SONIC CORP
10-K405, 2000-11-22
EATING PLACES
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<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

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

                                 OR

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

For the Fiscal Year Ended                                Commission File Number
     August 31, 2000                                             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.)
                                101 Park Avenue
                             Oklahoma City, Oklahoma                       73102
                             ------------------------                      -----
                       (Address of Principal Executive Offices)       (Zip Code)

      Registrant's Telephone Number, Including Area Code: (405) 280-7654

     Securities Registered Pursuant to Section 12(b) of the Exchange Act:

                                     None

     Securities Registered Pursuant to Section 12(g) of the Exchange Act:

                         Common Stock, Par Value $.01
      Rights to Purchase Series A Junior Preferred Stock, Par Value $.01

    Indicate by check mark whether the Registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for the shorter period that the Registrant has had
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 if this Form 10-K does not contain and, to the best
of the Registrant's knowledge, the Registrant's definitive proxy statement or
information statement incorporated by reference in Part III of this Form 10-K
will not contain a disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K. YES  X . No ___.
                    ---

    On November 14, 2000, the Board of Directors of the Company approved a
three-for-two stock split of the outstanding common stock of the Company and
declared the record date for such split to be November 24, 2000 and the
distribution date to be November 30, 2000. All share amounts set forth in this
Form 10-K have been adjusted to reflect the results of the November 2000 stock
split.

    As of November 1, 2000, the aggregate market value of the 24,953,893 shares
of common stock of the Company held by non-affiliates of the Company equaled
approximately $584 million, based on the closing sales price for the common
stock as reported for that date. As of November 1, 2000, the Registrant had
26,384,781 shares of common stock issued and outstanding (excluding 4,953,309
shares of common stock held as treasury stock).

                           (Facing Sheet Continued)
<PAGE>

                      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 in connection with the Company's annual meeting of
stockholders following the fiscal year ended August 31, 2000.
<PAGE>

                           FORM 10-K OF SONIC CORP.

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                    Page
                                                                                                    ----

                                             PART I
                                             ------
<S>                                                                                                 <C>

Item 1.  Business...............................................................................       1

Item 2.  Properties.............................................................................      10

Item 3.  Legal Proceedings......................................................................      10

Item 4.  Submission of Matters to a Vote of Security Holders....................................      10

Item 4A.  Executive Officers of the Company.....................................................      11

                                            PART II
                                            -------

Item 5.  Market for the Company's Common Stock and Related Stockholder Matters..................      14

Item 6.  Selected Financial Data................................................................      14

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

Item 8.  Financial Statements and Supplementary Data............................................      21

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...      21

                                            PART III
                                            --------

                         (Incorporated by reference from the Company's definitive
                          proxy statement for its annual meeting of stockholders
                             following the fiscal year ended August 31, 2000)

                                             PART IV
                                             -------

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................      23
</TABLE>
<PAGE>

                                     FORM
                                     10-K

                                  SONIC CORP.


                                    PART I
                                    ------

Item 1.  Business
------   --------

General

     Sonic Corp. (the "Company") operates and franchises the largest chain of
drive-in restaurants in the United States.  As of August 31, 2000, the Company
had 2,175 restaurants in operation, consisting of 312 Company-owned restaurants
and 1,863 franchised restaurants, principally in the south central and
southeastern United States.  Sonic restaurants offer made-to-order hamburgers
and other sandwiches and feature Sonic signature items, such as extra-long
cheese coneys, hand-battered onion rings, tater tots, specialty soft drinks
including cherry limeades and slushes, and frozen desserts.  At a typical Sonic
restaurant, a customer drives into one of 24 to 36 covered drive-in spaces,
orders through an intercom speaker system, and has the food delivered by a
carhop within an average of four minutes.

     In September 1995, the Company reorganized its operating subsidiaries into
two, directly-held subsidiaries consisting of Sonic Industries Inc. and Sonic
Restaurants, Inc.  Sonic Industries Inc. serves as the franchisor of the Sonic
restaurant chain, as well as the administrative services center for the Company.
Sonic Restaurants, Inc. develops and operates the Company-owned restaurants.  In
February 1996, the Company sold its equipment sales division to N. Wasserstrom &
Sons, Inc. of Columbus, Ohio, and discontinued that line of business.

     The Company's objective is to maintain its position as, or to become, a
leading operator in terms of the number of quick-service restaurants within each
of its core and developing markets.  The Company has developed and is
implementing a strategy designed to build the Sonic brand and to continue to
achieve high levels of customer satisfaction and repeat business.  The key
elements of that strategy are: (1) a unique drive-in concept focusing on a menu
of quality made-to-order and signature food items; (2) a commitment to customer
service featuring the quick delivery of food by carhops; (3) the expansion of
Company-owned and franchised restaurants within the Company's core and
developing markets; (4) an owner/operator philosophy, in which managers have an
equity interest in their restaurant, thereby providing an incentive for managers
to operate Company-owned restaurants profitably and efficiently; and (5) a
commitment to support the Sonic system.

     The Company has its principal executive offices at 101 Park Avenue,
Oklahoma City, Oklahoma 73102. Its telephone number is (405) 280-7654. As used
in this report, the word "Company" means Sonic Corp. and each of its
subsidiaries and predecessors, unless the context indicates otherwise.

Restaurant Locations

     As of August 31, 2000, the Company owned or franchised 2,175 drive-in
restaurants, principally in the southern half of the United States.  The
Company's core markets, consisting of the nine contiguous states of Texas,
Oklahoma, Tennessee, Missouri, Arkansas, Kansas, Louisiana, Mississippi, and New
Mexico, contained approximately 78% of all Sonic restaurants as of August 31,
2000.  Developing markets primarily are located in Alabama, Arizona, California,
Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Nebraska, Nevada,
North Carolina, South Carolina, Utah and Virginia.  The following table sets
forth the number of Company-owned and franchised restaurants by core and
developing markets as of August 31, 2000:

                                       1
<PAGE>

<TABLE>
<CAPTION>
                                           Company-owned            Franchised
        Core Markets                        Restaurants             Restaurants              Total
        ------------                        -----------             -----------              -----
        <S>                                <C>                      <C>                     <C>
        Texas                                    91                     531                   622
        Oklahoma                                 25                     189                   214
        Tennessee                                34                     140                   174
        Missouri                                 37                     120                   157
        Arkansas                                 21                     120                   141
        Kansas                                    9                     107                   116
        Louisiana                                17                     102                   119
        Mississippi                               0                     100                   100
        New Mexico                                0                      61                    61
                                                ---                   -----                 -----
                          Total                 234                   1,470                 1,704
</TABLE>

<TABLE>
<CAPTION>
                                           Company-owned            Franchised
        Developing Markets                  Restaurants             Restaurants             Total
        ------------------                  -----------             -----------             -----
        <S>                                <C>                      <C>                     <C>
        Alabama                                  26                      47                   73
        Arizona                                   0                      66                   66
        California                                0                       8                    8
        Colorado                                  1                      39                   40
        Florida                                  12                       8                   20
        Georgia                                   5                      39                   44
        Illinois                                  2                      19                   21
        Indiana                                   5                       6                   11
        Iowa                                      0                       3                    3
        Kentucky                                 16                      36                   52
        Nebraska                                  0                       6                    6
        Nevada                                    0                      12                   12
        North Carolina                            0                      48                   48
        Ohio                                      0                       5                    5
        South Carolina                            0                      43                   43
        Utah                                      0                       3                    3
        Virginia                                 11                       4                   15
        West Virginia                             0                       1                    1
                                                ---                   -----                -----
                          Total                  78                     393                  471

        Total System                            312                   1,863                2,175
</TABLE>

Expansion

        During fiscal year 2000, the Company opened 24 Company-owned restaurants
and its franchisees opened 150 restaurants. During fiscal year 2001, the Company
plans to open approximately 35 to 40 Company-owned restaurants and anticipates
that its franchisees will open at least 160 restaurants. That expansion plan
involves the opening of new restaurants by franchisees under existing area
development agreements, single-store development by existing franchisees, and
development by new franchisees. The Company believes that its existing core and
developing markets offer a significant growth opportunity for both Company-owned
and franchised restaurant expansion. During fiscal year 2000, in addition to
entering into new area development agreements providing for the opening of
franchised restaurants in certain of the core and developing markets identified
above, the Company has entered into area development agreements providing for
the development of five franchised restaurants in Idaho during the next three
years and nine franchised restaurants in Mexico during the next five years.
However, no stores are currently open in those two markets. The ability of the
Company and its franchisees to open the anticipated number

                                       2
<PAGE>

of Sonic drive-in restaurants during fiscal year 2001 necessarily will depend
on various factors. Those factors include (among others) the availability of
suitable sites, the negotiation of acceptable lease or purchase terms for new
locations, local permitting and regulatory compliance, the financial resources
of the Company and the Company's franchisees, and the general economic and
business conditions to be faced in fiscal year 2001.

     The Company's expansion strategy for Company-owned restaurants involves two
principal components: (1) the building-out of existing core markets and (2) the
further penetration of developing markets.  In addition, the Company may
consider the acquisition of other similar concepts for conversion to Sonic
restaurants.

Restaurant Design and Construction

     General. The typical Sonic drive-in restaurant consists of a kitchen housed
in a one-story building flanked by two canopy-covered rows of 24 to 36 parking
spaces, with each space having its own intercom speaker system and menu board.
In addition, since 1995, the Company has incorporated a drive-through service
and patio seating area in most new restaurants. A few Sonic restaurants provide
an indoor seating area.

     Retrofit Program. In fiscal year 1997, the Company began implementing a
remodeling program to retrofit all Sonic drive-in restaurants. The retrofit
includes new signage, new menu and speaker housings, and significant trade dress
modifications to the exterior of each restaurant's building. The Company
currently estimates the cost to make a standard retrofit at approximately
$58,000 to $70,000 per restaurant. The Company implemented the program on a
market-by-market basis, and had accomplished 98% completion of the retrofit
program for Company-owned restaurants, and 87% completion for franchised
restaurants as of August 31, 2000. All markets now feature the new retrofit
signage and trade dress style. As of August 31, 2000, 91% of the Sonic chain
featured the new retrofit look.

Marketing

     The Company has designed its marketing program to differentiate Sonic
drive-in restaurants from the Company's competitors by emphasizing five key
areas of customer satisfaction: (1) the personal manner of service by carhops,
(2) made-to-order menu items, (3) speed of service, (4) quality, and (5) value.
The marketing plan includes monthly promotions for use throughout the Sonic
chain. The Company supports those promotions with television and radio
commercials and point-of-sale materials. Those promotions center on a "meal
deal" which highlights signature menu items of Sonic drive-in restaurants.

     Each year the Company and its advertising agency (with involvement of the
Sonic Franchise Advisory Council) develop a marketing plan.  The Company
requires the formation of advertising cooperatives among restaurant owners to
pool and direct advertising expenditures in local markets.  Under each of the
Company's license agreements, the franchisee must contribute a minimum
percentage of the franchisee's gross revenues to a national media production
fund and spend an additional minimum percentage of gross revenues on local
advertising, either directly or through the Company-required participation in
advertising cooperatives.  Depending on the type of license agreement, the
minimum percentages of gross revenues contributed by franchisees for local
advertising cooperative funds range from 1.125% to 3.25% and, for the Sonic
Advertising Fund (the national fund directed by the Company), the franchisees
contribute a range of 0.375% to 0.75% of gross revenues.  Franchisees may elect
and frequently do elect to contribute more than the minimum percentage of gross
revenues to their local advertising cooperative funds.  In 1999, Sonic
restaurant owners approved the establishment of a System Marketing Fund which
became effective January 1, 2000. The purpose of this fund is to complement
local advertising efforts in attracting customers to Sonic restaurants by
broadcasting the message of the Sonic brand to a new audience.  The primary
focus of the fund is to purchase advertising on national cable networks and
other national media sponsorship opportunities.  The System Marketing Fund is
funded by 0.5% of each franchisee's gross revenues, which amount is
redistributed from the franchisee's local advertising fund contribution.

     For fiscal year 2000, franchisees participating in cooperatives contributed
an average of 3.39% of gross revenues to Sonic advertising cooperatives,
exceeding the required 2.25% under most license agreements in effect during that
period. As of August 31, 2000, 2,073 Sonic restaurants (95.3% of the chain)
participated in advertising cooperatives. The Company estimates that the total
amount spent on media (principally television) exceeded $68 million for fiscal
year 2000 and is expected to exceed $80 million for fiscal year 2001.

                                       3
<PAGE>

Purchasing

     The Company negotiates with suppliers for its primary food products
(hamburger patties, dairy products, hot dogs, french fries, tater tots, cooking
oil, fountain syrup, and other products) and packaging supplies to ensure
adequate quantities of food and supplies and to obtain competitive prices. The
Company seeks competitive bids from suppliers on many of its food products. The
Company approves suppliers of those products and requires them to adhere to
product specifications established by the Company. Suppliers manufacture several
key products for the Company under private label and sell them to authorized
distributors for resale to Company-owned and franchised restaurants. The Company
and its franchisees purchase a majority of their food and beverage products from
authorized local or national distributors.

     The Company requires its Company-owned and franchised restaurants to
participate in purchasing cooperatives. Those cooperatives have achieved cost
savings, improved food quality and consistency, and helped decrease the
volatility of food and supply costs for Sonic restaurants. For fiscal year 2000,
the average cost of food and packaging for a Sonic restaurant, as reported to
the Company by its franchisees, equaled approximately 28% of revenues. The
Company believes that negotiating and purchasing food as a system has allowed
Sonic restaurants to avoid menu price increases that otherwise might have
occurred. The reduction in the number of food and paper product distributors to
the Sonic chain over the past few years has improved the ability of the Company
to negotiate more advantageous purchasing terms and to maintain more uniform
products.

Company Operations

     Ownership Program.  The Sonic restaurant philosophy stresses an ownership
relationship with supervisors and managers.  Most supervisors and managers of
Company-owned and franchised restaurants own an equity interest in the
restaurant.  The Company believes that its ownership structure provides a
substantial incentive for restaurant managers and supervisors to operate their
restaurants profitably and efficiently.

     Under the ownership program, a separate limited liability company or
general partnership owns and operates each Company-owned restaurant. As members
of the limited liability company or partners of the general partnership, the
Company owns a majority interest and the managers and supervisors own a minority
interest in the restaurant. Ownership equity of a typical established Company-
owned restaurant generally is distributed at least 60% to the Company, up to 20%
to the manager, and up to 20% to the supervisor. The Company records other
members' or partners' interests as a minority interest in earnings of
restaurants on its financial statements. Under the standard operating agreement
or partnership agreement, the Company has the right to purchase the interest of
any other manager or supervisor on short notice. Each supervisor and manager
contributes his or her pro rata portion of all start-up costs, which include the
required franchise fee, opening inventory, advertising and promotion costs,
initial training and insurance costs, and some amounts for working capital. The
amount of capital contribution by a supervisor and manager for a restaurant
typically equals approximately $10,000 for a 20% interest. Each restaurant
usually purchases equipment with funds borrowed from the Company at competitive
rates. In most cases, the Company alone owns or leases the land and building and
guarantees any third-party lease entered into for the site. The restaurants
distribute available cash flow to the supervisors or partners on a monthly basis
pursuant to the terms of the operating agreements or partnership agreements.

     Restaurant Personnel.  A typical Sonic restaurant is operated by a manager,
two 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
restaurant.

     Each supervisor has the responsibility of overseeing an average of four to
seven Company-owned restaurants.  Those supervisors derive their income out of
their share of the available cash flow of the restaurants they supervise.

     The Company also employs ten Directors of Operations who oversee
supervisors within their respective regions and three Regional Vice Presidents
who oversee the Directors of Operations. The Company employs a Senior Vice
President of Operations based in Oklahoma City who oversees the operations of
all Company-owned restaurants.

