UNITED
      STATES


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 ACTOF
                1934For
                the fiscal year
                ended:                                           August
                31, 2007OR[   ]
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGEACT
                OF 1934For
                the transition period from _______________ to
                _________________Commission
                File Number 0-18859**SONIC
                CORP.**(Exact
                name of registrant as specified in its charter)Delaware
            
            73-1371046(State
                of
            
            (I.R.S.
                Employerincorporation)
            
            Identification
                No.)300
                Johnny Bench DriveOklahoma
                City, Oklahoma
            
            73104(Address
                of principal executive offices)
            
            Zip
                CodeRegistrant’s
                telephone number, including area code:   (405)
                225-5000


Securities
        registered pursuant to section 12(b) of the Act:
 
 None
 
 Securities
        registered pursuant to section 12(g) of the Act:
 
 Common
        Stock, Par Value $.01 (Title of class)
 Rights
        to
        Purchase Series A Junior Preferred Stock, Par Value $.01 (Title of
        class)
 
 Indicate
        by check mark if the
        registrant is a well-known seasoned issuer, as defined in Rule 405 of the
        Securities Act.   Yes
X.  No .
 
 (Facing
        Sheet Continued)





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





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





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





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





Large
      accelerated filer
X.                               Accelerated
      filer
      ___.                                Non-accelerated
      filer __.





Indicate
      by check mark whether the
      registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
      .  NoX.





As
      of February 28, 2007, the aggregate
      market value of the 62,780,894****shares of common stock of
      the Company held by non-affiliates of the Company equaled $1,360,461,973 based
      on the closing sales price for the common stock as reported for that
      date.





As
      of October 16**,**2007, the Registrant had 60,780,414shares of common stock issued and outstanding.








Documents
      Incorporated by Reference





Part
      III of this report incorporates by
      reference certain portions of the definitive proxy statement which the
      Registrant will
      file
      with the Securities and Exchange Commission no later than 120 days after August
      31, 2007.





**FORM
      10-K OF SONIC CORP.**




**TABLE
      OF CONTENTS**





**PART
                  I**Item
                  1.
              Business
              1Item
                  1A.
              Risk
                  Factors
              9Item
                  1B.
              Unresolved
                  Staff Comments
              14Item
                  2.
              Properties
              14Item
                  3.
              Legal
                  Proceedings
              14Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              14Item
                  4A.
              Executive
                  Officers of the Company
              15**PART
                  II**Item
                  5.
              Market
                  for the Company’s Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity Securities
              16Item
                  6.
              Selected
                  Financial Data
              18Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              20Item
                  7A.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              31Item
                  8.
              Financial
                  Statements and Supplementary Data
              32Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              32Item
                  9A.
              Controls
                  and Procedures
              32Item
                  9B.
              Other
                  Information
              34**PART
                  III**Item
                  10.
              Directors
                  and Executive Officers of the Company and Corporate
                  Governance
              34Item
                  11.
              Executive
                  Compensation
              34Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              34Item
                  13.
              Certain
                  Relationships and Related Transactions, and Director
                  Independence
              34Item
                  14.
              Principal
                  Accounting Fees and Services
              34**PART
                  IV**Item
                  15.
              Exhibits
                  and Financial Statement Schedules
              35


**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 (“Sonic Drive-Ins”) in
      the United States.  As of August 31, 2007, the Company had 3,343 Sonic
      Drive-Ins in operation from coast to coast, consisting of 654 Partner Drive-Ins
      and 2,689 Franchise Drive-Ins.  We own a majority interest, typically
      at least 60%, and the supervisor and manager of the drive-in own a minority
      interest in each Partner Drive-In.  Franchise Drive-Ins are owned and
      operated by our franchisees.  At a typical Sonic Drive-In, 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.  Many Sonic Drive-Ins also include a drive-through lane and
      patio seating.





Our
      objective is to maintain our
      position as, or to become, a leading operator within each of our core and
      developing markets.  We have developed and are implementing a strategy
      designed to build the Sonic brand and to maintain high levels of customer
      satisfaction and repeat business.  The key elements of that strategy
      are:  (1) a unique drive-in concept focusing on a distinctive menu of
      quality made-to-order food products including several signature items; (2)
      a
      commitment to customer service featuring the quick delivery of food by carhops;
      (3) the expansion of Partner Drive-Ins and Franchise Drive-Ins within the
      continental United States; (4) an owner/operator philosophy, in which managers
      have an equity interest in their restaurants, thereby providing an incentive
      for
      managers to operate restaurants profitably and efficiently; and (5) a commitment
      to strong franchisee relationships.





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





**Menu**





Sonic
      Drive-Ins feature Sonic signature items, such as specialty soft drinks including
      cherry limeades and slushes, frozen desserts, made-to-order sandwiches and
      hamburgers, extra-long cheese coneys, hand-battered onion rings, tater tots,
      salads, and wraps.  Sonic Drive-Ins also offer breakfast items that
      include sausage, ham, or bacon with egg and cheese Breakfast Toaster®or Bistro
      sandwiches, sausage and egg burritos, and specialty breakfast
      drinks.  Sonic Drive-Ins serve the full menu all day.





**Restaurant
      Locations**





We
      identify markets based on television
      viewing areas and further classify markets as either core or
      developing.  We define our core television markets as those markets
      where the penetration of Sonic Drive-Ins (as measured by population per
      restaurant, advertising levels, and share of restaurant spending) has reached
      a
      certain level of market maturity established by management.  All other
      television markets where Sonic Drive-Ins are located are referred to as
      developing markets.  Our core markets contain approximately 75% of all
      Sonic Drive-Ins as of August 31, 2007.  The following table sets forth
      the number of Partner Drive-Ins and Franchise Drive-Ins by core and developing
      markets as of August 31, 2007:










Core
                  Markets
              Developing
                  Markets
              TotalStates
              Partner
              Franchise
              Total
              Partner
              Franchise
              TotalAlabama
              33
              72
              105
              
              6
              6
              111Arizona
              
              
              
              
              97
              97
              97Arkansas
              29
              161
              190
              
              
              
              190California
              
              
              
              
              36
              36
              36Colorado
              14
              8
              22
              21
              38
              59
              81Delaware
              
              
              
              
              2
              2
              2Florida
              16
              10
              26
              20
              76
              96
              122Georgia
              5
              16
              21
              4
              100
              104
              125Idaho
              
              
              
              
              18
              18
              18Illinois
              
              
              
              
              29
              29
              29Indiana
              
              
              
              
              17
              17
              17Iowa
              
              
              
              1
              16
              17
              17Kansas
              41
              95
              136
              
              
              
              136Kentucky
              4
              31
              35
              
              39
              39
              74Louisiana
              23
              139
              162
              
              
              
              162Mississippi
              
              123
              123
              
              
              
              123Missouri
              44
              164
              208
              
              
              
              208Nebraska
              
              
              
              8
              17
              25
              25Nevada
              
              
              
              
              20
              20
              20New
                  Mexico
              
              73
              73
              
              
              
              73North
                  Carolina
              
              
              
              
              93
              93
              93Ohio
              
              
              
              4
              11
              15
              15Oklahoma
              94
              175
              269
              
              
              
              269Oregon
              
              
              
              
              3
              3
              3Pennsylvania
              
              
              
              
              3
              3
              3South
                  Carolina
              
              19
              19
              
              53
              53
              72South
                  Dakota
              
              
              
              
              2
              2
              2Tennessee
              42
              168
              210
              10
              
              10
              220Texas
              216
              685
              901
              
              12
              12
              913Utah
              
              
              
              
              28
              28
              28Virginia
              
              
              
              25
              25
              50
              50Washington
              
              
              
              
              1
              1
              1West
                  Virginia
              
              
              
              
              2
              2
              2Wyoming
              
              
              
              
              5
              5
              5Mexico
              
              
              
              
              1
              1
              1Total
              561
              1,939
              2,500
              93
              750
              843
              3,343





**Expansion**





During
      fiscal year
      2007, we opened 175 Sonic Drive-Ins, which consisted of 29 Partner
      Drive-Ins and 146 Franchise Drive-Ins.  During fiscal year 2008, we
      anticipate approximately 180 to 200 new Sonic Drive-In openings, including
      155
      to 165 openings by our franchisees.  That expansion plan involves the
      opening of new Sonic Drive-Ins predominantly by franchisees under existing
      area
      development agreements, single-store development by existing franchisees, and
      development by new franchisees. We believe that our existing core and developing
      markets, as well as newly-opened markets, offer significant growth opportunities
      for both Partner Drive-In and Franchise Drive-In expansion.  The
      ability of Sonic and its franchisees to open the anticipated number of Sonic
      Drive-Ins during fiscal year 2008 necessarily will depend on various factors,
      including those discussed under *Item 1A.  Risk Factors – Failure
      to successfully implement our growth strategy could reduce, or reduce the growth
      of, our revenue and net income,* of this Form 10-K.


2




Our
      expansion strategy for Sonic
      Drive-Ins involves three principal components:  (1) the building-out
      of existing core markets, (2) the further penetration of developing markets,
      and
      (3) the expansion into new markets.  In addition, we may consider the
      acquisition of other similar local or regional brands for conversion to Sonic
      Drive-Ins.





**Restaurant
      Design and Construction**





*General.*The
      typical Sonic Drive-In consists of a kitchen housed in a one-story building
      flanked by 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, most new Sonic Drive-Ins have incorporated a drive-through service
      and patio seating area.  We have 191
      Sonic
      Drive-Ins that provide an indoor seating area, 49
      of which
      are located in non-traditional areas such as shopping mall food courts,
      airports, and universities, and 21
      of which
      are located adjacent to convenience stores.





*Retrofit*.In
      fiscal 2006, we began implementing a program to retrofit all Sonic Drive-Ins
      over the next several years. The retrofit is a remodeling program which includes
      significant trade dress modifications to the drive-ins.  We completed
      the retrofit of over 100 Partner Drive-Ins in fiscal 2006.  In fiscal
      2007, we completed the retrofit of an additional 173 Partner Drive-Ins and
      326
      Franchise Drive-Ins.  In fiscal 2008, we expect to retrofit
      approximately 150 additional Partner Drive-Ins and 600 to 700 Franchise
      Drive-Ins.  Franchisees pay the costs of the retrofit for their
      drive-ins.  We currently estimate the cost to complete a standard
      retrofit at approximately $125,000 to $150,000 per drive-in, which may be higher
      or lower depending on the configuration of the drive-in.  All new
      Sonic Drive-Ins being built now feature the new retrofit changes.





**Marketing**





We
      have designed our marketing program
      to differentiate Sonic Drive-Ins from our competitors by emphasizing five key
      areas of customer satisfaction:  (1) wide variety of distinctive
      made-to-order menu items, (2) personal delivery of service by carhops, (3)
      speed
      of service, (4) quality, and (5) value.  The marketing plan includes
      promotions for use throughout the Sonic chain.  We support those
      promotions with television, radio, interactive media, point-of-sale materials,
      and other media as appropriate.  Those promotions generally center on
      products which highlight limited time new product introductions or signature
      menu items of Sonic Drive-Ins.





Each
      year Sonic develops a marketing
      plan with the involvement of the Sonic Franchise Advisory
      Council.  (Information concerning the Sonic Franchise Advisory Council
      is set forth on page 7 under Franchise Program -*Franchise Advisory
      Council*.)  Funding for our marketing plan has three
      components:  (1) the System Marketing Fund (2) local advertising
      expenditures, and (3) the Sonic Brand Fund (formerly known as the Sonic
      Advertising Fund).





Depending
      on the type of license
      agreement, each Sonic Drive-In must spend 1.125% to 5.0% of the drive-in’s gross
      revenues on local advertising, either directly or through participation in
      the
      local advertising cooperative. Advertising cooperatives among drive-in owners
      are formed to pool and direct advertising expenditures in local markets. The
      members of each local advertising cooperative may elect and frequently do elect
      by majority vote to require the cooperative’s member drive-ins to contribute
      more than the minimum percentage of gross revenues to the advertising
      cooperative’s funds.  For fiscal year 2007, drive-ins participating in
      cooperatives contributed an average of 4.15% of their Sonic Drive-Ins’ gross
      revenues to Sonic advertising cooperatives.  As of August 31, 2007,
      3,236 Sonic Drive-Ins (97% of the chain) participated in advertising
      cooperatives.





The
      System Marketing Fund is funded out
      of the required local advertising funds by either redistributing 2.0% of each
      Sonic Drive-In’s gross revenues from the local advertising cooperatives to the
      System Marketing Fund or, if no advertising cooperative has been formed,
      requiring the Sonic Drive-In to pay directly 2.0% of its gross revenues to
      the
      System Marketing Fund with a corresponding deduction in the amount the drive-in
      is required to spend on local advertising. The System Marketing Fund complements
      local advertising efforts in attracting customers to Sonic Drive-Ins by
      promoting the Sonic brand and restaurant to an expanded audience.  The
      primary focus of the System Marketing Fund is to purchase advertising on
      national cable and broadcast networks and other national media and sponsorship
      opportunities.





The
      Sonic Brand Fund is Sonic’s
      national media production fund.  Each Sonic Drive-In must contribute
      0.375% to 0.90% of their gross revenues, depending on the type of license
      agreement,  to the Sonic Brand
      Fund.





The
      total amount spent on media
      (principally television) was approximately $175 million for fiscal year 2007
      and
      we expect media expenditures of approximately $190 million for fiscal year
      2008.


3





**Purchasing**





We
      negotiate with suppliers for our
      primary food products (hamburger patties, dairy products, chicken products,
      hot
      dogs, french fries, tater tots, cooking oil, fountain syrup, produce, and other
      items) and packaging supplies to ensure adequate quantities of food and supplies
      and to obtain competitive prices.  We seek competitive bids from
      suppliers on many of our food products.  We approve suppliers of those
      products and require them to adhere to our established product and food safety
      specifications. Suppliers manufacture several key products for Sonic under
      private label and sell them to authorized distributors for resale to Partner
      Drive-Ins and Franchise Drive-Ins.





We
      require our Partner Drive-Ins and
      Franchise Drive-Ins to purchase from approved distribution
      centers.  By purchasing as a group, we have achieved cost savings,
      improved food quality and consistency, and helped decrease the volatility of
      food and supply costs for Sonic Drive-Ins.  For fiscal year 2007, the
      average cost of food and packaging for a Sonic Drive-In, as reported to us
      by
      our Partner Drive-Ins and Franchise Drive-Ins, equaled approximately 27%
      of
      revenues.





**Food
      Safety and Quality Assurance**





To
      ensure
      the consistent delivery of safe, high-quality food, we created a food safety
      and
      quality assurance program.  Sonic’s food safety program promotes the
      quality and safety of all products and procedures utilized by all Sonic
      Drive-Ins, and provides certain requirements that must be adhered to by all
      suppliers, distributors, and Sonic Drive-Ins.  We also have a
      comprehensive, restaurant-based food safety program called Sonic
      Safe.  Sonic Safe is a risk-based system that utilizes Hazard Analysis
& Critical Control Points (HACCP) principles for managing food safety and
      quality.  Our food safety system includes employee training, supplier
      product testing, unannounced drive-in food safety auditing by independent
      third-parties, and other detailed components that monitor the safety and quality
      of Sonic’s products and procedures at every stage of the food preparation and
      production cycle.  Employee food safety training is covered under our
      Sonic Drive-In training program, referred to as the STAR Training
      Program.  This program includes specific training information and
      requirements for every station in the drive-in.  We also require our
      drive-in managers and assistant managers to pass the ServSafe training
      program.  ServSafe is the most recognized food safety training
      certification in the restaurant industry.





**General
      Operations**





*Management
      Information
      Systems*.  We utilize point-of-sale equipment in each of our
      Partner Drive-Ins and Franchise Drive-Ins.  Certain financial and
      other information is polled on a daily basis from most drive-ins.  We
      are continuing to develop software and hardware enhancements to our management
      information systems to facilitate improved communication and the exchange of
      information among the corporate office and Partner Drive-Ins and Franchise
      Drive-Ins.  These enhancements primarily utilize an intranet designed
      for that purpose, which we refer to as PartnerNet.





