taxes. These estimates include, among other items, depreciation and amortization expense allowable for tax purposes, allowable tax credits for items such as wages paid to certain employees, effective rates for state and local income taxes and the tax deductibility of certain other items.

We account for uncertain tax positions under ASC Topic 740, Income Taxes, which sets out criteria for the use of judgment in assessing the timing and amounts of deductible and taxable items. Although we believe we have

adequately accounted for our uncertain tax positions, from time to time, audits result in proposed assessments where the ultimate resolution may give rise to us owing additional taxes. We adjust our uncertain tax positions in light of changing facts and circumstances, such as the completion of a tax audit, expiration of a statute of limitations, the refinement of an estimate, and penalty and interest accruals associated with uncertain tax positions until they are resolved. We believe that our tax positions comply with applicable tax law and that we have adequately provided for these matters. However, to the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made.

Our estimates are based on the best available information at the time that we prepare the provision, including legislative and judicial developments. We generally file our annual income tax returns several months after our fiscal year end. Income tax returns are subject to audit by federal, state and local governments, typically several years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws. Adjustments to these estimates or returns can result in significant variability in the tax rate from period to period.

Leases . We lease the land and buildings for certain Company Drive-Ins from third parties. Rent expense for operating leases is recognized on a straight-line basis over the expected lease term, including cancelable option periods when it is deemed to be reasonably assured that we would incur an economic penalty for not exercising the options. Judgment is required to determine options expected to be exercised. Within the terms of some of our leases, there are rent holidays and/or escalations in payments over the base lease term, as well as renewal periods. The effects of the rent holidays and escalations are reflected in rent expense on a straight-line basis over the expected lease term, including cancelable option periods when appropriate. The lease term commences on the date when we have the right to control the use of lease property, which can occur before rent payments are due under the terms of the lease. Contingent rent is generally based on sales levels and is accrued at the point in time we determine that it is probable that such sales levels will be achieved.

Accounts and Notes Receivable . We charge interest on past due accounts receivable and recognize income as it is collected. Interest accrues on notes receivable based on the contractual terms of the respective note. We monitor all accounts and notes receivable for delinquency and provide for estimated losses for specific receivables that are not likely to be collected. We assess credit risk for accounts and notes receivable of specific franchisees based on payment history, current payment patterns, the health of the franchisee’s business, and an assessment of the franchisee’s ability to pay outstanding balances. In addition to allowances for bad debt for specific franchisee receivables, a general provision for bad debt is estimated for accounts receivable based on historical trends. Account balances generally are charged against the allowance when we believe it is probable that the receivable will not be recovered and legal remedies have been exhausted. We continually review our allowance for doubtful accounts.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Sonic’s use of debt directly exposes the Company to interest rate risk. Fixed rate debt, where the interest rate is fixed over the life of the instrument, exposes the Company to changes in market interest rates reflected in the fair value of the debt and to the risk that the Company may need to refinance maturing debt with new debt at a higher rate. Sonic is also exposed to market risk from changes in commodity prices. The Company does not utilize financial instruments for trading purposes. Sonic manages its debt portfolio to achieve an overall desired position of fixed and floating rates.

Interest Rate Risk . Our exposure to interest rate risk at August 31, 2012 was primarily based on the 2011 Fixed Rate Notes with an effective rate of 5.4%, before amortization of debt-related costs. At August 31, 2012, the fair value of the 2011 Fixed Rate Notes was estimated at $510.8 million versus a carrying value of $482.0 million, including accrued interest. To derive the fair value, management used market information available for public debt transactions for companies with ratings that are similar to our ratings and information gathered from brokers who trade in our notes. Management believes this fair value is a reasonable estimate. Should interest rates and/or credit spreads increase or decrease by one percentage point, the estimated fair value of the 2011 Fixed Rate Notes would decrease or increase by approximately $24 million, respectively. The fair value estimate required significant assumptions by management.

Commodity Price Risk . The Company and its franchisees purchase certain commodities such as beef, potatoes, chicken and dairy products. These commodities are generally purchased based upon market prices

established with vendors. These purchase arrangements may contain contractual features that limit the price paid by establishing price floors or caps; however, we generally do not make any long-term commitments to purchase any minimum quantities under these arrangements other than as disclosed above in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under “Contractual Obligations and Commitments.” We also do not use financial instruments to hedge commodity prices because these purchase arrangements help control the ultimate cost.

This market risk discussion contains forward-looking statements. Actual results may differ materially from this discussion based upon general market conditions and changes in financial markets.

Item 8. Financial Statements and Supplementary Data

The Company has included the financial statements and supplementary financial information required by this item immediately following Part IV of this report and hereby incorporates by reference the relevant portions of those statements and information into this Item 8.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-14 under the Securities Exchange Act of 1934). Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level. There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

Management’s Report on Internal Control over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of August 31, 2012. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework. Based on our assessment, we believe that, as of August 31, 2012, the Company’s internal control over financial reporting is effective based on those criteria.

The Company’s independent registered public accounting firm that audited the financial statements included in this annual report has issued an attestation report on the Company’s internal control over financial reporting. This report appears on the following page.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Sonic Corp.

We have audited Sonic Corp.’s internal control over financial reporting as of August 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Sonic Corp.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Sonic Corp. maintained, in all material respects, effective internal control over financial reporting as of August 31, 2012, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Sonic Corp. as of August 31, 2012 and 2011, and the related consolidated statements of income, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended August 31, 2012 of Sonic Corp. and our report dated October 26, 2012 expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Oklahoma City, Oklahoma

October 26, 2012

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Sonic has adopted a Code of Ethics for Financial Officers and a Code of Business Conduct and Ethics that applies to all directors, officers and employees. Sonic has posted copies of these codes on the investor section of its website, www.sonicdrivein.com.

Information regarding Sonic’s executive officers is set forth under Item 4A of Part I of this report. The other information required by this item is incorporated by reference from the definitive proxy statement which Sonic will file with the Securities and Exchange Commission no later than 120 days after August 31, 2012 (the “Proxy Statement”), under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance.”

Item 11. Executive Compensation

The information required by this item is incorporated by reference from the Proxy Statement under the caption “Executive Compensation – Compensation Discussion and Analysis.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this item is incorporated by reference from the Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.”

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by this item is incorporated by reference from the Proxy Statement under the captions “Certain Relationships and Related Transactions,” “Director Independence,” “Committees of the Board of Directors,” and “Compensation Committee Interlocks and Insider Participation.”

Item 14. Principal Accounting Fees and Services

The information required by this item is incorporated by reference from the Proxy Statement under the caption “Independent Registered Public Accounting Firm.”

PART IV

Item 15. Exhibits and Financial Statement Schedules

Financial Statements

The following consolidated financial statements of the Company appear immediately following this Item 15:


	Pages

Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets at August 31, 2012 and 2011		F-2
Consolidated Statements of Income for each of the three years in the period ended August 31, 2012		F-4
Consolidated Statements of Stockholders’ Equity (Deficit) for each of the three years in the period ended August 31, 2012		F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended August 31, 2012		F-6
Notes to Consolidated Financial Statements		F-8

Financial Statement Schedules

The Company has included the following schedule immediately following this Item 15:


			Page

Schedule II	-	Valuation and Qualifying Accounts		F-31

The Company has omitted all other schedules because the conditions requiring their filing do not exist or because the required information appears in Sonic’s Consolidated Financial Statements, including the notes to those statements.

Exhibits

The Company has filed the exhibits listed below with this report. The Company has marked all management contracts and compensatory plans or arrangements with an asterisk (*).

3.01. Certificate of Incorporation of the Company, which the Company hereby incorporates by reference from Exhibit 3.1 to the Company’s Form S-1 Registration Statement No. 33-37158 filed on October 3, 1990.

3.02. Certificate of Amendment of Certificate of Incorporation of the Company, March 4, 1996, which the Company hereby incorporates by reference from Exhibit 3.05 to the Company’s Form 10-K for the fiscal year ended August 31, 2000.

3.03. Certificate of Amendment of Certificate of Incorporation of the Company, January 22, 2002, which the Company hereby incorporates by reference from Exhibit 3.06 to the Company’s Form 10-K for the fiscal year ended August 31, 2002.

3.04. Certificate of Amendment of Certificate of Incorporation of the Company, January 31, 2006, which the Company hereby incorporates by reference from Exhibit 3.04 to the Company’s Form 10-K for the fiscal year ended August 31, 2006.

4.01. Bylaws of the Company, as amended and restated January 14, 2010, which the Company hereby incorporates by reference from Exhibit 3.05 to the Company’s Form 10-K for fiscal year ended August 31, 2010.

4.02. Certificate of Designations of Series A Junior Preferred Stock, which the Company hereby incorporates by reference from Exhibit 99.1 to the Company’s Form 8-K filed on June 17, 1997.

4.03. Specimen Certificate for Common Stock, which the Company hereby incorporates by reference from Exhibit 4.01 to the Company’s Form 10-K for the fiscal year ended August 31, 1999.

10.01. Form of Sonic Industries LLC, successor to Sonic Industries Inc., License Agreement (the Number 4.2 License Agreement and Number 5.1 License Agreement), which the Company hereby incorporates by reference from Exhibit 10.03 to the Company’s Form 10-K for the fiscal year ended August 31, 1994.

10.02. Form of Sonic Industries LLC License Agreement (the Number 4.4/5.4 License Agreement), which the Company hereby incorporates by reference from Exhibit No. 10.08 to the Company’s Form 10-K for the fiscal year ended August 31, 2007.

10.03. Form of Sonic Industries LLC License Agreement (the Number 5.5 License Agreement), which the Company hereby incorporates by reference from Exhibit No. 10.09 to the Company’s Form 10-K for the fiscal year ended August 31, 2007.

10.04. Form of Sonic Industries LLC, successor to Sonic Industries Inc., License Agreement (the Number 6 License Agreement), which the Company hereby incorporates by reference from Exhibit 10.04 to the Company’s Form 10-K for the fiscal year ended August 31, 1994.

10.05. Form of Sonic Industries LLC, successor to Sonic Industries Inc., License Agreement (the Number 6A License Agreement), which the Company hereby incorporates by reference from Exhibit 10.05 to the Company’s Form 10-K for the fiscal year ended August 31, 1998.

10.06. Form of Sonic Industries Services Inc. Sign Lease Agreement, which the Company hereby incorporates by reference from Exhibit 10.4 to the Company’s Form S-1 Registration Statement No. 33-37158.

10.07. Sonic Corp. Stock Purchase Plan, as amended and restated effective April 20, 2011.*

10.08. Sonic Corp. Savings and Profit-Sharing Plan, as amended and restated effective October 1, 2010, which the Company hereby incorporates by reference from Exhibit 10.10 to the Company’s Form 10-K for the fiscal year ended August 31, 2010.*

10.09. Sonic Corp. Nonqualified Deferred Compensation Plan dated June 1, 2011, which the Company hereby incorporates by reference from Exhibit 10.01 to the Company’s Form 10-Q for the third fiscal quarter ended May 31, 2011.*

10.10. Form of Indemnification Agreement for Directors, which the Company hereby incorporates by reference from Exhibit 10.7 to the Company’s Form S-1 Registration Statement No. 33-37158.*

10.11. Form of Indemnification Agreement for Officers, which the Company hereby incorporates by reference from Exhibit 10.14 to the Company’s Form 10-K for the fiscal year ended August 31, 1995.*

10.12. Form of Chief Executive Officer Amended and Restated Employment Agreement dated November 1, 2012.*

10.13. Form of Executive Officer Amended and Restated Employment Agreement dated November 1, 2012.*

10.14. Form of Amended and Restated Sonic Corp. Executive Severance Plan dated November 1, 2012.*

10.15. 2001 Sonic Corp. Stock Option Plan, as amended and restated effective January 14, 2010, which the Company hereby incorporates by reference from Exhibit (d)(3) to the Company’s Schedule TO filed March 31, 2010.*

10.16. 2001 Sonic Corp. Directors’ Stock Option Plan, as amended and restated January 14, 2010, which the Company hereby incorporates by reference from Exhibit 10.27 to the Company’s Form 10-K filed on October 29, 2010.*

10.17. Sonic Corp. 2006 Long-Term Incentive Plan, as amended and restated effective October 13, 2011, which the Company hereby incorporates by reference from Exhibit 10.26 to the Company’s Form 10-K filed on October 28, 2011.*

10.18. Form of Award Agreement under Sonic Corp. 2006 Long-Term Incentive Plan, which the Company hereby incorporates by reference from Exhibit (d)(2) to the Company’s Schedule TO filed March 31, 2010.*

10.19. Sonic Corp. Senior Executive Cash Incentive Plan dated January 6, 2011, which the Company hereby incorporates by reference from Exhibit 10.01 to the Company’s Form 10-Q filed on April 8, 2011.*

10.20. Sonic Corp. Employee Cash Incentive Plan dated January 6, 2011, which the Company hereby incorporates by reference from Exhibit 10.02 to the Company’s Form 10-Q filed on April 8, 2011.*

10.21. Base Indenture dated May 20, 2011 among Sonic Capital LLC, Sonic Industries LLC, America’s Drive-In Brand Properties LLC, America’s Drive-In Restaurants LLC, SRI Real Estate Holding LLC and SRI Real Estate Properties LLC, each as Co-Issuer of the Fixed Rate Notes and Citibank, N.A., as Trustee and Securities Intermediary, which the Company hereby incorporates by reference from Exhibit 99.1 to the Company’s Form 8-K filed on May 26, 2011.

10.22. Supplemental Indenture dated May 20, 2011 among Sonic Capital LLC, Sonic Industries LLC, America’s Drive-In Brand Properties LLC, America’s Drive-In Restaurants LLC, SRI Real Estate Holding LLC and SRI Real Estate Properties LLC, each as Co-Issuer of the Fixed Rate Notes, and Citibank, N.A. as Trustee and the Series 2011-1 Securities Intermediary, which the Company hereby incorporates by reference from Exhibit 99.2 to the Company’s Form 8-K filed on May 26, 2011.

10.23. Class A-1 Note Purchase Agreement dated May 20, 2011 among Sonic Capital LLC, Sonic Industries LLC, America’s Drive-In Brand Properties LLC, America’s Drive-In Restaurants LLC, SRI Real Estate Holding LLC and SRI Real Estate Properties LLC, each as Co-Issuer and Sonic Industries Services Inc., as Manager, certain private conduit investors, financial institutions and funding agents, Barclays Bank PLC, as provider of letters of credit, and Barclays Bank PLC, as a swing-line lender and as Administrative Agent of the Fixed Rate Notes, which the Company hereby incorporates by reference from Exhibit 99.3 to the Company’s Form 8-K filed on May 26, 2011.

10.24. Guarantee and Collateral Support Agreement dated May 20, 2011 made by Sonic Franchising LLC, as Guarantor in favor of Citibank N.A. as Trustee, which the Company hereby incorporates by reference from Exhibit 99.4 to the Company’s Form 8-K filed on May 26, 2011.

10.25. Parent Company Support Agreement dated May 20, 2011 made by Sonic Corp. in favor of Citibank N.A., as Trustee, which the Company hereby incorporates by reference from Exhibit 99.5 to the Company’s Form 8-K filed on May 26, 2011.

21.01. Subsidiaries of the Company.

23.01. Consent of Independent Registered Public Accounting Firm.

31.01. Certification of Chief Executive Officer pursuant to S.E.C. Rule 13a-14.

31.02. Certification of Chief Financial Officer pursuant to S.E.C. 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 ⁽¹⁾

101. SCH XBRL Taxonomy Extension Schema Document ⁽¹⁾

101. CAL XBRL Taxonomy Extension Calculation Linkbase Document ⁽¹⁾

101. DEF XBRL Taxonomy Extension Definition Linkbase Document ⁽¹⁾

101. LAB XBRL Taxonomy Extension Label Linkbase Document ⁽¹⁾

101. PRE XBRL Taxonomy Extension Presentation Linkbase Document ⁽¹⁾

⁽¹⁾ XBRL (Extensible Business Reporting Language) information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of

Sonic Corp.

We have audited the accompanying consolidated balance sheets of Sonic Corp. as of August 31, 2012 and 2011, and the related consolidated statements of income, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended August 31, 2012. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sonic Corp. at August 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended August 31, 2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Sonic Corp.’s internal control over financial reporting as of August 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated October 26, 2012, expressed an unqualified opinion thereon.

/s/ ERNST & YOUNG LLP

Oklahoma City, Oklahoma

October 26, 2012

F-1

Sonic Corp.

Consolidated Balance Sheets


	August 31,
	2012		2011

		(In Thousands)
Assets

Current assets:
Cash and cash equivalents	$	52,647	$	29,509
Restricted cash		10,200		12,850
Accounts and notes receivable, net		27,073		24,558
Income taxes receivable		–		12,776
Inventories		3,289		3,503
Prepaid expenses		4,399		4,523
Other current assets		9,543		5,738

Total current assets		107,151		93,457

Noncurrent restricted cash		7,903		8,108

Notes receivable, net		11,641		11,086

Property, equipment and capital leases, net		443,008		464,875

Goodwill		76,997		81,625

Debt origination costs, net		10,555		13,124

Other assets, net		23,505		7,467

Total assets	$	680,760	$	679,742

F-2

Sonic Corp.

Consolidated Balance Sheets (continued)


	August 31,
	2012			2011

		(In Thousands)

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	11,048		$	11,135
Deposits from franchisees		3,055			2,897
Accrued liabilities		32,607			33,532
Income taxes payable		14,326			4,775
Current maturities of long-term debt and capital leases		19,480			18,940

Total current liabilities		80,516			71,279

Obligations under capital leases due after one year		27,377			30,302
Long-term debt due after one year		466,613			481,835
Deferred income taxes		29,777			27,228
Other noncurrent liabilities		17,230			17,402
Commitments and contingencies (Notes 6, 7, 14 and 15 )

Stockholders’ equity:
Preferred stock, par value $.01; 1,000,000 shares authorized; none outstanding		–			–
Common stock, par value $.01; 245,000,000 shares authorized; shares issued 118,309,094 in 2012 and 118,309,094 in 2011		1,183			1,183
Paid-in capital		230,543			229,399
Retained earnings		722,614			687,431
Treasury stock, at cost; 60,324,576 shares in 2012 and 56,315,651 shares in 2011		(895,093	)		(866,317	)

Total stockholders’ equity		59,247			51,696

Total liabilities and stockholders’ equity	$	680,760		$	679,742

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

F-3

Sonic Corp.

Consolidated Statements of Income


	Year ended August 31,
	2012			2011			2010

		(In Thousands, Except Per Share Data)
Revenues:
Company Drive-In sales	$	404,443		$	410,820		$	414,369
Franchise Drive-Ins:
Franchise royalties		125,989			124,127			122,385
Franchise fees		2,024			1,744			2,752
Lease revenue		6,575			6,023			6,879
Other		4,699			3,237			4,541

		543,730			545,951			550,926

Costs and expenses:
Company Drive-Ins:
Food and packaging		113,775			115,516			114,281
Payroll and other employee benefits		144,531			149,417			145,688
Other operating expenses, exclusive of depreciation and amortization included below		89,164			91,303			94,690

		347,470			356,236			354,659

Selling, general and administrative		65,173			64,943			66,847
Depreciation and amortization		41,914			41,225			42,615
Provision for impairment of long-lived assets		764			824			15,161

		455,321			463,228			479,282

Other operating income (expense), net		531			585			(763	)

Income from operations		88,940			83,308			70,881

Interest expense		31,608			32,600			36,707
Interest income		(630	)		(706	)		(948	)
Net loss from early extinguishment of debt		–			23,035			314

Net interest expense		30,978			54,929			36,073

Income before income taxes		57,962			28,379			34,808
Provision for income taxes		21,877			9,154			8,969

Net income – including noncontrolling interests		36,085			19,225			25,839
Net income – noncontrolling interests		–			–			4,630

Net income – attributable to Sonic Corp.	$	36,085		$	19,225		$	21,209


Basic income per share	$	0.60		$	0.31		$	0.35


Diluted income per share	$	0.60		$	0.31		$	0.34

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

F-4

Sonic Corp

Consolidated Statements of Stockholders’ Equity (Deficit)


												Accumulated Other									Total
	Common Stock					Paid-in			Retained			Comprehensive			Treasury			Noncontrolling			Stockholders’
	Shares			Amount		Capital			Earnings			Loss			Stock			Interests			Equity(Deficit)

	(In Thousands)
Balance at August 31, 2009		117,781		$	1,178	$	219,736		$	649,398		$	(1,500	)	$	(873,080	)	$	1,916		$	(2,352	)
Comprehensive Income:
Net income		–			–		–			21,209			–			–			4,630			25,839
Net change in deferred hedging losses, net of tax of $462		–			–		–			–			657			–			–			657

Total comprehensive income, net of income taxes																						26,496
Purchases of noncontrolling interests in Company Drive-Ins		–			–		(6,725	)		–			–			–			(9,277	)		(16,002	)
Changes to noncontrolling interests		–			–		–			–			–			–			2,340			2,340
Stock-based compensation expense		–			–		7,666			–			–			–			–			7,666
Exercise of stock options and issuance of restricted stock		532			5		3,374			(119	)		–			221			–			3,481
Other		–			–		402			–			–			(78	)		613			937

Balance at August 31, 2010		118,313		$	1,183	$	224,453		$	670,488		$	(843	)	$	(872,937	)	$	222		$	22,566

Comprehensive Income:
Net income		–			–		–			19,225			–			–			–			19,225
Net change in deferred hedging losses, net of tax of $522		–			–		–			–			843			–			–			843

Total comprehensive income, net of income taxes																						20,068
Changes to noncontrolling interests		–			–		1,866			–			–			–			(222	)		1,644
Stock-based compensation expense		–			–		5,644			–			–			–			–			5,644
Exercise of stock options and issuance of restricted stock		(4	)		–		(2,267	)		(2,197	)		–			6,594			–			2,130
Other		–			–		(297	)		(85	)		–			26			–			(356	)

Balance at August 31, 2011		118,309		$	1,183	$	229,399		$	687,431		$	–		$	(866,317	)	$	–		$	51,696

Net income and comprehensive income		–			–		–			36,085			–			–			–			36,085
Stock-based compensation expense		–			–		4,295			–			–			–			–			4,295
Purchase of treasury stock		–			–		–			–			–			(31,102	)		–			(31,102	)
Exercise of stock options and issuance of restricted stock		–			–		(820	)		(529	)		–			1,629			–			280
Other		–			–		(2,331	)		(373	)		–			697			–			(2,007	)

Balance at August 31, 2012		118,309		$	1,183	$	230,543		$	722,614		$	–		$	(895,093	)	$	–		$	59,247

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

F-5

Sonic Corp.