                                       4
<PAGE>

     Point-of-Sale Systems. The Company utilizes point-of-sale equipment in each
of its Company-owned restaurants. During fiscal year 2000, the Company completed
the installation of a software enhancement to its existing systems. The
enhancement facilitated polling of store level transaction data which the
Company uses for daily sales and deposit reporting, payroll reporting, product
mix and day part analysis, as well as for other analytical purposes.

     Hours of Operation. Sonic restaurants typically operate seven days a week,
from 10:00 a.m. to 11:00 p.m.

     Company-owned Restaurant Data.  The following table provides certain
financial information relating to Company-owned restaurants and the number of
Company-owned restaurants opened and closed during the past five fiscal years.

<TABLE>
<CAPTION>
                                                2000               1999                1998             1997              1996
                                           ---------------------------------------------------------------------------------------
<S>                                             <C>                <C>                <C>               <C>              <C>
Average Sales per Company-owned
  Restaurant  (in thousands)                    $ 747              $ 702               $ 663            $ 649             $ 601
Number of Restaurants
  Total Open at Beginning of Year                 296                292                 256              231               178
  Newly-Opened and Re-Opened                       24                 37                  50               37                30
  Purchased from Franchisees                        2                  4                  --               --                28
  Sold to Franchisees                              (6)               (36)                (14)              (5)               (4)
  Closed                                           (4)                (1)                 --               (7)               (1)
                                                -----              -----               -----            -----             -----

Total Open at Year End                            312                296                 292              256               231
                                                =====              =====               =====            =====             =====
</TABLE>

Franchise Program

     General.  During its more than 45 years in operation, the Sonic system has
produced a large number of successful multi-unit franchisee groups.  Those
franchisees continue to develop new restaurants in their franchise territories
either through area development agreements or single site development.  The
Company considers its franchisees a vital part of the Company's continued growth
and believes its relationship with its franchisees is good.

     As of August 31, 2000, the Company had 1,863 franchised restaurants
operating in 27 states and the Company had entered into area development
agreements which contemplate the opening of 109 additional restaurants during
fiscal year 2001. However, the Company cannot give any assurance that the
Company's franchisees will achieve that number of new restaurants for fiscal
year 2001. During fiscal year 2000, the Company's franchisees opened 79 Sonic
drive-in restaurants pursuant to existing area development agreements.

     Franchise Agreements. Each Sonic restaurant, including each Company-owned
restaurant, operates under a franchise agreement that provides for payments to
the Company of an initial franchise fee and a royalty fee based on a graduated
percentage of the gross revenues of the restaurant. In September 1994, the
Company began offering a Number 6 License Agreement, which provides for a
franchise fee of $30,000 and an ascending royalty rate beginning at 1.0% of
gross revenues and increasing to 5.0% as the level of gross revenues increases.
In September 1998, the Company began offering a Number 6A License Agreement,
which provides for the same fees and other general terms of the Number 6 License
Agreement, but also provides for mutual rights and obligations between the
Company and the franchisees in the event the Company acquires operating
restaurants or development sites within a franchisee's protected territory or
desires to develop non-traditional restaurant locations within a protected
territory. The Number 6A License Agreement requires the Company to offer the
franchisee a right of first refusal to acquire the restaurant or site from the
Company at its cost with the requirement to convert the restaurant or develop
the site into a Sonic restaurant pursuant to the terms of the then current
license agreement. Approximately 75% of all Sonic restaurants opening in fiscal
year 2001 are expected to open under the Number 6 or Number 6A License
Agreement. Pursuant to the terms of existing area development agreements and the
outstanding license option agreements described below, approximately 25% of all
Sonic restaurants opening in fiscal year 2001 will open under either the Number
5 License Agreement or the Number 5.1 License Agreement. Those agreements each
provide for a franchisee fee of $15,000 and an ascending royalty rate beginning
at 1.0% of gross revenues and increasing to 4.0% as the level of gross revenues
increases. For fiscal year 2000, the Company's average royalty rate equaled
3.06%. The Number 5 License Agreement provides for a term of 15 years, with an
option to renew pursuant to the terms of the then current license agreement. The
Number 5.1 License Agreement, the Number 6 License Agreement and the Number 6A
License Agreement provide for a term of 20 years,

                                       5
<PAGE>

with one 10-year renewal option. The Company has the right to terminate any
franchise agreement for a variety of reasons, including a franchisee's failure
to make payments when due or failure to adhere to the Company's policies and
standards. Many state franchise laws limit the ability of the Company to
terminate or refuse to renew a franchise.

     Because of the graduated percentage royalty rates set forth in the license
agreements, in fiscal year 2000, franchised restaurants formerly operating under
the Number 4.2 License Agreement had their royalty rates increase to the same
rate as the Number 5 License Agreement rate.  Beginning in fiscal year 2001 and
continuing through fiscal year 2010, a total of 442 additional franchised
restaurants currently operating under the Number 4.2 License Agreement will have
their royalty rates increase to the same rate as the Number 5 License Agreement
rate.  In fiscal year 2000, six Number 4 License Agreements expired and the
licensed restaurants operating under such agreements renewed their licenses
pursuant to the terms of the Number 6A License Agreement.  Beginning in fiscal
year 2001 and continuing through fiscal year 2010, the terms of the remaining
Number 4 License Agreements will expire and the licensed restaurants either will
cease operations or renew their licenses pursuant to the terms of the then
current license agreement (currently the Number 6A License Agreement).  The
Company expects that the automatic conversion of the Number 4.2 License
Agreements and the renewals of the expiring Number 4 License Agreements will
result in an incremental increase in the Company's royalty revenues attributable
to the change in royalty rate.

     In July 1998, the Company gave franchisees operating under a Number 1, 4,
4.1 or 5 License Agreement an opportunity to convert the franchisee's agreement
to a Number 5.2 License Agreement, effective as of January 1, 1999. The Number
5.2 License Agreement allowed the franchisee with an expiring license agreement
the opportunity to elect to renew prior to the actual expiration date and accept
the terms of the then current Number 6 License Agreement. The franchisee paid a
$1,000 conversion franchisee fee and a higher royalty rate from the time of
conversion through the expiration date of the franchisee's original license
agreement. Upon the expiration of the original term of the franchisee's license
agreement, the Number 5.2 License Agreement will shift the royalty rate to the
Number 6 License Agreement royalty schedule. Approximately 137 Number 1, 4, 4.1
and 5 License Agreements were converted to the Number 5.2 License Agreement.

     Area Development Agreements. The Company uses area development agreements
to facilitate the planned expansion of the Sonic drive-in restaurant chain
through multiple unit development. While existing franchisees continue to expand
on a single restaurant basis, approximately 53% of the new franchised
restaurants opened during fiscal year 2000 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 restaurants within a
defined area. In exchange, each developer agrees to open a minimum number of
Sonic restaurants in the area within a prescribed time period. If the developer
does not meet the minimum opening requirements, the Company has the right to
terminate the area development agreement and grant a new area development
agreement to other franchisees for the area previously covered by the terminated
area development agreement.

     During fiscal year 2000, the Company entered into 32 new area development
agreements calling for the opening of 168 Sonic drive-in restaurants during the
next five years. As of August 31, 2000, the Company had a total of 102 area
development agreements in effect, calling for the development of 456 additional
Sonic drive-in restaurants during the next six years. Of the 93 restaurants
scheduled to open during fiscal year 2000 under area development agreements in
place at the beginning of that fiscal year, 79 (or 85%) opened during the
period.

     Realization by the Company of the expected benefits under various existing
and future area development agreements currently depends and will continue to
depend upon the ability of franchisees to open the minimum number of restaurants
within the time periods required by the agreements. The financial resources of
the developers, as well as their experience in managing quick-service restaurant
franchises, represent critical factors in the success of area development
agreements. Although the Company grants area development agreements only to
those developers whom the Company believes possess those qualities, the Company
cannot give any assurances that the future performance by developers will result
in the opening of the minimum number of restaurants contemplated by the area
development agreements or reach the compliance rate previously experienced by
the Company.

     Option Agreements.  In connection with the Company's introduction of a new
Number 6 License Agreement in fiscal year 1995, the Company offered its existing
franchisees the opportunity to acquire options to purchase the Number 5.1
License Agreement for new Sonic drive-in restaurants developed by the franchisee
(the "Number 5.1 Options").

                                       6
<PAGE>

The Number 5.1 License Agreement has a lower initial franchise fee and royalty
rate than the Number 6 License Agreement. Unlike the area development agreements
described above, the options do not cover any specific location. The Company
currently is not offering additional option agreements to its franchisees and,
as the options expire or the franchisees exercise them, the number of
outstanding options will decrease over time. As of August 31, 2000, the Company
had 40 Number 5.1 Options outstanding, all of which will expire December 31,
2000.

     Franchised Restaurant Development. The Company furnishes each franchisee
with assistance in selecting sites and developing restaurants. Each franchisee
has responsibility for selecting the franchisee's restaurant locations, but must
obtain Company approval of each restaurant design and each location based on
accessibility and visibility of the site and targeted demographic factors,
including population, density, income, age and traffic. The Company provides its
franchisees with the physical specifications for the typical Sonic drive-in
restaurants.

     Franchisee Financing.  The Company has entered into an agreement with
Franchise Finance Company of America ("FFCA"), pursuant to which FFCA may make
loans to current Sonic franchisees who meet certain underwriting criteria set by
FFCA.  Under the terms of the agreement with FFCA, the Company may provide a
guaranty of 10% of the outstanding balance of a loan from FFCA to the Sonic
franchisee.  The Company retains the absolute right to determine which loans it
will guarantee and to impose any conditions the Company may deem appropriate.

     The Company also has entered into agreements with Federated Capital
Corporation Company ("FCC"), Bank of America, N.A. ("Bank of America"), and STI
Credit Corporation ("Sun Trust"), pursuant to which each of those lenders may
provide financing for the Company's franchisees to implement the retrofit of
their existing restaurants.  Under the terms of those agreements, the Company
has given FCC a limited guaranty of up to $750,000 and Bank of America and Sun
Trust limited guaranties of up to $250,000 with regard to all loans made
pursuant to the terms of each agreement with the lenders.

     Franchisee Training.  Each franchisee must have at least one individual
working full time at the Sonic drive-in restaurant who has completed the Sonic
Management Development Program before opening or operating the Sonic drive-in
restaurant.  The program consists of 12 weeks of on-the-job training and one
week of classroom development. The program emphasizes food safety, quality food
preparation, quick service, cleanliness of restaurants, management techniques
and consistency of service.

     Franchisee Support. In addition to training, advertising and food
purchasing as a system, and marketing programs, the Company provides various
other services to its franchisees. Those services include: (1) assistance with
quality control through area field representatives, to ensure that each
franchisee consistently delivers high quality food and service; (2) support new
franchisees with guidance and training in the opening of their first three Sonic
restaurants (3) assistance in selecting sites for new restaurants using
demographic data and studies of traffic patterns; (4) financing through third
party sources to qualified franchisees for purchasing restaurant equipment; and
(5) one-stop shopping for all equipment needed to open a new restaurant through
N. Wasserstrom & Sons, Inc. in Columbus, Ohio, and Concept Services, Inc. in
Austin, Texas. The Company's field services organization consists of 13 field
service consultants, 11 field marketing representatives, and 3 new franchise
consultants, all with responsibility for defined geographic areas. The field
service representatives provide operational services and support for the
Company's franchisees, while the field marketing representatives assist the
franchisees with the development of local market promotional activities. New
franchise consultants support the on-boarding of new franchisees from training
through the first months following the opening of each of the franchisee's first
three Sonic restaurants. The Company also has five real estate directors who
assist the franchisees with the identification of trade areas for new
restaurants, the franchisees' selection of sites for their restaurants, and the
approval of those sites by the Company. Six other field representatives provide
a variety of other services to franchisees.

     Franchise Operations.  All franchisees must operate their Sonic drive-in
restaurants in compliance with the Company's policies, standards, and
specifications, including matters such as menu items, materials, supplies,
services, fixtures, furnishings, decor, and signs.  Each franchisee has full
discretion to determine the prices charged to its customers.  All restaurants
must display a Sonic drive-in restaurant sign manufactured in accordance with
Company specifications.  In most cases, the Company owns the sign and leases it
to the franchisee and, if the franchisee breaches its franchise agreement, the
Company may remove the sign.

                                       7
<PAGE>

     Franchise Advisory Council. The Company has established a Franchise
Advisory Council which provides advice, counsel, and input to the Company on
important issues impacting the business, such as marketing and promotions,
operations, purchasing, building design, human resources, and new products. The
Franchise Advisory Council currently consists of 16 members selected by the
Company. Seven executive committee members are selected at large. The remaining
nine members are regional members who represent three defined regions of the
country and serve two-year terms. The Franchise Advisory Council serves in an
advisory capacity only and does not have decision-making power. As the
franchisor of the Sonic drive-in restaurant chain, the Company has and reserves
the power to change or dissolve the Franchise Advisory Council as it may deem in
its best interest.

     Reporting. The Company collects monthly sales and other operating
information from its franchisees. The Company has agreements with 129 or 7% of
its franchisees permitting the Company to debit electronically the franchisees'
bank accounts for the payment of royalties and advertising fund contributions.
That system significantly reduces the resources needed to process receivables,
improves cash flow, and reduces past-due accounts receivable.

     Franchised Restaurant Data. The following table provides certain
financial information relating to franchised restaurants and the number of
franchised restaurants opened, purchased from or sold to the Company, and closed
during the Company's last five fiscal years.

<TABLE>
<CAPTION>
                                                  2000       1999        1998        1997        1996
                                                ------     ------      ------      ------      ------
<S>                                             <C>        <C>         <C>         <C>         <C>
Average Sales Per Franchised Restaurant         $  872     $  842      $  775      $  720      $  657
(in thousands)
Number of Restaurants:
Total Open at Beginning of Year                  1,715      1,555       1,424       1,336       1,286
New Restaurants                                    150        139         120          92          81
Sold to the Company                                 (2)        (4)         --          --         (28)
Purchased from the Company                           6         36          14           5           4
Closed and Terminated,
Net of Re-openings                                  (6)       (11)         (3)         (9)         (7)
                                                ------     ------      ------      ------      ------
Total Open at Year End                           1,863      1,715       1,555       1,424       1,336
                                                ======     ======      ======      ======      ======
</TABLE>

Equipment Sales

     In fiscal 1996, the Company sold its restaurant equipment division and
discontinued that operation. As a result, the Company had no revenues from
equipment sales during fiscal years 2000, 1999, 1998 and 1997, compared to
approximately $3.7 million during fiscal 1996 (an amount equal to 2.5% of the
Company's total consolidated revenues).

Competition

     The Company competes in the quick-service restaurant industry, a highly
competitive industry in terms of price, service, restaurant location, and food
quality, and an industry often affected by changes in consumer trends, economic
conditions, demographics, traffic patterns, and concerns about the nutritional
content of quick-service foods. The Company competes on the basis of speed and
quality of service, method of food preparation (made-to-order), food quality and
variety, signature food items, and monthly promotions.  The quality of service,
featuring Sonic carhops, constitutes one of the Company's primary marketable
points of difference with the competition.  Several major chains, many of which
have substantially greater financial resources than the Company, dominate the
quick-service restaurant industry. A significant change in pricing or other
marketing strategies by one or more of those competitors could have an adverse
impact on the Company's sales, earnings, and growth.  In selling franchises, the
Company also competes with many franchisors of fast-food and other restaurants
and other business opportunities.