*Reporting*.  The
      new
      form of license agreement (Number 7) requires all Sonic Drive-Ins to submit
      a
      profit and loss statement on or before the 10th of each
      month,
      while all prior forms of license agreements require submission on or before
      the
      20th of each
      month.  All Partner Drive-Ins and 66%
      of
      Franchise Drive-Ins submit their data electronically.  We expect to
      add more Franchise Drive-Ins to electronic reporting which will reduce resources
      needed for manual processing of restaurant level data.





*Hours
      of Operation*.  Sonic Drive-Ins typically operate seven days a
      week and are open from at least 6:00 a.m. to 11:00 p.m.   Some
      Sonic Drive-Ins are open 24 hours a day.





**Company
      Operations**





*Restaurant
      Personnel*.  A typical Partner Drive-In is operated by a manager,
      two to four assistant managers, and approximately 25 hourly employees, many
      of
      whom work part-time.  The manager has responsibility for the
      day-to-day operations of the Partner Drive-In.  Each supervisor has
      the responsibility of overseeing an average of four to seven Partner
      Drive-Ins.  Sonic Restaurants, Inc. (“SRI”), Sonic’s operating
      subsidiary, oversees the operations and development of and provides
      administrative services to all Partner Drive-Ins.  SRI employs
      directors of operations who oversee an average of four to seven supervisors
      within their respective regions and report to either a regional vice president
      or a vice president of SRI.


4


*Ownership
        Program.*  The Sonic Drive-In philosophy stresses an ownership
        relationship with supervisors and managers.  As part of the ownership
        program, either a limited liability company or a general partnership is formed
        to own and operate each individual Partner Drive-In.  SRI owns a majority
        interest, typically at least 60%, in each of these limited liability companies
        and partnerships.  Generally, the supervisors and managers own a minority
        interest in the limited liability company or partnership. The amount of
        ownership percentage is separately negotiated for each Partner Drive-In. 
Supervisors and managers are not employees of Sonic or of the limited liability
        companies or partnerships in which they have an ownership interest.  As
        owners, they share in the cash flow and are responsible for their share of
        any
        losses incurred by their Partner Drive-Ins.  We believe that our ownership
        structure provides a substantial incentive for Partner Drive-In supervisors
        and
        managers to operate their restaurants profitably and efficiently. 
Additional information regarding our ownership program can be found under
        Ownership Program, in Part II, Item 7, at page 30 of this Form 10-K.
  Sonic
        records the interests of supervisors and managers
        as “minority interest in earnings of Partner Drive-Ins” under costs and expenses
        on its financial statements.  We estimate that the average percentage
        interest of a supervisor was 16% and the average percentage interest of a
        manager in a Partner Drive-In was 19% in fiscal year 2007.  Each Partner
        Drive-In distributes its available cash flow to its supervisors and managers
        and
        to Sonic on a monthly basis pursuant to the terms of the operating agreement
        or
        partnership agreement for that restaurant.  Sonic has the right, but not
        the obligation, to purchase the minority interest of the supervisor or manager
        in the restaurant.  The amounts of the buy-in and the buy-out are generally
        based on the Partner Drive-In’s sales during the preceding 12 months and
        approximate the fair market value of a minority interest in that
        restaurant.  Most supervisors and managers finance the buy-in with a loan
        from a third-party financial institution.
  Each
        Partner Drive-In usually purchases equipment with funds borrowed from Sonic
        at
        competitive rates.  In most cases, Sonic also owns or leases the land and
        building and guarantees any third-party lease entered into for the
        site.
  *Partner
        Drive-In Data.*  The following table provides certain financial
        information relating to Partner Drive-Ins and the number of Partner Drive-Ins
        opened and closed during the past five fiscal years.
  **2007**
              
              **2006**
              
              **2005**
              
              **2004**
              
              **2003**Average
                  Sales Per Partner Drive In(*in
                  thousands*)
              $
              1,017
              
              $
              980
              
              $
              957
              
              $
              886
              
              $
              799Number
                  of Franchise Drive-Ins:Total
                  Open at Beginning of Year
              
              623
              
              
              574
              
              
              539
              
              
              497
              
              
              452Newly
                  Opened and Re-opened
              
              29
              
              
              35
              
              
              37
              
              
              21
              
              
              35Purchased
                  from Franchisees*
              
              (15
              )
              
              (15
              )
              
              (4
              )
              
              24
              
              
              52Sold
                  to Franchisees*
              
              10
              
              
              --
              
              
              5
              
              
              (3
              )
              
              (41
              )Closed
              
              (3
              )
              
              (1
              )
              
              (1
              )
              
              0
              
              
              (1
              )Total
                  Open at Year End
              
              654
              
              
              623
              
              
              574
              
              
              539
              
              
              497
 *The
        relatively large number of drive-ins sold to
        franchisees in fiscal year 2003 and purchased from franchisees in fiscal
        years
        2003 and 2004 represent transactions where a majority of Sonic Drive-Ins
        in a
        certain market were sold to or purchased from a multi-unit franchisee
        group.  In most instances where we purchased Sonic Drive-Ins, the selling
        multi-unit franchisee groups continued to own and operate multiple Franchise
        Drive-Ins.
  Franchise
        Program
  *General.*As of August 31, 2007, we had 2,689 Franchise Drive-Ins in operation. 
A large number of successful multi-unit franchisee groups have developed
        during
        the Sonic system’s 54 years of operation. Those franchisees continue to develop
        new Franchise Drive-Ins in their franchise territories either through area
        development agreements or single site development.  Our franchisees opened
        146 Franchise Drive-Ins during fiscal year 2007 and we expect our franchisees
        to
        open approximately 155 to 165 Franchise Drive-Ins in fiscal 2008.  We
        consider our franchisees a vital part of our continued growth and believe
        our
        relationship with our franchisees is good.


5





*Franchise
      Agreements*.  Each Sonic Drive-In, including each Partner
      Drive-In, operates under a franchise agreement that provides for payments to
      Sonic of an initial franchise fee and a royalty fee based on a graduated
      percentage of the gross revenues of the drive-in.  We began offering a
      new form of  license agreement (Number 7) in July 2007 which provides
      for an initial franchise fee of $45,000 and an ascending royalty rate beginning
      at 2% of gross revenues and increasing to 5% as the level of gross revenues
      increases.  For non-traditional drive-ins, which are those Sonic
      Drive-Ins located in venues such as shopping mall food courts, airports, and
      universities, the new form of license agreement (Number 7NT) provides for a
      franchise fee of $22,500 and a graduated royalty rate from 2% to 5% of gross
      revenues.  The most recent prior form of license agreement (Number 6A)
      has a $30,000 initial license fee and a graduated royalty rate of 1% to 5%
      of
      gross revenues.  Also in fiscal 2007, existing franchisees of
      approximately 790 drive-ins with older forms of license agreement opted to
      convert to a newer form of license agreement (Number 5.5) which contains a
      20-year term and provides for the payment of a higher royalty rate than under
      the franchisee’s previous agreement.





All
      Sonic Drive-Ins opening in fiscal
      year 2008 are expected to open under the Number 6A license agreement. These
      drive-ins will be opening under previously entered area development agreements
      which provide for the use of a Number 6A license agreement.   We
      have 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 our policies and standards.  Many state franchise laws affect our
      ability to terminate or refuse to renew a franchise.





As
      of August 31, 2007, 51%
      of all
      Sonic Drive-Ins were subject to the 1% to 5% graduated royalty
      rate.  For fiscal year 2007, Sonic’s average royalty rate equaled
3.75%.





*Area
      Development
      Agreements*.  We use area development agreements to facilitate the
      planned expansion of the Sonic Drive-In restaurant chain through multiple unit
      development.  While many existing franchisees continue to expand on a
      single drive-in basis, approximately 73%
      of the
      new Franchise Drive-Ins opened during fiscal year 2007 occurred as a result
      of
      then-existing area development agreements.  Each area development
      agreement gives a developer the exclusive right to construct, own, and operate
      Sonic Drive-Ins within a defined area.  In exchange, each developer
      agrees to open a minimum number of Sonic Drive-Ins in the area within a
      prescribed time period.  If the developer does not meet the minimum
      opening requirements, we have 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 2007, we entered
      into 71 new area development agreements calling for the opening of
      441 Franchise Drive-Ins and amended 19 existing area development agreements
      calling for the opening of an additional 68 Franchise Drive-Ins, all during
      the
      next seven years.  As of August 31, 2007, we had a total of 173 area
      development agreements in effect and in compliance, calling for the development
      of 908 Sonic Drive-Ins during the next seven years. We cannot give any assurance
      that our franchisees will achieve that number of new Franchise Drive-Ins during
      the next seven years.  Of the 167 Franchise Drive-Ins scheduled to
      open during fiscal year 2007 under area development agreements in place at
      the
      beginning of that fiscal year, 107 or 64% opened during the
      period.  During fiscal year 2007, we terminated 25 of the 152
      area development agreements existing at the beginning of the fiscal
      year.  The terminated area development agreements called for the
      opening of 35 Franchise Drive-Ins in fiscal year 2007 and an
      additional ten Franchise Drive-Ins in the next three fiscal
      years.  All of these terminations were as a result of the franchisee
      failing to meet the development schedule under the area development
      agreement.





In
      addition to the area development agreement commitments, during fiscal 2007,
      existing franchisees purchased options to develop approximately 400 drive-ins,
      which allow them to open new drive-ins under the more favorable Number 6A
      license agreement, rather than the new Number 7 license agreement.  The
      development options and area development agreements together reflect a
      development pipeline of over 1,300 drive-ins.





*Franchise
      Drive-In
      Development*.  We assist each franchisee in selecting sites and
      developing Sonic Drive-Ins. Each franchisee has responsibility for selecting
      the
      franchisee’s drive-in location, but must obtain our approval of each Sonic
      Drive-In design and each location based on accessibility and visibility of
      the
      site and targeted demographic factors, including population density, income,
      age, and traffic.  We provide our franchisees with the physical
      specifications for the typical Sonic Drive-In.





*Franchisee
      Financing*.  Other than the agreements described below, we do not
      generally provide financing to franchisees or guarantee loans to franchisees
      made by third-parties.


6





We
      had an agreement with GE Capital
      Franchise Finance Corporation (“GEC”), pursuant to which GEC made loans to
      existing Sonic franchisees who met certain underwriting criteria set by
      GEC.  Under the terms of the agreement with GEC, Sonic provided a
      guaranty of 10% of the outstanding balance of a loan from GEC to the Sonic
      franchisee.  The portions of loans made by GEC to Sonic franchisees
      that are guaranteed by the Company total $2.2 million as of August 31, 2007.
      We
      ceased guaranteeing new loans made under the program during fiscal year 2003
      and
      have not been required to make any payments under our agreement with
      GEC.





We
      have an agreement with Irwin
      Franchise Capital Corporation (“IFCC”) pursuant to which IFCC has agreed to make
      loans to existing Sonic franchisees who meet certain underwriting criteria
      set
      by IFCC to finance the equipment and improvements for our retrofit program
      as
      described under *Restaurant Design and Construction – Retrofit*of Item 1
      of this Form 10-K.  Under the terms of the agreement with IFCC, we will
      provide a guaranty to IFCC of the greater of (i) 5% of the outstanding balance
      of a loan from IFCC to the Sonic franchisee or (ii) $250,000, provided that
      in
      no event will our maximum liability to IFCC exceed $2,500,000 in the
      aggregate.  As of August 31, 2007, the total amount guaranteed under
      the IFCC agreement was $250,000.





*Franchisee
      Training*.  Each franchisee must have at least one full-time
      employee at the Sonic Drive-In who has completed the Sonic Management
      Development Program before opening or operating the Sonic
      Drive-In.  The program consists of a minimum of 12 weeks of on-the-job
      training and one week of classroom development.  The program
      emphasizes food safety, quality food preparation, speed of service, cleanliness
      of Sonic Drive-Ins, management techniques and consistency of
      service.  We also require our management teams to pass the ServSafe
      training program. ServSafe is the most recognized food safety training
      certification in the restaurant industry.





*Franchisee
      Support*.  In addition to training, advertising and food
      purchasing as a system, and marketing programs, we provide various other
      services to our franchisees.  Those services include assistance with
      quality control through area field representatives, to ensure that each
      franchisee consistently delivers high quality food and service. Our field
      service consultants provide operational services and support for our
      franchisees, and our field marketing representatives assist the franchisees
      with
      the development of advertising cooperative and local market promotional
      activities.  We also provide new franchise consultants and new
      franchisee trainers to franchisees to support the successful integration of
      new
      franchisees into the Sonic system from training through the first months
      following the opening of each of the franchisee’s first three Sonic
      Drive-Ins.  We provide training to franchisees in such areas as shift
      management, customer service, time management, supervisory skills, and financial
      controls.  We additionally assist franchisees with the identification
      of trade areas for new Franchise Drive-Ins and the franchisees’ selection of
      sites for their Franchise Drive-Ins using demographic data and studies of
      traffic patterns.  Our architect and engineering personnel design,
      plan, and permit new stores.  Our construction personnel also assist
      in the construction of new drive-ins.





*Franchise
      Operations*.  Sonic’s franchisees operate all Franchise Drive-Ins
      in accordance with uniform operating standards and
      specifications.  These standards pertain to the quality and
      preparation of menu items, selection of menu items, maintenance and cleanliness
      of premises, and employee responsibilities.  We develop all standards
      and specifications with input from franchisees, and they are applied on a
      system-wide basis.  Each franchisee has certain discretion to
      determine the prices charged to its customers.





*Franchise
      Advisory
      Council*.  Our Franchise Advisory Council provides advice,
      counsel, and input to Sonic on important issues impacting the business, such
      as
      marketing and promotions, operations, purchasing, building design, human
      resources, technology, and new products.  The Franchise Advisory
      Council currently consists of 19 members selected by Sonic.  Currently,
      we have six executive committee members who are selected at large, 12 regional
      members representing four defined regions of the country, and one at large
      member representing new franchisees and smaller operators.We
      have five Franchise Advisory Council task groups comprised of
      48****total members who serve two-year terms and lend support
      on individual key priorities.


7




*Franchise
      Drive-In
      Data*.  The following table provides certain financial information
      relating to Franchise Drive-Ins and the number of Franchise Drive-Ins opened,
      purchased from or sold to Sonic, and closed during Sonic’s last five fiscal
      years.





**2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**Average
                Sales Per FranchiseDrive-In   (*in
                thousands*)
            $
            1,132
            
            $
            1,092
            
            $
            1,039
            
            $
            983
            
            $
            929Number
                of Franchise Drive-Ins:Total
                Open at Beginning of Year
            
            2,565
            
            
            2,465
            
            
            2,346
            
            
            2,209
            
            
            2,081New
                Franchise Drive-Ins
            
            146
            
            
            138
            
            
            138
            
            
            167
            
            
            159Sold
                to the Company*
            
            (15
            )
            
            (15
            )
            
            (4
            )
            
            (24
            )
            
            (52
            )Purchased
                from the Company*
            
            10
            
            
            --
            
            
            5
            
            
            3
            
            
            41Closed
                and Terminated,Net
                of Re-openings
            
            (17
            )
            
            (23
            )
            
            (20
            )
            
            (9
            )
            
            (20
            )Total
                Open at Year End
            
            2,689
            
            
            2,565
            
            
            2,465
            
            
            2,346
            
            
            2,209




*
      The
      relatively large number of drive-ins purchased from Sonic in fiscal year 2003
      and sold to Sonic in fiscal years 2003 and 2004 represent transactions where
      a
      majority of Sonic Drive-Ins in a certain market were sold to or purchased from
      a
      multi-unit franchisee group.  In most instances where Sonic purchased
      Sonic Drive-Ins, the selling multi-unit franchisee groups continued to own
      and
      operate multiple Franchise Drive-Ins.





**Competition**





We
      compete in the restaurant industry,
      a highly competitive industry in terms of price, service, restaurant location,
      and food quality.  The restaurant industry is often affected by
      changes in consumer trends, economic conditions, demographics, traffic patterns,
      and concerns about the nutritional content of quick-service foods.  We
      compete on the basis of 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 our primary marketable points of difference from the
      competition.  There are many well-established competitors with
      substantially greater financial and other resources.  These
      competitors include a large number of national, regional, and local food
      services, including quick-service restaurants and casual dining
      restaurants.  A significant change in pricing or other marketing
      strategies by one or more of those competitors could have an adverse impact
      on
      Sonic’s sales, earnings, and growth.  In selling franchises, we also
      compete with many franchisors of quick-service and other restaurants and other
      business opportunities.