Consolidated Statements of Cash Flows


	Year ended August 31,
	2012			2011			2010

	(In Thousands)
Cash flows from operating activities
Net income - including noncontrolling interests	$	36,085		$	19,225		$	25,839
Adjustments to reconcile net income including noncontrolling interests to net cash provided by operating activities:
Depreciation and amortization		41,914			41,225			42,615
Stock-based compensation expense		4,295			5,644			7,666
Noncontrolling interests		–			–			(4,630	)
Provision for impairment of long-lived assets		764			824			15,161
Net loss from early extinguishment of debt		–			23,035			314
Other		24			1,580			1,091
Decrease (increase) in operating assets:
Restricted cash		2,586			(5,136	)		4,465
Accounts receivable and other assets		(2,591	)		(2,124	)		292
Increase (decrease) in operating liabilities:
Accounts payable		(932	)		(552	)		(522	)
Accrued and other liabilities		(828	)		(281	)		(1,440	)
Income taxes		13,811			662			(13,247	)

Total adjustments		59,043			64,877			51,765

Net cash provided by operating activities		95,128			84,102			77,604

Cash flows from investing activities
Purchases of property and equipment		(24,175	)		(21,200	)		(24,468	)
Proceeds from sale of assets		9,929			6,448			14,271
Other		(9,863	)		(1,321	)		814

Net cash used in investing activities		(24,109	)		(16,073	)		(9,383	)

(Continued on following page)

F-6

Sonic Corp.

Consolidated Statements of Cash Flows (continued)


	Year ended August 31,
	2012			2011			2010

	(In Thousands)

Cash flows from financing activities
Payments on and purchases of debt	$	(15,220	)	$	(624,171	)	$	(106,296	)
Proceeds from borrowings		–			535,000			–
Restricted cash for securitization obligations		269			6,409			(209	)
Proceeds from exercise of stock options		280			2,130			3,404
Purchases of noncontrolling interests		(92	)		(182	)		(9,277	)
Purchases of treasury stock		(30,000	)		–			–
Debt issuance and extinguishment costs		(57	)		(40,248	)		–
Other		(3,061	)		(3,494	)		(7,404	)

Net cash used in financing activities		(47,881	)		(124,556	)		(119,782	)


Net increase (decrease) in cash and cash equivalents		23,138			(56,527	)		(51,561	)

Cash and cash equivalents at beginning of the year		29,509			86,036			137,597

Cash and cash equivalents at end of the year	$	52,647		$	29,509		$	86,036


Supplemental cash flow information
Cash paid during the year for:
Interest (net of amounts capitalized of $337, $23 and $25, respectively)	$	29,283		$	29,033		$	32,184
Income taxes (net of refunds)		11,114			10,523			25,534
Non-cash investing and financing activities:
Additions to capital lease obligations		1,692			1,340			446
Obligation to acquire treasury stock		1,102			–			–
Stock options exercised by stock swap		–			1,572			78
Change in obligation for purchase of property and equipment		(1,061	)		(524	)		3,208

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

F-7

Sonic Corp.

Notes to Consolidated Financial Statements

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

1. Summary of Significant Accounting Policies

Operations

Sonic Corp. (the “Company”) operates and franchises a chain of quick-service restaurants in the United States. It derives its revenues primarily from Company Drive-In sales and royalty fees from franchisees. The Company also leases signs and real estate, and receives equity earnings in noncontrolling ownership in a number of Franchise Drive-Ins.

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 significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported and contingent assets and liabilities disclosed in the financial statements and accompanying notes. Actual results may differ from those estimates, and such differences may be material to the financial statements.

Reclassifications

Certain amounts reported in previous years, which are not material, have been combined and reclassified to conform to the current year presentation.

Cash Equivalents

Cash equivalents consist of highly liquid investments, primarily money market accounts that mature in three months or less from date of purchase, and depository accounts.

Restricted Cash

As of August 31, 2012, the Company had restricted cash balances totaling $18.1 million for funds required to be held in trust for the benefit of senior noteholders under the Company’s debt arrangements. The current portion of restricted cash of $10.2 million represents amounts to be returned to Sonic or paid to service current debt obligations. The noncurrent portion of $7.9 million represents interest reserves required to be set aside for the duration of the debt.

F-8

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

Accounts and Notes Receivable

The Company charges interest on past due accounts receivable and recognizes income as it is collected. Interest accrues on notes receivable based on the contractual terms of the respective note. The Company monitors all accounts and notes receivable for delinquency and provides for estimated losses for specific receivables that are not likely to be collected. The Company assesses credit risk for accounts and notes receivable of specific franchisees based on payment history, current payment patterns, the health of the franchisee’s business, and an assessment of the franchisee’s ability to pay outstanding balances. In addition to allowances for bad debt for specific franchisee receivables, a general provision for bad debt is estimated for the Company’s accounts receivable based on historical trends. Account balances generally are charged against the allowance when the Company believes it is probable that the receivable will not be recovered and legal remedies have been exhausted. The Company continually reviews its allowance for doubtful accounts.

Inventories

Inventories consist principally of food and supplies that are carried at the lower of cost (first-in, first-out basis) or market.

Property, Equipment and Capital Leases

Property and equipment are recorded at cost, and leased assets under capital leases are recorded at the present value of future minimum lease payments. Depreciation of property and equipment and amortization of capital leases are computed by the straight-line method over the estimated useful lives or the lease term, including cancelable option periods when appropriate, and are combined for presentation in the financial statements.

Accounting for Long-Lived Assets

The Company reviews long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. Assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, which generally represents the individual drive-in. The Company’s primary test for an indicator of potential impairment is operating losses. If an indication of impairment is determined to be present, the Company estimates the future cash flows expected to be generated from the use of the asset and its eventual disposal. If the sum of undiscounted future cash flows is less than the carrying amount of the asset, an impairment loss is recognized. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. Fair value is typically determined to be the value of the land, since drive-in buildings and improvements are single-purpose assets and have little value to market participants. The equipment associated with a store can be easily relocated to another store, and therefore is not adjusted.

Surplus property assets are carried at the lower of depreciated cost or fair value less cost to sell. The majority of the value in surplus property is land. Fair values are estimated based upon appraisals or independent assessments of the assets’ estimated sales values.

Goodwill and Other Intangible Assets

Goodwill is determined based on acquisition purchase price in excess of the fair value of identified assets. Intangible assets with lives restricted by contractual, legal, or other means are amortized over their useful lives. The Company tests all goodwill and other intangible assets not subject to amortization at least annually for impairment using the fair value approach on a reporting unit basis. The Company’s reporting units are defined as Company Drive-Ins and Franchise Operations (see additional information regarding the Company’s reporting units in note 13 – Segment Information). The accounting guidance requires a two-step process for testing impairment. We test for impairment using historical cash flows and other relevant facts and circumstances as the primary basis for our estimates of future cash flows. This process requires the use of estimates and assumptions, which are subject to a

F-9

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

high degree of judgment. These impairment tests require us to estimate fair values of our drive-ins by making assumptions regarding future cash flows and other factors.

We assess the recoverability of goodwill and other intangible assets related to our brand and drive-ins at least annually and more frequently if events or changes in circumstances occur indicating that the carrying amount of the asset may not be recoverable or as a result of allocating goodwill to Company Drive-Ins that are sold. Goodwill impairment testing first requires a comparison of the fair value of each reporting unit to the carrying value. The Company estimates fair value based on a comparison of two approaches: an income approach, using the discounted cash flow method, and a market approach, using the guideline public company method. The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, capital expenditures, weighted average cost of capital, and future economic and market conditions. In addition, the market approach includes significant assumptions such as the use of projected cash flow and revenue multiples derived from a comparable set of public companies as well as a control premium based on recent market transactions. These assumptions are significant factors in calculating the value of the reporting units and can be affected by changes in consumer demand, commodity pricing, labor and other operating costs, our cost of capital and changes in guideline public company market multiples. If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired. The amount of the impairment is the difference between the carrying value of the goodwill and the “implied” fair value, which is calculated as if the reporting unit had just been acquired and accounted for as a business combination.

The Company’s intangible assets subject to amortization consist primarily of acquired franchise agreements, intellectual property, franchise fees, and other intangibles. Amortization expense is calculated using the straight-line method over the asset’s expected useful life. See note 5 – Goodwill and Other Intangibles for additional disclosures related to goodwill and other intangibles.

Ownership Structure

Company Drive-Ins are drive-in operations which are owned and operated by Sonic Restaurants, Inc., the Company’s operating subsidiary. A typical Company Drive-In is operated by a manager, two to four assistant managers, and approximately 25 hourly employees, many of whom work part-time. The manager has responsibility for the day-to-day operations of the Company Drive-In. Supervisors oversee several Company Drive-Ins and supervise the managers of those Drive-Ins. The employee compensation program for Company Drive-Ins provides managers and supervisors a guaranteed base compensation with additional significant incentive compensation based on drive-in-level performance. Prior to April 2010, Company Drive-Ins operated as individual limited liability companies or general partnerships in which the manager and the supervisor for the respective drive-in owned a noncontrolling interest. Under this form of ownership, managers and supervisors shared in the cash flow for their Company Drive-Ins, but were also responsible for their share of any losses incurred by the drive-ins.

Refranchising of Company Drive-Ins

Gains and losses from the sale of Company Drive-Ins are recorded as other operating income (expense), net on the Consolidated Statements of Income. The Company may periodically refranchise other operations when circumstances warrant.

Revenue Recognition, Franchise Fees and Royalties

Revenue from Company Drive-In sales is recognized when food and beverage products are sold. Company Drive-In sales are presented net of sales tax and other sales-related taxes.

Initial franchise fees are recognized in income when the Company has substantially performed or satisfied all material services or conditions relating to the sale of the franchise and the fees are nonrefundable. Area development fees are nonrefundable and are recognized in income on a pro-rata basis when the conditions for

F-10

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

revenue recognition under the individual area development agreements are met. Both initial franchise fees and area development fees are generally recognized upon the opening of a Franchise Drive-In or upon termination of the agreement between the Company and the franchisee.

The Company’s franchisees are required under the provisions of the license agreements to pay the Company royalties each month based on a percentage of actual sales. However, the royalty payments and supporting financial statements are not due until the following month under the terms of the franchise agreements. As a result, the Company accrues royalty revenue in the month earned.

Operating Leases

Rent expense is recognized on a straight-line basis over the expected lease term, including cancelable option periods when it is deemed to be reasonably assured that the Company would incur an economic penalty for not exercising the options. Within the terms of some of our leases, there are rent holidays and/or escalations in payments over the base lease term, as well as renewal periods. The effects of the holidays and escalations have been reflected in rent expense on a straight-line basis over the expected lease term, which includes cancelable option periods when appropriate. The lease term commences on the date when the Company has the right to control the use of the leased property, which can occur before rent payments are due under the terms of the lease. Contingent rent is generally based on sales levels and is accrued at the point in time it is probable that such sales levels will be achieved.

Advertising Costs

Costs incurred in connection with the advertising and promoting of the Company’s products are included in other operating expenses and are expensed as incurred. Such costs amounted to $22.6 million in fiscal year 2012 and $22.5 million in both fiscal year 2011 and 2010.

Under the Company’s franchise agreements, both Company Drive-Ins and Franchise Drive-Ins must contribute a minimum percentage of revenues to a national media production fund (Sonic Brand Fund) and spend an additional minimum percentage of gross revenues on local advertising, either directly or through Company-required participation in advertising cooperatives. A portion of the local advertising contributions is redistributed to a System Marketing Fund, which purchases advertising on national cable and broadcast networks and funds other national media expenses and sponsorship opportunities. As stated in the terms of existing franchise agreements, these funds do not constitute assets of the Company, and the Company acts with limited agency in the administration of these funds. Accordingly, neither the revenues and expenses nor the assets and liabilities of the advertising cooperatives, the Sonic Brand Fund, or the System Marketing Fund are included in the Company’s consolidated financial statements. However, all advertising contributions by Company Drive-Ins are recorded as expense on the Company’s financial statements.

Stock-Based Compensation

Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense on a straight-line basis over the requisite service period of the award (generally the vesting period of the grant) or to an employee’s eligible retirement date, if earlier.

The Company grants incentive stock options (“ISOs”), non-qualified stock options (“NQs”) and restricted stock units (“RSUs”). For grants of NQs and RSUs, the Company expects to recognize a tax benefit upon exercise of the option or vesting of the RSU. As a result, a tax benefit is recognized on the related stock-based compensation expense for these types of awards. For grants of ISOs, a tax benefit only results if the option holder has a disqualifying disposition. As a result of the limitation on the tax benefit for ISOs, the tax benefit for stock-based compensation will generally be less than the Company’s overall tax rate and will vary depending on the timing of employees’ exercises and sales of stock. For additional information on stock-based compensation see note 12 – Stockholders’ Equity.

F-11

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the enactment date.

Income tax benefits credited to equity relate to tax benefits associated with amounts that are deductible for income tax purposes but do not affect earnings. These benefits are principally generated from employee exercises of non-qualified stock options, the vesting of RSUs, and disqualifying dispositions of ISOs.

The threshold for recognizing the financial statement effects of a tax position is when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority. Recognized tax positions are initially and subsequently measured as the largest amount of tax benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority. Liabilities for unrecognized tax benefits related to such tax positions are included in other long-term liabilities unless the tax position is expected to be settled within the upcoming year, in which case the liabilities are included in accrued expenses and other current liabilities. Interest and penalties related to unrecognized tax benefits are included in income tax expense.

Additional information regarding the Company’s unrecognized tax benefits is provided in note 11 – Income Taxes.

Fair Value Measurements

The Company’s financial assets and liabilities consist of cash and cash equivalents, accounts and notes receivable, accounts payable and long-term debt. The fair value of cash and cash equivalents, accounts receivable, and accounts payable approximates their carrying amounts due to the short term nature of these assets and liabilities.

The following methods and assumptions were used by the Company in estimating fair values of its financial instruments:

•

Notes receivable – For variable rate loans with no significant change in credit risk since the loan origination, fair values approximate carrying amounts. Fair values for fixed-rate loans are estimated using discounted cash flow analysis, using interest rates that would currently be offered for loans with similar terms to borrowers of similar credit quality and/or the same remaining maturities. As of August 31, 2012 and 2011, the fair value of the Company’s fixed-rate loans approximated their carrying value.

•

Long-term debt – The Company prepares a discounted cash flow analysis for its fixed rate borrowings to estimate fair value each quarter. This analysis uses 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. The fair value estimate required significant assumptions by management. Management believes this fair value is a reasonable estimate. For more information regarding the Company’s long-term debt, see note 9 – Debt and note 10 – Fair Value of Financial Instruments.

Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis, which means these assets and liabilities are not measured at fair value on an ongoing basis but are subject to periodic impairment tests. For the Company, these items primarily include long-lived assets, goodwill and other intangible assets. Refer to sections “Accounting for Long-Lived Assets” and “Goodwill and Other Intangible Assets,” discussed above, for inputs and valuation techniques used to measure the fair value of these nonfinancial assets. The fair value was based upon management’s assessment as well as appraisals or independent assessments which involved Level 2 and Level 3 inputs.

F-12

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

Noncontrolling Interests

Effective September 1, 2009, the Company implemented Accounting Standards Codification, (“ASC”) Topic 810, “Consolidation,” which requires noncontrolling interests, previously called minority interests, to be presented as a separate item in the equity section of the consolidated balance sheets. It also requires the amount of consolidated net income related to noncontrolling interests to be clearly presented on the face of the consolidated statements of income. Effective April 1, 2010, the Company revised its compensation program at the Company Drive-In level. As a result of these changes, noncontrolling interests are immaterial for fiscal years 2012 and 2011 and have been included in “payroll and other employee benefits” on the Consolidated Statements of Income and in “other noncurrent liabilities” on the Consolidated Balance Sheets.

New Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-08, “Testing Goodwill for Impairment.” This pronouncement was issued to simplify how entities test goodwill for impairment. Under this pronouncement, entities may first assess qualitative factors to determine whether it is necessary to perform the two-step goodwill impairment test. If the qualitative assessment results in a more than 50% likely result that the fair value of a reporting unit is less than the carrying amount, then the entity must continue to apply the two-step impairment test. If the entity concludes the fair value exceeds the carrying amount, then neither of the two steps in the goodwill impairment test is required. This pronouncement is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The adoption of this pronouncement is not expected to have a material impact on the Company’s consolidated financial statements.

In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment.” This pronouncement was issued to simplify how entities test for impairment of indefinite-lived intangible assets. Under this pronouncement, an entity has the option first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. In conclusion of this assessment, if an entity finds that it is not more likely than not that an indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with ASC Topic 350, “Intangibles – Goodwill and Other.” This pronouncement is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 with early adoption permitted. The adoption of this pronouncement is not expected to have a material impact on the Company’s consolidated financial statements.

F-13

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

2. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the years ended August 31:


	2012		2011		2010

Numerator:
Net income – attributable to Sonic Corp.	$	36,085	$	19,225	$	21,209

Denominator:
Weighted average common shares outstanding – basic		60,078		61,781		61,319
Effect of dilutive employee stock options and unvested restricted stock units		94		162		257

Weighted average common shares – diluted		60,172		61,943		61,576


Net income per common share – basic	$	0.60	$	0.31	$	0.35

Net income per common share – diluted	$	0.60	$	0.31	$	0.34


Anti-dilutive securities excluded ⁽¹⁾		6,705		6,367		6,834

⁽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. Impairment of Long-Lived Assets

During the fiscal years ended August 31, 2012, 2011 and 2010, the Company identified impairments for certain drive-in assets and surplus property through regular quarterly reviews of long-lived assets. The recoverability of Company Drive-Ins is assessed by estimating the undiscounted net cash flows expected to be generated over the remaining life of the Company Drive-Ins. This involves estimating same-store sales and margins for the cash flows period. When impairment exists, the carrying value of the asset is written down to fair value.

The Company’s assessment of long-lived assets resulted in provisions for impairment totaling $0.8 million for both fiscal year 2012 and 2011. These write-downs were completed to reduce to fair value the carrying amount of surplus properties in both years and properties leased to franchisees in fiscal year 2011.

During fiscal year 2010, the Company experienced lower sales and profits in Company Drive-Ins due to the sustained economic downturn and weaker results than anticipated during the summer months for operating stores. Accordingly, the Company revised its future sales growth assumptions and estimated cash flows in assessing the recoverability of its investments in Company Drive-Ins. These analyses resulted in provisions for impairment totaling $15.2 million, which primarily consisted of $11.3 million to write down the carrying amount of building and leasehold improvements on underperforming drive-ins, $2.3 million to write down the carrying amount of property leased to franchisees and $0.6 million to reduce to fair value the carrying amount of twelve surplus properties.

F-14

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

4. Accounts and Notes Receivable

Accounts and notes receivable consist of the following at August 31:


	2012			2011

Current Accounts and Notes Receivable:
Royalties and other trade receivables	$	17,030		$	17,729
Notes receivable from franchisees		1,304			3,220
Notes receivable from advertising funds		4,825			1,500
Other		6,109			4,806

		29,268			27,255
Allowance for doubtful accounts and notes receivable		(2,195	)		(2,697	)

	$	27,073		$	24,558

Noncurrent Notes Receivable:
Notes receivable from franchisees	$	5,286		$	6,286
Notes receivable from advertising funds		7,152			5,469
Allowance for doubtful notes receivable		(797	)		(669	)

	$	11,641		$	11,086

The Company’s receivables are primarily due from franchisees, all of whom are in the restaurant business. Substantially all of the notes receivable from franchisees are collateralized by real estate or equipment. The notes receivable from advertising funds represent transactions in the normal course of business.

The following table summarizes the activity in the allowance for doubtful accounts related to the Company’s notes receivable during fiscal years 2012 and 2011:


	2012			2011

Balance at beginning of year	$	748		$	54
Additions to provision		520			694
Reductions for charge-offs		(190	)		–

Balance at end of year	$	1,078		$	748

5. Goodwill and Other Intangibles

As of August 31, 2012, the Company had $77.0 million of goodwill, of which $71.0 million was attributable to the Company Drive-Ins segment and $6.0 million was attributable to the Franchise Operations segment. There have been no changes in the goodwill balance attributable to the Franchise Operations segment since August 31, 2011.

The changes in the carrying amount of goodwill for fiscal years 2012 and 2011 were as follows:


	2012			2011

Balance at beginning of year	$	81,625		$	82,089
Goodwill acquired during the year		–			427
Goodwill disposed of related to the sale of Company Drive-Ins		(4,628	)		(891	)

Balance at end of year	$	76,997		$	81,625

F-15

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

The gross carrying amount of franchise agreements, intellectual property, franchise fees and other intangibles subject to amortization was $10.2 million and $6.8 million at August 31, 2012 and 2011, respectively. Accumulated amortization related to these intangible assets was $3.4 million and $2.6 million at August 31, 2012 and 2011, respectively. Intangible assets amortization expense for the fiscal years ended August 31, 2012, 2011 and 2010 was $0.8 million, $0.4 million and $0.5 million, respectively. At August 31, 2012, the remaining weighted-average life of amortizable intangible assets was approximately 11 years. Estimated intangible assets amortization expense is $0.9 million annually for fiscal years 2013, 2014, 2015, and 2016 and $0.8 million for fiscal year 2017.

6. Leases

Description of Leasing Arrangements

The Company’s leasing operations consist principally of leasing certain land, buildings and equipment (including signs) and subleasing certain buildings to franchise operators. The land and building portions of these leases are classified as operating leases with lease terms expiring through September 2030. The equipment portions of these leases are classified principally as direct financing leases and expire principally over the next nine years. These leases include provisions for contingent rentals that may be received on the basis of a percentage of sales in excess of stipulated amounts. Income is not recognized on contingent rentals until sales exceed the stipulated amounts. Some leases contain escalation clauses over the lives of the leases. Most of the leases contain one to four renewal options at the end of the initial term for periods of five years.

The Company has two significant master lease agreements with franchisees as a result of previously refranchised drive-ins. These leases consist of leasing land, buildings and signs for a period of 15 years and are classified as operating leases. There are four renewal options at the end of the primary term for periods of five years for property that is owned by the Company. For property owned by third parties, the lease term runs concurrent with the term of the third-party lease arrangements. These leases include provisions for contingent rentals that may be received on the basis of a percentage of sales in excess of stipulated amounts. Both leases contain escalation clauses based on sales over the life of the lease.

Certain Company Drive-Ins lease land and buildings from third parties. These leases, with lease terms expiring through August 2030, include provisions for contingent rents that may be paid on the basis of a percentage of sales in excess of stipulated amounts. For the majority of leases, the land portions are classified as operating leases, and the building portions are classified as capital leases.