Employees

     As of August 31, 2000, the Company had 258 full-time employees. No
collective bargaining agreement covers any of its employees. The Company
believes that it has good labor relations with its employees. Company-

                                       8
<PAGE>

owned restaurants (operated as separate partnerships or limited liability
companies) employed approximately 954 full-time and 8,798 part-time employees as
of August 31, 2000, none of whom constitute employees of the Company.


Trademarks and Service Marks

     The Company, through a wholly-owned subsidiary, owns numerous trademarks
and service marks. The Company has registered many of those marks, including the
"Sonic" logo and trademark, with the United States Patent and Trademark Office.
The Company believes that its trademarks and service marks have significant
value and play an important role in its marketing efforts.

Government Regulation

     The Company must comply with regulations adopted by the Federal Trade
Commission (the "FTC") and with several state laws that regulate the offer and
sale of franchises.  The Company also must comply with a number of state laws
that regulate certain substantive aspects of the franchisor-franchisee
relationship.  The FTC's Trade Regulation Rule on Franchising (the "FTC Rule")
requires that the Company furnish prospective franchisees with a franchise
offering circular containing information prescribed by the FTC Rule.

     State laws that regulate the franchisor-franchisee relationship presently
exist in a substantial number of states. Those laws regulate the franchise
relationship, for example, by requiring the franchisor to deal with its
franchisees in good faith, by prohibiting interference with the right of free
association among franchisees, by regulating discrimination among franchisees
with regard to charges, royalties or fees, and by restricting the development of
other restaurants within certain proscribed distances from existing franchised
restaurants.  Those laws also restrict a franchisor's rights with regard to the
termination of a franchise agreement (for example, by requiring "good cause" to
exist as a basis for the termination), by requiring the franchisor to give
advance notice and the opportunity to cure the default to the franchisee, and by
requiring the franchisor to repurchase the franchisee's inventory or provide
other compensation upon termination.  To date, those laws have not precluded the
Company from seeking franchisees in any given area and have not had a
significant effect on the Company's operations.

     Each Sonic restaurant must comply with regulations adopted by federal
agencies and with licensing and other regulations enforced by state and local
health, sanitation, safety, fire, and other departments. Difficulties or
failures in obtaining the required licenses or approvals can delay and sometimes
prevent the opening of a new restaurant.

     Sonic restaurants must comply with federal and state environmental
regulations, but those regulations have not had a material effect on their
operations.  More stringent and varied requirements of local governmental bodies
with respect to zoning, land use, and environmental factors can delay and
sometimes prevent development of new restaurants in particular locations.

     The owners of Sonic restaurants must comply with the Fair Labor Standards
Act and various state laws governing various matters, such as minimum wages,
overtime, and other working conditions. Significant numbers of the food service
personnel in Sonic restaurants receive compensation at rates related to the
federal minimum wage and, accordingly, increases in the minimum wage will
increase labor costs at those locations.

     The owners of Sonic restaurants also must comply with the provisions of the
Americans with Disabilities Act (the "ADA"), which requires the owners to
provide reasonable accommodation for employees with disabilities and to make
their restaurants accessible to customers with disabilities.  The Company has
made certain modifications to the design and construction of its restaurants in
order to comply with the ADA.  However, the ADA has not had a material impact on
the Company, primarily because of a drive-in restaurant's inherent accessibility
to all customers through their motor vehicles.

     Many owners of Sonic restaurants also must comply with the Family and
Medical Leave Act of 1993 (the "FMLA"), which covers employers of 50 or more
persons at locations within any 75-mile radius. The FMLA requires covered
employers to grant eligible employees up to 12 weeks of unpaid leave for family
and medical reasons and to reinstate the employee to the same or an equivalent
position at the end of the leave. An employee may take leave for

                                       9
<PAGE>

the birth, adoption, or foster care of a child; to care for a spouse, child or
parent with a serious health condition; or because of the employee's own serious
health condition.

Item 2.  Properties
------   -----------

     Of the 312 Company-owned restaurants operating as of August 31, 2000, the
Company operated 112 of them on property leased from third parties and 200 of
them on property owned by the Company.  The leases expire on dates ranging from
2001 to 2020, with the majority of the leases providing for renewal options.
All leases provide for specified monthly rental payments, and some of the leases
call for additional rentals based on sales volume.  All leases require the
Company to maintain the property and pay the cost of insurance and taxes.

     The Company has its principal office located in approximately 64,600 square
feet of leased office space in Oklahoma City, Oklahoma, at an effective annual
rental rate of $9.15 per square foot and approximately 500 square feet at an
effective annual rental rate of $10.50 per square feet.  The lease for that
property expires in November of 2002.  The Company also leases approximately
10,000 square feet of warehouse space in Oklahoma City, Oklahoma, at an annual
rental rate of $3.75 per square foot. The lease for the warehouse space expires
in December of 2001.

Item 3.  Legal Proceedings
------   -----------------

     The Company is a party to a lawsuit where the damages alleged are in excess
of ten percent of the Company's current assets. The Company believes that this
case is without merit and will not have a material impact on the Company's
financial statements. The Company does not have any other material legal
proceedings pending against the Company, any of its subsidiaries, or any of
their properties.

Item 4.  Submission of Matters to a Vote of Security Holders
------   ---------------------------------------------------

     The Company did not submit any matter during the fourth quarter of the
Company's last fiscal year to a vote of the Company's stockholders, through the
solicitation of proxies or otherwise.

                                       10
<PAGE>

Item 4A.  Executive Officers of the Company
-------   ---------------------------------

Identification of Executive Officers

  The following table identifies the executive officers of the Company.

<TABLE>
<CAPTION>
Name                          Age      Position                                                   Officer Since
----                          ---      --------                                                   -------------
<S>                           <C>      <C>                                                        <C>
J. Clifford Hudson            46       Chairman of the Board of Directors and Chief Executive        June 1985
                                       Officer

Kenneth L. Keymer             52       President, Chief Operating Officer and Director               August 1996

Pattye L. Moore               42       Executive Vice President                                      June 1992

Ronald L. Matlock             49       Senior Vice President, General Counsel and Secretary          April 1996

W. Scott McLain               38       Senior Vice President and Chief Financial Officer             April 1996

Frank B. Young, Jr.           49       Senior Vice President of Operations of Sonic                  October 1994
                                       Restaurants, Inc.

G. Dwayne Chambers            35       Vice President of Marketing of Sonic Industries Inc.          June 2000

Donald E. Foringer            48       Vice President of Information Technology                      August 1997

G. Michael Gent               52       Vice President of Corporate Development of Sonic              November 1997
                                       Restaurants, Inc.

Mitchell W. Gregory           36       Vice President of Brand Development of Sonic Industries       August 1999
                                       Inc.

Terry D. Harryman             35       Controller                                                    January 1999

Jill M. Hudson                37       Vice President of Human Resources and Corporate               November 1998
                                       Administration

Stanley S. Jeska              60       Vice President of Franchise Development of Sonic              September 1993
                                       Industries Inc.

Keith O. Jossell              35       Treasurer                                                     August 1999

Norman R. Kaufman             49       Vice President of Operations Services of Sonic                September 1998
                                       Restaurants, Inc.

Michael A. Perry              42       Vice President of Franchise Services of Sonic Industries      March 1998
                                       Inc.

Andrew G. Ritger, Jr.         43       Vice President of Purchasing of Sonic Industries Inc.         January 1996

Nancy L. Robertson            44       Vice President of Corporate Communications                    April 1999

Stephen C. Vaughan            34       Vice President of Planning and Analysis                       January 1996

David A. Vernon               42       Vice President of Franchise Sales of Sonic Industries Inc.    September 1998
</TABLE>

                                       11
<PAGE>

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 and
Chief Executive Officer since January 2000. He served as President and Chief
Executive Officer of the Company from April 1995 until January 2000 and has
served as a director of the Company since August 1993. He served as President
and Chief Operating Officer of the Company from August 1994 until April 1995,
and he served as Executive Vice President and Chief Operating Officer from
August 1993 until August 1994. From August 1992 until August 1993, Mr. Hudson
served as Senior Vice President and Chief Financial Officer of the Company.
Since October 1994, Mr. Hudson has served as Chairman of the Board of Securities
Investor Protection Corporation, the federally-chartered organization which
serves as the insurer of customer accounts with brokerage firms.

     Kenneth L. Keymer has served as the President and Chief Operating Officer
of the Company since January 2000. He served as Executive Vice President and as
Chief Operating Officer of the Company from January 1998 until January 2000, and
has served as a director of the Company since January 1999. He has served as the
President and a director of Sonic Industries Inc., the Company's franchise
operations subsidiary, since August 1996. From June 1994 to August 1996, Mr.
Keymer served as Executive Vice President of Operations for the Memphis,
Tennessee region of Perkins Family Restaurants, a subsidiary of Tennessee
Restaurant Corporation of Itasca, Illinois.

     Pattye L. Moore has served as Executive Vice President of the Company since
January 2000.  Ms. Moore served as Senior Vice President of Marketing and Brand
Development of the Company from August 1996 until January 2000.  From August
1995 until August 1996, Ms. Moore served as Senior Vice President of Marketing
and Brand Development for Sonic Industries Inc. and served as Vice President of
Marketing of Sonic Industries Inc. from June 1992 to August 1995.

     Ronald L. Matlock has served as Senior Vice President, General Counsel and
Secretary of the Company since January 2000.  Mr. Matlock served as Vice
President, General Counsel and Secretary of the Company from April 1996 until
January 2000.  Mr. Matlock has also served as a director of Sonic Restaurants,
Inc. and as a director of Sonic Industries Inc. since April 1996.  Prior to
joining the Company, Mr. Matlock practiced law from January 1995 to April 1996
with the Matlock Law Firm in Oklahoma City, Oklahoma, concentrating in
corporate, securities and franchise law.

     W. Scott McLain has served as Senior Vice President and Chief Financial
Officer of the Company since January 2000.  Mr. McLain served as Vice President
of Finance and Chief Financial Officer of the Company from August 1997 until
January 2000.  From August 1997 until August 1999 he also served as Treasurer of
the Company.  From April 1996 to August 1997, he served as Vice President of
Finance and Treasurer of the Company.  From August 1993 until joining the
Company, Mr. McLain served as Treasurer of Stevens International, Inc. in Fort
Worth, Texas.

     Frank B. Young, Jr. has served as Senior Vice President of Operations of
Sonic Restaurants, Inc. since January 2000. Mr. Young served as Vice President
of Operations of Sonic Restaurants, Inc. from October 1994 to January 2000. From
April 1989 until joining the Company, Mr. Young served as the President and sole
shareholder of Wendco, Inc. of Madison, Wisconsin, a business consulting firm.

     G. Dwayne Chambers has served as Vice President of Marketing of Sonic
Industries Inc. since June 2000, and as the Director of Media and Field
Marketing Services from July 1999 until June 2000.  Mr. Chambers was with Moroch
and Associates, Inc. advertising agency in Dallas, Texas from 1987 until 1999,
and was a Vice President and Equity Partner with Moroch and Associates, Inc.
from November 1996 to July 1999.

     Donald E. Foringer has served as Vice President of Information Technology
since August 1997.  From January 1993 to August 1997, Mr. Foringer served as the
Director of Information Services for Del Taco, Inc. of Laguna Hills, California.

                                       12
<PAGE>

     G. Michael Gent has served as Vice President of Corporate Development of
Sonic Restaurants, Inc. since November 1997. From May 1996 until joining the
Company, Mr. Gent served as Vice President of Business Development of Calido
Chile Traders Systems, Inc. in Merriam, Kansas. A petition under the Federal
bankruptcy laws was filed by Calido Chile Traders Systems, Inc. in October 1997.
From September 1995 until May 1996, Mr. Gent provided consulting services for
multiple unit franchisors and franchisees. From March 1992 until September 1995,
he served as Vice President for Franchise Development of Taco John's
International, Inc., in Cheyenne, Wyoming.

     Mitchell W. Gregory has served as Vice President of Brand Development for
Sonic Industries Inc. since August 1999.  Mr. Gregory served as an Area Vice
President of Brand Development for Sonic Industries Inc. from September 1998
until August 1999.  From June 1995 until September 1998, Mr. Gregory was
Director of Market Research and was also Director of Field Marketing from
September 1997 until September 1998 for Sonic Industries Inc.

     Terry D. Harryman has served as Controller of the Company since January
1999. From October 1996 until January 1999, Mr. Harryman served as Director of
Tax of the Company. From January 1998 until January 1999, Mr. Harryman also
served as Assistant Treasurer of the Company. Mr. Harryman has served as
Assistant Treasurer of Sonic Industries Inc. and Sonic Restaurants, Inc. since
October 1996. From May 1988 until October 1996, he was with Kerr-McGee
Corporation, and served as Senior Research Tax Accountant just prior to joining
Sonic.

     Jill M. Hudson has served as Vice President of Human Resources and
Corporate Administration of the Company since November 1998. From June 1996
until joining the Company, Ms. Hudson served as a Regional Human Resources
Manager of McDonald's Corporation. From June 1993 until June 1996, she served as
a Regional Human Resources Supervisor of McDonald's.

     Stanley S. Jeska has served as Vice President of Franchise Development of
Sonic Industries Inc. since July 1996 and also served in that capacity from
September 1993 until August 1994.  Mr. Jeska served as Vice President of
Corporate Development for Sonic Restaurants, Inc. from August 1994 until July
1996.

     Keith O. Jossell has served as Treasurer of the Company since August 1999.
From June 1997 until August 1999, Mr. Jossell served as Assistant Treasurer of
the Company.  From January 1996 until May 1997, Mr. Jossell was employed by the
Company in the positions of Financial Analyst, Treasury Analyst, then Treasury
Manager.  From August 1993 until October 1995, Mr. Jossell was the Senior
Treasury Analyst for Brinker International, in Dallas, Texas.

     Norman R. Kaufman has served as Vice President of Operations Services for
Sonic Restaurants, Inc. since September 1998.  From July 1997 to September 1998,
Mr. Kaufman served as a Regional Vice President of Sonic Industries, Inc.  From
June 1993 until joining the Company, he served as the President, Chief Operating
Officer, and Director of Sobik's Subs, Inc. in Orlando, Florida.

     Michael A. Perry has served as Vice President of Franchise Services of
Sonic Industries Inc. since September 1, 1998. Mr. Perry served as the Vice
President of Operations Services of Sonic Restaurants, Inc. from March 1998
until August 1998. From October 1994 until joining the Company, Mr. Perry was a
Region Vice President for Au Bon Pain Co., Inc. in Chicago, Illinois.

     Andrew G. Ritger, Jr. has served as Vice President of Purchasing of Sonic
Industries Inc. since January 1996.  From May 1993 until joining the Company,
Mr. Ritger served as Vice President of Purchasing of Fast Food Merchandisers,
Inc., a subsidiary of Hardees, Inc. of Rocky Mount, North Carolina.

     Nancy L. Robertson has served as Vice President of Corporate Communications
of the Company since April 1999. Ms. Robertson served as Senior Director of
Corporate Communications of the Company from September 1997 until April 1999.
From September 1994 until August 1997, Ms. Robertson was Director of Corporate
Communications of the Company. Ms. Robertson joined the Company as Manager of
Corporate Communications in August 1993.

     Stephen C. Vaughan has served as Vice President of Planning and Analysis of
the Company since January 1999 and as a Vice President of the Company since
August 1997.  Mr. Vaughan was Controller of the Company from

                                       13
<PAGE>

January 1996 to January 1999. Mr. Vaughan joined the Company in March 1992 as an
internal auditor and became Assistant Controller of the Company in March 1993.

     David A. Vernon has served as Vice President of Franchise Sales for Sonic
Industries Inc. since September 1998.  Mr. Vernon served as the Director of
Franchise Sales for Sonic Industries from December 1996 until August 1998.  From
January 1996 until December 1996, Mr. Vernon was the Franchise Development
Manager for Brinker International, Inc., Dallas, Texas.  From February 1990
until January 1996, Mr. Vernon was the Director of Franchise Sales for Pizza
Inn, Inc., Dallas, Texas.