**Seasonality**





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





**Employees**





As
      of August 31, 2007, we had 357full-time
      corporate employees.  This number does not include the approximately
      19,000 full-time and part-time employees employed by separate partnerships
      and
      limited liability companies that operate our Partner Drive-Ins or the
      supervisors or managers of the Partner Drive-Ins who own a minority interest
      in
      the separate partnerships or limited liability companies.





None
      of our employees is subject to a
      collective bargaining agreement.  We believe that we have good labor
      relations with our employees.





**Trademarks
      and Service Marks**





Sonic
      owns numerous trademarks and service marks.  We have registered many
      of those marks, including the “Sonic” logo and trademark, with the United States
      Patent and Trademark Office.  Trademarks and service marks generally
      are valid as long as they are used or registered.  We believe that our
      trademarks and service marks have significant value and play an important role
      in our marketing efforts.


8





**Government
      Regulations**





We
      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.  We 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 we furnish prospective franchisees
      with a franchise disclosure document 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 prescribed 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 us from seeking franchisees in any given area
      and
      have not had a significant effect on our operations.





Each
      Sonic Drive-In 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
      Sonic
      Drive-In.





Sonic
      Drive-Ins 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 Sonic
      Drive-Ins in particular locations.





Sonic
      and its franchisees must comply
      with laws and regulations governing immigration, labor, employment and wage
      and
      hour issues, such as employment eligibility verification, minimum wage,
      overtime, family and medical leave, discrimination, and other working
      conditions.  Many of the food service personnel in Sonic Drive-Ins
      receive compensation at rates related to federal, state, and local minimum
      wage
      laws and, accordingly, increases in applicable minimum wage laws will increase
      labor costs at those locations.





**Available
      Information**





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





**Item
      1A.  Risk Factors**




This
      Annual Report on Form 10-K includes forward-looking
      statements within the meaning of the Private Securities Litigation Reform Act
      of
      1995.  A forward-looking statement is neither a prediction nor a
      guarantee of future events or circumstances, and those future events or
      circumstances may not occur.  Investors should not place undue
      reliance on the forward-looking statements, which speak only as of the date
      of
      this report.  These forward-looking statements are all based on
      currently available operating, financial and competitive information and are
      subject to various risks and uncertainties.  Our actual future results
      and trends may differ materially depending on a variety of factors including,
      but not limited to, the risks and uncertainties discussed
      below.  Accordingly, such forward-looking statements do not purport to
      be predictions of future events or circumstances and may not be
      realized.  For these reasons, you should not place undue reliance on
      forward-looking statements.  We undertake no obligation to publicly
      update or revise them, except as may be required by law.


9




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




Reports,
      whether true or not, of food-borne illnesses, such as e-coli, avian flu, bovine
      spongiform encephalopathy (commonly known as mad cow disease), hepatitis A
      or
      salmonella, and injuries caused by food tampering have in the past severely
      injured the reputations of participants in the restaurant industry and could
      in
      the future affect us.  The potential for terrorism of our nation’s
      food supply also exists and, if such an event occurs, it could have a negative
      impact on our brand’s reputation and could severely hurt sales, revenues, and
      profits.




Our
      brand’s reputation is an important asset to the business; as a result, anything
      that damages our brand’s reputation could immediately and severely hurt sales,
      revenues, and profits.  If customers become ill from food-borne
      illnesses or food tampering, we could also be forced to temporarily close some,
      or all, Sonic Drive-Ins.  In addition, instances of food-borne
      illnesses or food tampering occurring at the restaurants of competitors, could,
      by resulting in negative publicity about the restaurant industry, adversely
      affect our sales on a local, regional, or national basis.  A decrease
      in customer traffic as a result of these health concerns or negative publicity,
      or as a result of a temporary closure of any Sonic Drive-Ins, could materially
      harm our brand, sales, and profitability.




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




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





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




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




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




A
      portion
      of our earnings comes from royalties, rents and other amounts paid by our
      franchisees. Franchisees are independent contractors, and their employees are
      not our employees.  We provide training and support to, and monitor
      the operations of, our franchisees, but the quality of their drive-in operations
      may be diminished by any number of factors beyond our
      control.  Franchisees may not successfully operate drive-ins in a
      manner consistent with our high standards and requirements, and franchisees
      may
      not hire and train qualified managers and other restaurant
      personnel.  Any operational shortcoming of a Franchise Drive-In is
      likely to be attributed by consumers to the entire Sonic brand, thus damaging
      our reputation and potentially affecting revenues and
      profitability.


10




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




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




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





Our
      sales
      and operating results can vary from quarter to quarter and year to year
      depending on various factors, many of which are beyond our
      control.  Certain events and factors may directly and immediately
      decrease demand for our products.  If customer demand decreases
      rapidly, our results of operations would also decline
      precipitously.  These events and factors include:


•
              
              variations
                  in the timing and volume of Sonic Drive-Ins’
                  sales;
 •
              
              sales
                  promotions by Sonic and its
                  competitors;
 •
              
              changes
                  in average same-store sales and customer
                  visits;
 •
              
              variations
                  in the price, availability and shipping costs of
                  supplies;
 •
              
              seasonal
                  effects on demand for Sonic’s
                  products;
 •
              
              unexpected
                  slowdowns in new drive-in development
                  efforts;
 •
              
              changes
                  in competitive and economic conditions
                  generally;
 •
              
              changes
                  in the cost or availability of ingredients or
                  labor;
 •
              
              weather
                  and other acts of God; and
 •
              
              changes
                  in the number of franchise agreement
                  renewals.
  **Our
      profitability may be adversely affected by increases in energy
      costs.**





Our
      success depends in part on our ability to absorb increases in energy
      costs.  Various regions of the United States in which we operate
      multiple drive-ins have experienced significant increases in energy
      prices.  If these increases continue to occur, it would have an
      adverse effect on our profitability.





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





We
      are
      dependent on frequent deliveries of perishable food products that meet certain
      specifications.  Shortages or interruptions in the supply of
      perishable food products may be caused by unanticipated demand, problems in
      production or distribution, financial or other difficulties of suppliers,
      disease or food-borne illnesses, inclement weather or other
      conditions.  We purchase large quantities of food and supplies, which
      can be subject to significant price fluctuations due to seasonal shifts, climate
      conditions, industry demand, energy costs, changes in international commodity
      markets and other factors.  These shortages or rapid price increases
      could adversely affect the availability, quality and cost of ingredients, which
      would likely lower revenues and reduce our profitability.  11


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





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





•
            
            competition
                from other restaurants in current and future
                markets;


•
            
            the
                degree of saturation in existing
                markets;


•
            
            consumer
                interest in the Sonic Brand in new and developing
                markets;•
            
            the
                identification and availability of suitable and economically viable
                locations;


•
            
            sales
                levels at existing drive-ins;


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


•
            
            permitting
                and regulatory compliance;•
            
            the
                cost and availability of construction
                resources;


•
            
            the
                ability to meet construction
                schedules;


•
            
            the
                availability of qualified franchisees and their financial and other
                development capabilities;•
            
            the
                ability to hire and train qualified management
                personnel;•
            
            weather;
                and


•
            
            general
                economic and business conditions.




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





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





On
      December 20, 2006, the Company closed on a securitized financing facility,
      comprised of a $600 million fixed rate term loan and a $200 million variable
      rate revolving credit facility.   As of August 31, 2007, we had
      $593.4 million in outstanding debt under the fixed rate note at an interest
      rate
      of 5.7% and $116 million outstanding under the variable rate note at an interest
      rate of 6.4%.





Our
      increased leverage could have the
      following consequences:




•
            
            We
                  may be more vulnerable in the event of deterioration in our business,
                  in
                  the restaurant industry or in the economy generally.  In
                  addition, we may be limited in our flexibility in planning for
                  or reacting
                  to changes in our business and the industry in which we
                  operate. •
              
              We
                    may be required to dedicate a substantial portion of our cash
                    flow to the
                    payment of interest on our indebtedness, which could reduce the
                    amount of
                    funds available for operations or development of new Partner
                    Drive-Ins and
                    thus place us at a competitive disadvantage as compared with
                    competitors
                    that are less highly leveraged.
 •
              
              From
                    time to time, we may engage in various capital markets, bank
                    credit and
                    other financing activities to meet our cash requirements.  We
                    may have difficulty obtaining additional financing at economically
                    acceptable interest rates.•
              
              Our
                    existing and future debt obligations may contain certain negative
                    covenants including limitations on liens, consolidations and
                    mergers,
                    indebtedness, capital expenditures, asset dispositions, sale-leaseback
                    transactions, stock repurchases and transactions with affiliates,
                    which
                    may reduce our flexibility in responding to changing business
                    and economic
                    conditions.
 •
              
              Our
                    debt obligations are subject to customary rapid amortization
                    events and
                    events of default.  Although management does not anticipate an
                    event of default or any other event of noncompliance with the
                    provisions
                    of the Notes, if such an event occurred, the unpaid amounts outstanding
                    could become immediately due and payable.


12




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




Sonic
      and
      its franchisees are subject to various federal, state and local laws affecting
      their businesses.  The successful development and operation of
      restaurants depend to a significant extent on the selection and acquisition
      of
      suitable sites, which are subject to zoning, land use (including the placement
      of drive-thru windows), environmental (including litter), traffic and other
      regulations.  Restaurant operations are also subject to licensing and
      regulation by state and local departments relating to health, food preparation,
      sanitation and safety standards, federal and state labor and immigration laws,
      (including applicable minimum wage requirements, overtime, working and safety
      conditions and citizenship requirements), federal and state laws prohibiting
      discrimination and other laws regulating the design and operation of facilities,
      such as the Americans with Disabilities Act of 1990.  If we fail to
      comply with any of these laws, we may be subject to governmental action or
      litigation, and our reputation could be accordingly harmed.  Injury to
      our reputation would, in turn, likely reduce revenues and profits.




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




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




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




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




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




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




The
      success of our business depends on
      the continued ability to use existing trademarks, service marks and other
      components of our brand in order to increase brand awareness and further develop
      branded products.  All of the steps we have taken to protect our
      intellectual property may not be adequate.  13


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




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





**Catastrophic
      events may disrupt our business.**




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





**Item
      1B.  Unresolved Staff
      Comments.**





None.





**Item
      2.  Properties**





Of
      the654
Partner
      Drive-Ins operating as of August 31, 2007, we operated273of them on property
      leased from third-parties and 381 of them on property we
      own.  The leases expire on dates ranging from 2007 to 2027, 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 Sonic to
      maintain the property and pay the cost of insurance and taxes.





Our
      corporate headquarters are located
      in the Bricktown district of downtown Oklahoma City.  We have a
      15-year lease to occupy approximately 78,000 square feet.  The lease
      expires in November 2018 and has two five-year renewal options.  Sonic
      believes its properties are suitable for the purposes for which they are being
      used.





**Item
      3.  Legal Proceedings**





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





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





Sonic
      did not submit any matter during
      the fourth quarter of the Company’s last fiscal year to a vote of Sonic’s
      stockholders, through the solicitation of proxies or otherwise.  14


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





**Identification
      of Executive Officers**





The
      following table identifies the
      executive officers of the Company:





**Name**
            **Age**
            **Position**
            **Executive**
              **Officer
                Since**J.
                Clifford Hudson
            52
            Chairman
                of the Board of Directors, Chief Executive Officer and
                President
            June
                1985W.
                Scott McLain
            45
            Executive
                Vice President of Sonic Corp. and President of Sonic Industries Services
                Inc.
            April
                1996Michael
                A. Perry
            49
            President
                of Sonic Restaurants, Inc.
            August
                2003Stephen
                C. Vaughan
            41
            Vice
                President and Chief Financial Officer
            January
                1996V.
                Todd Townsend
            43
            Vice
                President and Chief Marketing Officer
            August
                2005Paige
                S. Bass
            38
            Vice
                President and General Counsel
            January
                2007Carolyn
                C. Cummins
            49
            Vice
                President of Compliance and Corporate Secretary
            April
                2004Claudia
                San Pedro
            38
            Vice
                President of Investor Relations and Treasurer
            January
                2007Terry
                D. Harryman
            42
            Controller
            January
                1999





**Business
      Experience**





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





J.
      Clifford Hudson has served as the
      Company’s Chairman of the Board since January 2000 and Chief Executive Officer
      since April 1995.  Mr. Hudson served as President of the Company from
      April 1995 to January 2000 and reassumed that position in November
      2004.  He has served in various other offices with the Company since
      1984.  Mr. Hudson has served as a Director of the Company since 1993.
      Mr. Hudson has served on the Board of Trustees of the Ford Foundation since
      January 2006 and on the Board of Trustees of the National Trust for Historic
      Preservation since January 2001, where he now serves as Chairman of the
      Board.  He 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, from 1994 to
      2001.





W.
      Scott McLain has served as Executive
      Vice President of the Company and President and Director of Sonic Industries
      Services Inc. since September 2004.  He served as the Company’s
      Executive Vice President and Chief Financial Officer from January 2004 until
      November 2004 and as the Company’s Senior Vice President and Chief Financial
      Officer from January 2000 until January 2004.  Mr. McLain served as
      the Company’s Vice President of Finance and Chief Financial Officer from August
      1997 until January 2000.





Michael
      A. Perry has served as
      President and Director of Sonic Restaurants, Inc. since September
      2004.  He served as Senior Vice President of Operations and Director
      of Sonic Restaurants, Inc. from August 2003 until September 2004.  Mr.
      Perry served as Vice President of Franchise Services of Sonic Industries
      Services Inc. from September 1998 until August 2003.





Stephen
      C. Vaughan has served as Vice
      President and Chief Financial Officer of the Company since November
      2004.  Mr. Vaughan also served as Treasurer of the Company from
      November 2004 until April 2005.  Mr. Vaughan served as Vice President
      of Planning and Analysis and Treasurer from November 2001 until November 2004
      and served as Vice President of Planning and Analysis from January 1999 until
      November 2001.  He joined the Company in 1992.





V.
      Todd Townsend has served as Vice
      President and Chief Marketing Officer of the Company since joining the Company
      in August 2005. Mr. Townsend served as Vice President of Marketing for Yahoo!
      Inc. from 2004 until joining the Company in 2005.  Mr. Townsend served
      as Assistant Vice President of Marketing for Sprint Corp. from 2001 until 2003
      and as Senior Director
      of
      Marketing for Sprint Corp. from 2000 until 2001.





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





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





Claudia
      San Pedro has served as Vice
      President of Investor Relations and Treasurer of the Company since January
      2007
      and as Treasurer of Sonic Industries Services Inc. since November
      2006.  She served as the Director of the Oklahoma Office of State
      Finance from June 2005 through November 2006.  From July 2003 to May
      2005, Ms. San Pedro served as the Budget Division Director for the Office of
      State Finance.  From September 2000 until June 2003, Ms. San Pedro
      served as the Assistant Fiscal Staff Director and Education Fiscal Analyst
      for
      the Oklahoma State Senate.





Terry
      D. Harryman has served as the
      Company’s Controller since January 1999.  Mr. Harryman has also served
      as the Controller of Sonic Restaurants, Inc. and Sonic Industries Services
      Inc.
      since January 2002.  He served as Assistant Treasurer of Sonic
      Restaurants, Inc. and Sonic Industries Services Inc. from October 1996 until
      January 2002.  Mr. Harryman joined the Company in 1996.


15





**PART
      II**





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





**Market
      Information**





The
      Company’s common stock trades on
      the Nasdaq National Market (“Nasdaq”) under the symbol “SONC.” The following
      table sets forth the high and low closing bids for the Company’s common stock
      during each fiscal quarter within the two most recent fiscal years as reported
      on Nasdaq.  Share amounts set forth below and elsewhere in this report
      have been adjusted to reflect the results of the April 2006 three-for-two stock
      split.





