Table of Contents
Sonic Corp. Savings and Profit Sharing Plan
Notes to Financial Statements
December 31, 2015
1.
D
escription of the Plan
General
The Sonic Corp. Savings and Profit Sharing Plan (
“
the Plan
”
)
,
w
as
last
amended and restated
January 1, 2013
.
The Plan
was
further
amended
on January
28,
2015.
As a result of the restatement
in 2013
, t
he Plan
became
a
Safe Harbor Plan
in accordance with
Treasury Regulations Sections 1.401(k)-3 and 1.401(m)-3
covering
“eligible
employees
”
of Sonic Corp. (
“
the Employer
”
or
“
the Company
”
), as defined in the
Plan
document
.
Generally, an employee is eligible to participate in the
P
lan if the employee is 21
years old or older and has completed
the
90 days of service required for salary deferral
and
one year of servi
ce for matching contributions.
An eligible employee’s entry date into the Plan is the first day of the
next
calendar quarter (January 1
st
, April 1
st
, July 1
st
, October 1
st
)
following the date on which the employee satisfies the eligi
bility requirements of the Plan.
The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974
(“ERISA”)
, as amended
.
See
the Plan
document
for a more complete description of the Plan’s provisions.
Investments
The Plan's investments are held by an appointed trust company. T
he Plan
’s
record
keeper
is
Transamerica
Retirement Solutions (“Transamerica”)
and the trustee for the Plan is State Street Bank and Trust Company (“SSBT”).
Contributions
Participants may contribute up to 50% of pretax annual compensation, as defined in the Plan document
.
Employees a
re
required to affirmatively elect to participate in the Plan in order to make deferral contributions and take advantage of the safe harbor matching contributions made by the Corporation
.
Participants may also roll over amounts representing distributions from other qualified defined benefit or defined contribution plans
.
Participants direct the investment of all contributions into various investment options offered by the Plan.
The Plan limits a participant’s contributions to the Sonic Stock investment fund to 25% of the pa
rticipant’s total contributions.
Highly-compensated employees receive safe harbor matching contributions equal to 100% of the first 3% of participant contributions and 50% of the next 3% of participant contributions. Non-highly compensated employees receive safe harbor matching contributions equal to 100% of the first 3% of participant contributions and the second 3% of participant contributions as follows
:
Table of Contents
Sonic Corp. Savings and Profit Sharing Plan
Notes to Financial Statements
December 31, 2015
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Years of Service
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Employer Match
(1)
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Less than 10 years (50% of second 3% salary deferral)
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1.50%
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Between 10 years and 19 years (75% of second 3% salary deferral)
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2.25%
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20 or more years (100% of second 3% salary deferral)
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3.00%
|
————————
(1)
Amount represents employer match for second 3% of participant contributions. Salary deferral contributions that exceed 6% of the participant’s compensation, as defined by the Plan, will not be taken into account when calculating matching contributions.
Nonelective co
ntributions may be made
each Plan year on behalf of each participant at the discretion of the Employer. Each participant must
be a
n
eligible employee and employed on the
date the contribution is made. The Company made nonelective contributions
totaling $
99,925
during 201
5
. Additional profit sharing amounts may be contributed at the option of the Company’s Board of Directors. Contributions are subject to certain limitations
of the Internal Revenue Code (the “Code”)
. No such discretionary
contribution was made
for
2015
.
Vesting
Participants are vested immediately in their contributions plus actual earnings thereon
.
All matching contributions after January 1, 2013
vest immediately.
C
ontributions made to the Plan prior to January 1, 2013
are
100% vested after six years of credited service, with 20% vesting after two years of service, followed by additional 20% annual increments through the sixth year.
Forfeitures
Forfeited balances of terminated participants’ non-vested accounts may be
used to reduce employer contributions
and
to
pay plan expenses.
For the year ended
December 31,
2015
, forfeitures paid
plan expenses
of
$
55,425
.
U
nallocated forfeited non-vested
balances of
$4,674 and
$
22,269
were i
ncluded in the Plan assets at December 31,
2015
and
2014
,
respectively
.
Participant Accounts
Each participant’s account is credited with the participant’s contribution and allocations of the Company’s contributions and Plan earnings and charged with applicable administrative expenses
.
Allocations are based on participant compensation or account
balances, as defined.