                                    PART II
                                    -------

Item 5. Market for the Company's Common Stock and Related Stockholder Matters
------  ---------------------------------------------------------------------

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 closing
bids for the Company's common stock during each fiscal quarter within the two
most recent fiscal years as reported on Nasdaq.  On November 14, 2000, the Board
approved a three-for-two stock split of the outstanding common stock of the
Company and declared the record date for such split to be November 24, 2000 and
the distribution date to be November 30, 2000.  Share amounts set forth below
and elsewhere in this report have been adjusted to reflect the results of the
November 2000 stock split.

<TABLE>
<CAPTION>
Quarter Ended                 High           Low                 Quarter Ended                  High          Low
-------------                 ----           ---                 -------------                  ----          ---
<S>                          <C>           <C>                   <C>                           <C>           <C>
November 30, 1998            $13.083       $ 8.000               November 30, 1999             $21.833       $15.917
February 28, 1999            $17.083       $13.333               February 28, 2000             $21.250       $16.209
May 31, 1999                 $19.583       $15.833               May 31, 2000                  $21.417       $16.083
August 31, 1999              $21.667       $18.333               August 31, 2000               $22.792       $17.917
</TABLE>

Stockholders

     As of November 1, 2000, the Company had 378 record holders of its common
stock. As of that date, the Company had approximately 4,700 stockholders,
including beneficial owners holding shares in street or nominee names.

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.

Item 6. Selected Financial Data
------  -----------------------

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

                                       14
<PAGE>

                            Selected Financial Data
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                              Year ended August 31,
-----------------------------------------------------------------------------------------------------------------------------
                                                           2000            1999           1998          1997          1996
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>            <C>            <C>           <C>           <C>
Income Statement Data:
   Company-owned restaurant sales                        $ 224,880      $ 210,419      $ 182,011     $ 152,739     $ 120,700
   Franchised restaurants:
      Franchise royalties                                   47,595         40,859         32,391        26,764        23,315
      Franchise fees                                         3,717          3,468          2,564         1,702         1,453
   Other                                                     3,864          2,861          2,141         2,813         5,662
-----------------------------------------------------------------------------------------------------------------------------
      Total revenues                                       280,056        257,607        219,107       184,018       151,130
=============================================================================================================================
   Cost of restaurant sales                                163,570        155,521        135,806       112,588        92,663
   Selling, general and administrative                      27,894         25,543         22,250        19,318        14,498
   Depreciation and amortization                            20,287         18,464         14,790        12,320         8,896
   Minority interest in earnings of restaurants             10,173          8,623          7,904         7,558         4,806
   Provision for impairment of long-lived assets               951          1,519            285           266         8,627
   Special provision for litigation settlement                   -              -          2,700             -             -
   Other operating expenses                                      -              -              -             -         3,101
-----------------------------------------------------------------------------------------------------------------------------
      Total expenses                                       222,875        209,670        183,735       152,050       132,591
=============================================================================================================================
   Income from operations                                   57,181         47,937         35,372        31,968        18,539
   Net interest expense                                      5,186          4,278          2,750         1,558           476
-----------------------------------------------------------------------------------------------------------------------------
   Income before income taxes and cumulative
      effect of change in accounting                      $ 51,995       $ 43,659       $ 32,622      $ 30,410      $ 18,063
-----------------------------------------------------------------------------------------------------------------------------
   Income before cumulative effect of change
      in accounting                                       $ 32,627       $ 27,396       $ 20,470      $ 19,082      $ 11,244
   Cumulative effect of change in accounting,
      net of taxes and minority interest                         -              -            681             -             -
-----------------------------------------------------------------------------------------------------------------------------
   Net income                                             $ 32,627       $ 27,396       $ 19,789      $ 19,082      $ 11,244
=============================================================================================================================

   Income per share before cumulative effect of
     change in accounting (1):
         Basic                                            $   1.21       $   0.97       $   0.71      $   0.64      $   0.38
         Diluted                                          $   1.17       $   0.94       $   0.69      $   0.63      $   0.37

Balance Sheet Data:
   Working capital (deficit)                              $ (6,371)      $ (7,743)      $ (7,292)     $  3,509      $  3,491
   Property, equipment and capital leases, net             222,318        207,890        188,065       136,522       100,505
   Total assets                                            278,371        256,677        233,180       184,841       147,444
   Obligations under capital leases (including
      current portion)                                       7,299          8,048          8,379         9,183         9,808
   Long-term debt (including current portion)               83,881         72,400         61,518        37,633        12,401
   Stockholders' equity                                    155,263        149,755        132,011       118,174       109,683

(1) Adjusted for a 3-for-2 stock split in 2000 and 1998.
</TABLE>

                                       15
<PAGE>

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

     This Form 10-K contains various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements represent the Company's expectations or belief concerning future
events, including the following: any statements regarding future sales or
expenses, any statements regarding the continuation of historical trends, and
any statements regarding the sufficiency of the Company's working capital and
cash generated from operating and financing activities for the Company's future
liquidity and capital resources needs.  Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," and similar expressions are
intended to identify forward-looking statements.  The Company cautions that
those statements are further qualified by important economic and competitive
factors that could cause actual results to differ materially from those in the
forward-looking statements, including, without limitation, risks of the
restaurant industry, including a highly competitive industry and the impact of
changes in consumer spending patterns, consumer tastes, local, regional and
national economic conditions, weather, demographic trends, traffic patterns,
employee availability and cost increases.  In addition, the opening and success
of new restaurants will depend on various factors, including the availability of
suitable sites for new restaurants, the negotiation of acceptable lease or
purchase terms for new locations, permitting and regulatory compliance, the
ability of the Company to manage the anticipated expansion and hire and train
personnel, the financial viability of the Company's franchisees, particularly
multi-unit operators, and general economic and business conditions.
Accordingly, such forward-looking statements do not purport to be predictions of
future events or circumstances and may not be realized.

Results of Operations

     The Company derives its revenues primarily from Company-owned restaurant
sales and royalty fees from franchisees. The Company also receives revenues from
initial franchise fees, area development fees, and the selling and leasing of
signs and real estate. Costs of Company-owned restaurant sales and minority
interest in earnings of restaurants relate directly to Company-owned restaurant
sales. Other expenses, such as depreciation, amortization, and general and
administrative expenses, relate to both Company-owned restaurant operations, as
well as the Company's franchising operations. The Company's revenues and
expenses are directly affected by the number and sales volumes of Company-owned
restaurants. The Company's revenues and, to a lesser extent, expenses are also
affected by the number and sales volumes of franchised restaurants. Initial
franchise fees and franchise royalties are directly affected by the number of
franchised restaurant openings.

     The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of certain items included in the Company's
statements of income. The table also sets forth certain restaurant data for the
periods indicated.

                                       16
<PAGE>

<TABLE>
<CAPTION>
                                       Percentage Results of Operations and Restaurant Data
                                                         ($ in thousands)

                                                                            Year ended August 31,
                                                              -----------------------------------------------
                                                                  2000              1999             1998
                                                              ------------      ------------      -----------
<S>                                                           <C>               <C>               <C>
INCOME STATEMENT DATA:
Revenues:
   Company-owned restaurant sales                                     80.3%             81.7%            83.0%
   Franchised restaurants:
      Franchise royalties                                             17.0              15.9             14.8
      Franchise fees                                                   1.3               1.3              1.2
   Other                                                               1.4               1.1              1.0
                                                              ------------      ------------      -----------
                                                                     100.0%            100.0%           100.0%
                                                              ============      ============      ===========
Costs and expenses:
   Company-owned restaurants (1)                                      72.7%             73.9%            74.6%
   Selling, general and administrative                                10.0               9.9             10.2
   Depreciation and amortization                                       7.2               7.2              6.8
   Minority interest in earnings of restaurants (1)                    4.5               4.1              4.3
   Provision for impairment of long-lived assets                       0.3               0.6              0.1
   Other                                                                 -                 -              1.2
Income from operations                                                20.4              18.6             16.1
Net interest expense                                                   1.9               1.7              1.3
Income before cumulative effect of change in accounting               11.7              10.6              9.3
Net income                                                            11.7              10.6              9.0


RESTAURANT OPERATING DATA:
Company-owned restaurants:
   Core markets                                                        234               223              185
   Developing markets                                                   78                73              107
                                                              ------------      ------------      -----------
   All markets (2)                                                     312               296              292
Franchised restaurants (2)                                           1,863             1,715            1,555
                                                              ------------      ------------      -----------
Total                                                                2,175             2,011            1,847
                                                              ============      ============      ===========

System-wide sales                                             $  1,778,828      $  1,588,498      $ 1,333,877
   Percentage increase (3)                                            12.0%             19.1%            16.7%

Average sales per restaurant:
   Company-owned                                              $        747      $        702      $       663
   Franchise                                                           872               842              775
   System-wide                                                         853               823              758


Change in comparable restaurant sales (4):
   Company-owned restaurants:
       Core markets                                                    2.9%              6.3%             5.4%
       Developing markets                                              0.6               9.4             (2.5)
       All markets                                                     2.4               6.9              4.0
   Franchise                                                           3.2               8.3              6.9
   System-wide                                                         3.0               7.9              6.3

____________________
(1)  As a percentage of Company-owned restaurant sales.
(2)  Number of restaurants open at end of year (the allocation of Company-owned
     restaurants by core and developing markets differs from the table on page
     two because that table sets forth the numbers by state rather than by
     television market.)
(3)  Represents percentage increase from the comparable period in the prior
     year.
(4)  Represents percentage increase for restaurants open in both the reported
     and prior years.
</TABLE>

                                       17
<PAGE>

     Comparison of Fiscal Year 2000 to Fiscal Year 1999. Total revenues
increased 8.7% to $280.1 million during fiscal year 2000 from $257.6 million in
fiscal year 1999. Company-owned restaurant sales increased 6.9% to $224.9
million in fiscal year 2000 from $210.4 million in fiscal year 1999. Of the
$14.5 million increase in Company-owned restaurant sales, $9.5 million was due
to the net addition of 20 Company-owned restaurants since the beginning of
fiscal year 1999 ($23.2 million from the addition of 67 Company-owned
restaurants since the beginning of fiscal year 1999 less $13.7 million from 47
stores sold or closed since the beginning of fiscal year 1999). Average sales
increases of approximately 2.4% by stores open throughout the full reporting
periods of fiscal years 2000 and 1999 accounted for $5.0 million of the
increase. One hundred fifty franchise drive-ins opened in fiscal year 2000
compared to 139 in fiscal year 1999, resulting in a 7.2% increase in franchise
fee revenues. Franchise royalties increased 16.5% to $47.6 million in fiscal
year 2000, compared to $40.9 million in fiscal year 1999. Of the $6.7 million
increase, approximately $2.7 million resulted from the franchise same-store
sales growth of 3.2% in fiscal year 2000. The balance of the increase was
attributable to additional franchise restaurants in operation, an increase in
royalty rates caused by the conversion of some of the Company's older license
agreements to newer agreements, and the automatic royalty rate step-up feature
contained in many of the Company's older license agreements.

     Restaurant cost of operations, as a percentage of Company-owned restaurant
sales, was 72.7% in fiscal year 2000, compared to 73.9% in fiscal year 1999.
Food and packaging costs decreased 50 basis points, as a percentage of Company-
owned restaurant sales, primarily as a result of lower unit costs for dairy
goods and other items, which more than offset higher beef costs and an increase
in discounting from standard menu pricing. Payroll and employee benefits, as a
percentage of Company-owned restaurant sales, decreased 50 basis points from
fiscal year 1999. Margins improved as a result of the leverage of operating at
higher volumes as well as the impact of the disposal of under-performing
restaurants during fiscal year 1999. These improvements helped offset an
increase in the average wage rate caused by unfavorable conditions in the labor
market, as well as the cost of additional crew level incentives including an
assistant manager bonus program and greater access to medical benefits for
store-level employees.

     Other operating expenses decreased 20 basis points due to the leveraging of
fixed costs over higher volumes and the disposition of under-performing stores.
As a result of the increase in restaurant operating margins, minority interest
in earnings of restaurants increased 18.0% to $10.2 million in fiscal year 2000,
compared to $8.6 million in fiscal year 1999. Many of the managers and
supervisors of Company-owned restaurants own a minority interest in the
restaurants, and their compensation flows through the minority interest in
earnings of restaurants.

     Selling, general and administrative expenses, as a percentage of total
revenues, increased to 10.0% in fiscal year 2000, compared with 9.9% in fiscal
year 1999. Management expects selling, general and administrative expenses, as a
percentage of revenues, to decrease in future periods because of a declining
rate of increase in the number of corporate employees and because the Company
expects a significant portion of future revenue growth to be attributable to
Company-owned restaurants. Company-owned restaurants require a lower level of
selling, general and administrative expenses, as a percentage of revenues, than
the Company's franchising operations since most of these expenses are reflected
in restaurant cost of operations and minority interest in restaurant operations.
Depreciation and amortization expense increased 9.9% to $20.3 million in fiscal
year 2000 resulting primarily from new drive-in development as well as store
equipment and technology upgrades. Management expects a higher level of
depreciation and amortization during fiscal year 2001, reflecting an increase in
the number of planned company store openings.

     During fiscal year 2000, two drive-ins became impaired under the guidelines
of FAS 121 - "Accounting for the Impairment of Long-Lived Assets," as compared
to four drive-ins in fiscal year 1999.  In addition, two drive-ins were written
down in fiscal year 1999 due to accessibility and expiring lease issues.  As a
result, the provision for impairment of long-lived assets which reflects the
drive-in's carrying cost in excess of the present value of estimated future cash
flows decreased 37.4% to $1.0 million in fiscal year 2000, compared to $1.5
million in fiscal year 1999.

     Income from operations increased 19.3% to $57.2 million in fiscal year 2000
from $47.9 million in fiscal year 1999.

     Net interest expense in fiscal year 2000 increased to $5.2 million from
$4.3 million in fiscal year 1999. This increase was the result of additional
borrowings to fund share repurchases of $29.8 million and capital expenditures
of $35.2

                                       18
<PAGE>

million. The Company expects interest expense to increase slightly during fiscal
year 2000. The amount of increase will depend on the level of future share
repurchases.

     Provision for income taxes reflects an effective federal and state tax rate
of 37.25% for fiscal years 2000 and 1999. Net income increased 19.1% to $32.6
million in fiscal year 2000 compared to $27.4 million in fiscal year 1999.
Diluted earnings per share increased to $1.17 per share in fiscal year 2000,
compared to $.94 per share in fiscal year 1999, for an increase of 24.5%.

     Comparison of Fiscal Year 1999 to Fiscal Year 1998. Total revenues
increased 17.6% to $257.6 million during fiscal year 1999 from $219.1 million in
fiscal year 1998. Company-owned restaurant sales increased 15.6% to $210.4
million in fiscal year 1999 from $182.0 million in fiscal year 1998. Of the
$28.4 million increase in Company-owned restaurant sales, $18.3 million was due
to the net addition of 40 Company-owned restaurants since the beginning of
fiscal 1998. Average sales increases of approximately 6.9% by stores open
throughout the full reporting periods of fiscal years 1999 and 1998 accounted
for $10.1 million of the increase. One hundred thirty-nine franchise drive-ins
opened in fiscal year 1999 compared to 120 in fiscal year 1998, which
contributed to a 35.3% increase in franchise fee revenues. In addition to the
larger store count, this increase resulted from a higher proportion of drive-ins
opening under the current form of license agreement which requires a $30,000
franchise fee. Franchise royalties increased 26.1% to $40.9 million in fiscal
year 1999, compared to $32.4 million in fiscal year 1998. Of the $8.5 million
increase, approximately $4.5 million resulted from the franchise same-store
sales growth of 8.3% in fiscal year 1999. The balance of the increase was
attributable to additional franchise restaurants in operation, an increase in
royalty rates caused by the conversion of older license agreements to newer
agreements, and the automatic royalty rate step-up feature contained in many of
the Company's older license agreements.