Receivables as a Lessor

Components of net investment in direct financing leases are as follows at August 31:


	2012			2011

Minimum lease payments receivable	$	1,041		$	1,530
Less unearned income		(228	)		(374	)

Net investment in direct financing leases		813			1,156
Less amount due within one year		(233	)		(294	)

Amount due after one year	$	580		$	862

Initial direct costs incurred in the negotiations and consummations of direct financing lease transactions have not been material. Accordingly, no portion of unearned income has been recognized to offset those costs.

F-16

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

Future minimum rental payments receivable as of August 31, 2012 are as follows:


	Operating		Direct Financing

Years ending August 31:
2013	$	12,488	$	322
2014		12,273		238
2015		12,472		185
2016		12,361		135
2017		12,374		94
Thereafter		90,900		67

	$	152,868		1,041

Less unearned income				(228	)

			$	813

Commitments as a Lessee

Maturities under capital leases and future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of August 31, 2012 are as follows:


	Operating		Capital

Years ending August 31:
2013	$	11,877	$	5,845
2014		11,783		6,172
2015		11,668		5,312
2016		11,123		4,876
2017		10,098		4,471
Thereafter		104,337		14,620

Total minimum lease payments	$	160,886		41,296

Less amount representing interest averaging 6.6%				(9,620	)

Present value of net minimum lease payments				31,676
Less amount due within one year				(4,299	)

Amount due after one year			$	27,377

F-17

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

Total rent expense for all operating leases and capital leases consist of the following for the years ended August 31:


	2012			2011			2010

Operating leases:
Minimum rentals	$	14,555		$	14,185		$	14,330
Contingent rentals		103			138			176
Sublease rentals		(2,851	)		(2,847	)		(2,993	)
Capital leases:
Contingent rentals		799			745			740

	$	12,606		$	12,221		$	12,253

The aggregate future minimum rentals receivable under noncancelable operating and capital subleases as of August 31, 2012, was $35.3 million and $2.1 million, respectively.

7. Property, Equipment and Capital Leases

Property, equipment and capital leases consist of the following at August 31:


	Estimated Useful Life	2012			2011

Property and equipment:
Home office:
Leasehold improvements	Life of lease	$	4,541		$	4,541
Computer and other equipment	2 – 5 yrs		61,492			52,736
Drive-ins, including those leased to others:
Land			171,102			171,813
Buildings	8 – 25 yrs		358,887			356,536
Equipment	5 – 7 yrs		118,975			126,487

Property and equipment, at cost			714,997			712,113
Accumulated depreciation			(295,735	)		(273,209	)

Property and equipment, net			419,262			438,904

Capital Leases:
Leased home office building	Life of lease		9,990			9,990
Leased drive-in buildings, equipment and other assets under capital leases, including those held for sublease	Life of lease		39,906			38,675
Accumulated amortization			(26,150	)		(22,694	)

Capital leases, net			23,746			25,971

Property, equipment and capital leases, net		$	443,008		$	464,875

F-18

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

Depreciation expense for property and equipment was $37.2 million, $37.3 million and $38.6 million for fiscal years 2012, 2011 and 2010, respectively. Land, buildings and equipment with a carrying amount of $219.8 million at August 31, 2012 were leased under operating leases to franchisees and other parties. The accumulated depreciation related to these buildings and equipment was $69.7 million at August 31, 2012. Amortization expense related to capital leases is included within “depreciation and amortization” on the Consolidated Statements of Income. As of August 31, 2012, the Company had no drive-ins under construction with costs to complete.

8. Accrued Liabilities

Accrued liabilities consist of the following at August 31:


	2012		2011

Wages and employee benefit costs	$	11,061	$	9,757
Property taxes, sales and use taxes and employment taxes		8,869		9,441
Unredeemed gift cards and gift certificates		7,274		8,864
Other		5,403		5,470

	$	32,607	$	33,532

The Company sells gift cards that do not have expiration dates. Gift card balances are recorded as a liability on the Company’s Consolidated Balance Sheets. Breakage is the amount on a gift card that is not expected to be redeemed and that the Company is not required to remit to a state under unclaimed property laws. The Company estimates breakage based upon the trend in redemption patterns from previously sold gift cards utilizing its history with the program. The Company’s policy is to recognize the breakage using the delayed recognition method when it is apparent that there is a remote likelihood the gift card balance will be redeemed based on historical trends. The Company reduces the gift card liability for the estimated breakage and uses that amount to help defray the costs of operating the gift card program.

9. Debt

Long-term debt consists of the following at August 31:


	2012			2011

Class A-2 senior secured fixed rate notes	$	481,250		$	496,250
Class A-1 senior secured variable funding notes		–			–
Other		543			763

		481,793			497,013
Less long-term debt due within one year		(15,180	)		(15,178	)

Long-term debt due after one year	$	466,613		$	481,835

At August 31, 2012, future maturities of long-term debt were $15.2 million for fiscal year 2013, $15.3 million for fiscal year 2014, and $15.0 million annually for fiscal years 2015, 2016 and 2017.

On May 20, 2011, various subsidiaries of the Company (the “Co-Issuers”) issued $500 million of Series 2011-1 Senior Secured Fixed Rate Notes, Class A-2 (the “2011 Fixed Rate Notes”) in a private transaction which bears interest at 5.4% per annum. The 2011 Fixed Rate Notes have an expected life of seven years with an anticipated repayment date in May 2018 based on the terms of the debt agreement. At August 31, 2012 and 2011, the balance outstanding under the 2011 Fixed Rate Notes including accrued interest totaled $482.0 million and $497.0 million, respectively, and carried a weighted-average interest cost of 5.9%, including the effect of the loan origination costs described below.

F-19

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

In connection with the issuance of the 2011 Fixed Rate Notes, the Co-Issuers also entered into a securitized financing facility of Series 2011-1 Senior Secured Variable Funding Notes, Class A-1 (the “2011 Variable Funding Notes”). This revolving credit facility allows for the issuance of up to $100 million of 2011 Variable Funding Notes and certain other credit instruments, including letters of credit. The 2011 Variable Funding Notes have an expected life of five years with an anticipated repayment date in May 2016 based on the terms of the debt agreement. Interest on the 2011 Variable Funding Notes is based on the one-month London Interbank Offered Rate or Commercial Paper, depending on the funding source, plus 3.75% per annum. There is a 0.5% annual commitment fee payable monthly on the unused portion of the 2011 Variable Funding Notes facility. The Company borrowed $35 million under the 2011 Variable Funding Notes facility at closing, and has the ability to draw additional amounts under the facility from time to time as needed. In June 2011, the Company repaid the outstanding balance under its 2011 Variable Funding Notes.

Sonic used the $535 million of net proceeds from the issuance of the 2011 Fixed Rate Notes and 2011 Variable Funding Notes (collectively, the “2011 Notes”) to repay its existing Series 2006-1 Senior Secured Variable Funding Notes, Class A-1 (the “2006 Variable Funding Notes”) and Series 2006-1 Senior Secured Fixed Rate Notes, Class A-2 (the “2006 Fixed Rate Notes” and, together with the 2006 Variable Funding Notes, the “2006 Notes”) in full and to pay the costs associated with the securitized financing transaction, including the existing noteholder and insurer make-whole premiums.

Loan origination costs associated with the Company’s 2011 refinancing totaled $16.4 million and were allocated between the 2011 Notes. Loan costs are being amortized over each note’s expected life. The amount of loan costs expected to be amortized over the next twelve months is reflected in “other current assets” on the Consolidated Balance Sheets.

While the 2011 Fixed Rate Notes and the 2011 Variable Funding Notes are structured to provide for seven-year and five-year lives, respectively, they have a legal final maturity date of May 2041. The Company intends to repay or refinance the 2011 Notes on or before the end of their respective expected lives. In the event the 2011 Notes are not paid in full by the end of their expected lives, the Notes are subject to an upward adjustment in the interest rate of at least 5% per annum. In addition, principal payments will accelerate by applying all of the royalties, lease revenues and other fees securing the debt, after deducting certain expenses, until the debt is paid in full. Also, any unfunded amount under the 2011 Variable Funding Notes will become unavailable.

The Co-Issuers and Sonic Franchising LLC (the “Guarantor”) are existing special purpose, bankruptcy remote, indirect subsidiaries of Sonic Corp. that hold substantially all of Sonic’s franchising assets and real estate. As of August 31, 2012, assets for these combined indirect subsidiaries totaled $356.6 million, including receivables for royalties, certain Company and Franchise Drive-In real estate, intangible assets and restricted cash balances of $18.1 million. The 2011 Notes are secured by franchise fees, royalty payments and lease payments, and the repayment of the 2011 Notes is expected to be made solely from the income derived from the Co-Issuer’s assets. In addition, the Guarantor, a Sonic Corp. subsidiary that acts as a franchisor, has guaranteed the obligations of the Co-Issuers under the 2011 Notes and pledged substantially all of its assets to secure those obligations.

Neither Sonic Corp., the ultimate parent of the Co-Issuers and the Guarantor, nor any other subsidiary of Sonic, guarantee or in any way are liable for the obligations of the Co-Issuers under the 2011 Notes. The Company has, however, agreed to cause the performance of certain obligations of its subsidiaries, principally related to managing the assets included as collateral for the 2011 Notes and certain indemnity obligations relating to the transfer of the collateral assets to the Co-Issuers.

The 2011 Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) required actions to better secure collateral upon the occurrence of certain performance-related events, (ii) application of certain disposition proceeds as note prepayments after a set time is allowed for reinvestment, (iii) maintenance of specified reserve accounts, (iv) maintenance of certain debt service coverage ratios, (v) optional and mandatory prepayments upon change in control, (vi) indemnification payments for defective or ineffective

F-20

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

collateral, and (vii) covenants relating to recordkeeping, access to information and similar matters. If certain covenants or restrictions are not met, the 2011 Notes are subject to customary accelerated repayment events and events of default. Although management does not anticipate an event of default or any other event of noncompliance with the provisions of the debt, if such event occurred, the unpaid amounts outstanding could become immediately due and payable.

In connection with the transaction described above, the Company recognized a $28.2 million loss from the early extinguishment of debt during the third quarter of fiscal year 2011, which primarily consisted of a $25.3 million prepayment premium and the write-off of unamortized deferred loan fees remaining from the refinanced debt. In addition, the Company’s deferred hedging loss was reclassified from accumulated other comprehensive income into earnings during the third quarter of fiscal year 2011. Prior to the refinancing, during the second quarter of fiscal year 2011, the Company repurchased $62.5 million of its 2006 Variable Funding Notes in a privately negotiated transaction. The Company recognized a gain of $5.2 million on the extinguishment of the notes during the second fiscal quarter of 2011. These transactions are reflected within “net loss from early extinguishment of debt” in the accompanying Consolidated Statements of Income.

As a result of the May 2011 refinancing discussed above, the Company’s arrangement with the third-party insurance company that guaranteed its debt payments under the Company’s 2006 Notes was terminated.

10. 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 FASB:

•

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.

F-21

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

The table below sets forth our fair value hierarchy for financial assets measured at fair value on a recurring basis as of August 31, 2012 and 2011:

Quoted Prices in
Active Markets
for Identical
Assets

(Level 1)

Significant
Other
Observable
Inputs

(Level 2)

Significant
Unobservable
Inputs

(Level 3)

Total

August 31, 2012

Assets:

Cash equivalents

7,784

–

7,784

Restricted cash (current)

10,200

–

10,200

Restricted cash (noncurrent)

7,903

–

7,903

Total

25,887

–

25,887

August 31, 2011

Assets:

Cash equivalents

11,338

–

11,338

Restricted cash (current)

12,850

–

12,850

Restricted cash (noncurrent)

8,108

–

8,108

Total

32,296

–

32,296

At August 31, 2012, the fair value of the Company’s 2011 Fixed Rate Notes was estimated at $510.8 million versus a carrying value of $482.0 million, including accrued interest. At August 31, 2011, the fair value of the 2011 Fixed Rate Notes approximated the carrying value of $497.0 million, including accrued interest.

11. Income Taxes

The Company’s income before the provision for income taxes is classified by source as domestic income.

The components of the provision for income taxes consist of the following for the years ended August 31:


	2012			2011			2010

Current:
Federal	$	17,851		$	5,060		$	12,165
State		3,892			2,223			2,904

		21,743			7,283			15,069
Deferred:
Federal		180			1,876			(5,303	)
State		(46	)		(5	)		(797	)

		134			1,871			(6,100	)

Provision for income taxes	$	21,877		$	9,154		$	8,969

F-22

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate due to the following for the years ended August 31:


	2012			2011			2010

Amount computed by applying a tax rate of 35%	$	20,287		$	9,933		$	10,562
State income taxes (net of federal income tax benefit)		1,900			1,441			1,370
Employment related and other tax credits, net		(1,291	)		(1,730	)		(1,504	)
Adjustment of prior year deferred tax items		1,559			–			–
Benefit from stock option exchange program		–			–			(1,471	)
Other		(578	)		(490	)		12

Provision for income taxes	$	21,877		$	9,154		$	8,969

During fiscal year 2012, the Company conducted a reconciliation of its tax basis balance sheet and identified certain adjustments which were recorded in fiscal year 2012 to appropriately reflect the Company’s current and deferred tax accounts. As a result of this reconciliation process, the Company recorded an additional income tax provision of $1,559 for fiscal year 2012. Management of the Company evaluated the impact of this adjustment and concluded the effect of this adjustment was immaterial to the current and prior year financial statements.

The adoption of ASC Topic 810 gives an appearance of a lower effective tax rate than the Company’s actual effective tax rate. The following table reconciles the difference in the effective tax rate as a result of the adoption of ASC Topic 810:


	2012			2011			2010

Effective income tax rate reconciliation:
Effective tax rate per consolidated income statement		37.7	%		32.3	%		25.8	%
Book income attributable to noncontrolling interests		–			–			3.9

Effective tax rate for the fiscal year		37.7	%		32.3	%		29.7	%

F-23

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

Deferred tax assets and liabilities consist of the following at August 31:


	2012			2011

Current deferred tax assets (liabilities):
Allowance for doubtful accounts and notes receivable	$	840		$	1,032
Capital lease liabilities and other		1,636			1,551
Prepaid expenses		(1,265	)		(1,190	)
Deferred income from franchisees		461			848
Deferred income from affiliated technology fund		597			353
Deferred income		1,903			10
Accrued liabilities and other		649			166

Current deferred tax assets, net	$	4,821		$	2,770


Noncurrent deferred tax assets (liabilities):
Net investment in direct financing leases, including differences related to capitalization and amortization	$	526		$	648
Investment in partnerships, including differences in capitalization, depreciation and direct financing leases		(2,408	)		(2,554	)
State net operating losses		7,361			6,389
Property, equipment and capital leases		(22,538	)		(24,834	)
Deferred income from affiliated franchise fees		915			1,160
Intangibles and other assets		(16,694	)		(13,321	)
Deferred income from franchisees		773			1,481
Stock compensation		11,899			12,556
Debt extinguishment		(4,191	)		(4,146	)
Allowance for doubtful accounts and notes receivable		305			256
Deferred income		1,355			1,453
Accrued liabilities and other		281			73

		(22,416	)		(20,839	)
Valuation allowance		(7,361	)		(6,389	)

Noncurrent deferred tax liabilities, net	$	(29,777	)	$	(27,228	)

Deferred tax assets and (liabilities):
Deferred tax assets (net of valuation allowance)	$	22,140		$	21,587
Deferred tax liabilities		(47,096	)		(46,045	)

Net deferred tax liabilities	$	(24,956	)	$	(24,458	)

State net operating loss carryforwards expire generally beginning in 2012. Management does not believe the Company will be able to realize the state net operating loss carryforwards and therefore has provided a valuation allowance of $7.4 million and $6.4 million as of August 31, 2012 and August 31, 2011, respectively.

F-24

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

As of August 31, 2012, the Company had approximately $5,451 of unrecognized tax benefits, including approximately $746 of interest and penalty. The liability for unrecognized tax benefits increased by $676 in fiscal year 2012. The majority of the change was due to the expiration of statutes of limitations, additions for items under audit, and the settlement of a state tax audit in the first quarter of fiscal year 2012, which resulted in a decrease to state unrecognized tax positions from prior years. The Company recognizes estimated interest and penalties as a component of its income tax expense, net of federal benefit. If recognized, $1,862 of unrecognized tax benefits would favorably impact the effective tax rate. As of August 31, 2012 and 2011, an immaterial net benefit for interest and penalties was recognized in our Consolidated Statements of Income as a component of “provision for income taxes.” A reconciliation of unrecognized tax benefits for fiscal years 2012 and 2011 is as follows:


	2012			2011

Balance at beginning of year	$	4,775		$	5,628
Additions based on tax positions related to the current year		834			–
Additions for tax positions of prior years		1,670			672
Reductions for tax positions of prior years		(469	)		–
Reductions for settlements		(68	)		(1,104	)
Reductions due to statute expiration		(1,291	)		(421	)

Balance at end of year	$	5,451		$	4,775

The Company or one of its subsidiaries is subject to U.S. federal income tax and income tax in multiple U.S. state jurisdictions. The Company is currently undergoing examinations or appeals by various state and federal authorities. The Company anticipates that the finalization of these examinations or appeals, combined with the expiration of applicable statutes of limitations and the additional accrual of interest related to unrecognized benefits on various return positions taken in years still open for examination could result in a change to the liability for unrecognized tax benefits during the next 12 months ranging from an increase of $123 to a decrease of $4,872, depending on the timing and terms of the examination resolutions. At August 31, 2012, the Company was subject to income tax examinations for its U.S. federal income taxes after fiscal year 2007 and for state and local income taxes generally after fiscal year 2007.

At August 31, 2012 and 2011, the Company had an income tax receivable of $10.3 million and $12.8 million, respectively, primarily relating to expected refunds from amended tax returns. Based on new information available at August 31, 2012, the Company does not anticipate receiving or being able to apply these refunds to other tax obligations during fiscal year 2013. As a result, this balance was reclassified from current assets to non-current assets during fiscal year 2012 and is included within “other assets, net” on the Consolidated Balance Sheets.

12. Stockholders’ Equity

Employee Stock Purchase Plan

The Company has an employee stock purchase plan (“ESPP”) that permits full-time regular employees to purchase the Company’s common stock at a 15% discount from the stock’s fair market value. Employees are eligible to purchase shares of common stock each year up to the lesser of 10% of their base compensation or $25 in the stock’s fair market value. At August 31, 2012, 0.9 million shares were available for grant under the ESPP.

Stock-Based Compensation

The Sonic Corp. 2006 Long-Term Incentive Plan (the “2006 Plan”) provides flexibility to award various forms of equity compensation, such as stock options, stock appreciation rights, performance shares, restricted stock and other share-based awards. At August 31, 2012, 1.8 million shares were available for grant under the 2006 Plan. The Company grants stock options with contractual terms of seven to ten years and a vesting period of three years and

F-25

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

RSUs also with a vesting period of three years. The Company’s policy is to issue shares from treasury stock to satisfy stock option exercises, the vesting of RSUs and shares issued under the ESPP. Prior to July 2010, the Company issued new shares of common stock to satisfy these items.

Total stock-based compensation cost recognized for fiscal years 2012, 2011 and 2010 was $4.3 million, $5.6 million and $7.7 million, respectively, with related income tax benefits of $1.2 million, $1.3 million and $4.3 million, respectively. At August 31, 2012, total remaining unrecognized compensation cost related to unvested stock-based arrangements was $4.9 million and is expected to be recognized over a weighted average period of 1.7 years.

In November 2009, the Company’s Board of Directors authorized a stock option exchange program that allowed eligible employees the opportunity to exchange certain options granted under the 2006 Plan, the 2001 Stock Option Plan, and the 1991 Stock Option Plan for a lesser number of replacement options with a lower exercise price. The Company’s stockholders approved the stock option exchange program on January 14, 2010, and the Company executed the program in the third quarter of fiscal year 2010. The exchange, which was accounted for as a modification of existing stock options, was on an estimated fair value neutral basis and resulted in no incremental compensation expense. The exchange resulted in a tax benefit of $1.8 million in the third quarter of fiscal year 2010 related to the conversion of eligible ISOs to NQs.

The Company measures the compensation cost associated with stock-based payments by estimating the fair value of stock options as of the grant date using the Black-Scholes option pricing model. The Company believes the valuation technique and approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options granted during 2012, 2011 and 2010. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive equity awards. The fair value of RSUs granted is equal to the Company’s closing stock price on the date of the grant.

The per share weighted average fair value of stock options granted during 2012, 2011 and 2010 was $2.88, $4.63 and $3.50, respectively. In addition to the exercise and grant date prices of the awards, certain weighted average assumptions that were used to estimate the fair value of stock option grants in the respective periods are listed in the table below:


	2012			2011			2010

Expected term (years)		4.9			4.7			4.5
Expected volatility		48	%		46	%		45	%
Risk-free interest rate		0.8	%		2.0	%		2.2	%
Expected dividend yield		0	%		0	%		0	%

The Company estimates expected volatility based on historical daily price changes of the Company’s common stock for a period equal to the current expected term of the options. The risk-free interest rate is based on the United States treasury yields in effect at the time of grant corresponding with the expected term of the options. The expected option term is the number of years the Company estimates that options will be outstanding prior to exercise considering vesting schedules and our historical exercise patterns.

F-26

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

Stock Options

A summary of stock option activity under the Company’s stock-based compensation plans for the year ended August 31, 2012 is presented in the following table:


	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Yrs.)		Aggregate Intrinsic Value

Outstanding at September 1, 2011		7,331		$	13.06
Granted		1,019			6.91
Exercised		(31	)		9.14
Forfeited or expired		(1,061	)		11.70

Outstanding at August 31, 2012		7,258		$	12.41		3.46	$	3,330

Exercisable at August 31, 2012		5,467		$	13.80		2.73	$	569

Proceeds from the exercise of stock options for fiscal years 2012, 2011 and 2010 were $0.3 million, $2.1 million and $3.4 million, respectively. The total intrinsic value of options exercised during the years ended August 31, 2012, 2011 and 2010 was $0.1 million, $0.8 million and $2.6 million, respectively.

Restricted Stock Units

A summary of the Company’s RSU activity during the year ended August 31, 2012 is presented in the following table:


	Restricted Stock Units		Weighted Average Grant Date Fair Value

Outstanding at September 1, 2011		150		$ 9.20
Granted		46		6.92
Vested		(77)		9.20
Forfeited		–		–

Outstanding at August 31, 2012		119		$ 8.31

The aggregate fair value of restricted stock that vested during the years ended August 31, 2012, 2011 and 2010 was $0.5 million, $0.7 million and $0.1 million, respectively.