The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Participant Loans
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum of $50,000 or 50% of their vested account balance, whichever is less.
Participants are limited to
one
outstanding loan at any one time.
The loans are secured by the balance in the participant’s account and bear interest at rates which are commensurate with local prevailing rates as
Table of Contents
Sonic Corp. Savings and Profit Sharing Plan
Notes to Financial Statements
December 31, 2015
determined quart
erly by the
P
lan
A
dministrator.
Principal and interest are paid ratably through payroll deductions.
Payment of Benefits
On termination of service, death, disability or retirement, a participant may elect to receive a lump-sum payment in an amount equal to the value of the participant’s vested interest or may elect to receive monthly, quarterly, or annual installments over a period of not more than the participant’s assumed life expectancy
.
A participant may also
make withdraw
al
s on account of
hardship
,
as defined by the
Plan
.
Administration
and Revenue Sharing
The Plan is administered by
the Sonic Corp. Savings and Profit Sharing Plan Administrative Committee
.
C
ertain
administrative
expenses incurred by the
Plan
may be
paid by the Company
.
The Plan earns revenue-
sharing credits from certain investment funds. The credits may be used to
pay
Plan
expenses.
D
uring
2015
, $
116,843
was used to pay expenses incurred by the Plan.
Termination
Although it has not expressed any intent to do so, the Company has the right
to terminate the Plan
or discontinue Company contributions
at any time. Upon termination of the Plan, the rights
of participants under the Plan shall become 100% vested and non
-
forfeitable and the net assets of the Plan would be distributed by the Plan Administrator.
2.
Summary of Significant Accounting Policies
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis of accounting.
Benefit
payments
are recorded when paid.
Notes Receivable from Participants
Notes receivable from participants represent participant loans that are recorded at their unpaid principal balance plus any accrued but unpaid interest. Interest
income on notes receivable from participants is recorded when it is earned.
Related fees are recorded as administrative expenses and are expensed when they are incurred
. No allowance for credit losses were
recorded as of December
31,
2015
or
2014
. If a participant ceases to make
a note
repayment and the
Plan A
dministrator deems the
note
to be a distribution, the
note receivable
balance is reduced and a benefit payment is recorded.
Table of Contents
Sonic Corp. Savings and Profit Sharing Plan
Notes to Financial Statements
December 31, 2015
Fair Value Measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
To determine
fair value, a three-level
hierarchy
is used
.
The
fair value
hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1
measurement
) and the lowest priority to unobservable inputs (level 3 measurement). The three levels of the fair value hierarchy are described below
:
•
Level 1 valuations use quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
An active market is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
•
Level 2 valuations use inputs other than actively quoted market prices included within Level
1 that are observable for the asset or liability, either directly or indirectly.
Level
2 inputs include: (a)
quoted prices for similar assets or liabilities in active markets, (b)
quoted prices for identical or similar assets or liabilities in markets that are not active, (c)
inputs other than quoted prices that are observable for the asset or liability such as interest rates and yield curves observable at commonly quoted intervals and (d)
inputs that are derived principally from or corroborated by observable market data by correlation or other means.
•
Level 3 valuations use unobservable inputs for the asset or liability. Unobservable inputs are used to the extent observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.
The fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Table of Contents
Sonic Corp. Savings and Profit Sharing Plan
Notes to Financial Statements
December 31, 2015
The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value
:
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Assets at Fair Value as of December 31, 2015
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Level 1
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Level 2
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Level 3
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Total
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Mutual Funds
|
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$
|
42,908,025
|
|
$
|
-
|
|
$
|
-
|
|
$
|
42,908,025
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Sonic Corp. Common
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Stock
|
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3,488,490
|
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-
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|
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-
|
|
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3,488,490
|
|
Cash Reserve Account
|
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20,037
|
|
|
-
|
|
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-
|
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20,037
|
|
Common/Collective Trust:
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Stable Pooled Fund
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-
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2,353,686
|
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-
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2,353,686
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$
|
46,416,552
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$
|
2,353,686
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$
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-
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$
|
48,770,238
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Assets at Fair Value as of December 31, 2014
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Level 1
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Level 2
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Level 3
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Total
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Mutual Funds
|
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$
|
39,673,072
|
|
$
|
-
|
|
$
|
-
|
|
$
|
39,673,072
|
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Sonic Corp. Common
|
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Stock
|
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2,931,410
|
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-
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-
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2,931,410
|
|
Cash Reserve Account
|
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|
52,608
|
|
|
-
|
|
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-
|
|
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52,608
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|
Common/Collective Trust:
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Stable Pooled Fund
|
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-
|
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2,860,917
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-
|
|
|
2,860,917
|
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$
|
42,657,090
|
|
$
|
2,860,917
|
|
$
|
-
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|
$
|
45,518,007
|
Investment Valuation and Income Recognition
The Plan’s inves
tments are stated at fair value.