     Restaurant cost of operations, as a percentage of Company-owned restaurant
sales, was 73.9% in fiscal year 1999, compared to 74.6% in fiscal year 1998.
Food and packaging costs decreased 100 basis points as a percentage of Company-
owned restaurant sales, as a result of reduced discounting from standard menu
pricing as well as overall lower unit costs, particularly lower dairy costs.
Payroll and employee benefits, as a percentage of Company-owned restaurant
sales, were down 40 basis points from fiscal year 1998 due to lower pre-opening
costs as a result of fewer company store openings and worker's compensation
refunds received during the year. Improvements in payroll and employee benefit
costs resulting from the leverage of operating at higher volumes were offset by
an increase in the average wage rate resulting from unfavorable conditions in
the labor market and an increase in the labor hours per store. The increase in
labor hours resulted from the Company's continued efforts to provide superior
customer service.

     The increase in other operating expenses resulted from higher marketing
expenditures, increased landscaping and repair costs associated with the Sonic
2000 retrofit, and higher repair and maintenance costs resulting from the
outsourcing of point-of-sale support which was handled internally during fiscal
year 1998. The increase in marketing expenditures reflects the Company's
commitment to increased media efficiency through its system of advertising
cooperatives. As a result of the increase in restaurant operating margins,
minority interest in earnings of restaurants increased 9.1% to $8.6 million in
fiscal year 1999, compared to $7.9 million in fiscal year 1998. Many of the
managers and supervisors of Company-owned restaurants own a minority interest in
the restaurants, and their compensation flow through the minority interest in
earnings of restaurants.

     Selling, general and administrative expenses, as a percentage of total
revenues, decreased to 9.9% in fiscal year 1999, compared with 10.2% in fiscal
year 1998. Depreciation and amortization expense increased 24.8% to $3.7 million
in fiscal year 1999 resulting primarily from new drive-in development and
retrofits of existing restaurants.

     During fiscal year 1999, four drive-ins became impaired under the
guidelines of FAS 121 - "Accounting for the Impairment of Long-Lived Assets."
Two additional drive-ins were written down due to accessibility expiring lease
issues. As a result, a provision for impairment of long-lived assets of
approximately $1.5 million was recorded for the drive-in's carrying cost in
excess of the present value of estimated future cash flows.

     Income from operations increased 25.9% to $47.9 million in fiscal year 1999
from $38.1 million in fiscal year 1998 (excluding a $2.7 million special
provision for litigation settlement recorded in fiscal year 1998).

                                       19
<PAGE>

     Net interest expense in fiscal year 1999 increased to $4.3 million from
$2.7 million in fiscal year 1998. This increase was the result of additional
borrowings to fund share repurchases of $13.0 million and capital expenditures
in excess of cash flow from operating activities.

     Provision for income taxes reflects an effective federal and state tax rate
of 37.25% for fiscal years 1999 and 1998. Net income increased 23.6% to $27.4
million in fiscal year 1999 compared to $22.2 million in fiscal year 1998,
excluding the special provision for litigation settlement and before the
cumulative effect of accounting change. Diluted earnings per share increased to
$.94 per share in fiscal year 1999, compared to $.75 per share before cumulative
effect of accounting change and the special provision in fiscal year 1998, for
an increase of 25.3%.

Liquidity and Sources of Capital

     During fiscal year 2000, the Company opened 24 newly-constructed
restaurants and sold a net of four restaurants to franchisees. The Company
funded the total capital additions for fiscal year 2000 of $35.2 million, which
included the cost of newly-opened restaurants, new equipment for existing
restaurants, retrofits of existing restaurants, restaurants under construction,
and other capital expenditures, from cash generated by operating activities and
through borrowings under the Company's line of credit. During fiscal year 2000,
the Company purchased the real estate for 20 of the 24 newly-constructed
restaurants. The Company expects to own the land and building for most of its
future newly-constructed restaurants. The Company's board of directors expanded
the stock repurchase program during fiscal year 2000, increasing the funds
authorized for the repurchase of the Company's common stock from $32 million to
$72.8 million. The Company repurchased approximately 1.7 million shares of
common stock (as adjusted for the November 2000 stock split)at an aggregate cost
of $29.8 million during the year, leaving approximately $20 million available
under the share repurchase program as of the end of the fiscal year. As of
August 31, 2000, the Company's total cash balance of $3.5 million reflected the
impact of the cash generated from operating activities, borrowing activity, and
capital expenditures mentioned above.

     The Company has an agreement with a group of banks which provides the
Company with a $60 million line of credit expiring in July of 2002.  The Company
will use the line of credit to finance the opening of newly-constructed
restaurants, retrofit of existing restaurants, acquisitions of existing
restaurants, purchases of the Company's common stock and for other general
corporate purposes.  As of August 31, 2000, the Company's outstanding borrowings
under the line of credit were $33.6 million, as well as $0.2 million in
outstanding letters of credit.  The available line of credit as of August 31,
2000, was $26.2 million.

     The Company plans capital expenditures of approximately $50 million in
fiscal year 2001, excluding potential acquisitions and share repurchases.  These
capital expenditures primarily relate to the development of additional Company-
owned restaurants, stall additions, relocations of older restaurants, store
equipment upgrades, and enhancements to existing financial and operating
information systems, including refinement of a point-of-sale system.  The
Company expects to fund these capital expenditures through borrowings under its
existing unsecured revolving credit facility and cash flow from operations.  The
Company believes that existing cash and funds generated from internal
operations, as well as borrowings under the line of credit, will meet the
Company's needs for the foreseeable future.

Year 2000

     In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready.  In late 1999, the Company completed its remediation,
replacement and testing of existing software.  As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
As of August 31, 2000, the Company had expensed approximately $0.4 million in
connection with the remediation and replacement of its systems.  The Company is
not aware of any material problems resulting from Year 2000 issues, either with
its products, its internal systems, or the products and services of third
parties.  The Company will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout calendar year
2000 to ensure that any latent Year 2000 matters that arise are addressed
promptly.

                                       20
<PAGE>

Impact of Inflation

     Though increases in labor, food or other operating costs could adversely
affect the Company's operations, management does not believe that inflation has
had a material effect on income during the past several years.

Seasonality

     The Company does not expect seasonality to affect its operations in a
materially adverse manner. The Company's results during its second fiscal
quarter (the months of December, January and February) generally are lower than
other quarters because of the climate of the locations of a number of Company-
owned and franchised restaurants.


          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to market risk from changes in interest rates on
debt and notes receivable, as well as changes in commodity prices.

     The Company's exposure to interest rate risk currently consists of its
Senior Notes, outstanding line of credit and notes receivable. The Senior Notes
bear interest at fixed rates which average 6.7%. The aggregate balance
outstanding under the Senior Notes as of August 31, 2000 was $50.0 million.
Should interest rates increase or decrease, the estimated fair value of these
notes would decrease or increase, respectively. As of August 31, 2000, the
carrying amount of the Senior Notes exceeded the estimated fair value by
approximately $1.3 million. The line of credit bears interest at a rate
benchmarked to U.S. and European short-term interest rates. The balance
outstanding under the line of credit was $33.6 million as of August 31, 2000.
The Company has made certain loans to its store operating partners and
franchisees totaling $9.1 million as of August 31, 2000. The interest rates on
these notes are generally between ten and eleven percent. The Company believes
the fair market value of these notes approximates their carrying amount. The
impact on the Company's results of operations of a one-point interest rate
change on the outstanding balances under the Senior Notes, line of credit and
notes receivable as of the end of fiscal year 2000 would be immaterial.

     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, the Company has not committed to purchase any minimum
quantities under these arrangements, nor is the Company subject to any
liquidating damages under the agreements. The Company does not use financial
instruments to hedge commodity prices because these purchase arrangements help
control the ultimate cost and any commodity price aberrations are generally
short term in nature.

     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
--------------------

     No disagreements between the Company and its accountants have occurred
within the 24-month period prior to the date of the Company's most recent
financial statements.

                                       21
<PAGE>

                                   PART III
                                   --------

     Except for the information on the Company's executive officers set forth
under Item 4A of Part I of this report, the Company hereby incorporates by
reference the information required by Part III of this report from the
definitive proxy statement which the Company must file with the Securities and
Exchange Commission in connection with the Company's annual meeting of
stockholders following the fiscal year ended August 31, 2000.

                                       22
<PAGE>

                                    PART IV
                                    -------

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K
-------   ----------------------------------------------------------------

Financial Statements

     The following consolidated financial statements of the Company appear
immediately following this Item 14:

<TABLE>
<CAPTION>
                                                                                                                               Pages
                                                                                                                               -----
<S>                                                                                                                            <C>

          Report of Independent Auditors                                                                                         F-1
          Consolidated Balance Sheets at August 31, 2000 and 1999                                                                F-2
          Consolidated Statements of Income for each of the three years
          in the period ended August 31, 2000                                                                                    F-4
          Consolidated Statements of Stockholders' Equity for each of the three years
          in the period ended August 31, 2000                                                                                    F-5
          Consolidated Statements of Cash Flows for each of the three years
          in the period ended August 31, 2000                                                                                    F-6
          Notes to Consolidated Financial Statements                                                                             F-8
</TABLE>

Financial Statement Schedules

     The Company has included the following schedule immediately following this
     Item 14:
                                                                        Page
                                                                        -----
             Schedule II    -     Valuation and Qualifying Accounts     F-28

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

                                       23
<PAGE>

Exhibits

     The Company has filed the exhibits listed below with this report. The
Company has marked all employment 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.

     3.02.  Bylaws of the Company, which the Company hereby incorporates by
reference from Exhibit 3.2 to the Company's Form S-1 Registration Statement No.
33-37158.

     3.03.  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.

     3.04.  Rights Agreement, which the Company hereby incorporates by reference
from Exhibit 99.1 to the Company's Form 8-K filed on June 17, 1997.

     3.05.  Certificate of Amendment of Certificate of Incorporation of the
Company, March 4, 1996.

     4.01.  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.

     4.02.  Specimen Certificate for Rights, which the Company hereby
incorporates by reference from Exhibit 99.1 to the Company's Form 8-K filed on
June 17, 1997.

     10.01. Form of Sonic Industries Inc. License Agreement (the Number 4
License Agreement), which the Company hereby incorporates by reference from
Exhibit 10.1 to the Company's Form S-1 Registration Statement No. 33-37158.

     10.02. Form of Sonic Industries Inc. License Agreement (the Number 5
License Agreement), which the Company hereby incorporates by reference from
Exhibit 10.2 to the Company's Form S-1 Registration Statement No. 33-37158.

     10.03. Form of 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.

     10.04. Form of 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 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 Inc. License Agreement (the Number 5.2
License Agreement), which the Company hereby incorporates by reference from
Exhibit 10.06 to the Company's Form 10-K for the fiscal year ended August 31,
1998.

     10.07. Form of Sonic Industries Inc. Area Development 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, 1995.

     10.08. Form of Sonic Industries 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.

                                       24
<PAGE>

     10.09.  Form of General Partnership Agreement, Limited Liability Company
Operating Agreement, Partnership Master Agreement, and Limited Liability Company
Master Agreement, which the Company hereby incorporates by reference from
Exhibit 10.07 to the Company's Form 10-K for the fiscal year ended August 31,
1997.

     10.10.  1991 Sonic Corp. Stock Option Plan, which the Company hereby
incorporates by reference from Exhibit 10.5 to the Company's Form S-1
Registration Statement No. 33-37158.*

     10.11.  1991 Sonic Corp. Stock Purchase Plan, which the Company hereby
incorporates by reference from Exhibit 10.6 to the Company's Form S-1
Registration Statement No. 33-37158.*

     10.12.  1991 Sonic Corp. Directors' Stock Option Plan, which the Company
hereby incorporates by reference from Exhibit 10.08 to the Company's Form 10-K
for the fiscal year ended August 31, 1991.*

     10.13.  Sonic Corp. Savings and Profit Sharing Plan, which the Company
hereby incorporates by reference from Exhibit 10.8 to the Company's Form S-1
Registration Statement No. 33-37158.*

     10.14.  Net Revenue Incentive Plan, which the Company hereby incorporates
by reference from Exhibit 10.19 to the Company's Form S-1 Registration Statement
No. 33-37158.*

     10.15.  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.*

     10.16.  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.*

     10.17.  Sonic Corp. 1995 Stock Incentive Plan, which the Company hereby
incorporates by reference from Exhibit 10.15 to the Company's Form 10-K for the
fiscal year ended August 31, 1996.*

     10.18.  Form of Employment Agreement, which the Company hereby incorporates
by reference from the Company's Form 10-K for the fiscal year ended August 31,
1997.

     10.19.  Loan Agreement with Texas Commerce Bank National Association dated
July 31, 1995, which the Company hereby incorporates by reference from Exhibit
10.26 to the Company's Form 10-K for the fiscal year ended August 31, 1995.

     10.20.  First Amendment to Loan Agreement with Texas Commerce Bank National
Association, which the Company hereby incorporates by reference from Exhibit
10.18 to the Company's Form 10-K for the fiscal year ended August 31, 1996.

     10.21.  Second Amendment to Loan Agreement with Texas Commerce Bank
National Association, which the Company hereby incorporates by reference from
Exhibit 10.19 to the Company's Form 10-K for the fiscal year ended August 31,
1996.

     10.22.  Third Amendment to Loan Agreement with Texas Commerce Bank National
Association, which the Company hereby incorporates by reference from Exhibit
10.01 to the Company's Form 10-Q for the fiscal quarter ended May 31, 1997.

     10.23.  Fourth Amendment to the Loan Agreement with Chase Bank of Texas,
N.A. (formerly known as Texas Commerce Bank National Association), which the
Company hereby incorporates by reference from Exhibit 10.21 to the Company's 10-
Q for the fiscal quarter ended May 31, 1998.

     10.24.  Fifth Amendment to the Loan Agreement with Chase Bank of Texas,
N.A. (formerly known as Texas Commerce Bank National Association), which the
Company hereby incorporates by reference from Exhibit 10.22 to the Company's 10-
Q for the fiscal quarter ended May 31, 1998.

                                       25
<PAGE>

     10.25.  Sixth Amendment to the Loan Agreement with Chase Bank of Texas,
N.A. (formerly known as Texas Commerce Bank National Association), which the
Company hereby incorporates by reference from Exhibit 10.25 to the Company's
Form 10-K for the fiscal year ended August 31, 1999.

     10.26.  Note Purchase Agreement dated April 1, 1998, which the Company
hereby incorporates by reference from Exhibit 10.23 to the Company's 10-Q for
the fiscal quarter ended May 31, 1998.

     10.27.  Form of 6.652% Senior Notes, Series A, due April 1, 2003, which the
Company hereby incorporates by reference from Exhibit 10.24 to the Company's 10-
Q for the fiscal quarter ended May 31, 1998.

     10.28.  Form of 6.759% Senior Notes, Series B, due April 1, 2003, which the
Company hereby incorporates by reference from Exhibit 10.24 to the Company's 10-
Q for the fiscal quarter ended May 31, 1998.

     10.29.  Seventh Amendment to the Loan Agreement with Chase Bank of Texas,
N.A. (formerly known as Texas Commerce Bank National Association).

     21.01.  Subsidiaries of the Company, which the Company hereby incorporates
by reference from Exhibit 21.01 to the Company's Form 10-K for the fiscal year
ended August 31, 1996.