Stock Repurchase Programs

On August 15, 2012, the Company’s Board of Directors approved a new stock repurchase program. Under the new program, the Company is authorized to purchase up to $40 million of its outstanding shares of common stock through August 31, 2013. During the fourth quarter of fiscal year 2012, approximately 0.1 million shares were acquired pursuant to this program for a total cost of $1.1 million. As of August 31, 2012, the total remaining amount authorized for repurchase was $38.9 million. Share repurchases may be made from time to time in the open market or in negotiated transactions, depending on share price, market conditions and other factors. The stock repurchase program may be extended, modified, suspended or discontinued at any time.

F-27

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

Comprehensive Income

Comprehensive income is defined as the change in equity of a business entity during a period from transactions and other events and circumstances from non-owner sources and is reflected in the Consolidated Statements of Stockholders’ Equity (Deficit).

In August 2006, the Company entered into a forward starting swap agreement with a financial institution to hedge part of the exposure to changing interest rates until new financing was closed. The forward starting swap was designated as a cash flow hedge, and was subsequently settled in conjunction with the closing of the 2006 Fixed Rate Notes, as planned. The loss resulting from settlement was recorded net of tax in accumulated other comprehensive income and amortized to interest expense over the expected term of the debt. In conjunction with the Company’s May 2011 refinancing discussed in note 9 – Debt, the Company’s deferred hedging loss was reclassified from accumulated other comprehensive income into earnings during third quarter fiscal year 2011.

13. Segment Information

Operating segments are generally defined as components of an enterprise for which separate discrete financial information is available as the basis for management to allocate resources and assess performance.

Based on internal reporting and management structure, the Company has two reportable segments: Company Drive-Ins and Franchise Operations. The Company Drive-Ins segment consists of the drive-in operations in which the Company owns a controlling ownership interest and derives its revenues from operating drive-in restaurants. The Franchise Operations segment consists of franchising activities and derives its revenues from royalties, initial franchise fees and lease revenues received from franchisees. The accounting policies of the segments are the same as those described in note 1 – Summary of Significant Accounting Policies. Segment information for total assets and capital expenditures is not presented as such information is not used in measuring segment performance or allocating resources between segments.

The following table presents the revenues and income from operations for each reportable segment, along with reconciliation to reported revenue, income from operations and income before income taxes:


	2012		2011		2010

Revenues:
Company Drive-Ins		$ 404,443		$ 410,820		$ 414,369
Franchise Operations		134,588		131,894		132,016
Unallocated revenues		4,699		3,237		4,541

		$ 543,730		$ 545,951		$ 550,926


Income from Operations:
Company Drive-Ins		$ 56,973		$ 54,584		$ 59,710
Franchise Operations		134,588		131,894		132,016
Unallocated income		5,230		3,822		3,778
Unallocated expenses:
Selling, general and administrative		(65,173)		(64,943)		(66,847)
Depreciation and amortization		(41,914)		(41,225)		(42,615)
Provision for impairment of long-lived assets		(764)		(824)		(15,161)

Income from operations		88,940		83,308		70,881
Net interest expense		30,978		54,929		36,073

Income before income taxes		$ 57,962		$ 28,379		$ 34,808

F-28

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

14. Employee Benefit and Cash Incentive Plans

The Company sponsors a qualified defined contribution 401(k) plan for employees meeting certain eligibility requirements. Under the plan, employees are entitled to make pre-tax contributions. The Company matches an amount equal to the employees’ contributions up to a maximum of 6% of the employees’ salaries depending on years of service. The Company’s contributions during fiscal years 2012, 2011 and 2010 were $1.7 million, $1.6 million and $1.0 million, respectively.

The Company has Cash Incentive Plans (the “Incentive Plans”) that apply to certain members of management, and grants of awards under the Incentive Plans are at all times subject to the approval of the Company’s Board of Directors. Under certain awards pursuant to the Incentive Plans, if predetermined earnings goals for a fiscal year are met, the Incentive Plans provide that a predetermined percentage of the employee’s salary may be paid in the form of a bonus. The Company recognized as expense incentive bonuses of $4.9 million, $5.4 million and $0.8 million during fiscal years 2012, 2011 and 2010, respectively.

15. Commitments and Contingencies

Litigation

Lease Commitments

The Company has obligations under various 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 2024, the Company remains secondarily liable for the lease payments for which it was responsible as the original lessee. As of August 31, 2012, the amount remaining under these guaranteed lease obligations totaled $8.0 million. At this time, the Company does not anticipate any material defaults under the foregoing leases; therefore, no liability has been provided. In addition, capital lease obligations totaling $1.1 million are still reflected as liabilities as of August 31, 2012 for properties sold to franchisees and for which the Company remains secondarily liable through 2021. At this time, the Company also does not anticipate any material defaults under these leases.

Purchase Obligations

At August 31, 2012, the Company had purchase obligations of approximately $77 million which primarily related to its estimated share of system-wide commitments for food products.

F-29

Sonic Corp.

Notes to Consolidated Financial Statements (continued)

August 31, 2012, 2011 and 2010

(In Thousands, Except Per Share Data)

16. Selected Quarterly Financial Data (Unaudited)


	First Quarter				Second Quarter				Third Quarter					Fourth Quarter
	2012		2011		2012		2011		2012		2011			2012		2011

Total revenues ⁽¹⁾	$	128,279	$	129,146	$	115,084	$	113,523	$	149,427	$	152,098		$	150,940	$	151,184
Income from operations		16,754		17,792		10,548		9,601		30,736		28,667			30,902		27,248
Net income (loss) ⁽²⁾	$	5,499	$	7,242	$	1,677	$	4,348	$	14,407	$	(4,651	)	$	14,502	$	12,286
Basic income (loss) per share ⁽³⁾	$	0.09	$	0.12	$	0.03	$	0.07	$	0.24	$	(0.08	)	$	0.25	$	0.20
Diluted income (loss) per share ⁽³⁾	$	0.09	$	0.12	$	0.03	$	0.07	$	0.24	$	(0.08	)	$	0.25	$	0.20

(1)	Revenues have been impacted by the refranchising of 34 Company Drive-Ins during the latter part of the Company’s second fiscal quarter of 2012.

(2)

Includes a $5.2 million gain and a $28.2 million loss from early extinguishments of debt in the second and third quarters of fiscal year 2011, respectively, and a $1.1 million tax benefit recognized during the first quarter of fiscal year 2011 relating to the favorable settlement of state tax audits.

(3)	The sum of per share data may not agree to annual amounts due to rounding.

F-30

Sonic Corp .

Schedule II – Valuation and Qualifying Accounts


Description	Balance at Beginning of Year		Additions Charged to Costs and Expenses		Amounts Written Off Against the Allowance			(Transfer) Recoveries			Balance at End of Year
	(In Thousands)
Allowance for doubtful accounts and notes receivable
Years ended:
August 31, 2012	$	3,366		764		(1,152	)		14		$	2,992
August 31, 2011		3,210		1,462		(1,337	)		31			3,366
August 31, 2010	$	879		2,460		(139	)		10		$	3,210

Accrued carrying costs for drive-in closings and disposals
Years ended:
August 31, 2012	$	421		366		(219	)		–		$	568
August 31, 2011		47		575		(150	)		(51	)		421
August 31, 2010	$	46		–		–			1		$	47

F-31

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 26th day of October, 2012.

Sonic Corp.


By:		/s/ J. Clifford Hudson
		J. Clifford Hudson
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and as of the dates indicated.


Signature	Title	Date

/s/ J. Clifford Hudson J. Clifford Hudson, Principal Executive Officer	Chairman of the Board of Directors and Chief Executive Officer	October 26, 2012

/s/ Stephen C. Vaughan Stephen C. Vaughan, Principal Financial Officer	Executive Vice President and Chief Financial Officer	October 26, 2012

/s/ Terry D. Harryman Terry D. Harryman, Principal Accounting Officer	Vice President and Controller	October 26, 2012

/s/ Douglas N. Benham Douglas N. Benham	Director	October 26, 2012

/s/ Kate S. Lavelle Kate S. Lavelle	Director	October 26, 2012

/s/ Michael J. Maples Michael J. Maples	Director	October 26, 2012

/s/ J. Larry Nichols J. Larry Nichols	Director	October 26, 2012

/s/ Federico F. Peña Federico F. Peña	Director	October 26, 2012

/s/ H. E. Rainbolt H.E. Rainbolt	Director	October 26, 2012

/s/ Frank E. Richardson Frank E. Richardson	Director	October 26, 2012

/s/ Robert M. Rosenberg Robert M. Rosenberg	Director	October 26, 2012

/s/ Jeffrey H. Schutz Jeffrey H. Schutz	Director	October 26, 2012

/s/ Kathryn L. Taylor Kathryn L. Taylor	Director	October 26, 2012

EXHIBIT INDEX

Exhibit Number and Description


10.07.		Sonic Corp. Stock Purchase Plan, as amended and restated effective April 20, 2011
10.12.		Form of Chief Executive Officer Amended and Restated Employment Agreement dated
		November 1, 2012
10.13.		Form of Executive Officer Amended and Restated Employment Agreement dated November 1, 2012
10.14.		Form of Amended and Restated Sonic Corp. Executive Severance Plan dated November 1, 2012
21.01.		Subsidiaries of the Company
23.01.		Consent of Independent Registered Public Accounting Firm
31.01.		Certification of Chief Executive Officer pursuant to S.E.C. Rule 13a-14
31.02.		Certification of Chief Financial Officer pursuant to S.E.C. 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 ⁽¹⁾
101.SCH		XBRL Taxonomy Extension Schema Document ⁽¹⁾
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document ⁽¹⁾
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document ⁽¹⁾
101.LAB		XBRL Taxonomy Extension Label Linkbase Document ⁽¹⁾
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document ⁽¹⁾

EXHIBIT 10.07

SONIC CORP. STOCK PURCHASE PLAN

(AMENDED AND RESTATED EFFECTIVE APRIL 20, 2011)

1. Purpose . This Sonic Corp. Stock Purchase Plan (“Plan”) is intended to encourage stock ownership by all employees of Sonic Corp. (“Company”) and its affiliates so that they may acquire a proprietary interest in the growth and success of the Company, and to encourage them to remain in the employ of the Company and its affiliates.

2. Definitions :

“ Board ” means the Board of Directors of the Company.

“ Committee ” means the Compensation Committee of the Board of Directors of the Company.

“ Company ” means Sonic Corp.

“ Compensation ” means your regular base salary during the period of your participation in this Plan. Your Compensation for purposes of this Plan does not include bonuses, reimbursement payments and other expense allowances, fringe benefits, deferred compensation, welfare benefits, gains from the exercise of stock options, retirement compensation, and any other amounts that receive special tax benefits under the Internal Revenue Code, such as premiums for group life insurance. Compensation for purposes of this Plan means your base salary prior to deductions for the Company’s elective contribution plans in which you may participate, i.e. , the Sonic Corp. Savings and Profit Sharing Plan and the Sonic Corp Flexible Benefits Plan.

“ Fair Market Value ” means:

(a) If the common stock is listed upon an established stock exchange or exchanges, Fair Market Value shall be determined in accordance with the rules set forth under Treasury Regulation § 1.423-2(g). For example, the Fair Market Value may be deemed to be the mean between the highest and lowest quoted selling price of a share of common stock.

(b) If the common stock is not listed on such an exchange, Fair Market Value shall be determined by the Committee using a reasonable valuation method taking into account all relevant facts and circumstances.

“ Offering Period ” means each month starting on the first day of the month and ending on the last business day of such month.

“ Participant ” means an employee who has met the eligibility requirements of Section 4 and enrolled in this Plan pursuant to Section 6 hereof.

“ Plan Year ” means the calendar year.

“ Purchase Date ” means the last business day of each month.

“ Subsidiary ” means any corporation, domestic or foreign, of which the Company owns, directly or indirectly, not less than fifty percent (50%) of the total combined voting power of all classes of stock or other equity interests and that otherwise qualifies as a subsidiary corporation within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as amended (“Code”) or any successor thereto.

3. Administration of this Plan . This Plan shall be administered by the Committee which consists of not less than three persons, who are directors of the Company, and who are appointed by the Board to serve at the pleasure of the Board. Except as otherwise expressly provided in this Plan, the Committee shall have sole and final authority and discretion to interpret the provisions of this Plan and to promulgate and interpret such rules and regulations relating to this Plan and make all determinations in connection therewith as it may deem necessary or desirable for the administration of this Plan. The Committee may correct any defect in this Plan in the manner and to the extent it shall deem expedient to carry this Plan into effect and shall be the sole and final judge of such expediency. To assist in the administration of this Plan, the Committee may from time to time appoint certain persons to perform functions on its behalf.

By way of example, and not limitation, the Committee shall have the following powers:

(a) To exercise discretion regarding the terms and conditions of Offering Periods and purchases made in connection therewith, as permitted under this Plan;

(b) To designate, from time to time, which Subsidiaries of the Company shall be eligible to participate in this Plan;

(c) To construe and interpret this Plan and to establish, amend and revoke rules and regulations for the orderly administration of this Plan, and to correct any defect, omission or inconsistency in this Plan, in a manner and to the extent it shall deem necessary or expedient to make this Plan fully effective and consistent with its intended purposes;

(d) To exercise such powers and to perform such acts as it deems necessary or expedient to promote the best interests of the Company and its Subsidiaries and to carry out the intent that this Plan be treated as an employee stock purchase plan that meets all of the requirements of Code Section 423; and

(e) To take any other actions, which may include modification of the terms and conditions of this Plan or of any Offering Period, that the Committee deems to be

necessary or appropriate in light of any and all facts and circumstances as the Committee, acting in good faith, determines to be relevant to this Plan, the Company and the intended purpose of this Plan, except to the extent that such action or actions are expressly prohibited by or directly conflict with express terms of this Plan.

No member of the Committee shall be liable for any action taken or omitted or any determination made by him or her in good faith relating to this Plan, and the Company shall indemnify and hold harmless each member of the Committee and each other director or employee of the Company to whom any duty or power relating to the administration or interpretation of this Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any act or omission in connection with this Plan, unless arising out of such person’s own fraud or bad faith.

4. Eligibility . All employees of the Company and its Subsidiaries who:

(a) have completed ninety (90) days or more of continuous service with the Company or one of its Subsidiaries;

(b) customarily work more than twenty (20) hours per week; and

will be eligible to participate in this Plan, in accordance with such rules as may be prescribed from time to time by the Committee, which rules, however, shall neither permit nor deny participation in this Plan contrary to the requirements of the Code and the regulations promulgated thereunder. An employee who has satisfied the eligibility requirements of this Section 4 shall be eligible to enter this Plan and begin payroll deductions (in accordance with Section 6 below) as of the first day of the Offering Period following satisfaction of these eligibility requirements.

Notwithstanding the foregoing, no employee may participate in this Plan if such employee owns or holds outstanding options to purchase stock representing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or any Subsidiary. The rules of Section 424(d) of the Code shall apply in determining the stock ownership of any employee, and stock which the employee may purchase under outstanding options shall be treated as stock owned by the Participant.

5. Stock Available . The stock subject to this Plan is the $.01 par value common stock of the Company. The aggregate number of shares of common stock which can be purchased under this Plan is 1,139,062. Purchases will commence within thirty (30) days after the date of registration of this Plan with the Securities and Exchange Commission if Company counsel deems such registration to be required. If such registration is not deemed to be required, purchases will commence as soon as practicable upon adoption of this Plan. If Company counsel deems stockholder approval of this Plan

to be required, such approval shall be obtained within twelve (12) months of adoption of this Plan.

6. Participation . An eligible employee may participate in this Plan at any time by completing and forwarding a payroll deduction authorization form to the Participant’s appropriate payroll location. The payroll deduction authorization form will authorize a regular payroll deduction from the Participant’s Compensation, and must specify the date on which such deduction is to commence, provided such date may not be retroactive, and further provided that receipt of such payroll deduction authorization by the Participant’s appropriate payroll location must precede the next Offering Period by fifteen (15) days.

7. Accounts . The Company will maintain payroll deduction accounts for all Participants. A Participant may authorize an after-tax payroll deduction in terms of whole number percentages subject to a minimum percentage of one percent (1%) and a maximum of ten percent (10%) of the Compensation he or she receives during the payroll period (or during such portion thereof as the Participant may elect to participate).

Payroll deductions under this Plan shall not accrue at a rate that would enable the Participant to purchase under this Plan (and any other stock purchase plan of the Company or any Subsidiary) having a Fair Market Value greater than $25,000 (determined as of the date the option to purchase common stock is granted in accordance with Section 423(b)(8) of the Code) in any calendar year. The Committee, however, may establish a payroll deduction maximum amount at a level less than $25,000. A Participant may increase or decrease the Participant’s payroll deduction by filing a new payroll deduction authorization form with the Company. The change will not become effective until, the next pay period after receipt by the Company of the new payroll deduction authorization form. A payroll deduction may be increased or decreased only once every six months.

8. Interest . Under no circumstances will any interest be credited to any Participant’s account regardless of whether the funds therein are used to exercise options or are withdrawn.

9. Withdrawal of Stock . A Participant may, for any reason, permanently draw out the stock accumulated in the Participant’s account at any time, but only once per calendar quarter.

10. Granting of Options . Each Participant will automatically be granted an option on the Purchase Date to purchase as many whole and fractional shares of the Company’s common stock as can be purchased with the amounts then credited to his or her account based on the option price determined on that Purchase Date (pursuant to Section 12 hereof), subject to such limitations as are imposed on such purchases under this Plan or by rules or regulations established by the Committee with respect to such Offering Period, and such option shall then automatically be exercised as set forth in Section 11, below.

11. Exercise of Option .

(a) Subject to the limitations described in the remainder of this Section 11, a Participant will be deemed to have exercised on a Purchase Date such Participant’s option to purchase a number of whole and/or fractional shares determined by dividing the amount then credited to that Participant’s account by the purchase price applicable to that Offering Period. On such Purchase Date, each Participant’s account will be debited by the amount of the purchase.

(b) In the event the aggregate number of shares that would be purchased on a Purchase Date by all Participants, as determined under Section 11(a) would exceed the number of shares available for purchases under this Plan, the number of shares with respect to which each Participant will be deemed to have exercised options will be reduced on a prorated basis so that the total number of shares for which all Participants will be deemed to have exercised options will approximate, as closely as possible, but ill not exceed, the number of shares then available for purchase under this Plan. Any amounts remaining as a credit to the account of each Participant shall be distributed as soon as practicable after such Purchase Date.

(c) Participation or failure to participate in an Offering Period will not bar a Participant from participating in any subsequent Offering Period. Payroll deductions will be made to the extent authorized by the Participant, subject to the maximum and minimum limitations imposed by this Plan. Except as provided above with regard to the Purchase Date as of which all shares available for purchase under this Plan have been used, any unused balance in a Participant’s account at a Purchase Date after the exercise of options (as a result of any other limitation on such exercise) will remain in that Participant’s account and will become the Participant’s beginning balance for the next Offering Period.

12. Purchase and Payment . On each Purchase Date, or as soon thereafter as practicable, the account of each Participant shall be totaled and the Participant shall be deemed without any further action to have been granted and to have exercised an option to purchase such fractional share and/or whole shares at the price described below. As provided under Section 22, at the sole discretion of the Committee, purchases of shares (including fractional shares) of common stock under this Plan may be satisfied from authorized, but unissued, shares of common stock or reacquired shares of common stock, including shares of common stock purchased at the direction of the Company on the open market.

Unless the Participant otherwise directs, all dividends paid with respect to the shares (or fraction thereof) of the Company’s common stock in a Participant’s account shall be applied to the purchase of shares (or fraction thereof) of the Company’s common stock and shares (or fractions thereof) so purchased shall be added to the shares held in such Participant’s account.

Subsequent shares of common stock will be purchased in the same manner, whenever sufficient funds have again accrued in the Participant’s account. The purchase

price for each share (or fraction thereof) purchased will be not less than eighty-five percent (85%) of the Fair Market Value on the Purchase Date. In the event the purchase of shares is satisfied through open market acquisitions, the Company shall make a contribution on behalf of each Participant equal to the difference between the Fair Market Value of a share of common stock and the purchase price under this Plan for the share multiplied by the total number of shares of common stock purchased for the account of the Participants.

13. Stock Certificates . Shares purchased hereunder shall not be certificated but instead will be registered in the name of a broker (the “Nominee”) as custodian for the Participants and stock certificates will only be issued to Participants in accordance with Section 12 or upon the Participant’s sale, transfer, request for certification or withdrawal from this Plan for any reason. Certificates may be registered only in the name of the Participant, or if the Participant so indicates on his or her payroll deduction authorization form, in the Participant’s name jointly with a member of his or her family, with right of survivorship. A Participant who is a resident of a jurisdiction which does not recognize such a joint tenancy with right of survivorship may have certificates registered in the Participant’s name as tenant in common with a member of his or her family, without right of survivorship.

14. Rights as a Stockholder . None of the rights or privileges of a stockholder of the Company shall exist with respect to shares purchased under this Plan unless and until certificates representing such whole shares shall have been issued to the Participant’s account.

15. Rights on Retirement, Death, Termination of Employment, or Termination of this Plan . In the event of a Participant’s retirement, death, other termination of employment, or upon termination of this Plan, no payroll deduction shall be taken from any Compensation due and owing to the Participant at such time and the balance in the Participant’s account shall be paid to the Participant or, in the event of the Participant’s death, to the Participant’s estate. Whether an authorized leave of absence, including absence for military or governmental service, shall constitute termination of employment, shall be determined by the Committee.

16. Distribution or Sale of Common Stock . If a Participant terminates his or her employment with the Company or otherwise ceases to be a Participant for purposes of this Plan, the Participant shall receive a distribution of his or her common stock held in the Participant’s account. A Participant whose employment with the Company terminates must receive a distribution of his or her common stock on or before ninety (90) days from his or her employment termination date.

17. Rights not Transferable . Rights granted under this Plan are not transferable by a Participant other than by will or the laws of decent and distribution, and such rights are exercisable during the Participant’s lifetime only by the Participant to whom granted.

18. Adjustment Upon Changes in Common Stock . If the common stock of the Company shall be subdivided or combined, whether by reclassification, stock dividend, stock split, reverse stock split or other similar transaction, then the number of shares subject to purchase under this Plan shall be adjusted proportionately. A stock dividend shall be treated as a subdivision of the whole number of shares outstanding immediately prior to such dividend into a number of shares equal to such whole number of shares so outstanding plus the number of shares issued as a stock dividend.

19. Amendment of this Plan . The Board or the Committee may, at any time, or from time to time, amend this Plan in any respect, except that, without the approval of the holders of a majority of the shares of common stock of the Company then issued and outstanding and entitled to vote, no amendment shall be made increasing or decreasing the number of shares approved for this Plan (other than as provided in Section 19).