**Fiscal
                Year Ended August 31, 2007**
            **High**
            **Low**
            **Fiscal
                Year Ended August 31, 2006**
            **High**
            **Low**First
                Quarter
            $24.02
            $21.63
            First
                Quarter
            $19.94
            $17.99Second
                Quarter
            **$**24.35
            $21.50
            Second
                Quarter
            **$**21.73
            $18.33Third
                Quarter
            $24.96
            $20.60
            Third
                Quarter
            $23.48
            $20.83Fourth
                Quarter
            $24.71
            $20.29
            Fourth
                Quarter
            $22.40
            $19.07





**Stockholders**





As
      of October 16, 2007, the Company had
      629 record holders of its common stock.





**Dividends**





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


16




**Issuer
      Purchases of Equity Securities**




Shares
      repurchased during the fourth quarter of fiscal 2007 are as follows (in
      thousands, except per share amounts):


**Period**
                **Total
                    Number of Shares**
                  **Purchased**
                  
                  **(a)**
                **Average
                    Price Paid per**
                  **Share**
                  
                  **(b)**
                **Total
                    Number of Shares Purchased as Part of Publicly Announced Plans
                    or Programs**(1)
                  
                  **(c)**
                **Maximum
                    Dollar Value that May Yet Be Purchased Under the
                    Program**
                  
                  **(d)**June
                    1, 2007 through June 30, 2007
                890
                $21.36
                890
                $20,425July
                    1, 2007 through July 31, 2007
                942
                $21.68
                942
                $2August
                    1, 2007 through August 31, 2007
                1,481
                $21.90
                1,481
                $42,571Total
                3,313
                $21.89
                3,313


(1)  All
      of the shares purchased during the fourth quarter of fiscal 2007 were purchased
      as part of the Company’s share repurchase program which was first publicly
      announced on April 14, 1997.  In August 2007, the Company’s Board of
      Directors approved an additional $75 million under the Company’s stock
      repurchase authorization and extended the program to August 31,
      2008.


17


**Item
      6.  Selected Financial
      Data**





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





**[The
      Remainder of this Page Intentionally Left Blank]**


18


**Selected
        Financial Data**


**(In
      thousands, except per share data)**


**Year
                  ended August 31,****2007**
              
              
              2006
              
              
              2005(1)
              
              
              2004(1)
              
              
              2003(1)**Income
                  Statement Data:**Partner
                  Drive-In sales
              
              **$**
              **646,915**
              
              
              $
              585,832
              
              
              $
              525,988
              
              
              $
              449,585
              
              
              $
              371,518Franchise
                  Drive-Ins:Franchise
                  royalties
              
              ****
              **111,052**
              
              
              
              98,163
              
              
              
              88,027
              
              
              
              77,518
              
              
              
              66,431Franchise
                  fees
              
              ****
              **4,574**
              
              
              
              4,747
              
              
              
              4,311
              
              
              
              4,958
              
              
              
              4,674Other
              
              ****
              **7,928**
              
              
              
              4,520
              
              
              
              4,740
              
              
              
              4,385
              
              
              
              4,017Total
                  revenues
              
              ****
              **770,469**
              
              
              
              693,262
              
              
              
              623,066
              
              
              
              536,446
              
              
              
              446,640Cost
                  of Partner Drive-In sales
              
              ****
              **520,176**
              
              
              
              468,627
              
              
              
              421,906
              
              
              
              358,859
              
              
              
              291,764Selling,
                  general and administrative
              
              ****
              **58,736**
              
              
              
              52,048
              
              
              
              47,503
              
              
              
              44,765
              
              
              
              41,061Depreciation
                  and amortization
              
              ****
              **45,103**
              
              
              
              40,696
              
              
              
              35,821
              
              
              
              32,528
              
              
              
              29,223Provision
                  for impairment of long-livedassets
              
              ****
              **1,165**
              
              
              
              264
              
              
              
              387
              
              
              
              675
              
              
              
              727Total
                  expenses
              
              ****
              **625,180**
              
              
              
              561,635
              
              
              
              505,617
              
              
              
              436,827
              
              
              
              362,775Income
                  from operations
              
              ****
              **145,289**
              
              
              
              131,627
              
              
              
              117,449
              
              
              
              99,619
              
              
              
              83,865Debt
                  extinguishment and other costs
              
              ****
              **6,076**
              
              
              ─
              
              
              ─
              
              
              ─
              
              
              ─Interest
                  expense, net
              
              ****
              **38,330**
              
              
              
              7,578
              
              
              
              5,785
              
              
              
              6,378
              
              
              
              6,216Income
                  before income taxes
              
              **$**
              **100,883**
              
              
              $
              124,049
              
              
              $
              111,664
              
              
              $
              93,241
              
              
              $
              77,649Net
                  income
              
              **$**
              **64,192**
              
              
              $
              78,705
              
              
              $
              70,443
              
              
              $
              58,031
              
              
              $
              47,801Income
                  per share (2):Basic
              
              **$**
              **0.94**
              
              
              $
              0.91
              
              
              $
              0.78
              
              
              $
              0.65
              
              
              $
              0.55Diluted
              
              **$**
              **0.91**
              
              
              $
              0.88
              
              
              $
              0.75
              
              
              $
              0.63
              
              
              $
              0.52Weighted
                  average shares used in calculation (2):Basic
              
              ****
              **68,019**
              
              
              
              86,260
              
              
              
              89,992
              
              
              
              88,970
              
              
              
              87,698Diluted
              
              ****
              **70,592**
              
              
              
              89,239
              
              
              
              93,647
              
              
              
              92,481
              
              
              
              91,365
 
 **Balance
                  Sheet Data:**Working
                  capital (deficit)
              
              **$**
              **(40,784**
              **)**
              
              $
              (35,585
              )
              
              $
              (30,093
              )
              
              $
              (14,537
              )
              
              $
              (2,875
              )Property,
                  equipment and capital leases, net
              
              ****
              **529,993**
              
              
              
              477,054
              
              
              
              422,825
              
              
              
              376,315
              
              
              
              345,551Total
                  assets
              
              ****
              **758,520**
              
              
              
              638,018
              
              
              
              563,316
              
              
              
              518,633
              
              
              
              486,119Obligations
                  under capital leases (including current portion)
              
              ****
              **39,318**
              
              
              
              36,625
              
              
              
              38,525
              
              
              
              40,531
              
              
              
              27,929Long-term
                  debt (including current portion)
              
              ****
              **710,743**
              
              
              
              122,399
              
              
              
              60,195
              
              
              
              82,169
              
              
              
              139,587Stockholders’
                  equity (deficit)
              
              ****
              **(106,802**
              **)**
              
              
              391,693
              
              
              
              387,917
              
              
              
              337,900
              
              
              
              267,733Cash
                  dividends declared per common share
              
              ─
              
              
              ─
              
              
              ─
              
              
              ─
              
              
              ─


(1)   Previously
      reported prior-year results have been adjusted to implement SFAS 123R on a
      modified retrospective basis.


(2)   Adjusted
      for three-for-two stock splits in 2006 and 2004.


19


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





**Overview**





*Description
      of the Business**.*Sonic operates and franchises the
      largest chain of drive-ins in the United States.  As of August 31,
      2007, the Sonic system was comprised of 3,343 drive-ins, of which 20% or 654
      were Partner Drive-Ins and 80% or 2,689 were Franchise
      Drive-Ins.  Sonic Drive-Ins feature signature menu items such as
      specialty soft drinks and frozen desserts, made-to-order sandwiches and a unique
      breakfast menu.  We derive our revenues primarily from Partner
      Drive-In sales and royalties from franchisees.  We also receive
      revenues from initial franchise fees.  To a lesser extent, we also
      receive income from the selling and leasing of signs and real estate, as well
      as
      from minority ownership interests in a few Franchise Drive-Ins.





Costs
      of
      Partner Drive-In sales, including minority interest in earnings of drive-ins,
      relate directly to Partner Drive-In sales.  Other expenses, such as
      depreciation, amortization, and general and administrative expenses, relate
      to
      the Company’s franchising operations, as well as Partner Drive-In
      operations.  Our revenues and expenses are directly affected by the
      number and sales volumes of Partner Drive-Ins.  Our revenues and, to a
      lesser extent, expenses also are affected by the number and sales volumes of
      Franchise Drive-Ins.  Initial franchise fees and franchise royalties
      are directly affected by the number of Franchise Drive-In openings.





*Overview
      of Business Performance**.*Business fundamentals at the drive-in
      level continued to be strong during fiscal year 2007.  Cumulative
      results for the year, however, were impacted by costs associated with the
      financing of the Company’s tender offer and other share repurchase activities
      which have collectively resulted in the repurchase of approximately 30% of
      the
      Company’s outstanding stock during the year ended August 31,
      2007.  While the tender offer was dilutive to earnings per share in
      the first two quarters of fiscal 2007, it was accretive to third and fourth
      quarter earnings per share and is expected to continue to be accretive in the
      future. Net income for the year decreased 18.4%, while earnings per share
      increased 3.4% to $0.91 per diluted share from $0.88 in the previous
      year.  The Company’s earnings were reduced by debt extinguishment
      charges related primarily to Sonic’s tender offer and financing activities
      during fiscal year 2007, which totaled $0.05 per diluted share for the
      year.  Excluding these special charges, net income per diluted share
      was $0.96 for fiscal year 2007, reflecting a 9.1% increase versus the prior
      year.  The Company believes this non-GAAP measure of net income per
      diluted share before special items provides for comparability to prior year
      net
      income per diluted share, and is useful in assessing ongoing operations
      performance.





We
      continue to experience considerable momentum in our business fueled by solid
      growth in same-store sales that led to an increase in system-wide drive-in
      level
      average profits.  In turn, the rise in store-level profits, which have
      grown handsomely over the last four years, helped produce an increase in the
      number of new drive-in openings by franchisees.  We believe these
      results reflect our multi-layered growth strategy that features the following
      components:





·
            Solid
                same-store sales growth;


·
            Expansion
                of the Sonic brand through new unit growth, particularly by
                franchisees;


·
            Increased
                franchising income stemming from franchisee new unit growth, solid
                same-store sales growth and our unique ascending royalty
                rate;


·
            Operating
                leverage at both the drive-in level and the corporate level;
                and


·
            The
                use of excess operating cash flow and issuance of new debt for share
                repurchases and franchise
                acquisitions.





The
      following table provides information regarding the number of Partner Drive-Ins
      and Franchise Drive-Ins in operation as of the end of the periods indicated
      as
      well as the system-wide growth in sales and average unit volume. System-wide
      information includes both Partner Drive-In and Franchise Drive-In information,
      which we believe is useful in analyzing the growth of the brand as well as
      the
      Company’s revenues since franchisees pay royalties based on a percentage of
      sales.  20


**System-Wide
                Performance**
              **($
                in thousands)****Year
                Ended August 31,****2007**
            
            
            **2006**
            
            
            **2005**Percentage
                increase in sales
            
            ****
            **8.6**
            **%**
            
            
            10.7
            %
            
            
            12.4
            %System-wide
                drive-ins in operation(1):Total
                at beginning of
                period
            
            ****
            **3,188**
            
            
            
            3,039
            
            
            
            2,885Opened
            
            ****
            **175**
            
            
            
            173
            
            
            
            175Closed
                (net of
                re-openings)
            
            ****
            **(20**
            **)**
            
            
            (24
            )
            
            
            (21
            )Total
                at end of
                period
            
            ****
            **3,343**
            
            
            
            3,188
            
            
            
            3,039Core
                markets(2)
            
            ****
            **2,500**
            
            
            
            2,435
            
            
            
            2,165Developing
                markets(2)
            
            ****
            **843**
            
            
            
            753
            
            
            
            874All markets
            
            ****
            **3,343**
            
            
            
            3,188
            
            
            
            3,039





Average
                sales per drive-in:Core
                markets
            
            **$**
            **1,145**
            
            
            $
            1,105
            
            
            $
            1,059Developing
                markets
            
            ****
            **998**
            
            
            
            954
            
            
            
            934All markets
            
            ****
            **1,109**
            
            
            
            1,070
            
            
            
            1,023Change
                in same-store sales(3):Core
                markets
            
            ****
            **3.6**
            **%**
            
            
            5.3
            %
            
            
            5.6
            %Developing
                markets
            
            ****
            **1.2**
            
            
            
            1.5
            
            
            
            7.4All markets
            
            ****
            **3.1**
            
            
            
            4.5
            
            
            
            6.0(1)
                Drive-ins that are temporarily closed for various reasons (repairs,
                remodeling, relocations, etc.) are not considered closed unless the
                Company determines that they are unlikely to reopen within a reasonable
                time.
              (2)
                Markets are identified based on television viewing areas and further
                classified as core or developing markets based upon number of drive-ins
                in
                a market and the level of advertising support. Market classifications
                are updated periodically.
              (3)
                Represents percentage change for drive-ins open for a minimum of
                15
                months.





System-wide
      same-store sales increased 3.1% during fiscal year 2007 as a result of growth
      in
      average check, offset somewhat by a slight decrease in traffic (number of
      transactions per drive-in). The increase in average check was the result of
      price increases, as well as the success of the pay-at-your-stall (PAYS) program,
      which has increased credit and debit card transactions that, on average, exceed
      the average cash transaction.  We believe our strong sales performance
      is a direct result of our specific sales-driving initiatives including, but
      not
      limited to:





·
            Continued
                growth of our business in non-traditional day parts including the
                morning,
                afternoon, and evening day parts;


·
            Use
                of technology to reach customers and improve the customer
                experience;


·
            Monthly
                promotions and new product news focused on quality and expanded choice
                for
                our customers;


·
            Growth
                in brand awareness through increased media spending and greater use
                of
                network cable advertising; and


·
            The
                ongoing physical retrofit of drive-ins with a new
                look.





Looking
      forward, these strategies are expected to continue to positively impact our
      business.  We expect revenue growth of between 10% and 12% for fiscal
      year 2008, based upon targeted same-store sales growth in the range of 2% to
      4%,
      with Partner Drive-In sales growth expected to be slightly ahead of this
      range.





We
      continue to use our monthly promotions to highlight our distinctive food
      offerings and to feature new products.**We also use our promotions
      and new product news to create a strong emotional link with consumers and to
      align closely with consumer trends for fresh ingredients, customization, menu
      variety and choice.  During the past year, our new product offerings
      showcased the breadth of our menu and emphasized the opportunity for choice
      at
      Sonic.  We will continue to have new product news in the coming
      months, all designed to meet customers’ evolving taste preferences including the
      growing desire for fresh, quality product offerings and healthier
      alternatives.


21


During
      fiscal year 2007, our system-wide media expenditures were approximately $175
      million as compared to $145 million in fiscal year 2006, which we believe
      continues to increase overall brand awareness.  We also continued to
      spend approximately one-half of our marketing dollars on system-wide marketing
      fund efforts, which are largely used for network cable television advertising,
      growing this area of our advertising from approximately $72 million in fiscal
      year 2006 to approximately $90 million in fiscal year 2007.  We
      believe increased network cable advertising provides several benefits including
      the ability to more effectively target and better reach the cable audience,
      which has now surpassed broadcast networks in terms of viewership.  In
      addition, national cable advertising also allows us to bring additional depth
      to
      our media and expand our message beyond our traditional emphasis on a single
      monthly promotion.  Looking forward, we expect system-wide media
      expenditures to be approximately $190 million in fiscal 2008, with the
      system-wide marketing fund representing approximately one-half of total media
      expenditures.





We
      continue to make investments to upgrade the exterior look of our drive-ins
      including a retrofit and the use of new electronic signage.  The new
      retrofit features several new elements including an upgraded building exterior,
      new more energy-efficient lighting, a significantly enhanced patio area, and
      improved menu housings.  We completed the retrofit of over 100 Partner
      Drive-Ins before fiscal year 2007.  During fiscal year 2007, the
      retrofit was completed at 326 Franchise Drive-Ins and 173 Partner
      Drive-Ins.  The retrofit of the entire Sonic system is expected to
      occur over the next three to four years, with an additional 600 to 700 Franchise
      Drive-Ins and 150 Partner Drive-Ins expected to be retrofitted during fiscal
      year 2008.





Sonic
      opened 175 new drive-ins during fiscal year 2007, consisting of 29 Partner
      Drive-Ins and 146 Franchise Drive-Ins, a slight increase overall from 173
      drive-in openings during fiscal year 2006 (35 Partner Drive-Ins and 138
      Franchise Drive-Ins).  Looking forward, the Company expects to open
      180 to 200 new drive-ins during fiscal year 2008, including 155 to 165 by
      franchisees.