     23.01.  Consent of Independent Auditors.

     27.01.  Financial Data Schedule.

Reports on Form 8-K

     The Company did not file any reports on Form 8-K during its last fiscal
quarter ended August 31, 2000.

                                       26
<PAGE>

                         Report of Independent Auditors

The Board of Directors and Stockholders
Sonic Corp.

We have audited the accompanying consolidated balance sheets of Sonic Corp. as
of August 31, 2000 and 1999, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended August 31, 2000. Our audits also included the financial statement schedule
listed in Item 14. 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 auditing standards generally accepted
in the 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, 2000 and 1999, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended August 31, 2000, in
conformity with accounting principles generally accepted in the United States.
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.

As discussed in Note 1 to the accompanying consolidated financial statements, in
fiscal year 1998, Sonic Corp. changed its method of accounting for pre-opening
and other start-up costs by adopting Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities."


                                    ERNST & YOUNG LLP

Oklahoma City, Oklahoma
October 13, 2000, except for the second
paragraph of Note 12, as to which the
date is November 14, 2000

                                      F-1
<PAGE>

                                  Sonic Corp.

                          Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                  August 31,
                                                                            2000            1999
                                                                      ---------------------------
                                                                              (In Thousands)
<S>                                                                   <C>             <C>
Assets
Current assets:
 Cash and cash equivalents                                            $    3,477      $    1,612
 Accounts and notes receivable, net                                        9,685           7,652
 Net investment in direct financing and sales-type leases                    625             645
 Inventories                                                               1,677           1,460
 Deferred income taxes                                                       292             567
 Prepaid expenses                                                          1,121             640
                                                                      --------------------------
Total current assets                                                      16,877          12,576


Notes receivable, net                                                      7,679           5,871


Net investment in direct financing and sales-type leases                   7,220           5,795


Property, equipment and capital leases, net                              222,318         207,890


Intangibles and other assets, net                                         24,277          24,545
                                                                      --------------------------
Total assets                                                          $  278,371      $  256,677
                                                                      ==========================
</TABLE>

                                      F-2
<PAGE>

                                  Sonic Corp.

                    Consolidated Balance Sheets (continued)

<TABLE>
<CAPTION>
                                                                                  August 31,
                                                                            2000             1999
                                                                    ----------------------------------
                                                                                (In Thousands)
<S>                                                                   <C>              <C>
Liabilities and stockholders' equity
Current liabilities:
 Accounts payable                                                     $    7,455       $    5,104
 Deposits from franchisees                                                   778              813
 Accrued liabilities                                                      14,363           13,564
 Long-term debt and obligations under capital leases due within
  one year                                                                   652              838
                                                                     -----------------------------
Total current liabilities                                                 23,248           20,319

Obligations under capital leases due after one year                        6,668            7,279
Long-term debt due after one year                                         83,860           72,331
Other noncurrent liabilities                                               6,222            4,489
Deferred income taxes                                                      3,110            2,504
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; 40,000,000 shares authorized;
  shares issued 31,324,832 in 2000 and 20,746,462 in 1999                    313              207
 Paid-in capital                                                          69,786           67,212
 Retained earnings                                                       149,478          116,851
                                                                     -----------------------------
                                                                         219,577          184,270
 Treasury stock, at cost; 4,953,309 shares in 2000 and
  2,164,376 shares in 1999                                               (64,314)         (34,515)
                                                                     -----------------------------
Total stockholders' equity                                               155,263          149,755
                                                                     -----------------------------
Total liabilities and stockholders' equity                            $  278,371       $  256,677
                                                                     =============================
</TABLE>

See accompanying notes.

                                      F-3
<PAGE>

                                  Sonic Corp.

                       Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                                            Year ended August 31,
                                                                    2000            1999            1998
                                                            --------------------------------------------
                                                                 (In Thousands, Except Per Share Data)
<S>                                                           <C>             <C>             <C>
Revenues:
  Company-owned restaurant sales                              $  224,880      $  210,419      $  182,011
  Franchised restaurants:
    Franchise royalties                                           47,595          40,859          32,391
    Franchise fees                                                 3,717           3,468           2,564
  Other                                                            3,864           2,861           2,141
                                                            --------------------------------------------
                                                                 280,056         257,607         219,107
Costs and expenses:
  Company-owned restaurants:
    Food and packaging                                            58,778          56,048          50,179
    Payroll and other employee benefits                           62,576          59,490          52,310
    Other operating expenses                                      42,216          39,983          33,317
                                                            --------------------------------------------
                                                                 163,570         155,521         135,806

  Selling, general and administrative                             27,894          25,543          22,250
  Depreciation and amortization                                   20,287          18,464          14,790
  Minority interest in earnings of restaurants                    10,173           8,623           7,904
  Provision for impairment of long-lived assets and other            951           1,519             285
  Special provision for litigation settlement                          -               -           2,700
                                                            --------------------------------------------
                                                                 222,875         209,670         183,735
                                                            --------------------------------------------
Income from operations                                            57,181          47,937          35,372

Interest expense                                                   6,234           5,047           3,446
Interest income                                                   (1,048)           (769)           (696)
                                                            --------------------------------------------
Net interest expense                                               5,186           4,278           2,750
                                                            --------------------------------------------
Income before income taxes and cumulative effect
   of change in accounting                                        51,995          43,659          32,622
Provision for income taxes                                        19,368          16,263          12,152
                                                            --------------------------------------------
Income before cumulative effect of change in accounting           32,627          27,396          20,470
Cumulative effect of change in accounting, net of income
   taxes of $404,000 (Note 1)                                          -               -             681
                                                            --------------------------------------------
Net income                                                    $   32,627      $   27,396      $   19,789
                                                            ============================================

Basic income per share:
   Income before cumulative effect of change in
    accounting                                                $     1.21      $      .97      $      .71
   Cumulative effect of change in accounting                           -               -            (.02)
                                                         -----------------------------------------------
   Net income per share - basic                               $     1.21      $      .97      $      .69
                                                         ===============================================
Diluted income per share:
   Income before cumulative effect of change in
    accounting                                                $     1.17      $      .94      $      .69
   Cumulative effect of change in accounting                           -               -            (.02)
                                                         -----------------------------------------------
   Net income per share - diluted                             $     1.17     $       .94     $       .67
                                                         ===============================================
</TABLE>

See accompanying notes.

                                      F-4
<PAGE>

                                  Sonic Corp.

                Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                               Common Stock                                        Treasury Stock
                                               ------------          Paid-in       Retained        --------------
                                           Shares         Amount     Capital       Earnings     Shares       Amount
                                         --------------------------------------------------------------------------
                                                                        (In Thousands)
<S>                                        <C>          <C>       <C>            <C>            <C>      <C>
Balance at August 31, 1997                      13,532      $135       $59,891        $ 69,666      807    $(11,518)

Exercise of common stock options                   187         2         2,690               -        -           -
Tax benefit related to exercise of
 employee stock options                              -         -         1,356               -        -           -
Purchase of treasury stock                           -         -             -               -      414      (9,998)
Three-for-two stock split, including
 $2,000 paid in cash for fractional
 shares                                          6,835        69           (71)              -      471           -
Net income                                           -         -             -          19,789        -           -
                                             ----------------------------------------------------------------------
Balance at August 31, 1998                      20,554       206        63,866          89,455    1,692     (21,516)

Exercise of common stock options                   192         1         2,367               -        -           -
Tax benefit related to exercise of
 employee stock options                              -         -           979               -        -           -
Purchase of treasury stock                           -         -             -               -      472     (12,999)
Net income                                           -         -             -          27,396        -           -
                                             ----------------------------------------------------------------------
Balance at August 31, 1999                      20,746       207        67,212         116,851    2,164     (34,515)

Exercise of common stock options                   137         2         1,911               -        -           -
Tax benefit related to exercise of
 employee stock options                              -         -           767               -        -           -
Purchase of treasury stock                           -         -             -               -    1,138     (29,799)
Three-for-two stock split                       10,442       104          (104)              -    1,651           -
Net income                                           -         -             -          32,627        -           -
                                         --------------------------------------------------------------------------
Balance at August 31, 2000                      31,325      $313       $69,786        $149,478    4,953    $(64,314)
                                         ==========================================================================
</TABLE>

                                      F-5
<PAGE>

                                  Sonic Corp.

                     Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                     Year ended August 31,
                                                            2000             1999             1998
                                                          ------------------------------------------
                                                                     (In Thousands)
<S>                                                       <C>              <C>              <C>
Cash flows from operating activities
Net income                                                $ 32,627         $ 27,396         $ 19,789
Adjustments to reconcile net income to net
  cash provided by operating activities:
    Cumulative effect of change in accounting                    -                -              681
    Depreciation                                            18,369           16,673           13,218
    Amortization                                             1,918            1,791            1,572
    (Gains) losses on dispositions of assets                    63              885             (282)
    Amortization of franchise and development fees          (3,705)          (3,468)          (2,564)
    Franchise and development fees collected                 3,930            3,548            2,771
    Provision (benefit) for deferred income taxes,
     net of $404,000 credit in 1998                            881           (1,362)           2,643
    Provision for impairment of long-lived assets              951            1,519              285
    Tax benefit related to exercise of employee
     stock options                                             767              979            1,356
    Other                                                      (19)              63               60
    (Increase) decrease in operating assets:
      Accounts and notes receivable                         (2,245)             726             (632)
      Refundable income taxes                                    -            2,413               76
      Inventories and prepaid expenses                        (690)            (457)            (309)
    Increase (decrease) in operating liabilities:
      Accounts payable                                       2,342           (5,636)           6,105
      Accrued and other liabilities                          1,420            2,287            2,277
                                                          ------------------------------------------
Total adjustments                                           23,982           19,961           27,257
                                                          ------------------------------------------
Net cash provided by operating activities                   56,609           47,357           47,046

Cash flows from investing activities
Purchases of property and equipment                        (35,151)         (45,711)         (66,982)
Investments in direct financing leases                      (2,713)          (3,937)          (1,624)
Collections on direct financing leases                       1,353            2,423            1,244
Proceeds from dispositions of assets                           933            5,630            1,745
Increase in intangibles and other assets                    (2,036)          (6,014)          (1,697)
                                                          ------------------------------------------
Net cash used in investing activities                      (37,614)         (47,609)         (67,314)
</TABLE>

(Continued on following page)

                                      F-6
<PAGE>

                                  Sonic Corp.

               Consolidated Statements of Cash Flows (continued)

<TABLE>
<CAPTION>
                                                                  Year ended August 31,
                                                              2000             1999             1998
                                                  --------------------------------------------------
                                                                     (In Thousands)
<S>                                                 <C>              <C>              <C>
Cash flows from financing activities
Proceeds from long-term borrowings                       $ 124,155        $ 105,750        $ 105,500
Payments on long-term debt                                (112,674)         (94,868)         (81,615)
Purchases of treasury stock                                (29,799)         (12,999)          (9,998)
Payments on capital lease obligations                         (725)            (989)          (1,041)
Exercises of stock options                                   1,913            2,368            2,692
Other                                                            -                -               (2)
                                                         -------------------------------------------
Net cash provided by (used in) financing activities        (17,130)            (738)          15,536
                                                         -------------------------------------------

Net increase (decrease) in cash and cash equivalents         1,865             (990)          (4,732)

Cash and cash equivalents at beginning of the year           1,612            2,602            7,334
                                                         -------------------------------------------
Cash and cash equivalents at end of the year             $   3,477        $   1,612        $   2,602
                                                         ===========================================


Supplemental cash flow information
Cash paid during the year for:
 Interest (net of amounts capitalized)                   $   6,147        $   4,814        $   2,271
 Income taxes (net of refunds)                              18,649           12,876            8,030
Additions to capital lease obligations                         294              879              249
Accounts and notes receivable and decrease in
 capital lease obligations from property and
 equipment sales                                             1,553            3,685            1,330
</TABLE>

See accompanying notes.

                                      F-7
<PAGE>

                                  Sonic Corp.

                   Notes to Consolidated Financial Statements

                         August 31, 2000, 1999 and 1998

                       (In Thousands, Except Share Data)

1. Summary of Significant Accounting Policies

Operations

Sonic Corp. (the "Company") operates and franchises a chain of quick-service
drive-in restaurants in the United States.  It derives its revenues primarily
from Company-owned restaurant sales and royalty fees from franchisees.  The
Company also leases signs and real estate.  The Company grants credit to its
operating partners and its franchisees, all of whom are in the restaurant
business. Substantially all of the notes receivable and direct financing leases
are collateralized by real estate or equipment.

Principles of Consolidation

The accompanying financial statements include the accounts of the Company, its
wholly-owned subsidiaries and its majority-owned, Company-operated restaurants,
organized principally as general partnerships.  All significant intercompany
accounts and transactions have been eliminated.

Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles 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.

Inventories

Inventories consist principally of food and supplies which are carried at the
lower of cost (first-in, first-out basis) or market and used restaurant
equipment held for sale which is carried at the lower of weighted average cost
or market.

                                      F-8
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                      (In Thousands, Except Share Data)

1.  Summary of Significant Accounting Policies (continued)

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 capital leases are computed by the
straight-line method over the estimated useful lives or initial terms of the
leases, respectively.

Accounting for Long-Lived Assets

The Company reviews long-lived assets, identifiable intangibles, and goodwill
related to those 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 restaurant.  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.  The fair value of the asset is measured by either calculating
the present value of estimated future cash flows using a discount rate
equivalent to the rate of return the Company expects to achieve from its
investment in newly-constructed restaurants or appraisals.

Assets held for disposal are carried at the lower of depreciated cost or fair
value less cost to sell.  Fair values are estimated based upon appraisals or
independent assessments of the assets' estimated sales values.  During the
period in which assets are being held for disposal, depreciation and
amortization of such assets are not recognized.

Pre-Opening Costs

Prior to fiscal year 1998, the Company capitalized certain direct costs
associated with opening new restaurants and amortized these costs over the first
twelve months of restaurant operations.  Effective September 1, 1997, the
Company adopted Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-Up Activities."  SOP 98-5 requires that pre-opening and other start-up
costs be expensed as incurred.  The cumulative effect of adopting SOP 98-5
resulted in a charge to operations for the unamortized balance of pre-opening
and other start-up costs as of August 31, 1997 of $681 or $.02 per share
(diluted), net of income tax effects of $404 and minority interest of $248.

                                      F-9
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                      (In Thousands, Except Share Data)

1.  Summary of Significant Accounting Policies (continued)

Goodwill and Other Intangible Assets

Trademarks, trade names and goodwill are amortized on the straight-line method
over periods not exceeding forty years.  Franchise agreements, other intangibles
and deferred costs included in other assets are amortized on the straight-line
method over the expected period of benefit, not exceeding fifteen years.  The
Company assesses the recoverability of intangible assets, including goodwill, by
determining whether the asset balance can be recovered over its remaining life
through undiscounted future operating cash flows of the related acquired asset
or corporate entity, as applicable.  Enterprise-wide goodwill and other
intangible assets are assessed at least annually and whenever indicators of
impairment, such as a net use of cash flow from operating activities exist.  The
amount of impairment, if any, would be measured based on projected discounted
future operating cash flows, using a discount factor commensurate with the
Company's expected rate of return on similar investments.

Franchise Fees and Royalties

Initial franchise fees are nonrefundable and are recognized in income when all
material services or conditions relating to the sale of the franchise have been
substantially performed or satisfied by the Company.  Area development fees are
nonrefundable and are recognized in income on a pro rata basis when the
conditions for revenue recognition under the individual development agreements
are met.  Royalties from franchise operations are recognized in income as
earned.

Advertising Costs

Costs incurred in connection with advertising and promotion of the Company's
products are expensed as incurred.  Such costs amounted to $11,531, $11,146, and
$9,340 for fiscal years 2000, 1999 and 1998, respectively.