20. Suspension of this Plan . This Plan and all rights of Participants hereunder shall be suspended when accumulated Compensation deductions of Participants are sufficient to purchase a number of shares equal to or greater than the number of shares remaining available for purchase. If the number of shares so purchasable is greater than the shares remaining available, the available shares shall be allocated by the Committee among such Participants in such manner as it deems equitable.

21. Use of Funds . All Compensation deductions received or held by the Company under this Plan may be used by the Company for any corporate purpose, and the Company will not be obligated to segregate any Compensation deducted. The Compensation deducted will not be funded or held in trust.

22. Termination of this Plan .

(a) This Plan and all rights of Participants hereunder shall terminate at the discretion of the Board.

(b) If this Plan is terminated by the Board prior to the scheduled end of any Offering Period, the Committee may, in its discretion, either: (i) cause all amounts then held in Participant accounts to be distributed to Participants; or (ii) designate a special Purchase Date on which all amounts then held in Participant accounts will be applied to one final purchase under this Plan in accordance with Section 12.

23. Governmental Regulations . The Company’s obligation to sell and deliver its common stock under this Plan is subject to the approval of any governmental authority required in connection with the authorization, issuance, or sale of such stock.

24. Shares Used to Fund Plan . The Company may utilize authorized unissued or treasury shares to fund this Plan. Purchases of outstanding shares may also be made pursuant to and on behalf of this Plan, upon such terms as the Company may approve, for delivery under this Plan.

25. No Employment Rights . This Plan does not, directly or indirectly, create in any Participant or class of employees any right with respect to continuation of

employment by the Company and will not interfere in any way with the Company’s right to terminate or otherwise modify the terms of a Participant’s employment at any time.

26. Qualified Plan . This Plan is intended to qualify as an employee stock purchase plan as defined in Section 423 of the Code.

Exhibit 10.12

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Agreement is entered into effective as of the 1st day of November, 2012, by and between Sonic Corp. (the “Corporation”), a Delaware corporation, and (the “Employee”).

RECITALS

Whereas, the Employee is currently serving as the Chief Executive Officer of the Corporation and is an integral part of its management; and

Whereas, the Employee and the Corporation acknowledge that they previously entered into an Employment Agreement dated December 15, 2008, which is hereby canceled and superseded in its entirety by this Agreement; and

Whereas, the Corporation’s Board of Directors (the “Board”) has determined that it is appropriate to support and encourage the attention and dedication of certain key members of the Corporation’s management, including Employee, to their assigned duties without distraction and potentially disturbing circumstances arising from the possibility of a Change in Control (herein defined) of the Corporation; and

Whereas, the Corporation desires to continue the services of Employee, whose experience, knowledge and abilities with respect to the business and affairs of the Corporation will be extremely valuable to the Corporation; and

Whereas, the parties hereto desire to enter into this Agreement setting forth the terms and conditions of the employment relationship of the Corporation and Employee.

Now, therefore, it is agreed as follows:

ARTICLE I

Term of Employment

1.1 Term of Employment . The Corporation shall employ Employee for a period of two years from the date hereof (the “Initial Term”).

1.2 Extension of Initial Term . Upon each annual anniversary date of this Agreement, this Agreement shall be extended automatically for an additional one year period to maintain successive terms of two years each, unless either the Corporation or the Employee gives contrary written notice to the other not later than the annual anniversary date. As used herein, “Term” shall mean the Initial Term together with any renewal term(s) pursuant to this Section 1.2.

1.3 Termination of Employment . The Corporation may terminate this Agreement and the Employee’s employment at any time effective upon written notice to the Employee. The Employee may terminate this Agreement and the Employee’s employment only after at least 30 days’ written notice to the Corporation, unless otherwise agreed by the Corporation. Any such termination is subject to the terms and conditions contained in this Agreement.

ARTICLE II

Duties of the Employee

Employee shall serve as the Chief Executive Officer of the Corporation. Employee shall do and perform all services, acts, or things necessary or advisable to manage and conduct the business of the Corporation consistent with such position subject to such policies and procedures as may be established by the Board.

ARTICLE III

Compensation

3.1 Salary . For Employee’s services to the Corporation as the Chief Executive Officer, Employee shall be paid a salary at the annual rate of $ (herein referred to as “Salary”), payable in twenty-four equal installments on the first and fifteenth day of each month. On the first day of each calendar year during the term of this Agreement with the Corporation, Employee shall be eligible for an increase in Salary based on an evaluation of Employee’s performance during the past year with the Corporation. During the term of this Agreement, the Salary of the Employee shall not be decreased at any time from the Salary then in effect unless agreed to in writing by the Employee.

3.2 Bonus . The Employee shall be entitled to participate in an equitable manner with other officers of the Corporation in discretionary cash bonuses as authorized by the Board. Such bonuses shall be paid not later than the 15th day of the third month following the later of the end of the Corporation’s tax year or the Employee’s tax year in which the bonuses are no longer subject to a substantial risk of forfeiture (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)).

3.3 Clawback Provisions . Notwithstanding any other provisions in this Agreement to the contrary, any incentive-based compensation, or any other compensation, paid or payable to Employee pursuant to this Agreement or any other agreement or arrangement with the Corporation which is subject to clawback (recovery) under any law, government regulation, order or stock exchange listing requirement, will be subject to such deductions and clawback (recovery) as may be required to be made pursuant to law, government regulation, order, stock exchange listing requirement (or any policy of the Corporation adopted pursuant to any such law, government regulation, order or stock exchange listing requirement). Employee specifically authorizes the Corporation to withhold from his or her future wages any amounts that may become due under this provision. This Section 9.13 shall survive the termination of this Agreement for a period of three (3) years.

ARTICLE IV

Employee Benefits

4.1 Use of Automobile . The Corporation shall provide Employee with either the use of an automobile for business and personal use or a cash car allowance in accordance with the established company car policy of the Corporation. The Corporation shall pay all expenses of

operating, maintaining and repairing the automobile provided by the Corporation and shall procure and maintain automobile liability insurance in respect thereof, with such coverage insuring each Employee for bodily injury and property damage. Reimbursement of automobile-related expenses shall be made as soon as practicable after the request for reimbursement is submitted, but in no event later than the last day of the calendar year next following the calendar year in which such expense was incurred. Additionally, neither the provision of in-kind benefits nor the reimbursement of expenses in any one calendar year shall affect the level or amount of in-kind benefits to be provided, or the expenses eligible for reimbursement, in any other calendar year. The Employee’s right to reimbursement or in-kind benefits under this Section 4.1 is not subject to liquidation or exchange for another benefit.

4.2 Medical, Life and Disability Insurance Benefits . The Corporation shall provide Employee with medical, life and disability insurance benefits in accordance with the established benefit policies of the Corporation.

4.3 Working Facilities . Employee shall be provided adequate office space, secretarial assistance, and such other facilities and services suitable to Employee’s position and adequate for the performance of Employee’s duties.

4.4 Business Expenses . Employee shall be authorized to incur reasonable expenses for promoting the business of the Corporation, including expenses for entertainment, travel, and similar items. The Corporation shall reimburse Employee for all such expenses upon the presentation by Employee, from time to time, of an itemized account of such expenditures. Reimbursement shall be made as soon as practicable after the request for reimbursement is submitted, but in no event later than the last day of the calendar year next following the calendar year in which such expense was incurred. Additionally, the reimbursement of expenses in any one calendar year shall not affect the expenses eligible for reimbursement in any other calendar year. The Employee’s right to reimbursement under this Section 4.4 is not subject to liquidation or exchange for another benefit.

4.5 Vacations . Employee shall be entitled to an annual paid vacation commensurate with the Corporation’s established vacation policy for officers. The timing of paid vacations shall be scheduled in a reasonable manner by the Employee.

4.6 Disability Benefit . Upon disability (as defined herein) of the Employee, the Employee shall be entitled to receive up to six months’ of Employee’s Salary (less any deductions required by law) payable in twelve equal installments of 1/24 of the Salary, with the first installment occurring on the first regularly scheduled payroll date following the determination of disability and the remaining installments occurring on a semi-monthly basis thereafter, provided that such disability payments shall continue only so long as the disability continues, and provided further that each such disability payment shall be reduced by any benefit payment the Employee is entitled to receive under the Corporation’s group disability insurance plans during the corresponding payroll period.

4.7 Term Life Insurance . The Corporation shall purchase term life insurance on the life of the Employee having a face value of four times the Employee’s Salary (to be changed as salary adjustments are made) or the face value of life insurance that can be purchased based upon the

Employee’s health history with the Corporation paying the standard premium rate for term insurance under its then current insurance program at the Employee’s age and assuming good health, whichever amount is lesser, provided that such insurance can be obtained by the Corporation in a manner which meets the requirements for deductibility by the Corporation under Section 79 of the Code.

4.8 Compensation Defined . Compensation shall be defined as all monetary compensation and all benefits described in Articles III and IV hereunder (as adjusted during the term hereof).

ARTICLE V

Termination

5.1 Separation from Service . For purposes of this Agreement, the terms “terminate,” “terminated” and “termination” with respect to the Employee’s employment mean a termination of the Employee’s employment that constitutes a “separation from service” within the meaning of the default rules of Section 409A of the Code.

5.2 Death . Employee’s employment hereunder shall be terminated upon the Employee’s death.

5.3 Disability . The Corporation may terminate Employee’s employment hereunder in the event Employee is disabled and such disability continues for more than 180 days. “Disability” shall be defined as the inability of Employee to render the services required of him under this Agreement, with or without a reasonable accommodation, as a result of physical or mental incapacity.

5.4 Cause .

(a) The Corporation may terminate Employee’s employment hereunder for Cause. For the purpose of this Agreement, “Cause” shall mean (i) the willful and intentional failure by Employee to substantially or satisfactorily perform Employee’s duties hereunder, other than any failure resulting from Employee’s incapacity due to physical or mental incapacity, (ii) commission by Employee, in connection with Employee’s employment by the Corporation, of an illegal act or any act (though not illegal) which is not in the ordinary course of the Employee’s responsibilities and exposes the Corporation to a significant level of undue liability, (iii) any act or omission that constitutes a material breach by the Employee of any of Employee’s obligations under this Agreement, (iv) Employee’s conviction of, or plea of nolo contendere to, any felony or another crime involving dishonesty or moral turpitude or which could reflect negatively upon the Corporation or otherwise impair or impede its operations, (iv) Employee’s engaging in any act of dishonesty, violence or threat of violence (including any violation of federal securities laws) that is injurious to the Corporation or any of its subsidiaries or affiliates, (v) Employee’s material breach of a written policy of the Corporation or the rules of any governmental or regulatory body applicable to the Corporation, or (vi) any other willful misconduct by Employee which is materially injurious to the financial condition or business reputation of the Corporation or any of its subsidiaries or affiliates. For purposes of this paragraph, no act or failure to act on Employee’s part shall be considered to have met either of the preceding tests unless done or omitted to be done

by Employee without a reasonable belief that Employee’s action or omission was in the best interest of the Corporation.

(b) Notwithstanding the foregoing, in the event of a Change in Control, as defined in Section 5.9, Employee shall not be deemed to have been terminated for cause unless such action is ratified by the affirmative vote of not less than a majority of the entire membership of the Board at a meeting held within 30 days of such termination (after reasonable notice to Employee and an opportunity for Employee to be heard by members of the Board) confirming that the Board has determined that Cause exists for terminating the Employee’s employment. Ratification by the Board will be effective as of the original date of termination of Employee.

5.5 Compensation Upon Termination for Cause or Upon Resignation By Employee . Except as otherwise set forth in Section 5.8 hereof, if Employee’s employment shall be terminated for Cause or if Employee shall resign Employee’s position with the Corporation, the Corporation shall pay Employee’s Compensation only through the last day of Employee’s employment by the Corporation. The Corporation shall then have no further obligation to Employee under this Agreement. If the Board, pursuant to Section 5.4(b), votes to classify Employee’s termination as “not for Cause,” then Employee shall be compensated pursuant to Section 5.6 below.

5.6 Compensation Upon Termination Other Than For Cause Or Disability . Except as otherwise set forth in Section 5.8 hereof, if the Corporation shall terminate Employee’s employment other than for Cause or Disability, the Corporation shall continue to be obligated to pay two years of Employee’s Salary (payable in 48 equal installments, with the first installment occurring on the first regularly scheduled payroll date following the date of termination, and the remaining installments occurring on a semi-monthly basis thereafter), but shall not be obligated to provide any other benefits described in Articles III and IV hereof, except to the extent required by law.

5.7 Compensation Upon Non-Renewal of Agreement. Except as otherwise set forth in Section 5.8 hereof, if the Corporation shall give notice to Employee in accordance with Section 1.2 hereof that this Agreement will not be renewed but Employee’s employment is not terminated, the Corporation shall continue to be obligated to pay Employee’s Salary for a period of 24 months beginning on the date notice of non-renewal is given, on regularly scheduled payroll dates, but shall not be obligated to provide any other benefits described in Articles III and IV hereof, except to the extent required by law.

5.8 Termination of Employee or Resignation by Employee for Good Reason Following a Change in Control .

(a) If at any time within the first twelve months subsequent to a Change in Control, the Employee’s employment with the Corporation is terminated other than as provided for in Section 5.2, 5.3 or 5.4 hereof, or Employee shall resign Employee’s employment for Good Reason (as defined herein), the Corporation shall be obligated to pay to Employee a severance payment in an amount equal to 36 months of Employee’s salary. If the Employee believes Good Reason exists for terminating his employment, then the Employee shall give the Corporation written notice of the acts or omissions constituting Good Reason within thirty (30) days after learning of such acts or omissions constituting Good Reason (the “Good Reason Notice”). No termination of employment

for Good Reason shall be effective unless (i) within thirty (30) days after receiving the Good Reason Notice, the Company fails to either cure such acts or omissions or notify the Employee of the intended method of cure, and (ii) the Employee delivers a written notice of termination to the Corporation and subsequently resigns within thirty (30) days after the Company’s deadline in (i) above expires.

(b) If the Change in Control implicated by this Section 5.8 is also a “change in control event” within the meaning of the default rules of the final regulations promulgated under Section 409A(a)(2)(A)(v) of the Code, then the severance payment due under this Section 5.8 shall be made in a lump sum, payable no later than the 15th day of the third month following the later of the end of the Corporation’s tax year or the Employee’s tax year in which occurs the Employee’s effective date of termination under this Section 5.8. If the Change in Control is not a “change in control event” within the meaning of the default rules of the final regulations promulgated under Section 409A(a)(2)(A)(v) of the Code, the severance payment contemplated by this Section 5.8 shall be made in twelve semi-monthly installment payments, beginning on the first regularly scheduled payroll date following the Employee’s effective date of termination under this Section 5.8.

(c) For purposes of this Section 5.8, the Employee’s effective date of termination shall mean, as applicable, (x) the effective date of such termination of employment by the Corporation or (y) the effective date of the Employee’s resignation for Good Reason, which date shall be stated in the Employee’s written notice to the Corporation of his resignation for Good Reason, as described in (a)(ii) above.

5.9 Limitation on Severance Payments .

(a) Notwithstanding any provision of this Agreement, if any portion of the severance payments under this Article V or other payment under this Agreement together with any other payments or compensation which Employee has a right to receive from the Corporation or its affiliates (in the aggregate, “Total Payments”) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and, but for this Section 5.9, would be subject to excise tax imposed by Section 4999 of the Code, the Total Payments shall be reduced to the largest amount as will result in no portion of the severance payment being subject to the excise tax imposed by Section 4999 of the Code.

(b) If a reduction is required pursuant to Section 5.9(a), the Total Payments shall be reduced or eliminated by applying the following principles, in order: (1) the payment or benefit with the later possible payment date shall be reduced or eliminated before a payment or benefit with an earlier payment date; and (2) cash payments shall be reduced prior to non-cash benefits; provided that if the foregoing order of reduction or elimination would violate Code Section 409A, then the reduction shall be made pro rata among the payments or benefits included in the Total Payments (on the basis of the relative present value of the parachute payments).

(c) The determinations to be made with respect to this Section 5.9 shall be made by a certified public accounting firm designated by the Company (which may be the Corporation’s independent auditors) and reasonably acceptable to the Employee (the “Accounting Firm”). For purposes of the determination by the Accounting Firm, the value of any noncash benefits or any

deferred payment or benefit shall be determined in accordance with the principles of Code Sections 280G(d)(3) and (4).

5.10 “ Good Reason ” shall mean any of the following which occur during the term of this Agreement without Employee’s express written consent:

(a) the assignment to Employee of duties materially inconsistent with Employee’s position, office, duties, responsibilities and status with the Corporation immediately prior to a Change in Control, except in connection with the termination of Employee’s employment by the Corporation for Disability or Cause or as a result of Employee’s death or by Employee other than for Good Reason as set forth in Section 5.8(a); or

(b) a reduction by the Corporation in Employee’s Salary as in effect as of the date of this Agreement or as the same may be increased from time-to-time during the term of this Agreement; ; or

(c) the failure of the Corporation to provide Employee with substantially the same fringe benefits (including, without limitation, life insurance plans, medical or disability plans, retirement plans, incentive plans, stock option plans, stock purchase plans, stock ownership plans, or bonus plans) that were provided to Employee immediately prior to the Change in Control, or with a package of fringe benefits that, if one or more of such benefits varies from those in effect immediately prior to such Change in Control, is substantially comparable in all material respects to such fringe benefits taken as a whole; or

(d) Employee’s relocation to any place more than 50 miles from the location at which Employee performed Employee’s duties prior to a Change in Control, except for required travel by Employee on the Corporation’s business to an extent substantially consistent with Employee’s business travel obligations at the time of the Change in Control; or

(e) any material failure by the Corporation to comply with any provision of this Agreement, other than an isolated, insubstantial, or inadvertent failure not occurring in bad faith and which the Corporation remedies promptly after receipt of notice from the Employee; or

(f) the failure of a successor to the Corporation to assume the obligation of this Agreement as set forth in Section 7.1 herein.

5.11 Change in Control . For the purposes of this Agreement, the phrase “change in control” shall mean any of the following events:

(a) Any consolidation or merger of the Corporation in which the Corporation is not the continuing or surviving corporation or pursuant to which shares of the Corporation’s capital stock would convert into cash, securities or other property, other than a merger of the Corporation in which the holders of the

Corporation’s capital stock immediately prior to the merger have the same proportionate ownership of capital stock of the surviving corporation immediately after the merger;

(b) Any sale, lease, exchange or other transfer (whether in one transaction or a series of related transactions) of all or substantially all of the assets of the Corporation;

(c) The stockholders of the Corporation approve any plan or proposal for the liquidation or dissolution of the Corporation;

(d) Any person (as used in Section 13(d) and 14(d)(2) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) becomes the beneficial owner (within the meaning of Rule 13D-3 under the Exchange Act) of 50% or more of the Corporation’s outstanding capital stock;

(e) During any period of two consecutive years, individuals who at the beginning of that period constitute the entire Board of Directors of the Corporation cease for any reason to constitute a majority of the Board of Directors unless the election or the nomination for election by the Corporation’s stockholders of each new director received the approval of the Board of Directors by a vote of at least two-thirds of the directors then and still in office and who served as directors at the beginning of the period; or

(f) The Corporation becomes a subsidiary of any other corporation (the “Subsidiary Transaction”), other than a corporation in which the holders of the Corporation’s capital stock immediately prior to the Subsidiary Transaction have the same proportionate ownership of capital stock of the parent corporation immediately after the Subsidiary Transaction.

5.12 Agreement and Release . Notwithstanding any provision of this Agreement to the contrary, the obligation of the Corporation to pay any severance benefits to the Employee in accordance with this Article V is expressly conditioned upon the Employee’s execution and delivery to the Corporation, no later than the 60 ^th day following the Employee’s termination of employment, of an agreement to (a) comply with the terms and conditions of Article VIII below and (b) be bound by a release of any and all claims arising out of or relating to the Employee’s employment and termination of employment (a “Release”), that is or becomes irrevocable on or prior to the 60 ^th day following the Employee’s termination of employment. The Corporation shall have no obligation to pay any severance benefits to the Employee pursuant to this Article V if the Employee fails to execute a Release that is or becomes irrevocable by the 60 ^th day following Employee’s termination of employment or the Employee fails to comply with the provisions of Section VIII below. Such Release shall be made in a form satisfactory to the Corporation, substantially in the form set forth in Annex A hereto, and shall be for the benefit of the Corporation, its respective affiliates, and their respective officers, employees, directors, shareholders, agents, successors and assigns.

ARTICLE VI

Obligation to Mitigate Damages;

No Effect on Other Contractual Rights

6.1 Mitigation . The Employee shall not have any obligation to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise. However, all payments required under the terms of this Agreement shall cease 30 days after the acceptance by the Employee of employment by another employer; provided that, this limitation shall not apply to payments due under paragraph 5.8, above.

6.2 Other Contractual Rights . The provisions of this Agreement, and any payment provided for hereunder shall not reduce any amount otherwise payable, or in any way diminish Employee’s existing rights, or rights which would accrue solely as a result of passage of time under any employee benefit plan or other contract, plan or arrangement of which Employee is a beneficiary or in which Employee participates.

ARTICLE VII

Successors to the Corporation

7.1 Assumption . The Corporation will require any successor or assignee (whether direct or indirect, by purchase, merger, consolidation or otherwise) of all or substantially all of the business and/or assets of the Corporation, by agreement in form and substance reasonably satisfactory to Employee, to expressly, absolutely and unconditionally assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession or assignment had taken place. Any failure by the Corporation to obtain such agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement.

7.2 Employee’s Successors and Assigns . This Agreement shall inure to the benefit of and be enforceable by Employee’s personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Employee should die while any amounts are still payable to Employee hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Employee’s devisee, legatee or other designee or, if there is no such designee, to Employee’s estate.

ARTICLE VIII

Restrictions on Employee

8.1 Confidential Information . The Employee shall use Confidential Information only to the Corporation’s benefit and shall not at any time during or after his employment with the Corporation divulge or make accessible to any party any Confidential Information, as defined below, of the Corporation or any of its subsidiaries, except to the extent authorized in writing by the Corporation or otherwise required by law. The phrase “Confidential Information” shall mean the unique, proprietary and confidential information of the Corporation and its subsidiaries,

consisting of: (1) confidential financial information regarding the Corporation or its subsidiaries, (2) confidential recipes for food products; (3) confidential and copyrighted plans and specifications for interior and exterior signs, designs, layouts and color schemes; (4) confidential methods, techniques, formats, systems, specifications, procedures, information, trade secrets, sales and marketing programs; (5) knowledge and experience regarding the operation and franchising of Sonic drive-in restaurants; (6) the identities and locations of Sonic’s franchisees, Sonic drive-in restaurants, and suppliers to Sonic’s franchisees and drive-in restaurants; (7) knowledge, financial information, and other information regarding the development of franchised and company-store restaurants; (8) knowledge, financial information, and other information regarding potential acquisitions and dispositions; and (9) any other confidential business information of the Corporation or any of its subsidiaries. The Employee shall give the Corporation written notice of any circumstances in which Employee has actual notice of any access, possession or use of the Confidential Information not authorized by this Agreement.