Shares of
mutual funds
are valued at published
market prices, which represent the net asset value
(
“
NAV
”
)
of shares held by the Plan at
year end
.
Sonic common stock is held by
participants in a unitized fund
, which means participants do not own shares of Sonic common stock
,
but rather own an interest in the unitized
fund.
The
f
und consists of common stock and cash
equivalents
to meet the
f
und’s daily cash needs.
Unitizing the
f
und allows for daily trades
.
The value of a unit reflects the combined value of the
Sonic
common stock and cash held by the
f
und.
The Plan owns the underlying assets of shares in common stock and
the
underlying cash.
The Plan invests in investment contracts through a common/collective trust fund, the Diversified Stable
Pooled Fund, which is solely invested in the Wells Fargo Stable Return Fund
W
(“
the
Fund”).
Indirect investments in fully benefit-responsive i
nvestment contracts
(“FBRICs”)
held by a defined contribution plan are required to be reported at fair value
.
However, contract value is the relevant measurement attribute for that portion
of the net assets available for benefits of a
Table of Contents
Sonic Corp. Savings and Profit Sharing Plan
Notes to Financial Statements
December 31, 2015
defined contribution plan attributable to
FBRICs
because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan
.
The statements of net assets available for benefits present the fair value of the Fund and
the
adjustment from fair value to contract value. The fair value of the Plan’s interest
in the Fund
is
determined
by the issuer of the common
/
collective trust
fund
at year-end
based on the fair value of its underlying investments
.
The contract value of the Fund represents contributions plus earnings, less participant withdrawals and administrative expenses.
The
F
und is designed to deliver safety and stability by preserving principal and accumulating earnings
.
This
F
und is primarily invested in
guaranteed investment contracts, bank investment contracts and synthetic investment contracts. Participant
r
edemptions have no restrictions
.
Withdrawals from the
Fund
which are due to
the Plan’s
i
nitiated
e
vents will be made within the twelve
-
month period following
receipt of the Plan’s written withdrawal request by
Transamerica
.
Initiated
e
vents
are
e
vents
within the control of the
Plan
which
Transamerica
reasonably determines would have an adverse financial effect on the Fund including, but not limited to, a merger, layoffs, bankruptcy, full or partial Plan termination and early retirement incentive
pr
ograms
.
During
the above referenced twelve-month period, benefit distributions and participant-directed transfers to non-competing funds will be permitted from the
Fund
, subject to a 90-day equity wash provision.
Purchases and sales of securities are recorded on a trade-date basis
.
Interest income is
recorded on the accrual basis
.
Dividends are recorded on
the ex-dividend
date.
The Plan invests in various investment securities. Investment securities are exposed to various risks, such as interest rate, credit and market risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that
changes in the values of investment securities will occur in the near term and that such changes could materially affect the participant
s’
account balance
s
and the amounts reported in the statements of net assets available for benefits.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles (“GAAP”) in the
United States (“
U.S.
”)
requires management to make estimates that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Recent Accounting Pronouncements
In
July
2015, the
FASB
issued
ASU
No. 2015-12
, “Plan Accounting: Defined Benefit Pension Plans (Topic 960)
,
Defined Contribution Pension Plans (Topic 962)
,
Health and Welfare Benefit Plans (Topic 965)
: (Part
I
)
Fully Benefit
-Responsive Investment Contract
s, (Part
II
)
Plan Investment Disclosures
, (Part
III
)
Measurement Date Practical Expedient
”
which simplifies the
Table of Contents
Sonic Corp. Savings and Profit Sharing Plan
Notes to Financial Statements
December 31, 2015
required disclosures related to employee benefit plans.