**Results
      of Operations**





*Revenues**.*  Total
      revenues increased 11.1% to $770.5 million in fiscal year 2007 from $693.3
      million during fiscal year 2006.  The increase in revenues primarily
      relates to solid sales growth for Partner Drive-Ins and a rise in franchise
      royalties.




**Revenues****($
                in thousands)****Percent****Increase/**
            
            
            **Increase/****Year
                Ended August 31,**
            
            **2007**
            
            
            **2006**
            
            
            **(Decrease)**
            
            
            **(Decrease)**Revenues:
              Partner
                Drive-In sales
            
            **$**
            **646,915**
            
            
            $
            585,832
            
            
            $
            61,083
            
            
            
            10.4
            %Franchise
                revenues:
              Franchise
                royalties
            
            ****
            **111,052**
            
            
            
            98,163
            
            
            
            12,889
            
            
            
            13.1Franchise fees
            
            ****
            **4,574**
            
            
            
            4,747
            
            
            
            (173
            )
            
            
            (3.6
            )Other
            
            ****
            **7,928**
            
            
            
            4,520
            
            
            
            3,408
            
            
            
            75.4Total revenues
            
            **$**
            **770,469**
            
            
            $
            693,262
            
            
            $
            77,207
            
            
            
            11.1**Percent****Increase/**
            
            
            **Increase/****Year
                Ended August 31,**
            
            **2006**
            
            
            **2005**
            
            
            **(Decrease)**
            
            
            **(Decrease)**Revenues:
              Partner
                Drive-In sales
            
            $
            585,832
            
            
            $
            525,988
            
            
            $
            59,844
            
            
            
            11.4
            %Franchise
                revenues:
              Franchise
                royalties
            
            
            98,163
            
            
            
            88,027
            
            
            
            10,136
            
            
            
            11.5Franchise fees
            
            
            4,747
            
            
            
            4,311
            
            
            
            436
            
            
            
            10.1Other
            
            
            4,520
            
            
            
            4,740
            
            
            
            (220
            )
            
            
            (4.6
            )Total revenues
            
            $
            693,262
            
            
            $
            623,066
            
            
            $
            70,196
            
            
            
            11.3





The
      following table reflects the growth in Partner Drive-In sales and changes in
      comparable drive-in sales for Partner Drive-Ins.  It also presents
      information about average unit volumes and the number of Partner Drive-Ins,
      which is useful in analyzing the growth of Partner Drive-In sales.


22


**Partner
                Drive-In Sales**
              **($
                in thousands)****Year
                Ended August 31,****2007**
            
            
            **2006**
            
            
            **2005**Partner
                Drive-In sales
            
            **$**
            **646,915**
            
            
            $
            585,832
            
            
            $
            525,988Percentage
                increase
            
            ****
            **10.4**
            **%**
            
            
            11.4
            %
            
            
            17.0
            %Partner
                Drive-Ins in operation(1):Total
                at beginning of period
            
            ****
            **623**
            
            
            
            574
            
            
            
            539Opened
            
            ****
            **29**
            
            
            
            35
            
            
            
            37Acquired
                from (sold to) franchisees, net
            
            ****
            **5**
            
            
            
            15
            
            
            
            (1
            )Closed
            
            ****
            **(3**
            **)**
            
            
            (1
            )
            
            
            (1
            )Total
                at end of period
            
            ****
            **654**
            
            
            
            623
            
            
            
            574Average
                sales per Partner Drive-In
            
            **$**
            **1,017**
            
            
            $
            980
            
            
            $
            957Percentage
                increase
            
            ****
            **3.8**
            **%**
            
            
            2.4
            %
            
            
            8.0
            %Change
                in same-store sales(2)
            
            ****
            **2.5**
            **%**
            
            
            1.9
            %
            
            
            7.4
            %(1)
                Drive-ins that are temporarily closed for various reasons (repairs,
                remodeling, relocations, etc.) are not considered closed unless the
                Company determines that they are unlikely to reopen within a reasonable
                time.
              (2)
                Represents percentage change for drive-ins open for a minimum of
                15
                months.





The
      following table reflects the increase in Partner Drive-In sales by type of
      activity for fiscal year 2007 and 2006:




**Change
                in Partner Drive-In Sales**
              **($
                in thousands)****Year
                Ended August 31,****2007**
            
            
            **2006**Increase
                from addition of newly constructed drive-ins (1)
            
            **$**
            **42,593**
            
            
            $
            33,332Net
                increase from drive-ins acquired and sold (2)
            
            ****
            **4,409**
            
            
            
            17,197Increase
                from same-store sales
            
            ****
            **15,439**
            
            
            
            9,754Decrease
                from drive-ins closed (3)
            
            ****
            **(1,358**
            **)**
            
            
            (439
            )Net
                increase in Partner Drive-In sales
            
            **$**
            **61,083**
            
            
            $
            59,844(1)
                Represents the increase for 64 and 72 drive-ins opened since the
                beginning
                of the prior fiscal year as of August 31, 2007 and 2006,
                respectively.(2)
                Represents the net increase for 15 drive-ins acquired and 10 drive-ins
                sold since the beginning of the prior fiscal year as of August 31,
                2007
                and 19 drive-ins acquired and 5 drive-ins sold since the beginning
                of the
                prior fiscal year as of August 31, 2006.(3)
                Represents the decrease for 4 and 2 drive-ins closed since the beginning
                of the prior fiscal year as of August 31, 2007 and 2006,
                respectively.





The
      increase in Partner Drive-In sales for both fiscal year 2007 and 2006 was
      primarily driven by the opening of newly constructed
      drive-ins.  Looking forward, we anticipate opening approximately 25 to
      35 Partner Drive-Ins during fiscal year 2008.  Same-store sales at
      Partner Drive-Ins increased 2.5% in fiscal year 2007 and 1.9% in fiscal year
      2006, which also contributed to the increase in total Partner Drive-In
      sales.  These increases also reflect the positive impact of increasing
      average sales per drive-in of 3.8% for 2007 and 2.4% for 2006.





The
      following table reflects the growth in franchise income (franchise royalties
      and
      franchise fees) as well as franchise sales, average unit volumes and the number
      of Franchise Drive-Ins.  While we do not record Franchise Drive-In
      sales as revenues, we believe this information is important in understanding
      our
      financial performance since these sales are the basis on which we calculate
      and
      record franchise royalties.  This information is also indicative of
      the financial health of our franchisees.  23
  **Franchise
                  Information**
                **($
                  in thousands)****Year
                  Ended August 31,****2007**
              
              
              **2006**
              
              
              **2005**Franchise
                  fees and royalties(1)
              
              **$**
              **115,626**
              
              
              $
              102,910
              
              
              $
              92,338Percentage
                  increase
              
              ****
              **12.4**
              **%**
              
              
              11.4
              %
              
              
              12.0
              %Franchise
                  Drive-Ins in operation(2):Total
                  at beginning of
                  period
              
              ****
              **2,565**
              
              
              
              2,465
              
              
              
              2,346Opened
              
              ****
              **146**
              
              
              
              138
              
              
              
              138Acquired
                  from (sold to) Company,
                  net
              
              ****
              **(5**
              **)**
              
              
              (15
              )
              
              
              1Closed
              
              ****
              **(17**
              **)**
              
              
              (23
              )
              
              
              (20
              )Total
                  at end of
                  period
              
              ****
              **2,689**
              
              
              
              2,565
              
              
              
              2,465Franchise
                  Drive-In sales
              
              **$**
              **2,961,168**
              
              
              $
              2,735,802
              
              
              $
              2,474,133Percentage
                  increase
              
              ****
              **8.2**
              **%**
              
              
              10.6
              %
              
              
              11.5
              %Effective
                  royalty rate
              
              ****
              **3.75**
              **%**
              
              
              3.59
              %
              
              
              3.56
              %Average
                  sales per Franchise Drive-In
              
              **$**
              **1,132**
              
              
              $
              1,092
              
              
              $
              1,039Change
                  in same-store sales(3)
              
              ****
              **3.3**
              **%**
              
              
              5.1
              %
              
              
              5.8
              %(1)
                  See *Revenue Recognition Related to Franchise Fees and Royalties*
                  in the *Critical Accounting Policies and Estimates* section of
                  MD&A.(2)
                  Drive-ins that are temporarily closed for various reasons (repairs,
                  remodeling, relocations, etc.) are not considered closed unless
                  the
                  Company determines that they are unlikely to reopen within a reasonable
                  time.
                (3)
                  Represents percentage change for drive-ins open for a minimum of
                  15
                  months.
 
 Franchise
        royalties increased 13.1% to $111.1 million in fiscal year 2007, compared
        to
        $98.2 million in fiscal year 2006.  Of the $12.9 million increase,
        approximately $8.0 million resulted from Franchise Drive-Ins’ same-store sales
        growth of 3.3% in fiscal year 2007, combined with an increase in the effective
        royalty rate to 3.75% during fiscal year 2007 compared to 3.59% during fiscal
        year 2006.  Each of our license agreements contains an ascending
        royalty rate whereby royalties, as a percentage of sales, increase as sales
        increase.  The balance of the increase was attributable to growth in
        the number of Franchise Drive-Ins over the prior period.
 
 Franchise
        royalties were positively impacted during the latter half of fiscal year
        2007
        when franchisees opted to convert approximately 790 older license agreements
        to
        a newer form of license agreement.  The conversion license provides a
        20 year term and for payment of a higher royalty rate than in the previous
        agreement.  The rate for the converted licenses was effective April 1,
        2007, and we estimate the total benefit for the last half of the fiscal
        year was between $1.5 to $2.0 million.  Looking forward,
        franchise royalties will continue to be impacted positively by this
        conversion.  The benefit to the first half of fiscal year 2008 is
        expected to be approximately $1.5 million in additional royalties.
 
 Franchise
        royalties increased 11.5% to $98.1 million in fiscal year 2006, compared
        to
        $88.0 million in fiscal year 2005.  Of the $10.1 million increase,
        approximately $6.1 million resulted from Franchise Drive-Ins’ same-store sales
        growth of 5.1% in fiscal year 2006, combined with an increase in the effective
        royalty rate to 3.59% during fiscal year 2006 compared to 3.56% during fiscal
        year 2005.  The balance of the increase was attributable to growth in
        the number of Franchise Drive-Ins over the prior period.
 
 Franchisees
        opened 146 new drive-ins in fiscal year 2007, up from 138 new drive-ins in
        fiscal year 2006.  Despite the increase in new drive-in openings,
        franchise fees decreased 3.6% to $4.6 million as a result of approximately
        $0.3
        million more in fees recognized in fiscal year 2006 from terminations of
        area
        development agreements.  These terminations were due to an initiative
        to strengthen the franchise development pipeline by terminating non-performing
        agreements and were the primary reason for the 10.1% increase in franchise
        fees
        to $4.7 million in fiscal year 2006, when franchisees opened 138 new drive-ins
        in both fiscal years 2006 and 2005.  24
 As
        of
        August 31, 2007, we had 173 area development agreements representing 908
        planned
        Franchise Drive-In openings over the next few years, compared to 152 such
        agreements at August 31, 2006 which represented approximately 576 planned
        Franchise Drive-In openings.  We anticipate 155 to 165 store openings
        by franchisees during fiscal year 2008.  As a result of these new
        Franchise Drive-In openings, the impact of the conversion of older license
        agreements, and the continued benefit of the ascending royalty rate contained
        in
        all license agreements, we expect approximately $13 to $15 million in
        incremental franchise fees and royalties in fiscal year 2008.
 
 Other
        income increased 75.4% to $7.9 million in fiscal year 2007 from $4.5 million
        in
        fiscal year 2006.  The increase relates primarily to the net favorable
        impact of non-income tax matters and an approximately $2.0 million gain on
        the
        sale of real estate to a franchisee.  Looking forward, other income is
        anticipated in the range of $0.8 million to $1.0 million per quarter during
        fiscal year 2008.
 
 *Operating
        Expenses**.*  Overall, drive-in cost of operations, as
        a percentage of Partner Drive-In sales, increased to 80.3% in fiscal year
        2007
        from 80.0% in fiscal year 2006.   Minority interest in earnings
        of drive-ins is included as a part of cost of sales in the table below since
        it
        is directly related to Partner Drive-In operations.
 
 **Operating
                  Margins****Year
                  Ended August 31,****2007**
              
              
              **2006**
              
              
              **2005**Costs
                  and Expenses (1):Partner
                  Drive-Ins:Food
                  and
                  packaging
              
              ****
              **25.7**
              **%**
              
              
              25.9
              %
              
              
              26.2
              %Payroll
                  and other employee
                  benefits
              
              ****
              **30.4**
              
              
              
              30.0
              
              
              
              30.3Minority
                  interest in earnings
                  of
                Partner
                  Drive-Ins
              
              ****
              **4.1**
              
              
              
              4.3
              
              
              
              4.1Other
                  operating
                  expenses
              
              ****
              **20.1**
              
              
              
              19.8
              
              
              
              19.6Total
                  Partner Drive-In cost of operations
              
              ****
              **80.3**
              **%**
              
              
              80.0
              %
              
              
              80.2
              %(1)
                  As a percentage of Partner Drive-In sales.
 
 Food
        and
        packaging costs decreased by 0.2 percentage points during fiscal year 2007
        compared to fiscal year 2006 following a decrease of 0.3 percentage points
        during fiscal year 2006 compared to fiscal year 2005.   The
        decrease for fiscal year 2007 relates primarily to price increases that more
        than offset generally higher commodity pricing, particularly for dairy, soybean
        oil and packaging.  The improvement for fiscal year 2006 relates
        primarily to lower dairy costs and a favorable shift in product mix to drinks
        and ice cream, which have more favorable margins than other menu
        items.  Looking forward, commodity pressures are expected to ease in
        the second half of fiscal year 2008.
 
 Labor
        costs increased by 0.4 percentage points during fiscal year 2007 compared
        to
        fiscal year 2006 after a decrease of 0.3 percentage points during fiscal
        year
        2006 compared to fiscal year 2005.  The increase for fiscal year 2007
        was a result of federal and state minimum wage increases, which was partially
        offset by price increases.  The improvement for fiscal year 2006 was
        primarily a result of leverage from higher sales volumes.  Looking
        forward, wage rates are expected to continue to increase as a result of federal
        and state minimum wage legislation.  While the Company expects to
        mitigate some of the increase with menu price increases, it is likely that
        labor
        costs, as a percentage of sales, will rise during fiscal year 2008.
 
 Minority
        interest, which reflects our store-level partners’ pro-rata share of earnings
        through our partnership program, increased by $1.4 million during fiscal
        year
        2007.  While these costs increased in real terms during fiscal year
        2007, they declined as a percentage of Partner Drive-In sales reflecting
        our
        partners’ share of the increased operating costs experienced during the
        period.  During fiscal year 2006, minority interest increased $3.7
        million, reflecting the increase in average profit per store.  We
        continue to view the partnership program as an integral part of our culture
        at
        Sonic and a large factor in the success of our business, and we are pleased
        that
        profit distributions to our partners increased during fiscal year
        2007.  Since we expect our average store level profits to continue to
        grow in fiscal year 2008, we expect minority interest to continue to increase
        in
        dollar terms.
 25
 Other
        operating expenses increased by 0.3 percentage points during fiscal year
        2007
        after an increase of 0.2 percentage points during fiscal year
        2006.  The increase in fiscal year 2007 relates to a number of items,
        including higher credit card fees due to increasing credit card sales and
        higher
        repair and maintenance costs.  Leverage from higher sales partially
        offset increased utility costs resulting from higher energy prices in fiscal
        year 2006.  Looking forward, we expect increases in credit card fees
        to continue, which is expected to be offset by leverage from higher sales
        to
        result in flat to slightly favorable other operating expenses, as a percentage
        of sales, on a year-over-year basis, in fiscal year 2008.
 
 To
        summarize, we are expecting leverage from higher sales and operations
        initiatives to result in slightly favorable overall restaurant-level margins
        during fiscal year 2008 on a year-over-year basis, primarily in the second
        half
        of the year.
 