8.2 Restrictive Covenant . During the term of Employee’s employment, the Employee shall not retain in or have any interest, directly or indirectly, in any business competing with the business being conducted by the Corporation or any of its subsidiaries, without the Corporation’s prior written consent. For the six month period immediately following the termination of Employee’s employment, the Employee shall not engage in or have any interest, directly or indirectly, in any entity that competes in the hamburger quick service restaurant segment or that has a set of product offerings substantively similar to that of a material portion of the sales of a Sonic drive-in restaurant.

8.3 Non-Disparagement . During the term of Employee’s employment and after such employment has terminated, the Employee shall not make any negative or disparaging comments regarding the Corporation or its performance, operations, or business practices, or otherwise take any action that could reasonably be expected to adversely affect the Corporation or its professional reputation. The Employee may truthfully respond to inquiries by government agencies or to inquiries by any person through a subpoena or other valid judicial process without violating this Section 8.3.

ARTICLE IX

Miscellaneous

9.1 Indemnification . To the full extent permitted by law, the Board shall authorize the payment of expenses incurred by or shall satisfy judgments or fines rendered or levied against Employee in any action brought by a third-party against Employee (whether or not the Corporation is joined as a party defendant) to impose any liability or penalty on Employee for any act alleged to have been committed by Employee while employed by the Corporation unless Employee was acting with gross negligence or willful misconduct. Payments authorized hereunder shall include amounts paid and expenses incurred in settling any such action or threatened action.

9.2 Resolution of Disputes . The following provisions shall apply to any controversy between the Employee and the Corporation and its subsidiaries and the Employee (including any director, officer, employee, agent or affiliate of the Corporation and its subsidiaries) whether or not relating to this Agreement.

(a) Arbitration . The parties shall resolve all controversies by final and binding arbitration in accordance with the Rules for Commercial Arbitration (the “Rules”) of the American Arbitration Association in effect at the time of the execution of this Agreement and pursuant to the following additional provisions:

(1) Applicable Law . The Federal Arbitration Act (the “Federal Act”), as supplemented by the Oklahoma Arbitration Act (to the extent not inconsistent with the Federal Act), shall apply to the arbitration and all procedural matters relating to the arbitration.

(2) Selection of Arbitrators . The parties shall select one arbitrator within 10 days after the filing of a demand and submission in accordance with the Rules. If the parties fail to agree on an arbitrator within that 10-day period or fail to agree to an extension of that period, the arbitration shall take place before an arbitrator selected in accordance with the Rules.

(3) Location of Arbitration . The arbitration shall take place in Oklahoma City, Oklahoma, and the arbitrator shall issue any award at the place of arbitration. The arbitrator may conduct hearings and meetings at any other place agreeable to the parties or, upon the motion of a party, determined by the arbitrator as necessary to obtain significant testimony or evidence.

(4) Enforcement of Award . The prevailing party shall have the right to enter the award of the arbitrator in any court having jurisdiction over one or more of the parties or their assets. The parties specifically waive any right they may have to apply to any court for relief from the provisions of this Agreement or from any decision of the arbitrator made prior to the award.

(b) Attorneys’ Fees and Costs . The prevailing party to the arbitration shall have the right to an award of its reasonable attorneys’ fees and costs (including the cost of the arbitrator) incurred after the filing of the demand and submission. If the Corporation or any of its subsidiaries prevails, the award shall include an amount for that portion of the administrative overhead reasonably allocable to the time devoted by the in-house legal staff of the Corporation or any subsidiary.

(c) Excluded Controversies . At the election of the Corporation or its subsidiaries, the provisions of this Section 9.2 shall not apply to any controversies relating to the enforcement of the covenant not to compete or the use and protection of the trademarks, service marks, trade names, copyrights, patents, confidential information and trade secrets of the Corporation or its subsidiaries, including (without limitation) the right of the Corporation or its subsidiaries to apply to any

court of competent jurisdiction for appropriate injunctive relief for the infringement of the rights of the Corporation or its subsidiaries.

(d) Other Rights . The provisions of this Section 9.2 shall not prevent the Corporation, its subsidiaries, or the Employee from exercising any of their rights under this agreement, any other agreement, or under the common law, including (without limitation) the right to terminate any agreement between the parties or to end or change the party’s legal relationship.

9.3 Entire Agreement . This Agreement constitutes the entire agreement of the parties with regard to the subject matter of this Agreement and replaces and supersedes all other written and oral agreements and statements of the parties relating to the subject matter of this Agreement.

9.4 Notices . Any notices required or permitted to be given under this Agreement shall be sufficient if in writing and sent by mail to Employee’s residence, in the case of Employee, or to its principal office, in the case of the Corporation.

9.5 Waiver of Breach . The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any party.

9.6 Amendment . No amendment or modification of this Agreement shall be deemed effective unless or until executed in writing by the parties hereto.

9.7 Validity . This Agreement, having been executed and delivered in the State of Oklahoma, its validity, interpretation, performance and enforcement will be governed by the laws of that state.

9.8 Section Headings . Section and other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

9.9 Counterpart Execution . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument.

9.10 Exclusivity . Specific arrangements referred to in this Agreement are not intended to exclude Employee’s participation in any other benefits available to executive personnel generally or to preclude other compensation or benefits as may be authorized by the Board from time to time.

9.11 Partial Invalidity . If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force without being impaired or invalidated in any way.

9.12

Section 409A of the Code.

(a) Notwithstanding anything herein to the contrary, if, at the time of the Employee’s termination of employment with the Corporation, the Employee is a “specified employee” within the meaning of Section 409A of the Code, as determined under the Corporation’s established methodology for determining specified employees, then, solely to the extent necessary to avoid the imposition of additional taxes, penalties or interest under Section 409A of the Code, any payments to the Employee hereunder which provide for the deferral of compensation, within the meaning of Section 409A of the Code (which shall not include any compensation that is exempt from Section 409A of the Code), and which are scheduled to be made as a result of the Employee’s termination of employment during the period beginning on the date of the Employee’s date of termination and ending on the six-month anniversary of such date shall be delayed and not paid to the Participant until the first business day following such sixth month anniversary date, at which time such delayed amounts will be paid to the Employee in a cash lump sum. If the Employee dies on or after the date of the Employee’s date of termination and prior to the payment of the delayed amounts pursuant to this Section 9.12, any amount delayed pursuant to this Section 9.12 shall be paid to the Employee’s estate within 30 days following the Employee’s death.

(b) The Corporation shall not accelerate any payment or the provision of any benefits under this Agreement or make or provide any such payment or benefits if such payment or provision of such benefits would, as a result, be subject to tax under Section 409A of the Code. It is understood that each installment is a separate payment, and that the timing of payment is within the control of the Corporation.

(c) To the extent this Agreement is subject to Section 409A of the Code, the Corporation and Employee intend all payments under this Agreement to comply with the requirements of such section, and this Agreement shall, to the extent reasonably practicable, be operated and administered to effectuate such intent. If, in the good faith judgment of the Corporation, any provision of this Agreement could cause the Employee to be subject to adverse or unintended tax consequences under Section 409A of the Code, such provision shall be modified by the Corporation in its sole discretion to maintain, to the maximum extent practicable, the original intent of the applicable provision without violating the requirements of Section 409A of the Code.

9.13 Survival . Sections 9.1 and 9.2 of this Agreement and any other provision of this Agreement that imposes an obligation on a party after the termination or expiration of this Agreement shall survive the termination or expiration of this Agreement and be binding on the parties.

In witness whereof, the Corporation has caused this Agreement to be executed and its seal affixed hereto by its officers thereunto duly authorized; and the Employee has executed this Agreement, as of the day and year first above written.


The Corporation:	Sonic Corp.

	By:
		Name:
		Title:

The Employee:
		Name:

ANNEX A

FORM OF RELEASE

In connection with my separation from service with Sonic Corp. or its affiliate (collectively, “ Sonic ”), I provide the following Release of Claims (the “ Release ”).

I. General Release.

I, and each of my respective heirs, executors, administrators, representatives, agents, successors and assigns (collectively, the “ Releasors ”) hereby irrevocably and unconditionally release and forever discharge Sonic Corp., its subsidiaries and affiliates (the “ Company Group ”) and each of their respective officers, employees, directors, shareholders, agents, successors and assigns from any and all claims, actions, causes of action, rights, judgments, obligations, damages, demands, accountings or liabilities of whatever kind or character (collectively, “ Claims ”), including, without limitation, any Claims under any federal, state, local or foreign law, that the Releasors may have, or in the future may possess, arising out of (i) my employment relationship with and service as an employee or officer of the Company Group, and the termination of such relationship or service, or (ii) any event, condition, circumstance or obligation that occurred, existed or arose on or prior to the date hereof; provided , however , that this Release shall not apply to any claims by me for benefits to which I am entitled as of the date of this Release under Sonic’s compensation and benefit plans, subject, in each case, to the applicable terms and conditions of each such plan. Without limiting the scope of the foregoing provision in any way, I hereby release all claims relating to or arising out of any aspect of my employment with the Company Group, including but not limited to, all claims under Title VII of the Civil Rights Act, the Civil Rights Act of 1991 and the laws amended thereby; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act of 1990; the Americans with Disabilities Act; the Family and Medical Leave Act of 1993; the Fair Labor Standards Act of 1963; any contract of employment, express or implied; any provision of the Constitution of the United States or of any particular State; and any other law, common or statutory, of the United States, or any particular State; any claim for the negligent and/or intentional infliction of emotional distress or specific intent to harm; any claims for attorneys fees, costs and/or expenses; any claims for unpaid or withheld wages, severance pay, benefits, bonuses, commissions and/or other compensation of any kind; and/or any other federal, state or local human rights, civil rights, wage and hour, wage payment, pension or labor laws, rules and/or regulations; all claims growing out of any legal restrictions on the Company Group’s right to hire and/or terminate its employees, including all claims that were asserted and/or that could have been asserted by me and all claims for breach of promise, public policy, negligence, retaliation, defamation, impairment of economic opportunity, loss of business opportunity, fraud, misrepresentation, etc. The Releasors further agree that the payments and benefits described in the Employee’s Employment Agreement dated , 20 (the “Employment Agreement”), shall be in full satisfaction of any and all Claims for payments or benefits, whether express or implied, that the Releasors may have against the Company Group arising out of my employment relationship or my service as an employee or officer of the Company Group and the termination thereof.

II. Specific Release of ADEA Claims. [IF APPLICABLE]

In consideration for, among other things, certain actions by Sonic in support of my separation from service, the Releasors hereby unconditionally release and forever discharge the Company Group from any and all Claims arising under the Federal Age Discrimination in Employment Act of 1967, as amended, and the applicable rules and regulations promulgated thereunder (“ ADEA ”) that I may have as of the date of my signature to this Release. By signing this Release, I hereby acknowledge and confirm the following:

(i)

I was advised by Sonic in connection with my termination to consult with an attorney of my choice prior to signing this Release and to have such attorney explain to me the terms of this Release, including, without limitation, the terms relating to my release of claims arising under ADEA;

(ii)

I was given a period of not fewer than [21] / [45] ¹ days to consider the terms of this Release and to consult with an attorney of my choosing with respect thereto, and was given the option to sign the Release in fewer than [21] / [45] days if I desired;

(iii)

I am providing the release and discharge set forth in this Release only in exchange for consideration in addition to anything of value to which I am already entitled; and

(iv)

I knowingly and voluntarily accept the terms of this Release.

I acknowledge that I understand that I may revoke this specific ADEA release contained in this Section II of this Release within seven days following the date on which I sign this Release (the “ Revocation Period ”) by providing to the General Counsel of Sonic written notice of my revocation of the release and waiver contained in this Section II of this Release prior to the expiration of the Revocation Period. This right of revocation relates only to the ADEA release set forth in this Section II of this Release and does not act as a revocation of any other term of this Release. Any payments or benefits provided to me under the Employment Agreement shall not commence unless the Revocation Period has expired.

III.

Restrictive Covenants . I acknowledge that I am subject to Article VIII of the Employment Agreement, and I shall comply with the provisions thereof.

IV.

Representations and Warranties

I agree that I have not instituted, assisted or otherwise participated in connection with, any action, complaint, claim, charge, grievance, arbitration, lawsuit, or administrative agency proceeding, or action at law or otherwise against any member of the Company Group or any of their respective officers, employees, directors, shareholders or agents. I represent and warrant that I have not assigned any of the Claims being released under this Release.

¹	A 45-day review period is offered only in the event of a reduction in force (within the meaning of ADEA).

I acknowledge that, except as expressly set forth herein, no representations of any kind or character have been made to me by Sonic or by any of its agents, representatives, or attorneys to induce the execution of this Release. I understand and acknowledge the significance and consequences of this Release, that it is voluntary, that it has not been entered into as a result of any coercion, duress or undue influence, and expressly confirm that it is to be given full force and effect according to all of its terms, including those relating to unknown Claims. I acknowledge that I had full opportunity to discuss any and all aspects of this Release with legal counsel, and have availed myself of that opportunity to the extent desired. I acknowledge that I have carefully read and fully understand all of the provisions of this Release and have signed below only after full reflection and analysis.

V. Miscellaneous

This Release sets forth the entire understanding between Sonic and me in connection with its subject matter and supersedes and replaces any express or implied, written or oral, prior agreement of plans or arrangement with respect to the terms of my employment and the termination thereof which I may have had with the Company Group. I acknowledge that in signing this Release, I have not relied upon any representation or statement not set forth in this Release made by Sonic or any of its representatives.

By signing this Release, I acknowledge that: (a) I have read this Release; (b) I understand this Release and know that I am giving up important rights; (c) [Section II of this Release shall not become effective or enforceable for a period of seven (7) days following its execution]; (d) I was advised by Sonic, and I am aware, of my right to consult with an attorney before signing this Release; and (e) I have signed this Release knowingly and voluntarily and without any duress or undue influence on the part or behalf of Sonic.

[Employee Name]

Date

Exhibit 10.13

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

This Agreement is entered into effective as of the 1st day of November, 2012, by and between Sonic (the “Corporation”), a corporation, and (the “Employee”).

RECITALS

Whereas, the Employee is currently serving as the of the Corporation and is an integral part of its management; and

[For existing agreements] Whereas, the Employee and the Corporation acknowledge that they previously entered into an Employment Agreement dated , which is hereby canceled and superseded in its entirety by this Agreement; and

Whereas, the parties hereto desire to enter into this Agreement setting forth the terms and conditions of the employment relationship of the Corporation and Employee.

Now, therefore, it is agreed as follows:

ARTICLE I

Term of Employment

1.1 Term of Employment . The Corporation shall employ Employee for a period of one year from the date hereof (the “Initial Term”).

1.2 Extension of Initial Term . Upon each annual anniversary date of this Agreement, this Agreement shall be extended automatically for successive terms of one year each, unless either the Corporation or the Employee gives contrary written notice to the other not later than the annual anniversary date. As used herein, “Term” shall mean the Initial Term together with any renewal term(s) pursuant to this Section 1.2.

ARTICLE II

Duties of the Employee

Employee shall serve as the of the Corporation. Employee shall do and perform all services, acts, or things necessary or advisable to manage and conduct the business of the Corporation consistent with such position subject to such policies and procedures as may be established by the Board.

ARTICLE III

Compensation

3.1 Salary . For Employee’s services to the Corporation as the , Employee shall be paid a salary at the annual rate of $ (herein referred to as “Salary”), payable in twenty-four equal installments on the first and fifteenth day of each month. On the first day of each calendar year during the term of this Agreement with the Corporation, Employee shall be eligible for an increase in Salary based on an evaluation of Employee’s performance during the past year with the Corporation. During the term of this Agreement, the Salary of the Employee shall not be decreased at any time from the Salary then in effect unless agreed to in writing by the Employee.

3.3 Clawback Provisions . Notwithstanding any other provisions in this Agreement to the contrary, any incentive-based compensation, or any other compensation, paid or payable to Employee pursuant to this Agreement or any other agreement or arrangement with the Corporation which is subject to clawback (recovery) under any law, government regulation, order or stock exchange listing requirement, will be subject to such deductions and clawback (recovery) as may be required to be made pursuant to law, government regulation, order, stock exchange listing requirement (or any policy of the Corporation adopted pursuant to any such law, government regulation, order or stock exchange listing requirement). Employee specifically authorizes the Corporation to withhold from his or her future wages any amounts that may become due under this provision. This Section 3.3 shall survive the termination of this Agreement for a period of three (3) years.

ARTICLE IV

Employee Benefits

4.8 Compensation Defined . Compensation shall be defined as all monetary compensation and all benefits described in Articles III and IV hereunder (as adjusted during the term hereof).

ARTICLE V

Termination

5.2 Death . Employee’s employment hereunder shall be terminated upon the Employee’s death.

5.4 Cause .

by Employee without a reasonable belief that Employee’s action or omission was in the best interest of the Corporation.

5.6 Compensation Upon Termination Other Than For Cause Or Disability . Except as otherwise set forth in Section 5.8 hereof, if the Corporation shall terminate Employee’s employment other than for Cause or Disability, the Corporation shall continue to be obligated to pay six months’ [12 months’ in the case of senior management] of Employee’s Salary (payable in 12 [24 in the case of senior management] equal installments, with the first installment occurring on the first regularly scheduled payroll date following the date of termination, and the remaining installments occurring on a semi-monthly basis thereafter), but shall not be obligated to provide any other benefits described in Articles III and IV hereof, except to the extent required by law.

5.7 Compensation Upon Non-Renewal of Agreement. Except as otherwise set forth in Section 5.8 hereof, if the Corporation shall give notice to Employee in accordance with Section 1.2 hereof that this Agreement will not be renewed but Employee’s employment is not terminated, the Corporation shall continue to be obligated to pay Employee’s Salary for a period of six months [12 months in the case of senior management] beginning on the date notice of non-renewal is given, on regularly scheduled payroll dates, but shall not be obligated to provide any other benefits described in Articles III and IV hereof, except to the extent required by law.

5.8 Termination of Employee or Resignation by Employee for Good Reason Following a Change in Control .

(a) If at any time within the first twelve months subsequent to a Change in Control, the Employee’s employment with the Corporation is terminated other than as provided for in Section 5.2, 5.3 or 5.4 hereof, or Employee shall resign Employee’s employment for Good Reason (as defined herein), the Corporation shall be obligated to pay to Employee a severance payment in an amount equal to 12 months [24 months in the case of senior management] of Employee’s salary. If the Employee believes Good Reason exists for terminating [his/her] employment, then the Employee shall give the Corporation written notice of the acts or omissions constituting Good Reason within thirty (30) days after learning of such acts or omissions constituting Good Reason

(the “Good Reason Notice”). No termination of employment for Good Reason shall be effective unless (i) within thirty (30) days after receiving the Good Reason Notice, the Company fails to either cure such acts or omissions or notify the Employee of the intended method of cure, and (ii) the Employee delivers a written notice of termination to the Corporation and subsequently resigns within thirty (30) days after the Company’s deadline in (i) above expires.

5.9 Limitation on Severance Payments .

purposes of the determination by the Accounting Firm, the value of any noncash benefits or any deferred payment or benefit shall be determined in accordance with the principles of Code Sections 280G(d)(3) and (4).

5.10 “ Good Reason ” shall mean any of the following which occur during the term of this Agreement without Employee’s express written consent:

(b) a reduction by the Corporation in Employee’s Salary as in effect as of the date of this Agreement or as the same may be increased from time-to-time during the term of this Agreement; ; or

(f) the failure of a successor to the Corporation to assume the obligation of this Agreement as set forth in Section 7.1 herein.

5.11 Change in Control . For the purposes of this Agreement, the phrase “change in control” shall mean any of the following events:

other property, other than a merger of the Corporation in which the holders of the Corporation’s capital stock immediately prior to the merger have the same proportionate ownership of capital stock of the surviving corporation immediately after the merger;

(b) Any sale, lease, exchange or other transfer (whether in one transaction or a series of related transactions) of all or substantially all of the assets of the Corporation;

(c) The stockholders of the Corporation approve any plan or proposal for the liquidation or dissolution of the Corporation;

ARTICLE VI

Obligation to Mitigate Damages;

No Effect on Other Contractual Rights

ARTICLE VII

Successors to the Corporation

ARTICLE VIII

Restrictions on Employee

8.1 Confidential Information . The Employee shall use Confidential Information only to the Corporation’s benefit and shall not at any time during or after [his/her] employment with the Corporation divulge or make accessible to any party any Confidential Information, as defined below, of the Corporation or any of its subsidiaries, except to the extent authorized in writing by the Corporation or otherwise required by law. The phrase “Confidential Information” shall mean the unique, proprietary and confidential information of the Corporation and its subsidiaries, consisting of: (1) confidential financial information regarding the Corporation or its subsidiaries, (2) confidential recipes for food products; (3) confidential and copyrighted plans and specifications for interior and exterior signs, designs, layouts and color schemes; (4) confidential

methods, techniques, formats, systems, specifications, procedures, information, trade secrets, sales and marketing programs; (5) knowledge and experience regarding the operation and franchising of Sonic drive-in restaurants; (6) the identities and locations of Sonic’s franchisees, Sonic drive-in restaurants, and suppliers to Sonic’s franchisees and drive-in restaurants; (7) knowledge, financial information, and other information regarding the development of franchised and company-store restaurants; (8) knowledge, financial information, and other information regarding potential acquisitions and dispositions; and (9) any other confidential business information of the Corporation or any of its subsidiaries. The Employee shall give the Corporation written notice of any circumstances in which Employee has actual notice of any access, possession or use of the Confidential Information not authorized by this Agreement.

ARTICLE IX

Miscellaneous

time of the execution of this Agreement and pursuant to the following additional provisions:

9.5 Waiver of Breach . The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by any party.

9.6 Amendment . No amendment or modification of this Agreement shall be deemed effective unless or until executed in writing by the parties hereto.

9.7 Validity . This Agreement, having been executed and delivered in the State of Oklahoma, its validity, interpretation, performance and enforcement will be governed by the laws of that state.