Cash Equivalents

Cash equivalents consist of highly liquid investments with a maturity of three
months or less from date of purchase.

Reclassifications

Certain prior year amounts have been reclassified in order to conform to the
current year presentation.
                                      F-10
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                      (In Thousands, Except Share Data)


2.  Net Income Per Share

The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                                  Year ended August 31,
                                                                2000             1999            1998
                                                   --------------------------------------------------
<S>                                                  <C>              <C>              <C>
Numerator:
   Net income                                            $    32,627      $    27,396     $    19,789

Denominator:
   Weighted average shares outstanding - basic            26,930,968       28,272,567      28,661,054
   Effect of dilutive employee stock options               1,032,135          927,647         946,571
                                                   --------------------------------------------------
   Weighted average shares - diluted                      27,963,103       29,200,214      29,607,625
                                                   ==================================================

Net income per share - basic                             $      1.21      $      0.97     $      0.69
                                                   ==================================================
Net income per share - diluted                           $      1.17      $      0.94     $      0.67
                                                   ==================================================

Anti-dilutive employee stock options excluded                301,638          187,364         130,242
                                                   ==================================================
</TABLE>

3.  Impairment of Long-Lived Assets

As of August 31, 2000 and 1999, the Company had identified certain
underperforming restaurants whose operating results indicated that certain
assets of these restaurants might be impaired.  The buildings and improvements
of these restaurants had combined carrying amounts of $4,229 and $5,561
respectively.  During fiscal years 2000 and 1999, the Company performed
quarterly analyses of these and other restaurants which had incurred operating
losses.  As a result of these analyses, the Company determined that certain
restaurants with then-existing carrying amounts of $1,047 and $1,698,
respectively, were impaired and wrote them down by $951 and $1,519,
respectively, to their fair values. Management's estimate of undiscounted future
cash flows indicates that the remaining carrying amounts as of August 31, 2000
are expected to be recovered.  However, it is reasonably possible that the
estimate of cash flows may change in the near future resulting in the need to
write-down one or more of the identified assets to fair value.

                                      F-11
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

4. Accounts and Notes Receivable

Accounts and notes receivable consist of the following at August 31, 2000 and
1999:

<TABLE>
<CAPTION>
                                                                  2000          1999
                                                                ------------------------
<S>                                                             <C>             <C>
Royalties and other trade receivables                             $5,168          $3,759
Notes receivable--current                                          1,223           1,573
Other                                                              3,417           2,409
                                                                ------------------------
                                                                   9,808           7,741
Less allowance for doubtful accounts and notes receivable            123              89
                                                                ------------------------
                                                                  $9,685          $7,652
                                                                ========================

Notes receivable--noncurrent                                      $7,898          $6,062
Less allowance for doubtful notes receivable                         219             191
                                                                ------------------------
                                                                  $7,679          $5,871
                                                                ========================
</TABLE>

As of August 31, 2000 and 1999, notes receivable from one franchisee totaled
$4,007 and $4,262 respectively.


5. Intangibles and Other Assets

Intangibles and other assets consist of the following at August 31, 2000 and
1999:

<TABLE>
<CAPTION>
                                                                   2000             1999
                                                                ---------------------------
<S>                                                              <C>             <C>
Trademarks, trade names, and goodwill                               $29,838         $28,373
Franchise agreements                                                  1,870           1,870
Other intangibles and other assets                                    2,535           3,022
                                                                ---------------------------
                                                                     34,243          33,265
Less accumulated amortization                                         9,966           8,720
                                                                ---------------------------
                                                                    $24,277         $24,545
                                                                ===========================
</TABLE>

                                      F-12
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

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 and expire over the next fifteen years.  The
equipment portions of these leases are classified principally as direct
financing or sales-type leases and expire principally over the next ten years.
These leases include provisions for contingent rentals which 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.  These options enable the Company to retain use of
properties in desirable operating areas.

Certain Company-owned restaurants lease land and buildings from third parties.
These leases, which expire over the next twenty years, include provisions for
contingent rentals which may be paid on the basis of a percentage of sales in
excess of stipulated amounts. The land portions of these leases are classified
as operating leases and the buildings portions are classified as capital leases.

Direct Financing and Sales-type Leases

Components of net investment in direct financing and sales-type leases are as
follows at August 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                                            2000            1999
                                                                --------------------------------
<S>                                                               <C>             <C>
Minimum lease payments receivable                                        $13,189         $10,800
Less unearned income                                                       5,344           4,360
                                                                --------------------------------
Net investment in direct financing and sales-type leases                   7,845           6,440
Less amount due within one year                                              625             645
                                                                --------------------------------
Amount due after one year                                                $ 7,220         $ 5,795
                                                                ================================
</TABLE>

Initial direct costs incurred in the negotiation and consummation of direct
financing and sales-type lease transactions have not been material.
Accordingly, no portion of unearned income has been recognized to offset those
costs.

                                      F-13
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

6.  Leases (continued)

Future minimum rental payments receivable are as follows:

                                                        Direct Financing
                                            Operating    and Sales-Type
                                       ---------------------------------

Year ending August 31:
   2001                                      $ 1,217             $ 1,668
   2002                                        1,236               1,636
   2003                                          780               1,602
   2004                                          745               1,554
   2005                                          756               1,511
   Thereafter                                  5,981               5,218
                                       ---------------------------------
                                              10,715              13,189
Less unearned income                               -               5,344
                                       ---------------------------------
                                             $10,715             $ 7,845
                                       =================================

Capital Leases

Components of obligations under capital leases are as follows at August 31, 2000
and 1999:

                                                      2000            1999
                                                   --------------------------

Total minimum lease payments                          $11,754         $13,020
Less amount representing interest                       4,455           4,972
                                                   --------------------------
Present value of net minimum lease payments             7,299           8,048
Less amount due within one year                           631             769
                                                   --------------------------
Amount due after one year                             $ 6,668         $ 7,279
                                                   ==========================

                                      F-14
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

6.  Leases (continued

Maturities of these obligations under capital leases, including interest
averaging 12% in fiscal years 2000 and 1999, and future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year are as follows:

                                                 Operating        Capital
                                               --------------------------

   Year ending August 31:
    2001                                          $ 3,097         $ 1,367
    2002                                            3,003           1,316
    2003                                            2,389           1,275
    2004                                            2,330           1,226
    2005                                            2,270           1,135
    Thereafter                                     15,280           5,435
                                               --------------------------
                                                   28,369          11,754
    Less amount representing interest                   -           4,455
                                               --------------------------
                                                  $28,369         $ 7,299
                                               ==========================

Total minimum lease payments do not include contingent rentals on capital leases
which have not been material.

Total rent expense for all operating leases consists of the following:

                                                Year ended August 31,
                                        2000            1999            1998
                                    ------------------------------------------

Minimum rentals                        $3,810           $3,573          $3,323
Contingent rentals                        126              134             159
Sublease rentals                         (135)            (176)           (134)
                                    ------------------------------------------
                                       $3,801           $3,531          $3,348
                                    ==========================================

                                      F-15
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

7.  Property, Equipment and Capital Leases

Property, equipment and capital leases consist of the following at August 31,
2000 and 1999:

<TABLE>
<CAPTION>
                                                                       2000            1999
                                                                --------------------------------
<S>                                                               <C>             <C>
Home office:
 Land and leasehold improvements                                        $  1,530        $  1,482
 Computer and other equipment                                             22,501          20,420
Restaurants, including those leased to others:
 Land                                                                     65,224          57,066
 Buildings                                                               114,709         101,471
 Equipment                                                                73,017          67,084
                                                                --------------------------------
Property and equipment, at cost                                          276,981         247,523
Less accumulated depreciation                                             60,296          45,838
                                                                --------------------------------
Property and equipment, net                                              216,685         201,685

Leased restaurant buildings and equipment under capital leases,
 including those held for sublease                                         9,763          10,222
Less accumulated amortization                                              4,130           4,017
                                                                --------------------------------
Capital leases, net                                                        5,633           6,205
                                                                --------------------------------
Property, equipment and capital leases, net                             $222,318        $207,890
                                                                ================================
</TABLE>

Land, buildings and equipment with a carrying amount of $29,140 at August 31,
2000 were leased under operating leases to franchisees or other parties.  The
accumulated depreciation related to these buildings and equipment was $3,234 at
August 31, 2000.  As of August 31, 2000, the Company had restaurants under
construction with costs to complete which aggregated $4,425.

                                      F-16
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

8.  Accrued Liabilities

Accrued liabilities consist of the following at August 31, 2000 and 1999:

                                                        2000            1999
                                              --------------------------------

Wages and other employee benefits                      $ 3,734         $ 2,881
Taxes, other than income taxes                           4,941           4,332
Income taxes payable                                     1,629           2,558
Accrued interest                                         1,563           1,476
Other                                                    2,496           2,317
                                              --------------------------------
                                                       $14,363         $13,564
                                              ================================

9.  Long-Term Debt

Long-term debt consists of the following at August 31, 2000 and 1999:

                                                       2000            1999
                                              --------------------------------

Senior unsecured notes (A)                             $50,000         $50,000
Borrowings under line of credit (B)                     33,550          22,000
Other                                                      331             400
                                              --------------------------------
                                                        83,881          72,400
Less long-term debt due within one year                     21              69
                                              --------------------------------
Long-term debt due after one year                      $83,860         $72,331
                                              ================================

                                      F-17
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

9.  Long-Term Debt (continued)

(A)  The Company has $50,000 of senior unsecured notes with $20,000 of Series A
     notes maturing in 2003 and $30,000 of Series B notes maturing in 2005.
     Interest is payable semi-annually and accrues at 6.65% for the Series A
     notes and 6.76% for the Series B notes. The related agreement requires,
     among other things, the Company to maintain equity of a specified amount,
     maintain ratios of debt to total capital and fixed charge coverage and
     limits additional borrowings.

(B)  The Company has an agreement (as amended) with a group of banks which
     provides for a $60,000 line of credit, including a $2,000 sub-limit for
     letters of credit, expiring in July 2002. The agreement allows for annual
     renewal options, subject to approval by the banks. The Company uses the
     line of credit to finance the opening of newly-constructed restaurants,
     acquisition of existing restaurants and for general corporate purposes.
     Borrowings under the line of credit are unsecured and bear interest at a
     specified bank's prime rate or, at the Company's option, LIBOR plus 0.50%
     to 1.25%. In addition, the Company pays an annual commitment fee ranging
     from .125% to .25% on the unused portion of the line of credit. As of
     August 31, 2000, the Company's effective borrowing rate was 7.7%. As of
     August 31, 2000 there were $150 in letters of credit outstanding under the
     line of credit. The agreement requires, among other things, the Company to
     maintain equity of a specified amount, maintain ratios of debt to EBITDA
     and fixed charge coverage and limits additional borrowings and acquisitions
     of businesses.

Maturities of long-term debt for each of the five years after August 31, 2000
are $21 in 2001, $33,573 in 2002, $20,025 in 2003, $27 in 2004, $30,030 in 2005,
and $205 thereafter.

10. Other Noncurrent Liabilities

Other noncurrent liabilities consist of the following at August 31, 2000 and
1999:

<TABLE>
<CAPTION>
                                                                 2000            1999
                                                     --------------------------------
<S>                                                    <C>             <C>
Minority interest in consolidated restaurants                  $4,047          $3,093
Deferred area development fees                                  1,009             749
Other                                                           1,166             647
                                                     --------------------------------
                                                               $6,222          $4,489
                                                     ================================
</TABLE>

                                      F-18
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

11.  Income Taxes

The components of the provision for income taxes related to income before
cumulative effect of change in accounting principle consists of the following:

<TABLE>
<CAPTION>
                                                                   Year ended August 31,
                                                              2000            1999             1998
                                                  -------------------------------------------------
<S>                                               <C>                     <C>              <C>
Current:
 Federal                                                   $17,182         $16,448          $ 9,010
 State                                                       1,305           1,177               95
                                                  -------------------------------------------------
                                                            18,487          17,625            9,105

Deferred:
 Federal                                                       766          (1,184)           2,614
 State                                                         115            (178)             433
                                                  -------------------------------------------------
                                                               881          (1,362)           3,047
                                                  -------------------------------------------------
Provision for income taxes                                 $19,368         $16,263          $12,152
                                                  =================================================
</TABLE>

The provision for income taxes on income before cumulative effect of change in
accounting principle differs from the amount computed by applying the statutory
federal income tax rate due to the following:

<TABLE>
<CAPTION>
                                                                Year ended August 31,
                                                              2000            1999            1998
                                                  ------------------------------------------------
<S>                                               <C>                      <C>             <C>
Amount computed by applying a tax rate of 35%              $18,198         $15,281         $11,418
State income taxes (net of federal income tax
 benefit)                                                      923             650             343
Other                                                          247             332             391
                                                  ------------------------------------------------
Provision for income taxes                                 $19,368         $16,263         $12,152
                                                  ================================================
</TABLE>

                                      F-19
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

11. Income Taxes (continued)

Deferred tax assets and liabilities consist of the following at August 31, 2000
and 1999:

<TABLE>
<CAPTION>
                                                                            2000             1999
                                                                ---------------------------------
<S>                                                              <C>                      <C>
Deferred tax assets:
 Allowance for doubtful accounts and notes receivable                    $   131          $   107
 Property, equipment and capital leases                                      174              412
 Accrued litigation costs                                                    296              315
 State net operating losses                                                1,400            1,600
 Other                                                                       224               81
                                                                ---------------------------------
                                                                           2,225            2,515
 Valuation allowance                                                      (1,400)          (1,600)
                                                                ---------------------------------
Deferred tax assets                                                          825              915

Less deferred tax liabilities:
 Net investment in direct financing and sales-type leases,
  including differences related to capitalization and
  amortization                                                             1,567              915
 Investment in partnerships, including differences in
  capitalization and depreciation related to direct financing
  and sales-type leases and different year ends for financial
  and tax reporting purposes                                               1,564            1,779
 Intangibles and other assets                                                334              135
 Other                                                                       178               23
                                                                ---------------------------------
Deferred tax liabilities                                                   3,643            2,852
                                                                ---------------------------------
Net deferred tax liabilities                                             $(2,818)         $(1,937)
                                                                =================================
</TABLE>

State net operating loss carryfowards expire generally beginning in 2010.

                                      F-20
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

12.  Stockholders' Equity

On April 30, 1998, the Company's board of directors authorized a three-for-two
stock split in the form of a stock dividend.  A total of 10,252,643 shares of
common stock were issued in connection with the split. The stated par value of
each share was not changed from $.01.  An aggregate amount equal to the par
value of the common stock issued plus cash paid in lieu of fractional shares of
$71 was reclassified from paid-in capital to common stock.

On November 14, 2000, the Company's board of directors authorized a three-for-
two stock split in the form of a stock dividend.  A total of 10,441,611 shares
of common stock are expected to be issued on November 30, 2000 in connection
with the split. The stated par value of each share was not changed from $.01. An
aggregate amount equal to the par value of the common stock issued of $104 will
be reclassified from paid-in capital to common stock.

All references in the accompanying consolidated financial statements to weighted
average numbers of shares outstanding, per share amounts and Stock Purchase Plan
and Stock Options share data have been adjusted to reflect both stock splits on
a retroactive basis.

Stock Purchase Plan

The Company has an employee stock purchase plan for all full-time regular
employees. Employees are eligible to purchase shares of common stock each year
through a payroll deduction not in excess of the lesser of 10% of compensation
or $25. The aggregate amount of stock that employees may purchase under this
plan is limited to 337,500 shares. The purchase price will be between 85% and
100% of the stock's fair market value. Such price will be determined by the
Company's board of directors.