 *Selling,
        General and Administrative (“SG&A”)**.*  SG&A
        expenses increased 12.8% to $58.7 million during fiscal year 2007 and 9.6%
        to
        $52.0 million during fiscal year 2006.  The increases in these fiscal
        years relate to the addition of headcount and other infrastructure to support
        the continued growth of our business.  As a percentage of total
        revenues, SG&A expenses increased to 7.6% in fiscal year 2007, compared with
        7.5% in fiscal year 2006 and 7.6% in fiscal year 2005.  Stock-based
        compensation is included in SG&A, and, as of August 31, 2007, total
        remaining unrecognized compensation cost related to unvested stock-based
        arrangements was $12.9 million and is expected to be recognized over a weighted
        average period of 1.6 years.  See Note 1 and Note 12 of the Notes to
        the Consolidated Financial Statements included in this Form 10-K for additional
        information regarding our stock-based compensation.  We anticipate
        that SG&A costs will increase approximately 10% to 12% in fiscal year 2008
        and decline slightly, as a percentage of sales.
 
 *Depreciation
        and Amortization**.*  Depreciation and amortization
        expense increased 10.8% to $45.1 million in fiscal year 2007 as a result
        of
        additional capital expenditures.  Depreciation and amortization
        expense increased 13.6% to $40.7 million in fiscal year 2006 due, in part,
        to
        additional depreciation stemming from the Tennessee and Kentucky acquisitions,
        as well as the reduction in remaining useful life for certain assets related
        to
        the retrofit of Partner Drive-Ins in the late 1990s. Capital expenditures
        during
        fiscal year 2007 for new drive-in construction and continued investment in
        existing drive-ins, including retrofit and, in some cases, upgraded signage
        were
        $110.9 million.  An additional $10.8 million was spent for the
        acquisition of drive-ins from franchisees.  Looking forward, with
        approximately $75 to $85 million in capital expenditures planned for the
        year, normal depreciation and amortization is expected to increase by
        approximately 11% to 13% for the year.
 
 *Provision
        for Impairment of Long-Lived Assets**.*  We assess
        drive-in assets for impairment on a quarterly basis under the guidelines
        of FAS
        144 – “Accounting for the Impairment or Disposal of Long-Lived
        Assets.”  During fiscal year 2007, three surplus or leased properties
        were impaired which resulted in a charge of $0.8 million to reduce the carrying
        cost of the properties to estimated fair value.  In addition, during
        fiscal year 2007, two operating Partner Drive-Ins were impaired resulting
        in a
        $0.4 million charge for carrying cost in excess of estimated fair value for
        the
        related assets.   The total of these provisions for fiscal year
        2007 was $1.2 million.  During fiscal year 2006, three surplus
        properties became impaired which resulted in a provision for impairment of
        $0.3
        million for carrying cost in excess of estimated fair value for the
        assets.  During fiscal year 2005, one operating Partner Drive-In and
        one surplus property became impaired which resulted in provision for impairment
        of $0.4 million for carrying cost in excess of estimated fair value for the
        assets.  We continue to perform quarterly analyses of certain
        underperforming drive-ins. It is reasonably possible that the estimate of
        future
        cash flows associated with these drive-ins may change in the near future
        resulting in the need to write-down assets associated with one or more of
        these
        drive-ins to fair value.  While it is impossible to predict if future
        write-downs will occur, we do not believe that future write-downs will impede
        our ability to continue growing earnings at a solid rate.
 
 *Interest
        Expense**.*  Net interest expense increased $36.8
        million to $44.4 million in fiscal year 2007 and increased $1.8 million to
        $7.6
        million in fiscal year 2006.  The increase in fiscal year 2007 is the
        result of interest on increased borrowings used to fund the purchase of shares
        in the Company’s tender offer and subsequent repurchases, as well as $6.1
        million in debt extinguishment charges related to financing the Company’s tender
        offer and other share repurchase activities.  The smaller increase in
        net interest expense in fiscal year 2006 resulted from increased borrowings
        that
        were used largely to fund share repurchases and capital
        expenditures.  During fiscal year 2008, we expect net interest expense
        of approximately $45 to $50 million, but may vary based upon the level
        of share repurchases and acquisitions of Franchise Drive-Ins during the
        year.
 26
 *Income
        taxes*.  The provision for income taxes remained relatively
        constant for fiscal year 2007 with an effective federal and state tax rate
        of
        36.4% compared with 36.6% in fiscal year 2006 and 36.9% in fiscal year 2005.
        The
        decrease in rate in fiscal year 2007 related to the favorable resolution
        of
        state tax matters and the retroactive extension of the Work Opportunity Tax
        Credit.  We expect our tax rate to be in the range of 36.5% to 37.5%
        in fiscal year 2008.  However, our tax rate may continue to vary
        significantly from quarter-to-quarter depending on the timing of option
        exercises and dispositions by option-holders and as circumstances on individual
        tax matters change.
 
 **Financial
        Position**
 
 During
        fiscal year 2007, current assets increased 73.4% to $73.7 million compared
        to
        $42.5 million as of the end of fiscal year 2006.  Cash balances
        increased by $29.3 million primarily due to changes in cash processing for
        the
        securitized cash flows, including consideration of the current portion of
        restricted cash of $13.5 million.  In addition, the noncurrent portion
        of restricted cash of $11.4 million was an increase associated with the
        securitized cash flows.  Net property, equipment and capital leases
        increased by $52.9 million primarily as a result of capital expenditures
        of
        $112.0 million, capital lease additions of $5.2 million and $10.8 million
        for
        the acquisition of drive-ins from franchisees.  Goodwill increased by
        $5.7 million primarily as a result of the acquisition of drive-ins from
        franchisees.  Debt origination costs increased by $19.8 million as a
        result of the costs associated with the securitized debt
        transaction.  These increases combined with the increase in current
        assets resulted in an 18.9% increase in total assets to $758.5 million as
        of the
        end of fiscal year 2007.
 
 Total
        current liabilities increased $36.4 million or 46.6% during fiscal year 2007
        primarily as a result of a $15.3 million increase in the current obligations
        for
        capital leases and debt related to the securitized debt transaction, a $14.4
        million accrual for share repurchase obligations that settled in September
        and a
        $1.6 million increase in gift program liabilities.  The noncurrent
        portion of long-term debt increased $573.3 million as a result of the debt
        used
        to fund the repurchase of stock.  Overall, total liabilities increased
        $619.0 million or 251.3% as a result of the items discussed above.
 
 Stockholders’
        equity decreased $498.5 million during fiscal year 2007 primarily resulting
        from
        the stock repurchase activity during the year.  The Company completed
        a “modified Dutch auction” tender offer in October 2006, repurchasing 15.9
        million shares at a purchase price of $23.00 per share for a total of $366.1
        million, and incurred costs related to the transaction totaling $1.2 million
        that are included in stockholders’ equity.  Subsequent to the tender
        offer, additional share repurchases totaling approximately $211.1 million
        were
        completed under Board-authorized share repurchase initiatives.  The
        stock repurchase activity was partially offset by earnings during the year
        of
        $64.2 million and proceeds and the related tax benefits from the exercise
        of
        stock options.
 
 The
        Company considers the non-GAAP measure of debt-to-EBITDA to be a significant
        indication of the Company’s financial performance and available capital
        resources.  This is not a measure of financial performance or
        liquidity under generally accepted accounting principles
        (“GAAP”).  EBITDA is a non-GAAP measure of income and does not include
        the effects of interest and taxes, and excludes the “non-cash” effects of all
        depreciation and amortization.  While management considers EBITDA
        useful in analyzing our results, it is not intended to replace any presentation
        included in our consolidated financial statements.  As of August 31,
        2007, our debt-to-EBITDA ratio was 3.9.  The following table
        reconciles EBITDA to net income as of August 31, 2007 and provides the
        components to calculate this ratio:
 
 Net
                  Income
              
              $
              64,192Provision
                  for income taxes
              
              
              36,691Depreciation
                  and amortization
              
              
              45,103Net
                  interest expense
              
              
              44,406EBITDA
              
              $
              190,392Obligations
                  under capital leases (including current portion)
              
              $
              39,318Long-term
                  debt (including current portion)
              
              
              710,743Total
                  debt
              
              $
              750,061Debt-to-EBITDA
              
              
              3.9
  27
 **Liquidity
        and Sources of Capital**
 
 *Operating
        Cash Flows**.*Net cash provided by operating
        activities decreased $6.5 million or 5.1% to $121.0 million in fiscal year
        2007
        as compared to $127.5 million in fiscal year 2006.  This decrease
        results from lower net income excluding non-cash items as a result of increased
        interest expense associated with the Company’s increased debt, the segregation
        of $9.0 million of operating cash flows at year-end as restricted cash as
        a
        result of debt requirements, and $5.6 million from termination of a hedge
        instrument.  These decreases were offset by a significant increase in
        operating liabilities related to the amount and timing of tax and other
        liability payments, including the effect of an increase in franchise deposits
        from franchise development activities.
 
 *Investing
        Cash Flows.***During fiscal year 2007, we opened 29 newly
        constructed Partner Drive-Ins, acquired 15 drive-ins from franchisees and
        sold
        ten drive-ins to franchisees.  For the same period, we used cash
        generated from operating activities and borrowings to fund capital additions
        of
        $110.9 million, which included the cost of newly opened drive-ins, retrofits
        of
        existing drive-ins, new equipment for existing drive-ins, drive-ins under
        construction and other capital expenditures, from cash generated by operating
        activities and borrowings.  We purchased the real estate for 21 of the
        29 newly constructed drive-ins.  In addition, the acquisition of 15
        drive-ins during fiscal year 2007 resulted in cash outlays of $10.8
        million.  We also entered into a sale-leaseback agreement during the
        first fiscal quarter and disposed of the real estate underlying drive-ins
        that
        were acquired in the fourth quarter of fiscal year 2006 for proceeds of
        approximately $12.6 million. Proceeds from dispositions of assets for the
        year
        of $13.7 million primarily resulted from sales of other real estate relating
        to
        drive-ins previously sold to franchisees.
 
 *Financing
        Cash Flows.***In December 2006, the Company closed on a
        securitized financing facility of Variable Rate Series 2006-1 Senior Variable
        Funding Notes, Class A-1, which provides for the issuance of up to $200 million
        of Variable Funding Notes and certain other credit instruments, including
        letters of credit. As of August 31, 2007, our outstanding Variable Funding
        Notes
        totaled $116.0 million at an effective borrowing rate of 6.4%, as well as
        $0.3
        million in outstanding letters of credit. The amount available under the
        Variable Funding Notes as of August 31, 2007, was $83.7 million. In
        addition to the Class A-1 notes, the Company issued $600 million of Fixed
        Rate
        Series 2006-1 Senior Notes, Class A-2, in a private transaction in December
        2006. This new debt has an effective borrowing rate of 6.8%, including debt
        issuance costs totaling $24.3 million which were incurred in conjunction
        with
        the securitized debt transactions closed in December 2006. We believe that
        cash
        flows from operations will be adequate for repayment of any long-term debt
        that
        does not get refinanced or extended.  We plan to use our Class A-1
        notes to finance the opening of newly constructed drive-ins, acquisitions
        of
        existing drive-ins, purchases of the Company’s common stock and for other
        general corporate purposes, as needed. See Note 9 of the Notes to Consolidated
        Financial Statements for additional information regarding our long-term
        debt.
 
 The
        Class
        A-1 and Class A-2 notes are subject to a series of covenants and restrictions
        customary for transactions of this type, including (i) required actions to
        better secure collateral upon the occurrence of certain performance-related
        events, (ii) application of certain disposition proceeds as note prepayments
        after a set time is allowed for reinvestment, (iii) maintenance of specified
        reserve accounts, (iv) maintenance of certain debt service coverage ratios,
        (v)
        optional and mandatory prepayments upon change in control, (vi) indemnification
        payments for defective or ineffective collateral, and (vii) covenants relating
        to recordkeeping, access to information and similar matters.  The
        Notes are also subject to customary rapid amortization events and events
        of
        default.  Although management does not anticipate an event of default
        or any other event of noncompliance with the provisions of the debt, if such
        an
        event occurred, the unpaid amounts outstanding could become immediately due
        and
        payable.  See Note 1 – *Restricted Cash* of the Notes to
        Consolidated Financial Statements for additional information regarding
        restrictions on cash.
 
 The
        Company’s tender offer in October 2006 resulted in total cash outflow of $366.1
        million, along with related costs totaling $1.2 million. In addition to the
        shares purchased through the tender offer, the Company has acquired 9.6 million
        shares for a total cost of $211.1 million under the share repurchase program
        authorized by our Board of Directors.  In August 2007, the Board of
        Directors authorized an additional $75.0 million under the Company’s share
        repurchase program and extended the program through August 31,
        2008.  As of August 31, 2007, $42.6 million remained available under
        the program.
 28
 We
        plan
        capital expenditures of approximately $75 to $85 million in fiscal year 2008,
        excluding potential acquisitions and share repurchases.  These capital
        expenditures primarily relate to the development of additional Partner
        Drive-Ins, retrofit of existing Partner Drive-Ins and other drive-in level
        expenditures.  We expect to fund these capital expenditures through
        cash flow from operations and borrowings under the Variable Funding
        Notes.
 
 As
        of
        August 31, 2007, our total cash balance of $50.3 million reflected the impact
        of
        the cash generated from operating activities, borrowing activity, and capital
        expenditures mentioned above.  We believe that existing cash and funds
        generated from operations, as well as borrowings under the Variable Funding
        Notes, will meet our needs for the foreseeable future.
 
 **Off-Balance
        Sheet Arrangements**
 
 The
        Company has obligations for
        guarantees on certain franchisee loans and lease agreements. See Note 15
        of the
        Notes to Consolidated Financial Statements for additional information about
        these guarantees. The Company has no other material off-balance sheet
        arrangements.
 
 **Contractual
        Obligations and Commitments**
 
 In
        the
        normal course of business, Sonic enters into purchase contracts, lease
        agreements and borrowing arrangements.  Our commitments and
        obligations as of August 31, 2007 are summarized in the following
        table:
 
 **Payments
                  Due by Period***(In
                  Thousands)***Total**
              
              
              **Less
                  than**
              
              
              ******1
–
                3**
              
              ******3
                – 5**
              
              
              **More
                  than****1
                  Year**
              
              
              **Years**
              
              **Years**
              
              
              **5
                  Years****Contractual
                  Obligations**Long-term
                  debt(1)
              
              $
              857,836
              
              
              $
              54,079
              
              
              $
              155,041
              
              $
              213,579
              
              
              $
              435,137Capital
                  leases
              
              
              57,332
              
              
              
              4,385
              
              
              
              10,774
              
              
              10,143
              
              
              
              32,030Operating
                  leases
              
              
              190,174
              
              
              
              11,948
              
              
              
              23,606
              
              
              22,661
              
              
              
              131,959Total
              
              $
              1,105,342
              
              
              $
              70,412
              
              
              $
              189,421
              
              $
              246,383
              
              
              $
              599,126
 
 (1)
        The
        fixed-rate interest payments included in the table above assume that all
        the
        Class A-2 notes will be outstanding for the expected six-year term, and all
        other fixed-rate notes will be held to maturity.  Interest
        payments
 associated
        with variable-rate debt have not been included in the table.  Assuming
        that the amounts outstanding under the Class A-1 notes as of August 31, 2007
        are
        held to maturity, and utilizing interest rates in effect at August 31, 2007,
        the
        interest payments will be in the range of $7 to $8 million for at least the
        next
        five years.
 
 **Impact
        of Inflation**
 
 Though
        increases in labor, food or other operating costs could adversely affect
        our
        operations, we do not believe that inflation has had a material effect on
        income
        during the past several years.
 
 **Seasonality**
 
 We
        do not
        expect seasonality to affect our operations in a materially adverse
        manner.  Our results during the 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 Partner and Franchise
        Drive-Ins.
 