9.8 Section Headings . Section and other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

9.12

Section 409A of the Code.

determined under the Corporation’s established methodology for determining specified employees, then, solely to the extent necessary to avoid the imposition of additional taxes, penalties or interest under Section 409A of the Code, any payments to the Employee hereunder which provide for the deferral of compensation, within the meaning of Section 409A of the Code (which shall not include any compensation that is exempt from Section 409A of the Code), and which are scheduled to be made as a result of the Employee’s termination of employment during the period beginning on the date of the Employee’s date of termination and ending on the six-month anniversary of such date shall be delayed and not paid to the Participant until the first business day following such sixth month anniversary date, at which time such delayed amounts will be paid to the Employee in a cash lump sum. If the Employee dies on or after the date of the Employee’s date of termination and prior to the payment of the delayed amounts pursuant to this Section 9.12, any amount delayed pursuant to this Section 9.12 shall be paid to the Employee’s estate within 30 days following the Employee’s death.


The Corporation:	Sonic Corp.

	By:
		Name:
		Title:

The Employee:
		Name:

ANNEX A

FORM OF RELEASE

In connection with my separation from service with Sonic Corp. or its affiliate (collectively, “ Sonic ”), I provide the following Release of Claims (the “ Release ”).

I. General Release.

II. Specific Release of ADEA Claims. [IF APPLICABLE]

(i)

(ii)

(iii)

I am providing the release and discharge set forth in this Release only in exchange for consideration in addition to anything of value to which I am already entitled; and

(iv)

I knowingly and voluntarily accept the terms of this Release.

III. Restrictive Covenants . I acknowledge that I am subject to Article VIII of the Employment Agreement, and I shall comply with the provisions thereof.

IV. Representations and Warranties

¹	A 45-day review period is offered only in the event of a reduction in force (within the meaning of ADEA).

V. Miscellaneous

[Employee Name]

Date

Exhibit 10.14

AMENDED AND RESTATED

SONIC CORP. EXECUTIVE SEVERANCE PLAN

Section 1. Establishment, Objectives, and Duration

1.1. Establishment of the Amended and Restated Plan . Sonic initially established the Plan effective April 22, 2009 (the “ Effective Date ”), which is hereby amended and restated in its entirety by this Amended and Restated Sonic Corp. Executive Severance Plan effective November 1, 2012.

1.2. Objective of the Plan . The objective of the Plan is to enhance the long-term financial security of selected executives of the Corporation through the provision of severance benefits, including enhanced benefits following a Change in Control. The Plan is further intended to provide flexibility to the Corporation in its ability to motivate, attract, and retain the services of Participants who make significant contributions to the Corporation’s success.

1.3. Duration of the Plan . The Plan shall remain in effect until such time as the Committee amends or terminates the Plan pursuant to Section 7 hereof.

Section 2. Definitions . Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized:

2.1. “ Affiliate ” means any corporation that is included in a controlled group of corporations (within the meaning of Section 414(b) of the Code) that includes Sonic and any trade or business (whether or not incorporated) that is under common control with Sonic (within the meaning of Section 414(c) of the Code); provided , however , that in applying Section 1563(a)(1), (2), and (3) of the Code for purposes of determining a controlled group of corporations under Section 414(b) of the Code, the language “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears in Section 1563(a)(1), (2) and (3) of the Code, and in applying Section 1.414(c)-2 of the Treasury Regulations, for purposes of determining trades or businesses (whether or not incorporated) that are under common control for purposes of Section 414(c) of the Code, “at least 50 percent” shall be used instead of “at least 80 percent” each place it appears in Section 1.414(c)-2 of the Treasury Regulations.

2.2. “ Annual Base Salary ” means a Participant’s annual base salary from the Corporation, including any compensation reduction contributions made with respect to the Corporation’s 401(k) Plan and any plan maintained by the Corporation pursuant to Section 125 of the Code, but excluding all bonuses, incentive compensation, expense reimbursements and severance pay.

2.3. “ Board ” means the Board of Directors of Sonic.

2.4. “ Cause ” means a determination by the Plan Administrative Committee of:

(a) the willful and intentional failure by a Participant to substantially or satisfactorily perform the Participant’s duties hereunder, other than any failure resulting from the Participant’s incapacity due to physical or mental incapacity;

(b) the commission by a Participant, in connection with the Participant’s employment by the Corporation, of an illegal act or any act (though not illegal) which is not in the

ordinary course of the Participant’s responsibilities and exposes the Corporation to a significant level of undue liability;

(c) any act or omission that constitutes a material breach by a Participant of any of the Participant’s obligations as an employee of the Corporation;

(d) a Participant’s conviction of, or plea of nolo contendere to, any felony or another crime involving dishonesty or moral turpitude or which could reflect negatively upon the Corporation or otherwise impair or impede its operations;

(e) a Participant’s engaging in any act of dishonesty, violence or threat of violence (including any violation of federal securities laws) that is injurious to the Corporation or any of its subsidiaries or affiliates; or

(f) a Participant’s material breach of a written policy of the Corporation or the rules of any governmental or regulatory body applicable to the Corporation, or (vi) any other willful misconduct by a Participant which is materially injurious to the financial condition or business reputation of the Corporation or any of its subsidiaries or affiliates.

2.5. “ Change in Control ” means:

(a) any consolidation or merger of Sonic in which Sonic is not the continuing or surviving corporation or pursuant to which shares of Sonic’s capital stock would convert into cash, securities or other property, other than a merger of Sonic in which the holders of Sonic’s capital stock immediately prior to the merger have the same proportionate ownership of capital stock of the surviving corporation immediately after the merger;

(b) any sale, lease, exchange or other transfer (whether in one transaction or a series of related transactions) of all or substantially all of the assets of Sonic;

(d) any person (as used in Section 13(d) and 14(d)(2) of the Securities and Exchange Act of 1934, as amended (the “ Exchange Act ”)) becomes the beneficial owner (within the meaning of Rule 13D-3 under the Exchange Act) of 50% or more of Sonic’s outstanding capital stock;

(e) during any period of two consecutive years, individuals who at the beginning of that period constitute the entire Board cease for any reason to constitute a majority of the Board, unless the election or the nomination for election by Sonic’s stockholders of each new director received the approval of the Board by a vote of at least two-thirds of the directors then and still in office and who served as directors at the beginning of the period; or

2.6. “ Change in Control Termination ” means an Eligible Termination or a Separation from Service due to a Participant’s resignation for Good Reason, occurring within the first 12 months subsequent to a Change in Control.

2.7. “ Claims Reviewer ” means the Vice President of People of Sonic or such individual’s delegate.

2.8. “ Code ” means the Internal Revenue Code of 1986, as amended from time to time, and the rulings and regulations issued thereunder.

2.9. “ Committee ” means the Compensation Committee of the Board, as it is constituted from time to time, or any successor committee.

2.10. “ Comparable Employment ” means employment with a Purchaser that, if accepted, would provide a Participant with substantially equivalent Annual Base Salary and a substantially equivalent bonus opportunity.

2.11. “ Confidential Information ” means the unique, proprietary and confidential information of the Corporation, consisting of: (a) confidential financial information regarding the Corporation, (b) confidential recipes for food products; (c) confidential and copyrighted plans and specifications for interior and exterior signs, designs, layouts and color schemes; (d) confidential methods, techniques, formats, systems, specifications, procedures, information, trade secrets, sales and marketing programs; (e) knowledge and experience regarding the operation and franchising of Sonic drive-in restaurants; (f) the identities and locations of Sonic’s franchisees, Sonic drive-in restaurants, and suppliers to Sonic’s franchisees and drive-in restaurants; (g) knowledge, financial information, and other information regarding the development of franchised and company-store restaurants; (h) knowledge, financial information, and other information regarding potential acquisitions and dispositions; and (i) any other confidential business information of the Corporation.

2.12. “ Corporation ” means Sonic and all of its Affiliates.

2.13. “ Director ” means any individual who is a member of the Board.

2.14. “ Disability ” means the inability of a Participant to render the services required of him or her, with or without reasonable accommodations, as a result of physical or mental incapacity.

2.15. “ Effective Date ” has the meaning set forth in Section 1.1.

2.16. “ Eligible Termination ” means a Separation from Service by the Corporation for any reason other than death or Cause, and shall specifically include a Separation from Service as a result of Disability.

2.17. “ Employee ” means any individual who is an employee of the Corporation.

2.18. “ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

2.19. “ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time, or any successor thereto.

2.20. “ FAA ” has the meaning set forth in Section 11.3(a).

2.21. “ Good Reason ” means:

(a) the assignment to a Participant of duties materially inconsistent with the Participant’s position, office, duties, responsibilities and status with the Corporation immediately prior to a Change in Control, except in connection with the Participant’s Separation from Service by the Corporation for Disability or Cause or as a result of the Participant’s death or by the Participant other than for Good Reason as set forth herein;

(b) a reduction by the Corporation in a Participant’s Annual Base Salary as in effect as of the date the Participant becomes subject to this Plan or as the same may be increased from time-to-time during the term of the Participant’s employment by the Corporation;

(c) the failure of the Corporation to provide a Participant with substantially the same fringe benefits (including, without limitation, life insurance plans, medical or disability plans, retirement plans, incentive plans, stock option plans, stock purchase plans, stock ownership plans, or bonus plans) that were provided to the Participant immediately prior to the Change in Control, or with a package of fringe benefits that, if one or more of such benefits varies from those in effect immediately prior to such Change in Control, is substantially comparable in all material respects to such fringe benefits taken as a whole;

(d) a Participant’s relocation to any place more than 50 miles from the location at which the Participant performed the Participant’s duties prior to a Change in Control, except for required travel by the Participant on the Corporation’s business to an extent substantially consistent with the Participant’s business travel obligations at the time of the Change in Control;

(e) any failure by the Corporation to provide a Participant with the same number of paid vacation days to which the Participant is entitled at the time of the Change in Control; or

(f) the failure of a successor to the Corporation to assume the obligation of this Plan.

2.22. “ Ineligible Termination ” means a Separation from Service (i) by the Corporation for Cause; (ii) by a Participant for any reason (other than for Good Reason in connection with a Change in Control Termination); or (iii) by reason of a Participant’s death.

2.23. “ Participant ” means an Employee selected to participate in the Plan pursuant to Section 4 hereof.

2.24. “ Payment Date ” shall have the meaning ascribed to such term in Section 5.6 hereof.

2.25. “ Plan ” means the Sonic Corp. Executive Severance Plan, as amended and restated by this Amended and Restated Sonic Corp. Executive Severance Plan effective November 1, 2012.

2.26. “ Plan Administrative Committee ” has the meaning set forth in Section 3.1 hereof.

2.27. “ Purchaser ” shall have the meaning ascribed to such term in Section 5.1(c) hereof.

2.28. “ Release ” shall have the meaning ascribed to such term in Section 5.6 hereof.

2.29. “ Rules ” has the meaning set forth in Section 11.3(a).

2.30. “ Senior Management ” means the Chief Executive Officer, President and any other Sonic officers designated by the Board as Senior Management for purposes of this Plan.

2.31. “ Separates from Service ” or “ Separation from Service ” means a “separation from service” with the Corporation for purposes of Section 409A of the Code, determined using the default provisions set forth in Treasury Regulation Section 1.409A-1(h) or the successor regulation thereto.

2.32. “ Severance Benefits ” means the benefits payable to a Participant under Section 5.2.

2.33. “ Sonic ” means Sonic Corp., a Delaware corporation, and any successor thereto.

2.34. “ Specified Employee ” means a “specified employee” within the meaning of the default rules of Section 409A(a)(2)(B)(i) of the Code, unless and until Sonic establishes a methodology for determining specified employees, in which case that methodology shall govern.

Section 3. Administration

3.1. The Administrator . The Plan shall be administered by the Plan Administrative Committee. The Plan Administrative Committee shall consist of the General Counsel, the Vice President of People, and at least one other Employee appointed by the General Counsel.

3.2. Authority of the Administrator . Except as limited by law and subject to the provisions of the Plan, the Plan Administrative Committee shall have full power and authority, in its sole discretion, to:

(a) determine a Participant’s eligibility for Severance Benefits and the amount of such Severance Benefits;

(b) construe and interpret the Plan, determine all questions arising in connection with the Plan, and to resolve ambiguities, inconsistencies and omissions in the text of the Plan;

(c) adopt, implement, amend, waive or rescind such rules and regulations as the Plan Administrative Committee may deem appropriate for the proper administration or operation of the Plan;

(d) make all factual or other determinations and take all other actions as may be necessary, appropriate or advisable for the administration or operation of the Plan; and

(e) employ and rely on legal counsel, actuaries, accountants and other agents as may be deemed advisable to assist in the administration of the Plan.

As permitted by law, the Plan Administrative Committee may delegate to any individual its authority, or any part thereof, as it deems necessary, appropriate or advisable for proper administration or operation of the Plan. If any member of the Plan Administrative Committee is a Participant, such member shall not resolve, or participate in the resolution of, any matter relating specifically to such member’s eligibility to participate in the Plan or the calculation or determination of such member’s Severance Benefits under the Plan.

3.3. Decisions Binding . All determinations, interpretations, decisions or other actions made or taken by the Plan Administrative Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Committee and the Plan Administrative Committee shall be final, conclusive and binding for all purposes and upon all persons, including without limitation Sonic, Sonic’s shareholders, Directors, Employees, Participants, and Participants’ estates and beneficiaries.

Section 4. Eligibility and Participation

4.1. Eligibility . All Employees of the Corporation who are at the level of Vice President or above and who do not have a written employment contract with the Corporation that provides for severance benefits, including Employees who are also Directors, are eligible to participate in this Plan.

4.2. Participation . Participation in the Plan is expressly conditioned on the eligible Employee signing and returning to Sonic an agreement acknowledging his or her voluntary consent to the terms and conditions of the Plan (including, but not limited to, the arbitration provisions of Section 11.3) substantially in the form set forth in Annex A hereto.

4.3. Termination of Participation . A Participant shall cease to be a Participant upon the earliest to occur of:

(a) the Participant’s receipt of all Severance Benefits to which he or she is entitled under the Plan;

(b) the Participant’s Ineligible Termination;

(c) the effective date of an employment agreement or other written agreement that provides for severance benefits between the Participant and the Corporation;

(d) subject to Section 7, termination of the Plan; or

(e) the Participant ceases to be at the level of Vice President or above.

Section 5. Severance Benefits

5.1. Eligibility for Severance Benefits .

(a) If a Participant Separates from Service with the Corporation in an Eligible Termination or a Change in Control Termination, the Participant shall receive Severance Benefits in the amount determined under Section 5.2.

(b) If a Participant Separates from Service with the Corporation in an Ineligible Termination, the Participant shall not be entitled to receive Severance Benefits.

(c) Notwithstanding anything herein to the contrary, a Participant’s Separation from Service shall constitute an Ineligible Termination rather than an Eligible Termination if the Participant, prior to his or her Separation from Service, (i) is employed by or otherwise provides services for compensation to an Affiliate or a division or business unit of the Corporation that is sold in whole or in part to an entity that is not a Affiliate of Sonic or otherwise affiliated with Sonic (such as a joint venture of which Sonic or a Affiliate is a member, owner or partner) (the “ Purchaser ”),

whether by sale of stock or assets, and (ii) is offered Comparable Employment with such Purchaser, whether or not the Participant actually accepts such Comparable Employment with the Purchaser.

(d) Participants who are offered and accept a position with a Purchaser shall be deemed to have Separated from Service in an Ineligible Termination, even if such position does not constitute Comparable Employment. Upon initial employment with a Purchaser, whether or not in Comparable Employment, all rights of the Participant under this Plan shall terminate, and no Severance Benefits shall be payable hereunder.

5.2. Amount of Severance Benefits .

(a) If a Participant incurs an Eligible Termination, the Corporation shall provide to such Participant the following Severance Benefits:

(i) For Senior Management, the Corporation shall continue to be obligated to pay 12 months’ of the Participant’s Annual Base Salary, payable in 24 equal installments. The Corporation shall not be obligated to provide any other compensation or benefits, except to the extent required by law.

(ii) For all Participants other than Senior Management, the Corporation shall continue to be obligated to pay six months’ of the Participant’s Annual Base Salary, payable in 12 equal installments; provided , however , upon Disability, each installment shall be reduced by any benefit payment the Participant is entitled to receive under Sonic’s group disability insurance plan during the corresponding payroll period, on a tax-adjusted basis. The Corporation shall not be obligated to provide any other compensation or benefits, except to the extent required by law.

(b) If a Participant incurs a Change in Control Termination, then the Corporation shall be obligated to pay to the Participant an amount equal to two times the Participant’s Severance Benefits payable under paragraph 5.2(a) above.

(c) Notwithstanding anything to the contrary, a Participant hereunder shall be ineligible to participate in or receive benefits under any other severance or termination plan, program or arrangement of the Corporation. The amount of a Participant’s Severance Benefits hereunder shall not be reduced by the amount or value of any compensation or benefits payable to the Participant with respect to services performed after an Eligible Termination, and the Participant shall be under no obligation to seek subsequent employment or to mitigate the damages resulting from such Eligible Termination. Notwithstanding the previous sentence, all payments required to be made under the terms of this Plan, other than payments due in the event of a Change in Control Termination under Section 5.2(b), shall cease 30 days after the acceptance by the Participant of employment by another employer. The Participant shall be obligated to provide written notification in a timely manner to the Plan Administrative Committee of Participant’s acceptance of subsequent employment.

(d) Limitation on Severance Payments .

(i) Notwithstanding any provision of this Plan, if any portion of the severance payments under this Section V or other payment under this Plan together with any other payments or compensation which a Participant has a right to receive from the Corporation or its affiliates (in the aggregate, “Total Payments”) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and,

but for this Section 5.2(d), would be subject to excise tax imposed by Section 4999 of the Code, the Total Payments shall be reduced to the largest amount as will result in no portion of the severance payment being subject to the excise tax imposed by Section 4999 of the Code.

(ii) If a reduction is required pursuant to Section 5.2(d)(i), the Total Payments shall be reduced or eliminated by applying the following principles, in order: (1) the payment or benefit with the later possible payment date shall be reduced or eliminated before a payment or benefit with an earlier payment date; and (2) cash payments shall be reduced prior to non-cash benefits; provided that if the foregoing order of reduction or elimination would violate Code Section 409A, then the reduction shall be made pro rata among the payments or benefits included in the Total Payments (on the basis of the relative present value of the parachute payments).

(iii) The determinations to be made with respect to this Section 5.2(d) shall be made by a certified public accounting firm designated by the Company (which may be the Corporation’s independent auditors) and reasonably acceptable to the Participant (the “Accounting Firm”). For purposes of the determination by the Accounting Firm, the value of any noncash benefits or any deferred payment or benefit shall be determined in accordance with the principles of Code Sections 280G(d)(3) and (4).

5.3. Time and Form of Payment .

(a) Upon an Eligible Termination, the Severance Benefits pursuant to Section 5.2(a) shall be paid in the form of installments, with the first installment occurring on the first regularly scheduled payroll date no later than 30 days following the date of the Participant’s Separation from Service, and the remaining installments occurring on a semi-monthly basis thereafter until all installments have been paid, provided that the Participant execute a Release pursuant to Section 5.6 hereof and that any applicable revocation period has expired prior to the time the first payment is due.

(b) Upon a Change in Control Termination:

(i) If the Change in Control implicated by Section 5.2(b) is also a “change in control event” within the meaning of the default rules of the final regulations promulgated under Section 409A(a)(2)(A)(v) of the Code, then the Severance Benefits due under Section 5.2(b) shall be made in a lump sum, payable no later than the 15 ^th day of the third month following the later of the end of the Corporation’s tax year or the Participant’s tax year in which occurs the Participant’s effective date of Separation from Service under Section 5.2(b), provided that the Participant execute an irrevocable Release pursuant to Section 5.6 hereof prior to the time the payment is due.

(ii) If the Change in Control is not a “change in control event” within the meaning of the default rules of the final regulations promulgated under Section 409A(a)(2)(A)(v) of the Code, the Severance Benefits contemplated by Section 5.2(b) shall be made in 12 semi-monthly installment payments, with the first installment occurring on the first regularly scheduled payroll date following the effective date of the Participant’s Change in Control Termination; provided that the Participant execute an irrevocable Release pursuant to Section 5.6 hereof prior to the time the payment is due. For purposes of this Section 5.3(b)(ii), the effective date of a Participant’s Change in Control Termination shall mean, as applicable, (x)

the effective date of the Eligible Termination or (y) the effective date of the Participant’s resignation for Good Reason, which date shall be stated in the Participant’s written notice to the Corporation of his resignation for Good Reason and shall be no later than 60 days following the date of such notice. If the Participant believes Good Reason exists for terminating his or her employment, then the Participant shall give the Corporation written notice of the acts or omissions constituting Good Reason within thirty (30) days after learning of such acts or omissions constituting Good Reason (the “Good Reason Notice”). No termination of employment for Good Reason shall be effective unless (i) within thirty (30) days after receiving the Good Reason Notice, the Corporation fails to either cure such acts or omissions or notify the Participant of the intended method of cure, and (ii) the Participant delivers a written notice of termination to the Corporation and subsequently resigns within thirty (30) days after the Corporation’s deadline in (i) above expires.

5.4 Section 409A Compliance . If, at the time of a Participant’s Eligible Termination or Change in Control Termination with the Corporation, the Participant is a Specified Employee, then any Severance Benefits payable to the Participant prior to the six-month anniversary of the Participant’s date of Eligible Termination, which constitute deferred compensation subject to Section 409A of the Code, shall be delayed and not paid to the Participant until the first business day following the six-month anniversary of the effective date of the Eligible Termination or Change in Control Termination, as applicable, at which time such delayed amounts will be paid to the Participant in a cash lump sum. If a Participant dies on or after the date of the Participant’s date of Eligible Termination or Change in Control Termination and prior to the payment of the delayed amounts pursuant to this Section 5.4, any amount delayed pursuant to this Section 5.4 shall be paid to the Participant’s estate within 30 days following the Participant’s death. The Corporation shall not accelerate any payment or the provision of any benefits under this Plan or make or provide any such payment or benefits if such payment or provision of such benefits would, as a result, be subject to tax under Section 409A of the Code. It is understood that each installment is a separate payment, and that the timing of payment is within the control of the Corporation. To the extent this Plan is subject to Section 409A of the Code, the Corporation and the Participants intend all payments under this Plan to comply with the requirements of such section, and this Plan shall, to the extent reasonably practicable, be operated and administered to effectuate such intent. If, in the good faith judgment of the Corporation, any provision of this Plan could cause the Participant to be subject to adverse or unintended tax consequences under Section 409A of the Code, such provision shall be modified by the Corporation in its sole discretion to maintain, to the maximum extent practicable, the original intent of the applicable provision without violating the requirements of Section 409A of the Code.