Part I
of the guidance
removed the requirements to measure
and disclose
direct investments in FBRICs at fair value.
Contract value is the only required measure for FBRICs.
Part II eliminated the requirement
to disaggregate investments by nature, risks and characteristics
, however, plans must continue to disaggregate investments by general type of plan asset.
Part II also eliminated the requirement
to disclose individual investments that represent
five
percent or more of net assets available for benefits
and to
disclos
e
net appreciation or depreciation for investments by general type.
Part III allows plans to measure investments using values from the end of the calendar month closest to the plan’s fiscal year end.
This guidance is effective for fiscal years beginning after December 15, 2015
and should be applied retrospectively. E
arly adoption is permitted.
Part II of the guidance was adopted for the year ended December 31, 2015 and was applied retrospectively.
Other than the elimination of the above noted disclosures,
t
he
early
adoption did not have a material impact on the financial statements of the Plan.
3
.
Income Tax Status
As of December 31,
2015
, the Plan was operating under a determination letter from the IRS dated
January 14, 2015
stating
that the Plan is qualified under Section 401(a) of the Code and, therefore, the relate
d trust is exempt from taxation.
Once qualified, the Plan is required to operate in conformity with the Code
to maintain its
qualified status
.
The Company has indicated that it will take the necessary steps to maintain the Plan’s qualified status.
U
.S.
GAAP
require
s
plan management to evaluate uncertain tax positions taken by the Plan
.
The financial statement effects of a tax position are recognized when the position is
more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The
P
lan
A
dministrator has analyzed the tax positions taken by the Plan, and has concluded that as of
December
31,
2015
,
there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions.
The Plan is subject to routine audits by taxing
jurisdictions; however
, there are currently no audits
f
or any tax periods in progress. The
P
lan
A
dministrator believes it is no longer subject to income tax examinations for years
prior to
2012
.
5.
Related-Party Transactions
The
Fund is managed by
Transamerica
. Because
Transamerica
is the Plan’s
record keeper
, transactions involving the
F
und qualify as party-in-interest transactions. Additionally,
a
portion of the Plan’s assets are invested in
a unitized fund holding
the Company’s common stock. Because the Company is the Plan Sponsor, transactions involving the Company’s common stock qualify as party-in-interest transactions.
Another
party-in-interest to the
P
lan is SSBT
,
which
serves as the passive trustee for
the Plan
.
In this capacity, SSBT serves as the legal trustee of
the Plan;
however, as is permitted under the terms of the trust between SSBT and the
Plan
, SSBT has contracted with
Transamerica
for
Transamerica
to provide certain necessary duties and responsibilities for the operation of the trust.
All of these transactions are exempt from the prohibited transaction rules
.
Table of Contents
Sonic Corp. Savings and Profit Sharing Plan
Notes to Financial Statements
December 31, 2015
6.
Reconciliation of Financial Statements to Form 5500
The following is a reconciliation of net assets available for benefit
s
per the financial
statements to the Form 5500:
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December 31,
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2015
|
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2014
|
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Net assets available for benefits per the financial statements
|
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$
|
50,023,038
|
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$
|
46,916,916
|
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Adjustment from contract value to fair value for fully
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benefit-responsive investment contracts held by
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a common/collective trust
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11,710
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39,500
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Net assets available for benefits per the Form 5500
|
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$
|
50,034,748
|
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$
|
46,956,416
|
The following is a reconciliation of the net
increase
in net assets available for benefits
per the financial statements to the net
income
per the Form 5500:
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Year Ended
|
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|
December 31, 2015
|
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Net increase in net assets available for benefits per the financial statements
|
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$
|
3,106,122
|
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Current-year adjustment from fair value to contract value for fully
|
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benefit-responsive investment contracts held by a
|
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common/collective trust at December 31, 2015
|
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11,710
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Prior-year adjustment from fair value to contract value for fully
|
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benefit-responsive investment contracts held by a
|
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common/collective trust at December 31, 2014
|
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(39,500)
|
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Net income per the Form 5500
|
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$
|
3,078,332
|
C
ertain fully benefit-responsive contracts (common
/
collective trusts that invest in insurance contracts, synthetic contracts and separate guaranteed contracts) are recorded on the financial statements at
contract
value versus
fair
v
alue on the Form 5500.