Stock Options

The Company has an Incentive Stock Option Plan (the "Incentive Plan") and a
Directors' Stock Option Plan (the "Directors' Plan").  Under the Incentive Plan,
the Company is authorized to grant options to purchase up to 4,207,500 shares of
the Company's common stock to officers and key employees of the Company and its
subsidiaries.  Under the Directors' Plan, the Company is authorized to grant
options to purchase up to 506,250 shares of the Company's common stock to the
Company's outside directors.  The exercise price of the options to be granted is
equal to the fair market value of the Company's common stock on the date of
grant.  Unless otherwise provided by the Company's Stock Plan Committee, options
under both plans become exercisable ratably over a three-year period or
immediately upon change in control of the Company, as defined by the plans.
All options expire at the earlier of termination of employment or ten years
after the date of grant.

                                      F-21
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)


12.  Stockholders' Equity (continued)

The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its stock options because, as discussed below,
the alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing such stock options.  Under APB
25, because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.

Pro forma information regarding net income and net income per share is required
by Statement 123, which also requires that the information be determined as if
the Company has accounted for its stock options granted subsequent to August 31,
1995 under the fair value method of that Statement.  The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions for fiscal years 2000,
1999, and 1998 respectively:  risk-free interest rates of 6.6%, 5.2%, and 5.7%;
a dividend yield of 0%; volatility factors of the expected market price of the
Company's common stock of 45.7%, 42.1%, and 40.0%; and a weighted average
expected life of the options of 4.5, 5.0 and 5.0 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable.  In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility.  Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information for the years ended August 31 follows:

                                                 2000       1999         1998
                                               -------------------------------

Pro forma net income                            $29,912    $25,370      $18,394
Pro forma net income per share-diluted          $  1.07    $   .87      $   .62

                                      F-22
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

12.  Stockholders' Equity (continued)

A summary of the Company's stock option activity (adjusted for the stock
splits), and related information for the years ended August 31 follows:

<TABLE>
<CAPTION>
                                                2000                            1999                        1998
                                    -----------------------------     ------------------------     -------------------------
                                                        Weighted                     Weighted                      Weighted
                                                         Average                     Average                       Average
                                                        Exercise                     Exercise                      Exercise
                                        Options           Price        Options        Price          Options        Price
                                    ----------------------------------------------------------------------------------------
<S>                                 <C>                <C>            <C>            <C>           <C>             <C>
Outstanding--beginning of year            2,781,716        $10.70      2,647,155        $ 8.91       2,692,984        $ 7.60
Granted                                     566,814         19.77        542,739         18.21         582,520         13.51
Exercised                                  (205,152)         9.33       (288,384)         8.21        (385,373)         6.99
Forfeited                                   (32,552)        18.34       (119,794)        11.13        (242,976)         8.46
                                    ---------------                   ----------                   -----------
Outstanding--end of year                  3,110,826        $12.36      2,781,716        $10.70       2,647,155        $ 8.91
                                    ===============                   ==========                   ===========

Exercisable at end of year                2,043,673        $ 9.27      1,719,669        $ 8.09       1,461,661        $ 7.42
                                    ===============                   ==========                   ===========

Weighted average fair value of
 options granted during the year         $     9.16                   $     8.08                    $     5.91
</TABLE>

A summary of the Company's options as of August 31, 2000 follows:

<TABLE>
<CAPTION>
                                      Options Outstanding                        Options Exercisable
                       -----------------------------------------------    --------------------------------
                                            Weighted
                                            Average          Weighted                           Weighted
                                           Remaining         Average                             Average
Range of Exercise         Number of       Contractual        Exercise        Number of          Exercise
 Prices                    Options        Life (Yrs.)         Price           Options             Price
----------------------------------------------------------------------------------------------------------
<S>                       <C>             <C>                <C>             <C>                <C>
$ 4.44 to $ 6.72             549,585               3.6          $ 5.98           549,585            $ 5.98
$ 7.04 to $ 8.30             546,741               5.2            7.87           546,741              7.87
$ 8.56 to $ 8.59             294,890               5.7            8.56           294,890              8.56
$ 9.50 to $12.88             400,620               6.7           10.96           313,834             10.61
$14.33 to $16.46             291,212               7.7           14.33           186,879             14.33
$18.81 to $21.38           1,027,778               9.2           19.26           151,744             18.61
                       -------------    --------------    ------------    --------------     -------------
$ 4.44 to $21.38           3,110,826               6.7          $12.36         2,043,673            $ 9.27
                       =============    ==============    ============    ==============     =============
</TABLE>

                                      F-23
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

12. Stockholders' Equity (continued)

Stockholder Rights Plan

The Company has a stockholder rights plan which is designed to deter coercive
takeover tactics and to prevent a potential acquirer from gaining control of the
Company without offering a fair price to all of the Company's stockholders.  The
rights expire on June 16, 2007.

The plan provided for the issuance of one common stock purchase right for each
outstanding share of the Company's common stock.  Each right initially entitles
stockholders to buy one unit of a share of preferred stock for $85.  The rights
will be exercisable only if a person or group acquires beneficial ownership of
15% or more of the Company's common stock or commences a tender or exchange
offer upon consummation of which such person or group would beneficially own 15%
or more of the Company's common stock.  At August 31, 2000, 50,000 shares of
preferred stock have been reserved for issuance upon exercise of these rights.

If any person becomes the beneficial owner of 15% or more of the Company's
common stock, other than pursuant to a tender or exchange offer for all
outstanding shares of the Company approved by a majority of the independent
directors not affiliated with a 15%-or-more stockholder, then each right not
owned by a 15%-or-more stockholder or related parties will then entitle its
holder to purchase, at the right's then current exercise price, shares of the
Company's common stock having a value of twice the right's then current exercise
price.  In addition, if, after any person has become a 15%-or-more stockholder,
the Company is involved in a merger or other business combination transaction
with another person in which the Company does not survive or in which its common
stock is changed or exchanged, or sells 50% or more of its assets or earning
power to another person, each right will entitle its holder to purchase, at the
right's then current exercise price, shares of common stock of such other person
having a value of twice the right's then current exercise price.  Unless a
triggering event occurs, the rights will not trade separately from the common
stock.

The Company will generally be entitled to redeem the rights at $0.01 per right
at any time until 10 days (subject to extension) following a public announcement
that a 15% position has been acquired.

13. Net Revenue Incentive Plan

The Company has a Net Revenue Incentive Plan (the "Incentive Plan"), as amended,
which applies to certain members of management and is at all times discretionary
with the Company's board of directors.  If certain predetermined earnings goals
are met, the Incentive Plan provides that a predetermined percentage of the
employee's salary may be paid in the form of a bonus.

                                      F-24
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

13. Net Revenue Incentive Plan (continued)

The Company recognized as expense incentive bonuses of $1,606, $1,398, and
$1,137 during fiscal years 2000, 1999 and 1998, respectively.

14. Employment Agreements

The Company has employment contracts with its Chairman and Chief Executive
Officer and several members of its senior management. These contracts provide
for use of Company automobiles or related allowances, medical, life and
disability insurance, annual base salaries, as well as an incentive bonus.
These contracts also contain provisions for payments in the event of the
termination of employment and provide for payments aggregating $4,661 at August
31, 2000 due to loss of employment in the event of a change in control (as
defined in the contracts).

15. Contingencies

During fiscal year 1999, the Texas Supreme Court (the "Court") denied the
Company's motion for rehearing of the application for a writ of error regarding
the Texas Court of Appeals' reversal of the district court's judgment
notwithstanding the verdict which reinstated the jury's verdict of $782 of
actual damages, $1,000 of punitive damages, and interest in an action in which
the plaintiffs claimed a subsidiary of the Company interfered with the
contractual relations of the plaintiffs.  The Court refused to exercise its
discretionary jurisdiction to consider the decision of the Texas Court of
Appeals.  In connection with the denial, the Company recorded a $2,700 provision
for litigation.  The judgment was paid in full as of August 31, 1999.

The Company has contingent liabilities for taxes, lawsuits and various other
matters occurring in the ordinary course of business.  The Company is party to a
lawsuit where the damages alleged are in excess of ten percent of the Company's
current assets.  The Company believes that this case is without merit and that
the resolution of this and other contingencies will not have a material adverse
effect on the Company's financial position or results of operations.

The Company has entered into agreements with several lenders pursuant to which
such lenders may make loans to qualified franchisees.  Under the terms of these
agreements, the Company provides certain guarantees of a portion of the
outstanding balances of the loans to franchisees.  In addition, the Company has
other repurchase obligations related to a franchisee's restaurant development
loans.  At August 31, 2000, these guarantees totaled $5,574, none of which were
in default.

                                      F-25
<PAGE>

                                  Sonic Corp.
            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

16.  Selected Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>


                                              First Quarter    Second Quarter   Third Quarter   Fourth Quarter      Full Year
                                              2000   1999       2000     1999     2000   1999     2000    1999    2000     1999
                                             -------------------------------------------------------------------------------------
<S>                                          <C>      <C>      <C>      <C>      <C>     <C>     <C>     <C>     <C>     <C>
Income statement data:
  Company-owned restaurant sales             $52,898  $48,713  $46,907  $44,219  $60,390 $57,844 $64,685 $59,643 $224,880 $210,419
  Other                                       12,996   10,909   11,473    9,988   13,905  11,928  16,802  14,363   55,176   47,188
                                             -------------------------------------------------------------------------------------
  Total revenues                              65,894   59,622   58,380   54,207   74,295  69,772  81,487  74,006  280,056  257,607

  Company-owned restaurants operating
   expenses                                   38,659   37,695   35,712   34,037   42,880  40,991  46,319  42,798  163,570  155,521
  Selling, general and administrative          6,442    5,444    6,776    5,940    7,090   6,850   7,586   7,309   27,894   25,543
  Other                                        7,705    6,011    6,388    6,257    8,344   8,223   8,974   8,115   31,411   28,606
                                             -------------------------------------------------------------------------------------
  Total expenses                              52,806   49,150   48,876   46,234   58,314  56,064  62,879  58,222  222,875  209,670
                                             -------------------------------------------------------------------------------------
  Income from operations                      13,088   10,472    9,504    7,973   15,981  13,708  18,608  15,784   57,181   47,937

  Interest expense, net                        1,134    1,022    1,249    1,123    1,454   1,099   1,349   1,034    5,186    4,278
                                             -------------------------------------------------------------------------------------
  Income before income taxes                  11,954    9,450    8,255    6,850   14,527  12,609  17,259  14,750   51,995   43,659
 Provision for income taxes                    4,453    3,520    3,075    2,552    5,411   4,697   6,429   5,494   19,368   16,263
                                             -------------------------------------------------------------------------------------
  Net income                                 $ 7,501  $ 5,930  $ 5,180  $ 4,298  $ 9,116 $ 7,912 $10,830 $ 9,256 $ 32,627 $ 27,396
                                             =====================================================================================
  Net income per share:
    Basic                                    $   .27  $   .21  $   .19  $   .15  $   .34 $   .28 $   .41 $   .33 $   1.21 $    .97
    Diluted                                  $   .26  $   .20  $   .18  $   .15  $   .33 $   .27 $   .40 $   .32 $   1.17 $    .94
  Weighted average shares outstanding:
    Basic                                     27,743   28,321   27,154   28,417   26,500  28,362  26,327  27,991   26,931   28,273
    Diluted                                   28,828   28,934   28,155   29,340   27,477  29,395  27,392  29,131   27,963   29,200
</TABLE>

                                      F-26
<PAGE>

                                  Sonic Corp.

            Notes to Consolidated Financial Statements (continued)

                       (In Thousands, Except Share Data)

17.  Fair Values of Financial Instruments

The following discussion of fair values is not indicative of the overall fair
value of the Company's consolidated balance sheet since the provisions of SFAS
No. 107, "Disclosures About Fair Value of Financial Instruments," do not apply
to all assets, including intangibles.

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

     Cash and cash equivalents--Carrying value approximates fair value due to
     the short duration to maturity.

     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 which 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, 2000 and 1999, carrying values approximate their estimated
     fair values.

     Borrowed funds--Fair values for fixed rate borrowings are estimated using a
     discounted cash flow analysis that applies interest rates currently being
     offered on borrowings of similar amounts and terms to those currently
     outstanding.  Carrying values for variable rate borrowings approximate
     their fair values.

     The carrying amounts and estimated fair values of the Company's fixed rate
     borrowings at August 31, 2000 were $50,000 and $48,741, respectively, and
     at August 31, 1999 were $50,000 and $48,541, respectively.

                                      F-27
<PAGE>

                                  Sonic Corp.

                Schedule II - Valuation and Qualifying Accounts

<TABLE>
<CAPTION>
                                                  Additions        Amounts
                                  Balance at      Charged to     Written Off                      Balance
                                 Beginning of     Costs and      Against the                      at End
        Description                  Year          Expenses       Allowance      Recoveries       of Year
--------------------------------------------------------------------------------------------------------
                                                           (In Thousands)
<S>                          <C>              <C>            <C>             <C>              <C>
Allowance for doubtful
 accounts and notes
 receivable
Year ended:
   August 31, 2000                  $  280            $ 60            $  8          $  10         $  342
   August 31, 1999                  $  345            $111            $176          $   -         $  280
   August 31, 1998                  $  273            $ 72            $  -          $   -         $  345

Accrued carrying costs
 for restaurant closings
 and disposals
  Year ended:
   August 31, 2000                  $  747            $367            $296          $   -         $  818
   August 31, 1999                  $1,262            $ 50            $565          $   -         $  747
   August 31, 1998                  $1,126            $285            $149          $   -         $1,262
</TABLE>

                                      F-28
<PAGE>

                                  SIGNATURES
                                  ----------

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Company has caused the undersigned, duly-
authorized, to sign this report on its behalf on this 21st day of November,
2000.

                                    Sonic Corp.

                                    By:  /s/ J. Clifford Hudson
                                         ---------------------------------------
                                         J. Clifford Hudson
                                         Chairman and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the undersigned have signed this report on behalf of the Company, in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature                                               Title                                                  Date
---------                                               -----                                                  ----
<S>                                                     <C>                                                    <C>

J. Clifford Hudson                                      Chairman of the Board of Directors and                 November 21, 2000
----------------------                                  Chief Executive Officer
J. Clifford Hudson, Principal
Executive Officer

/s/ W. Scott McLain                                     Senior Vice President and                              November 21, 2000
-------------------                                     Chief Financial Officer
W. Scott McLain, Principal
 Financial Officer

/s/ Terry D. Harryman                                   Controller                                             November 21, 2000
---------------------
Terry D. Harryman, Principal
 Accounting Officer

/s/ Kenneth L. Keymer                                   President, Chief Operating Officer                     November 21, 2000
---------------------                                   and Director
Kenneth L. Keymer

/s/ Leonard Lieberman                                   Director                                               November 21, 2000
---------------------
Leonard Lieberman

/s/ H. E. Rainbolt                                      Director                                               November 21, 2000
------------------
H.E. Rainbolt

/s/Frank E. Richardson                                  Director                                               November 21, 2000
----------------------
Frank E. Richardson

/s/Robert M. Rosenberg                                  Director                                               November 21, 2000
----------------------
Robert M. Rosenberg

/s/ E. Dean Werries                                     Director                                               November 21, 2000
-------------------
E. Dean Werries
</TABLE>

<PAGE>

                                 EXHIBIT INDEX
                                 -------------

  Exhibit Number and Description
  ------------------------------


      3.05.   Certificate of Amendment of Certificate of Incorporation of the
              Company, dated March 4, 1996.
     10.29.   Seventh Amendment to the Loan Agreement with Chase Bank of Texas,
              N.A.
     23.01.   Consent of Independent Auditors
     27.01.   Financial Data Schedule



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