5.5 Clawback Provisions . Notwithstanding any other provisions in this Plan to the contrary, any incentive-based compensation, or any other compensation, paid or payable to a Participant pursuant to this Plan or any other agreement or arrangement with the Corporation which is subject to clawback (recovery) under any law, government regulation, order or stock exchange listing requirement, will be subject to such deductions and clawback (recovery) as may be required to be made pursuant to law, government regulation, order, stock exchange listing requirement (or any policy of the Corporation adopted pursuant to any such law, government regulation, order or stock exchange listing requirement). Participant specifically authorizes the Corporation to withhold from his or her future wages any amounts that may become due under this provision. This Section 5.5 shall survive the termination of the Participant’s employment with the Corporation for a period of three (3) years.

5.6 Agreement and Release . Notwithstanding any provision of this Plan to the contrary, the obligation of the Corporation to pay any Severance Benefits to a Participant is expressly conditioned upon

the Participant’s timely execution of an agreement by the Participant to (a) comply with the terms and conditions of Section 9 below and (b) be bound by a release of any and all claims arising out of or relating to the Participant’s employment and termination of employment (a “ Release ”), that is or becomes irrevocable not later than the date the first (or only) payment is due pursuant to Section 5.3 (the “ Payment Date ”). The Corporation shall have no obligation to pay any Severance Benefits to a Participant who fails to execute a Release that is or becomes irrevocable after the Payment Date. Such Release shall be made in a form satisfactory to the Corporation, substantially in the form set forth in Annex B hereto, and shall be for the benefit of the Corporation, its respective affiliates, and their respective officers, employees, directors, shareholders, agents, successors and assigns.

5.7 Nontransferability of Severance Benefits . No right to Severance Benefits may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.

Section 6. Beneficiary Designation . The beneficiary or beneficiaries of the Participant to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit shall be determined under the Corporation’s Group Life Insurance Plan. A Participant under the Plan may, from time to time, name any beneficiary or beneficiaries to receive any benefit in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, including the beneficiary designated under the Corporation’s Group Life Insurance Plan, and will be effective only when filed by the Participant in writing (in such form or manner as may be prescribed by the Plan Administrative Committee) with the Corporation during the Participant’s lifetime. In the absence of a valid designation under the Corporation’s Group Life Insurance Plan or otherwise, if no validly designated beneficiary survives the Participant or if each surviving validly designated beneficiary is legally impaired or prohibited from taking, the Participant’s beneficiary shall be the Participant’s estate.

Section 7. Amendment and Termination .

7.1. Amendment and Termination . The Committee may at any time, and from time to time, in its sole discretion alter, amend, suspend or terminate the Plan in whole or in part for any reason or for no reason; provided , however , that no alteration, amendment, suspension or termination of the Plan shall adversely affect in any material way the Severance Benefits of any Participant who has an Eligible Termination or Change in Control Termination prior to such action.

7.2. Section 409A Compliance . If any provision of the Plan would, in the reasonable, good faith judgment of the Committee or the Plan Administrative Committee, result or likely result in the imposition on a Participant, beneficiary or any other person of additional taxes, penalties and interest under Section 409A of the Code, the Committee or the Plan Administrative Committee may modify the terms of the Plan, without the consent of any Participant or beneficiary, in the manner that the Committee or the Plan Administrative Committee may reasonably and in good faith determine to be necessary or advisable to comply with Section 409A of the Code; provided , however , that any such reformation shall, to the maximum extent the Committee or the Plan Administrative Committee reasonably and in good faith determines to be possible, retain the economic and tax benefits to the affected Participant hereunder while not materially increasing the cost to the Corporation of providing such benefits to the Participant.

Section 8. Tax Withholding . The Corporation shall have the power and the right to deduct or withhold, or require a Participant to remit to the Corporation, an amount sufficient to satisfy Federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan.

Section 9. Prohibited Activity .

9.1. The Participant shall use Confidential Information only to the Corporation’s benefit and shall not at any time during or after his or her employment with the Corporation divulge or make accessible to any party any Confidential Information of the Corporation, except to the extent authorized in writing by the Corporation or otherwise required by law. The Participant shall give the Corporation written notice of any circumstances in which the Participant has actual notice of any access, possession or use of the Confidential Information not authorized by this Section 9.1.

9.2. In consideration of his or her receipt of benefits under this Plan, the Participant shall not at any time after his or her Separation from Service, without the prior written consent of the Plan Administrative Committee, directly or indirectly, retain in or have any interest, directly or indirectly, in any business competing with the business being conducted by the Corporation. For the six-month period immediately following the Participant’s Separation from Service for any reason, the Participant shall not engage in or have any interest, directly or indirectly, in any entity that competes in the hamburger quick service restaurant segment or that has a set of product offerings substantively similar to that of a material portion of the sales of a Sonic drive-in restaurant.

9.3. In consideration of his or her receipt of benefits under this Plan, the Participant shall not at any time during or after his or her employment with the Corporation make any negative or disparaging comments regarding the Corporation or its performance, operations, or business practices, or otherwise take any action that could reasonably be expected to adversely affect the Corporation or its professional reputation. The Participant may truthfully respond to inquiries by government agencies or to inquiries by any person through a subpoena or other valid judicial process without violating this Section 9.3.

9.4. In addition to any other relief to which the Corporation may be entitled, the Corporation will be entitled to seek and obtain injunctive relief (without the requirement of any bond) from a court of competent jurisdiction for the purposes of restraining a Participant from an actual or threatened breach of the above covenants. In addition, and without limiting the Corporation’s other remedies, in the event of any breach by a Participant of such covenants, the Corporation will have no obligation to pay any of the amounts that continue to remain payable to the Participant after the date of such breach of the above covenants.

Section 10. Successors . All obligations of Sonic and the Corporation under the Plan with respect to Severance Benefits shall be binding on any successor to Sonic and the Corporation as the case may be, whether the existence of such successor is the result of a direct or indirect purchase of all or substantially all of the business and/or assets of Sonic or the Corporation, merger, consolidation, or otherwise.

Section 11. Claims Procedure .

11.1. Adoption . The Plan Administrative Committee shall adopt and implement such rules and procedures as it may deem appropriate for the submission of claims for Severance Benefits under the Plan and shall communicate such rules and procedures as in effect from time to time to Participants.

11.2. Claims Procedure .

(a) If a Participant disputes his or her ineligibility for Severance Benefits, the Participant shall submit a claim in writing to the Claims Reviewer who shall review and consider the merits of the claim. Written notice of the Claims Reviewer’s decision regarding the application for benefits shall be furnished to the claimant or his or her authorized representative (“ Claimant ”) within 30 days after receipt of the claim; provided , however , that, if special circumstances require an extension of time for processing the claim, an additional 30 days from the end of the initial period shall be allowed for processing the claim, in which event the Claimant shall be furnished with a written notice of the extension prior to the termination of the initial 30-day period indicating the special circumstances requiring an extension and the date by which it is anticipated that a decision will be made. Any written notice denying a claim shall set forth the specific reasons for the denial, including specific reference to pertinent provisions of the Plan on which the denial is based; a description of any additional material or information necessary to perfect the claim and an explanation of why such material or information is necessary; and a description of the review procedures set forth in this Section 11 and the time limits applicable to such procedures, including a statement that the Claimant may bring a civil action under Section 502(c) of ERISA if the claim is denied on appeal.

(b) A Claimant may review all relevant documents and may request a review by the Plan Administrative Committee of a decision denying the claim. Such a request shall be made in writing and filed with the Plan Administrative Committee within 60 days after delivery to the Claimant of written notice of the decision of the Claims Reviewer. Such written request for review shall contain all additional information that the Claimant wishes the Plan Administrative Committee to consider. The Plan Administrative Committee may hold a hearing or conduct an independent investigation, and the decision on review shall be made as soon as possible after the Plan Administrative Committee’s receipt of the request for review. Written notice of the decision on review shall be furnished to the Claimant within 60 days after receipt by the Plan Administrative Committee of a request for review, unless special circumstances require an extension of time for processing, in which event an additional 60 days shall be allowed for review. If such an extension of time for processing is required because of special circumstances, written notice of the extension shall be furnished prior to the commencement of the extension describing the reasons an extension is needed and the date when it is anticipated that the determination will be made. Written notice of the decision on review shall include specific reasons for the decision, including the relevant information described in Section 11.2(a) with respect to the initial denial; a statement that the Claimant may review, upon request, copies of all documents relevant to the Claimant’s claim; and a statement that the Claimant is entitled to receive without charge reasonable access to any document (1) relied on in making the determination, (2) submitted, considered or generated in the course of making the benefit determination, (3) that demonstrates compliance with the administrative processes and safeguards required in making the determination, or (4) constitutes a statement of policy or guidance with respect to the Plan concerning the denied treatment without regard to whether the statement was relied on.

11.3. Mandatory Arbitration .

(a) Any controversy or claim between the Claimant and the Corporation arising out of or relating to a claim for benefits payable by the Plan, including, but not limited to, all claims under ERISA, shall be settled by binding arbitration in the state of Oklahoma in accordance with the Rules of Commercial Arbitration (the “ Rules ”) of the American Arbitration Association. The Federal Arbitration Act, as may be amended from time to time (the “ FAA ”), as supplemented by the Oklahoma Arbitration Act (to the extent not inconsistent with the FAA), shall apply to the

arbitration and all procedural matters relating to the arbitration. If any such arbitration is undertaken, the evidence presented shall be strictly limited to the evidence timely presented to the Plan Administrative Committee. At the election of the Corporation, the provisions of this Section 11.3 shall not apply to any controversies relating to the enforcement of Section 9 regarding prohibited activity, and the Corporation shall have the right to apply to any court of competent jurisdiction for appropriate injunctive relief for the infringement of the Corporation’s rights under Section 9.

(b) The parties shall select one arbitrator within 10 days after the filing of a demand and submission in accordance with the Rules. If the parties fail to agree on an arbitrator within that 10-day period or fail to agree to an extension of that period, the arbitration shall take place before an arbitrator selected in accordance with the Rules.

(c) The arbitration shall take place in Oklahoma City, Oklahoma, and the arbitrator shall issue any award at the place of arbitration. The arbitrator may conduct hearings and meetings at any other place agreeable to the parties or, upon the motion of a party, determined by the arbitrator as necessary to obtain significant testimony or evidence.

(d) The prevailing party shall have the right to enter the award of the arbitrator in any court having jurisdiction over one or more of the parties or their assets. The parties specifically waive any right they may have to apply to any court for relief from the provisions of this Plan or from any decision of the arbitrator made prior to the award.

(e) The prevailing party to the arbitration shall have the right to an award of its reasonable attorneys’ fees and costs (including the cost of the arbitrator) incurred after the filing of the demand and submission. If the Corporation prevails, the award shall include an amount for that portion of the administrative overhead reasonably allocable to the time devoted by the in-house legal staff of the Corporation.

(f) In the event any provision or application of this Section 11.3 shall be held illegal or invalid for any reason in any jurisdiction, the illegality or invalidity shall not affect the remaining parts of this Section 11.3, and shall not invalidate or render unenforceable such provision or application in any other jurisdiction.

(g) In the event mandatory arbitration pursuant to this Section 11.3 is specifically prohibited by applicable law, in the determination of the Plan Administrative Committee, arbitrator or court of law in connection with a dispute between the Claimant and the Corporation with respect to the issue, the Claimant may seek judicial review of an adverse benefit determination under the Plan, whether in whole or in part, by filing a suit or legal action, including, without limitation, a civil action under Section 502(a) of ERISA, within one year of the date the final decision on the adverse benefit determination on review is issued or lose any rights to bring such an action. The venue of any such suit or legal action shall be Oklahoma City, Oklahoma. If any such judicial proceeding is undertaken, the evidence presented shall be strictly limited to the evidence timely presented to the Plan Administrative Committee. Notwithstanding anything in the Plan to the contrary, a Claimant must exhaust all administrative remedies available to such Claimant under the Plan before such Claimant may seek judicial review pursuant to Section 502(a) of ERISA.

Section 12. Legal Construction .

12.1. Gender and Number . Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.

12.2. Severability and Modifications . In the event any provision or application of such provision of the Plan shall be held illegal or invalid for any reason in any jurisdiction, the illegality or invalidity shall not affect the remaining parts of the Plan, and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. Moreover, if at the time of enforcement of any provision hereof, a court of competent jurisdiction holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum period, scope, or geographic area reasonable under such circumstances shall be substituted for the stated period, scope or geographical area and that such court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and geographical area permitted by law.

12.3. Requirements of Law . The operation of the Plan and the payment of Severance Benefits hereunder shall be subject to all applicable laws, rules, and regulations, and to such approvals as may be required.

12.4. Governing Law . To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware.

12.5. Special Compensation . Except as otherwise required by law or as specifically provided in any plan or program maintained by the Corporation, no payment under the Plan shall be included or taken into account in determining any benefit under any pension, thrift, profit sharing, group insurance, or other benefit plan maintained by the Corporation.

12.6. Incompetent Payee . If the Plan Administrative Committee shall find that any individual to whom any amount is payable under the Plan is found by a court of competent jurisdiction to be unable to care for his or her affairs because of illness or accident, or is a minor, or has died, then the payment due to him or her or to his or her estate (unless a prior claim thereof has been made by a duly appointed legal representative) may, if the Plan Administrative Committee so elects, be paid to his or her spouse, a child, a relative, an institution maintaining or having custody of such individual, or any other individual deemed by the Plan Administrative Committee to be a proper recipient on behalf of such individual otherwise entitled to payment. Any such payment shall constitute a complete discharge of all liability of the Plan thereof.

12.7. Plan Not an Employment Contract . This Plan is not, nor shall anything contained herein be deemed to give any Employee, Participant or other individual any right to be retained in his or her employer’s employ or to in any way limit or restrict his or her employer’s right or power to discharge any Employee or other individual at any time and to treat such Employee without any regard to the effect which such treatment might have upon him or her as a Participant of the Plan.

ANNEX A

FORM OF ACKNOWLEDGEMENT AGREEMENT

By signing below, I acknowledge to Sonic Corp. (“ Sonic ”) that:

(a)

I have read the Sonic Corp. Executive Severance Plan (the “ Plan ”);

(b)

I understand the terms and conditions of the Plan, including, but not limited to, the covenants on prohibited activity in Section 9 of the Plan, as well as the mandatory arbitration provisions of Section 11.3 of the Plan;

(c)

I was advised by Sonic, and I am aware, of my right to consult with an attorney before signing this Agreement;

(d)

In consideration of the benefits I would receive under the Plan, I accept the terms and conditions of the Plan, including, but not limited to, the covenants on prohibited activity in Section 9 of the Plan, as well as the mandatory arbitration provisions of Section 11.3 of the Plan;

(e)

I have signed this Agreement knowingly and voluntarily and without any duress or undue influence on the part or behalf of Sonic or any of its affiliates;

(f)

I acknowledge that in signing this Agreement, I have not relied upon any representation or statement not set forth in this Agreement or the Plan made by Sonic or any of its representatives; and

(g)

I acknowledge that this Agreement sets forth the entire understanding between Sonic and me in connection with its subject-matter and supersedes and replaces any express or implied, written or oral, prior agreement of plans or arrangement with respect to the terms of my employment and the termination thereof which I may have had with Sonic or any of its affiliates.

[Employee Name]

Date

ANNEX B

FORM OF RELEASE

In connection with my separation from service with Sonic Corp. (“ Sonic ”), I provide the following Release of Claims (the “ Release ”).

I. General Release.

I, and each of my respective heirs, executors, administrators, representatives, agents, successors and assigns (collectively, the “ Releasors ”) hereby irrevocably and unconditionally release and forever discharge Sonic, its subsidiaries and affiliates (the “ Company Group ”) and each of their respective officers, employees, directors, shareholders, agents, successors and assigns from any and all claims, actions, causes of action, rights, judgments, obligations, damages, demands, accountings or liabilities of whatever kind or character (collectively, “ Claims ”), including, without limitation, any Claims under any federal, state, local or foreign law, that the Releasors may have, or in the future may possess, arising out of (i) my employment relationship with and service as an employee or officer of the Company Group, and the termination of such relationship or service, or (ii) any event, condition, circumstance or obligation that occurred, existed or arose on or prior to the date hereof; provided , however , that this Release shall not apply to any claims by me for benefits to which I am entitled as of the date of this Release under Sonic’s compensation and benefit plans, subject, in each case, to the applicable terms and conditions of each such plan. Without limiting the scope of the foregoing provision in any way, I hereby release all claims relating to or arising out of any aspect of my employment with the Company Group, including but not limited to, all claims under Title VII of the Civil Rights Act, the Civil Rights Act of 1991 and the laws amended thereby; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act of 1990; the Americans with Disabilities Act; the Family and Medical Leave Act of 1993; the Fair Labor Standards Act of 1963; any contract of employment, express or implied; any provision of the Constitution of the United States or of any particular State; and any other law, common or statutory, of the United States, or any particular State; any claim for the negligent and/or intentional infliction of emotional distress or specific intent to harm; any claims for attorneys fees, costs and/or expenses; any claims for unpaid or withheld wages, severance pay, benefits, bonuses, commissions and/or other compensation of any kind; and/or any other federal, state or local human rights, civil rights, wage and hour, wage payment, pension or labor laws, rules and/or regulations; all claims growing out of any legal restrictions on the Company Group’s right to hire and/or terminate its employees, including all claims that were asserted and/or that could have been asserted by me and all claims for breach of promise, public policy, negligence, retaliation, defamation, impairment of economic opportunity, loss of business opportunity, fraud, misrepresentation, etc. The Releasors further agree that the payments and benefits described in the Executive Severance Plan shall be in full satisfaction of any and all Claims for payments or benefits, whether express or implied, that the Releasors may have against the Company Group arising out of my employment relationship or my service as an employee or officer of the Company Group and the termination thereof.

II. Specific Release of ADEA Claims.[IF APPLICABLE]

In consideration for, among other things, certain actions by Sonic in support of my Separation from Service, the Releasors hereby unconditionally release and forever discharge the Company Group from any and all Claims arising under the Federal Age Discrimination in Employment Act of 1967, as amended, and the applicable rules and regulations promulgated thereunder (“ ADEA ”) that I may have as of the date of my signature to this Agreement. By signing this Release, I hereby acknowledge and confirm the following:

(i)

(ii)

(iii)

I am providing the release and discharge set forth in this Release only in exchange for consideration in addition to anything of value to which I am already entitled; and

(iv)

I knowingly and voluntarily accept the terms of this Release.

I acknowledge that I understand that I may revoke this specific ADEA release contained in this Section II of this Release within seven days following the date on which I sign this Release (the “ Revocation Period ”) by providing to the General Counsel of Sonic written notice of my revocation of the release and waiver contained in this Section II of this Release prior to the expiration of the Revocation Period. This right of revocation relates only to the ADEA release set forth in this Section II of this Release and does not act as a revocation of any other term of this Release. Any payments or benefits provided to me under the Executive Severance Plan shall not commence unless the Revocation Period has expired.

III. Restrictive Covenants . I acknowledge that I am subject to Section 9 of the Executive Severance Plan, and I shall comply with the provisions thereof.

IV. Representations and Warranties

V. Miscellaneous

This Release sets forth the entire understanding between Sonic and me in connection with its subject-matter and supersedes and replaces any express or implied, written or oral, prior agreement of

¹	A 45-day review period is offered only in the event of a reduction in force (within the meaning of ADEA).

plans or arrangement with respect to the terms of my employment and the termination thereof which I may have had with the Company Group. I acknowledge that in signing this Release, I have not relied upon any representation or statement not set forth in this Release made by Sonic or any of its representatives.

[Employee Name]

Date

Exhibit 21.01

Subsidiaries of the Company

America’s Drive-In Brand Properties LLC, a Kansas limited liability company

America’s Drive-In Restaurants LLC, a Delaware limited liability company

SDI Interests Inc., an Oklahoma corporation

Sonic Capital LLC, a Delaware limited liability company

Sonic Franchising LLC, a Delaware limited liability company

Sonic Industries LLC, a Delaware limited liability company

Sonic Industries Services Inc., an Oklahoma corporation

Sonic Property Development, L.L.C., an Oklahoma limited liability company

Sonic Restaurants, Inc., an Oklahoma corporation

Sonic Technology Fund, L.L.C., an Oklahoma limited liability company

Sonic Value Card, L.L.C., a Virginia limited liability company

SPOTlight, LLC, an Oklahoma limited liability company

SRI Real Estate Holding LLC, a Delaware limited liability company

SRI Real Estate Properties LLC, a Delaware limited liability company

As of August 31, 2012, Sonic Restaurants, Inc. owned the majority interest in 13 general partnerships, each of which operates a Sonic Drive-In restaurant. The names of those 13 general partnerships have been omitted.

Exhibit 23.01

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-26359) pertaining to the Sonic Corp. Savings and Profit Sharing Plan, Registration Statement (Form S-8 No. 333-131450) pertaining to the Sonic Corp. 2006 Long-Term Incentive Plan, the Registration Statement (Form S-8 No. 333-64890) pertaining to the 1991 Sonic Corp. Stock Option Plan, 2001 Sonic Corp. Stock Option Plan and 2001 Sonic Corp. Directors’ Stock Option Plan, the Registration Statements (Forms S-8 No. 333-09373, No. 33-40989 and No. 33-78576) pertaining to the 1991 Sonic Corp. Stock Option Plan, the Registration Statement (Form S-8 No. 33-40988) pertaining to the 1991 Sonic Corp. Stock Purchase Plan, the Registration Statement (Form S-8 No. 33-40987) pertaining to the 1991 Sonic Corp. Directors’ Stock Option Plan and the Registration Statement (Form S-3 No. 33-95716) for the registration of 1,420,000 shares of its common stock, and the related Prospectuses of our reports dated October 26, 2012, with respect to the consolidated financial statements and schedule of Sonic Corp. and the effectiveness of internal control over financial reporting of Sonic Corp., included in this Annual Report (Form 10-K) for the year ended August 31, 2012.


		/s/ ERNST & YOUNG LLP

Oklahoma City, Oklahoma
October 26, 2012

Exhibit 31.01

CERTIFICATION PURSUANT TO

SEC RULE 13a-14

I, J. Clifford Hudson, certify that:

1. I have reviewed this annual report on Form 10-K of Sonic Corp.;

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

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

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

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

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

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

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

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

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

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

Date: October 26, 2012

/s/ J. Clifford Hudson

J. Clifford Hudson

Chief Executive Officer

Exhibit 31.02

CERTIFICATION PURSUANT TO

SEC RULE 13a-14

I, Stephen C. Vaughan, certify that:

1. I have reviewed this annual report on Form 10-K of Sonic Corp.;

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

Date: October 26, 2012

/s/ Stephen C. Vaughan

Stephen C. Vaughan

Chief Financial Officer

Exhibit 32.01

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

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

Date: October 26, 2012

/s/ J. Clifford Hudson

J. Clifford Hudson

Chief Executive Officer

Exhibit 32.02

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

Date: October 26, 2012

/s/ Stephen C. Vaughan

Stephen C. Vaughan

Chief Financial Officer