 **Critical
        Accounting Policies and Estimates**
 
 The
        Consolidated Financial Statements and Notes to Consolidated Financial Statements
        included in this document contain information that is pertinent to management's
        discussion and analysis. The preparation of financial statements in conformity
        with generally accepted accounting principles requires management to use
        its
        judgment to make estimates and assumptions that affect the reported amounts
        of
        assets and liabilities and disclosure of contingent assets and liabilities.
        These assumptions and estimates could have a material effect on our financial
        statements.  We evaluate our assumptions and estimates on an ongoing
        basis using historical experience and various other factors that are believed
        to
        be relevant under the circumstances.  Actual results may differ from
        these estimates under different assumptions or conditions.  29
 We
        annually review our
        financial reporting and disclosure practices and accounting policies to ensure
        that our financial reporting and disclosures provide accurate and transparent
        information relative to the current economic and business
        environment.  We believe that of our significant accounting policies
        (see Note 1 of Notes to Consolidated Financial Statements), the following
        policies involve a higher degree of risk, judgment and/or
        complexity.
 
 *Impairment
        of Long-Lived Assets**.*******We
        review Partner Drive-In and other long-lived assets for impairment when events
        or circumstances indicate they might be impaired. We test for impairment
        using
        historical cash flows and other relevant facts and circumstances as the primary
        basis for our estimates of future cash flows.  This process requires
        the use of estimates and assumptions, which are subject to a high degree
        of
        judgment. In addition, at least annually, we assess the recoverability of
        goodwill and other intangible assets related to our brand and drive-ins.
        These
        impairment tests require us to estimate fair values of our brand and our
        drive-ins by making assumptions regarding future cash flows and other
        factors.  During fiscal year 2007, we reviewed Partner Drive-ins and
        other long-lived assets with combined carrying amounts of $12.5 million in
        property, equipment and capital leases for possible impairment, and, our
        cash
        flow assumptions resulted in impairment charges totaling $1.2 million to
        write-down certain assets to their estimated fair value.  During the
        fourth quarter of fiscal year 2007, we performed our annual assessment of
        recoverability of goodwill and other intangible assets and determined that
        no
        impairment was indicated.  As of August 31, 2007, goodwill and
        intangible assets totaled $114.0 million.  If these assumptions change
        in the future, we may be required to record impairment charges for these
        assets.
 
 *Ownership
        Program*.******Our drive-in philosophy
        stresses an ownership relationship with supervisors and drive-in
        managers.  Most supervisors and managers of Partner Drive-Ins own an
        equity interest in the drive-in, which is financed by third
        parties.  Supervisors and managers are neither employees of Sonic nor
        of the drive-in in which they have an ownership interest.
 
 The
        minority ownership interests in Partner Drive-Ins of the managers and
        supervisors are recorded as a minority interest liability on the Consolidated
        Balance Sheets, and their share of the drive-in earnings is reflected as
        Minority interest in earnings of Partner Drive-Ins in the Costs and expenses
        section of the Consolidated Statements of Income.  The ownership
        agreements contain provisions, which give Sonic the right, but not the
        obligation, to purchase the minority interest of the supervisor or manager
        in a
        drive-in.  The amount of the investment made by a partner and the
        amount of the buy-out are based on a number of factors, primarily upon the
        drive-in’s financial performance for the preceding 12 months, and are intended
        to approximate the fair value of a minority interest in the
        drive-in.
 
 The
        Company acquires and sells minority interests in Partner Drive-Ins from time
        to
        time as managers and supervisors buy-out and buy-in to the partnerships or
        limited liability companies.  If the purchase price of a minority
        interest that we acquire exceeds the net book value of the assets underlying
        the
        partnership interest, the excess is recorded as goodwill.  The
        acquisition of a minority interest for less than book value is recorded as
        a
        reduction in purchased goodwill.  Any subsequent sale of the minority
        interest to another minority partner is recorded as a pro-rata reduction
        of
        goodwill, and no gain or loss is recognized on the sale of the minority
        ownership interest.  Goodwill created as a result of the acquisition
        of minority interests in Partner Drive-Ins is not amortized but is tested
        annually for impairment under the provisions of FAS 142, “Goodwill and Other
        Intangible Assets.”
 
 *Revenue
        Recognition Related to Franchise Fees and Royalties*.  Initial
        franchise fees are recognized in income when we have substantially performed
        or
        satisfied all material services or conditions relating to the sale of the
        franchise and the fees are nonrefundable.  Area development fees are
        nonrefundable and are recognized in income on a pro-rata basis when the
        conditions for revenue recognition under the individual development agreements
        are met. Both initial franchise fees and area development fees are generally
        recognized upon the opening of a Franchise Drive-In or upon termination of
        the
        agreement between Sonic and the franchisee.
 
 Our
        franchisees are required under the provisions of the license agreements to
        pay
        royalties to Sonic each month based on a percentage of actual net
        sales.  However, the royalty payments and supporting financial
        statements are not due until the 10th of the
        following
        month for the new form of license agreement (Number 7) and the 20th of the
        following
        month for all prior forms of license agreement.  As a result, we
        accrue royalty revenue in the month earned based on estimates of Franchise
        Drive-Ins sales.  These estimates are based on projections of average
        unit volume growth at Franchise Drive-Ins collected from a majority of Franchise
        Drive-Ins.  30
 *Accounting
        for Stock-Based Compensation**.*  We account for
        stock-based compensation in accordance with Statement of Financial Accounting
        Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS
        123R”).  We estimate the fair value of options granted using the
        Black-Scholes option pricing model along with the assumptions shown in Note
        12
        of Notes to the Consolidated Financial Statements in this Form
        10-K.  The assumptions used in computing the fair value of share-based
        payments reflect our best estimates, but involve uncertainties relating to
        market and other conditions, many of which are outside of our
        control.  We estimate expected volatility based on historical daily
        price changes of the Company’s stock for a period equal to the current expected
        term of the options.  The expected option term is the number of years
        the Company estimates that options will be outstanding prior to exercise
        considering vesting schedules and our historical exercise
        patterns.  If other assumptions or estimates had been used, the
        stock-based compensation expense that was recorded during fiscal year 2007
        could
        have been materially different.  Furthermore, if different assumptions
        are used in future periods, stock-based compensation expense could be materially
        impacted in the future.
 
 *Income
        Taxes*.  We estimate certain components of our provision for
        income taxes.  These estimates include, among other items,
        depreciation and amortization expense allowable for tax purposes, allowable
        tax
        credits for items such as wages paid to certain employees, effective rates
        for
        state and local income taxes and the tax deductibility of certain other
        items.
 
 Our
        estimates are based on the best available information at the time that we
        prepare the provision, including legislative and judicial
        developments.  We generally file our annual income tax returns several
        months after our fiscal year end.  Income tax returns are subject to
        audit by federal, state and local governments, typically several years after
        the
        returns are filed.  These returns could be subject to material
        adjustments or differing interpretations of the tax laws.  Adjustments
        to these estimates or returns can result in significant variability in the
        tax
        rate from period to period.
 
 *Leases**.*  Certain
        Partner Drive-Ins lease land and buildings from third parties.  Rent
        expense for operating leases is recognized on a straight-line basis over
        the
        expected lease term, including cancelable option periods when it is deemed
        to be
        reasonably assured that we would incur an economic penalty for not exercising
        the options.  Judgment is required to determine options expected to be
        exercised.  Within the provisions of certain of our leases, there are
        rent holidays and/or escalations in payments over the base lease term, as
        well
        as renewal periods.  The effects of the rent holidays and escalations
        are reflected in rent expense on a straight-line basis over the expected
        lease
        term, including cancelable option periods when appropriate.  The lease
        term commences on the date when we have the right to control the use of lease
        property, which can occur before rent payments are due under the terms of
        the
        lease.  Contingent rent is generally based on sales levels and is
        accrued at the point in time we determine that it is probable that such sales
        levels will be achieved.
 
 **Item
        7A.  Quantitative and Qualitative Disclosures About
        Market Risk**
 
 Sonic’s
        use of debt directly exposes the Company to interest rate
        risk.  Floating rate debt, where the interest rate fluctuates
        periodically, exposes the Company to short-term changes in market interest
        rates.  Fixed rate debt, where the interest rate is fixed over the
        life of the instrument, exposes the Company to changes in market interest
        rates
        reflected in the fair value of the debt and to the risk that the Company
        may
        need to refinance maturing debt with new debt at a higher rate.  Sonic
        is also exposed to market risk from changes in commodity
        prices.  Sonic does not utilize financial instruments for trading
        purposes.  Sonic manages its debt portfolio to achieve an overall
        desired position of fixed and floating rates and may employ interest rate
        swaps
        as a tool to achieve that goal in the future.
 
 *Interest
        Rate Risk.*  At the time the Company filed its Form 10-K for
        the year ended August 31, 2006, the Company had refinanced the debt outstanding
        as of year-end with variable rate debt and had borrowed additional amounts
        for
        the tender offer.  The market risk disclosure for the prior year
        therefore addressed interest rate risk based upon $486 million of variable
        rate
        debt.  Our exposure to interest rate risk at August 31, 2007 is
        primarily based on the fixed rate Class A-2 notes with an effective rate
        of
        5.7%, before amortization of debt-related costs.  At August 31, 2007,
        the fair value of the Class A-2 notes was estimated at $591.7 million versus
        carrying value of $594.4 million (including accrued
        interest).  Differences between fair value versus carrying value are
        attributable to interest rate increases subsequent to when the debt was
        originally issued.  Should interest rates increase or decrease by one
        percentage point, the estimated fair value of the Class A-2 notes would decrease
        by approximately $21.9 million or increase by approximately $22.9 million,
        respectively.  The Class A-1 notes outstanding at August 31, 2007
        totaled $116.0 million, with a variable rate of 6.4%.  The annual
        impact on our results of operations of a one-point interest rate change for
        the
        balance outstanding at year-end would be approximately $1.2 million before
        tax.  We have made certain loans to our franchisees totaling $6.2
        million as of August 31, 2007.  The interest rates on these notes are
        generally between 5.0% and 10.5%.  We believe the fair market value of
        these notes approximates their carrying amount.
 31
  *Commodity
        Price Risk**.*  The Company and its franchisees
        purchase certain commodities such as beef, potatoes, chicken and dairy
        products.  These commodities are generally purchased based upon market
        prices established with vendors. These purchase arrangements may contain
        contractual features that limit the price paid by establishing price floors
        or
        caps; however, we have not made any long-term commitments to purchase any
        minimum quantities under these arrangements. We do not use financial instruments
        to hedge commodity prices because these purchase agreements help control
        the
        ultimate cost.
 
 This
        market risk discussion contains forward-looking statements.  Actual
        results may differ materially from this discussion based upon general market
        conditions and changes in financial markets.
 
 **Item
        8.  Financial Statements and Supplementary
        Data**
 
 The
        Company has included the financial
        statements and supplementary financial information required by this item
        immediately following Part IV of this report and hereby incorporates by
        reference the relevant portions of those statements and information into
        this
        Item 8.
 
 **Item
        9.  Changes in and Disagreements with Accountants on
        Accounting and Financial Disclosure**
 
 None.
 
 **Item
        9A.   Controls and
        Procedures**
 
 As
        of the end of the period covered by
        this report, the Company carried out an evaluation, under the supervision
        and
        with the participation of the Company’s management, including the Company’s
        Chief Executive Officer and the Chief Financial Officer, of the effectiveness
        of
        the design and operation of the Company’s disclosure controls and procedures (as
        defined in Rule 13a-14 under the Securities Exchange Act of
        1934).  Based upon that evaluation, the Chief Executive Officer and
        the Chief Financial Officer concluded that the Company’s disclosure controls and
        procedures were effective.  There were no significant changes in the
        Company’s internal controls or in other factors that could significantly affect
        these controls subsequent to the date of their evaluation.
 
 **Management's
        Report on Internal Control over Financial Reporting**
 
 The
        management of the Company is responsible for establishing and maintaining
        adequate internal control over financial reporting. The Company’s internal
        control system was designed to provide reasonable assurance to the Company’s
        management and Board of Directors regarding the preparation and fair
        presentation of published financial statements. All internal control systems,
        no
        matter how well designed, have inherent limitations. Therefore, even those
        systems determined to be effective can provide only reasonable assurance
        with
        respect to financial statement preparation and presentation.
 
 The
        Company’s management assessed the effectiveness of the Company’s internal
        control over financial reporting as of August 31, 2007. In making this
        assessment, it used the criteria set forth by the Committee of Sponsoring
        Organizations of the Treadway Commission in Internal Control—Integrated
        Framework.  Based on our assessment, we believe that, as of August 31,
        2007, the Company’s internal control over financial reporting is effective based
        on those criteria.
 
 The
        Company’s independent registered public accounting firm has issued an
        attestation report on the Company’s internal control over financial reporting.
        This report appears on the following page.  32
 **Report
        of Independent Registered Public Accounting Firm**
  The
        Board
        of Directors and Stockholders of
 Sonic
        Corp.
  We
        have audited Sonic Corp.’s internal control over financial reporting as of
        August 31, 2007, based on criteria established in Internal Control—Integrated
        Framework issued by the Committee of Sponsoring Organizations of the Treadway
        Commission (the COSO criteria).  Sonic Corp.’s management is
        responsible for maintaining effective internal control over financial reporting,
        and for its assessment of the effectiveness of internal control over financial
        reporting included in the accompanying Management’s Report on Internal Control
        Over Financial Reporting.  Our responsibility is to express an opinion
        on the effectiveness of the company’s internal control over financial reporting
        based on our audit.
  We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States).  Those standards require
        that we plan and perform the audit to obtain reasonable assurance about whether
        effective internal control over financial reporting was maintained in all
        material respects.  Our audit included obtaining an understanding of
        internal control over financial reporting,  assessing the risk that a
        material weakness exists, testing and evaluating the design and operating
        effectiveness of internal control based on the assessed risk, and performing
        such other procedures as we considered necessary in the circumstances. We
        believe that our audit provides a reasonable basis for our opinion.
  A
        company’s internal control over financial reporting is a process designed to
        provide reasonable assurance regarding the reliability of financial reporting
        and the preparation of financial statements for external purposes in accordance
        with generally accepted accounting principles. A company’s internal control over
        financial reporting includes those policies and procedures that (1) pertain
        to
        the maintenance of records that, in reasonable detail, accurately and fairly
        reflect the transactions and dispositions of the assets of the company; (2)
        provide reasonable assurance that transactions are recorded as necessary
        to
        permit preparation of financial statements in accordance with generally accepted
        accounting principles, and that receipts and expenditures of the company
        are
        being made only in accordance with authorizations of management and directors
        of
        the company; and (3) provide reasonable assurance regarding prevention or
        timely
        detection of unauthorized acquisition, use, or disposition of the company’s
        assets that could have a material effect on the financial
        statements.
  Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements.  Also, projections of any evaluation
        of effectiveness to future periods are subject to the risk that controls
        may
        become inadequate because of changes in conditions, or that the degree of
        compliance with the policies or procedures may deteriorate.
  In
        our opinion, Sonic Corp. maintained, in all material respects, effective
        internal control over financial reporting as of August 31, 2007, based on
        the
        COSO criteria.
  We
        also have audited, in accordance with the standards of the Public Company
        Accounting Oversight Board (United States), the consolidated balance sheets
        of
        Sonic Corp. as of August 31, 2007 and 2006, and the related consolidated
        statements of income, retained earnings, and cash flows for each of the three
        years in the period ended August 31, 2007 of Sonic Corp. and our report dated
        October 17, 2007 expressed an unqualified opinion thereon.
  ERNST
                  & YOUNG LLP
  Oklahoma
        City, Oklahoma
 October
        17, 2007
  33
 **Item
        9B.  Other Information**
 
 No
        information was required to be
        disclosed in a Form 8-K during the Company’s fourth quarter of its 2007 fiscal
        year which was not reported.
 
 **PART
        III**
 
 **Item
        10.  Directors, Executive Officers and Corporate
        Governance**
 
 Sonic
        has adopted a Code of Ethics for
        Financial Officers and a Code of Business Conduct and Ethics that applies
        to all
        directors, officers and employees.  Sonic has posted copies of these codes
        on the investor section of its internet website at the internet address:
        http://www.sonicdrivein.com.
 
 Information
        regarding Sonic’s executive
        officers is set forth under Item 4A of Part I of this report.  The
        other information required by this item is incorporated by reference from
        the
        definitive proxy statement which Sonic will file with the Securities and
        Exchange Commission no later than 120 days after August 31, 2007 (the “Proxy
        Statement”), under the captions “Election of Directors” and “Section 16(a)
        Beneficial Ownership Reporting Compliance.”
 
 **Item
        11.  Executive
        Compensation**
 
 The
        information required by this item
        is incorporated by reference from the Proxy Statement under the caption
“Executive Compensation – Compensation Discussion and Analysis.”
 
 **Item
        12.  Security Ownership of Certain Beneficial Owners
        and Management and Related Stockholder Matters**
 
 The
        information required by this item
        is incorporated by reference from the Proxy Statement under the captions
        “Security Ownership of Certain Beneficial Owners and Management and Related
        Stockholder Matters” and “Equity Compensation Plan Information
 
 **Item
        13.  Certain Relationships and Related Transactions,
        and Director Independence**
 
 The
        information required by this item
        is incorporated by reference from the Proxy Statement under the captions
        “Certain Relationships and Related Transactions,” “Director Independence,”
“Committees, Compensation, and Meetings of the Board of Directors,” and
“Compensation Committee Interlock and Insider Participation.”
 
 **Item
        14.  Principal Accounting Fees and
        Services**
 
 The
        information required by this item
        is incorporated by reference from the Proxy Statement under the caption
“Ratification of Independent Registered Public Accounting Firm.”  34
  **PART
        IV**
  **Item
          15.  Exhibits and Financial Statement
          Schedules**
 
 **Financial
          Statements**
 
 The
          following consolidated financial
          statements of the Company appear immediately following this Item
          15:
  PagesReport
                    of Independent Registered Public Accounting Firm
                F-1Consolidated
                    Balance Sheets at August 31, 2007 and 2006
                F-2Consolidated
                    Statements of Income for each of the three yearsin
                    the period ended August 31, 2007
                F-4Consolidated
                    Statements of Stockholders’ Equity (Deficit) for eachof
                    the three years in the period ended August 31, 2007
                F-5Consolidated
                    Statements of Cash Flows for each of the three yearsin
                    the period ended August 31, 2007
                F-6Notes
                    to Consolidated Financial Statements
                F-8


**Financial
          Statement Schedules**
 
 The
          Company has included the following
          schedule immediately following this Item 15:
 PageSchedule
                      II
                  -
                  Valuation
                      and Qualifying Accounts
                  
                  
                  
                  
                  F-30
 The
          Company has omitted all other
          schedules because the conditions requiring their filing do not exist or
          because
          the required information appears in Sonic’s Consolidated Financial Statements,
          including the notes to those statements.
  35
  **Exhibits**
 
 The
          Company has filed the exhibits
          listed below with this report.  The Company has marked all management
          contracts and compensatory plans or arrangements with an asterisk
          (*).
  3.01.                       
          Certificate of Incorporation of the Company, which the Company hereby
          incorporates by reference from Exhibit 3.1 to the Company’s Form S-1
          Registration Statement No. 33-37158 filed on October 3, 1990.
  3.02.                       
          Certificate of Amendment of Certificate of Incorporation of the Company,
          March
          4, 1996, which the Company hereby incorporates by reference from Exhibit
          3.05 to
          the Company’s Form 10-K for the fiscal year ended August 31, 2000.
 
 3.03.                       
          Certificate of Amendment of Certificate of Incorporation of the Company,
          January
          22, 2002, which the Company hereby incorporates by reference from Exhibit
          3.06
          to the Company’s Form 10-K for the fiscal year ended August 31,
          2002.
 
 3.04.Certificate
          of
          Amendment of Certificate of Incorporation of the Company, January 31,
          2006, which the Company hereby incorporates by reference from Exhibit
          3.04 to the Company’s Form 10-K for the fiscal year ended August 31, 2006.
 
 3.05.                      
          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 filed
          on October 3, 1990.
 
 3.06.                      
          Certificate of Designations of Series A Junior Preferred Stock, which the
          Company hereby incorporates by reference from Exhibit 99.1 to the Company’s Form
          8-K filed on June 17, 1997.
 
 4.01.                       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.
 
 10.01.                      Form
          of Sonic Industries Franchising LLC, successor to 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 filed on October 3, 1990.
 
 10.02.                      Form
          of Sonic Industries Franchising LLC, successor to 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 filed on October 3, 1990.
 
 10.03.                      Form
          of Sonic Industries Franchising LLC, successor to Sonic Industries Inc.,
          License
          Agreement (the Number 4.2 License Agreement and Number 5.1 License Agreement),
          which the Company hereby incorporates by reference from Exhibit 10.03 to
          the
          Company’s Form 10-K for the fiscal year ended August 31, 1994.
  10.04.                      Form
          of Sonic Industries Franchising LLC, successor to Sonic Industries Inc.,
          License
          Agreement (the Number 6 License Agreement), which the Company hereby
          incorporates by reference from Exhibit 10.04 to the Company’s Form 10-K for the
          fiscal year ended August 31, 1994.
 
 10.05.                      Form
          of Sonic Industries LLC, successor to Sonic Industries Inc., License Agreement
          (the Number 6A License Agreement), which the Company hereby incorporates
          by
          reference from Exhibit 10.05 to the Company’s Form 10-K for the fiscal year
          ended August 31, 1998.
 
 10.06.                      Form
          of Sonic Industries Franchising LLC, successor to 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 Franchising LLC, successor to Sonic Industries Inc.,
          License
          Agreement (the Number 6NT License 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, 2004.
 36
 
 10.08.                      Form
          of Sonic Industries LLC License Agreement (the Number 4.4/5.4 License
          Agreement).
 
 10.09.                      Form
          of Sonic Industries LLC License Agreement (the Number 5.5 License
          Agreement).
 
 10.10.                      Form
          of Sonic Industries LLC License Agreement (the Number 7 License
          Agreement).
 
 10.11.                      Form
          of Sonic Industries LLC License Agreement (the Number 7NT License
          Agreement).
 
 10.12.                      Form
          of Sonic Industries Franchising LLC, successor to Sonic Industries Inc.,
          Area
          Development Agreement (the Number 6A 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.
 
 10.13.                      Form
          of Sonic Industries LLC Area Development Agreement (the Number 7 Area
          Development Agreement).
 
 10.14.                      Form
          of Sonic Industries Services Inc. Sign Lease Agreement, which the Company
          hereby
          incorporates by reference from Exhibit 10.4 to the Company’s Form S-1
          Registration Statement No. 33-37158.
 
 10.15.                      Form
          of General Partnership Agreement, Limited Liability Company Operating Agreement
          and Master Agreement, which the Company hereby incorporates by reference
          from
          Exhibit 10.09 to the Company’s Form 10-K for fiscal year ended August 31,
          2003.
 
 10.16.                      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.*
 
 10.17.                      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.*
 
 10.18.                      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.*
 
 10.19.                      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.*
 
 10.20.                      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.*
 
 10.21.                      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.*
 
 10.22.                      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.*
 
 10.23.                      Employment
          Agreement with J. Clifford Hudson dated August 20, 1996, 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, 2002.*
 
 10.24.                     Employment
          Agreement with W. Scott McLain dated January 27, 1998, which the Company
          hereby
          incorporates by reference from Exhibit 10.21 to the Company’s Form 10-K for the
          fiscal year ended August 31, 2002.*
 
 10.25.                     
          Employment Agreement with Michael A. Perry dated August 20, 2003, which
          the
          Company hereby incorporates by reference from Exhibit 10.22 to the Company’s
          Form 10-K for the fiscal year ended August 31, 2003.*
 
 10.26.                      Employment
          Agreement with Stephen C. Vaughan dated August 20, 1996, which the Company
          hereby incorporates by reference from Exhibit 10.23 to the Company’s Form 10-K
          for the fiscal year ended August 31, 2002.*
 37
  10.27.                    
          Employment Agreement with Terry D. Harryman dated January 19, 2000, which
          the
          Company hereby incorporates by reference from Exhibit 10.24 to the Company’s
          Form 10-K for the fiscal year ended August 31, 2002.*
 
 10.28.                      Employment
          Agreement with Carolyn C. Cummins dated April 29, 2004, 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, 2004.*
 
 10.29.                      Employment
          Agreement with V. Todd Townsend dated August 18, 2005 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, 2005. *
 
 10.30.Employment
          Agreement
          with Paige S. Bass dated January 31, 2007,which the Company hereby
          incorporates by reference from Exhibit 10.01 to the Company’s Form 10-Q for the
          quarterly period ended February 28, 2007.*
 
 10.31.Employment
          Agreement
          with Claudia San Pedro dated January 31, 2007,which the Company hereby
          incorporates by reference from Exhibit 10.02 to the Company’s Form 10-Q for the
          quarterly period ended February 28, 2007.*
 
 10.32.                      2001
          Sonic Corp. Stock Option Plan, which the Company hereby incorporates by
          reference from Exhibit No. 10.32 to the Company’s Form 10-K for the fiscal year
          ended August 31, 2001. *
 
 10.33.                      2001
          Sonic Corp. Directors’ Stock Option Plan, which the Company hereby incorporates
          by reference from Exhibit No. 10.33 to the Company’s Form 10-K for the fiscal
          year ended August 31, 2001. *
 
 10.34.                      Sonic
          Corp. 2006 Long Term Incentive Plan which the Company hereby incorporates
          by
          reference from Exhibit No. 10.31 to the Company’s Form 10-K for the fiscal year
          ended August 31, 2006.*
 
 21.01.                      Subsidiaries
          of the Company.
 
 23.01.                      Consent
          of Independent Registered Public Accounting Firm.
 
 31.01.                      Certification
          of Chief Executive Officer pursuant to S.E.C. Rule 13a-14.
 
 31.02.                      Certification
          of Chief Financial Officer pursuant to S.E.C. Rule 13a-14.
 
 32.01.                   
            Certification of Chief Executive Officer pursuant to 18 U.S.C.
          Section 1350.
 
 32.02.                      Certification
          of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
 
 99.01                       Base
          Indenture dated December 20, 2006 among Sonic Capital LLC and certain other
          indirect subsidiaries of the Company, and Citibank, N.A. as Trustee and
          Securities Intermediary, which the Company hereby incorporates by reference
          from
          Exhibit 99.1 to the Company’s Form 8-K filed on December 27, 2006.
 
 99.02                       Supplemental
          Indenture dated December 20, 2006 among Sonic Capital LLC and certain other
          indirect subsidiaries of the Company, and Citibank, N.A. as Trustee and
          the
          Series 2006-1 Securities Intermediary, which the Company hereby incorporates
          by
          reference from Exhibit 99.2 to the Company’s Form 8-K filed on December 27,
          2006.
 
 99.03                       Class
          A-1 Note Purchase Agreement dated December 20, 2006 among Sonic Capital
          LLC and
          certain other indirect subsidiaries of the Company, certain private conduit
          investors, financial institutions and funding agents, Bank of America,
          N.A. as
          provider of letters of credit, and Lehman Commercial Paper Inc., as a swing
          line
          lender and as Administrative Agent, which the Company hereby incorporates
          by
          reference from Exhibit 99.3 to the Company’s Form 8-K filed on December 27,
          2006.
 38
 
 99.04                       Guarantee
          and Collateral Support Agreement dated December 20, 2006 made by Sonic
          Industries LLC, as Guarantor in favor of Citibank N.A. as Trustee, which
          the
          Company hereby incorporates by reference from Exhibit 99.4 to the Company’s Form
          8-K filed on December 27, 2006.
 
 99.05                       Parent
          Company Support Agreement dated December 20, 2006 made by Sonic Corp. in
          favor
          of Citibank N.A., as Trustee, which the Company hereby incorporates by
          reference
          from Exhibit 99.5 to the Company’s Form 8-K filed on December 27,
          2006.
  39
 The
        Board
        of Directors and Stockholders of
 Sonic
        Corp.
 
 We
        have
        audited the accompanying consolidated balance sheets of Sonic Corp. as of
        August
        31, 2007 and 2006, and the related consolidated statements of income,
        stockholders’ equity (deficit), and cash flows for each of the three years in
        the period ended August 31, 2007. Our audits also included the financial
        statement schedule listed in the Index at Item 15. These financial statements
        and schedule are the responsibility of the Company’s management. Our
        responsibility is to express an opinion on these financial statements and
        schedule based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statements referred to above present fairly, in all
        material respects, the consolidated financial position of Sonic Corp. at
        August
        31, 2007 and 2006, and the consolidated results of their operations and their
        cash flows for each of the three years in the period ended August 31, 2007,
        in
        conformity with U.S. generally accepted accounting principles. Also, in our
        opinion, the related financial statement schedule, when considered in relation
        to the basic financial statements taken as a whole, presents fairly in all
        material respects the information set forth therein.
 We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness of Sonic Corp.’s internal
        control over financial reporting as of August 31, 2007, based on criteria
        established in Internal Control-Integrated Framework issued by the Committee
        of
        Sponsoring Organizations of the Treadway Commission and our report dated
        October
        17, 2007, expressed an unqualified opinion thereon.
 
 
 ERNST
&
YOUNG
        LLP
 
 Oklahoma
        City, Oklahoma
 October
        17, 2007


F-1
 
 **Sonic
        Corp.**
 
 **Consolidated
        Balance Sheets**
 
 **August
                  31,****2007**
              
              
              **2006***(In
                  Thousands)***Assets**Current
                  assets:Cash
                  and cash equivalents
              
              **$**
              **25,425**
              
              
              $
              9,597Restricted
                  cash
              
              ****
              **13,521**
              
              
              ─Accounts
                  and notes receivable, net
              
              ****
              **23,084**
              
              
              
              21,271Net
                  investment in direct financing leases
              
              ****
              **1,267**
              
              
              
              1,287Inventories
              
              ****
              **4,444**
              
              
              
              4,200Deferred
                  income taxes
              
              ****
              **517**
              
              
              
              307Prepaid
                  expenses and other
              
              ****
              **5,445**
              
              
              
              5,848Total
                  current assets
              
              ****
              **73,703**
              
              
              
              42,510Noncurrent
                  restricted cash
              
              ****
              **11,354**
              
              
              ─Notes
                  receivable, net
              
              ****
              **5,532**
              
              
              
              5,182Net
                  investment in direct financing leases
              
              ****
              **2,593**
              
              
              
              3,815Property,
                  equipment and capital leases, net
              
              ****
              **529,993**
              
              
              
              477,054Goodwill,
                  net
              
              ****
              **102,628**
              
              
              
              96,949Trademarks,
                  trade names and other intangibles, net
              
              ****
              **11,361**
              
              
              
              10,746Debt
                  origination costs, net
              
              ****
              **20,914**
              
              
              
              1,083Other
                  assets, net
              
              ****
              **442**
              
              
              
              679Total
                  assets
              
              **$**
              **758,520**
              
              
              $
              638,018
 F-2
 **Sonic
        Corp.**
 
 **Consolidated
        Balance Sheets (continued)**
 
 **August
                  31,****2007**
              
              
              **2006***(In
                  Thousands)***Liabilities
                  and stockholders’ equity (deficit)**Current
                  liabilities:Accounts
                  payable
              
              **$**
              **25,283**
              
              
              $
              23,438Deposits
                  from franchisees
              
              ****
              **2,783**
              
              
              
              2,553Accrued
                  liabilities
              
              ****
              **55,707**
              
              
              
              33,874Income
                  taxes payable
              
              ****
              **7,863**
              
              
              
              10,673Obligations
                  under capital leases and long-term debt due within one
                  year
              
              ****
              **22,851**
              
              
              
              7,557Total
                  current liabilities
              
              ****
              **114,487**
              
              
              
              78,095Obligations
                  under capital leases due after one year
              
              ****
              **36,773**
              
              
              
              34,295Long-term
                  debt due after one year
              
              ****
              **690,437**
              
              
              
              117,172Other
                  noncurrent liabilities
              
              ****
              **17,212**
              
              
              
              12,504Deferred
                  income taxes
              
              ****
              **6,413**
              
              
              
              4,259Commitments
                  and contingencies *(Notes 6, 7, 14, and 15)*Stockholders’
                  equity (deficit):Preferred
                  stock, par value $.01; 1,000,000 shares authorized; none
                  outstanding
              
              ─
              
              
              ─Common
                  stock, par value $.01; 245,000,000 shares authorized; shares issued
                  116,222,839 in 2007 and 114,988,369 in 2006
              
              ****
              **1,162**
              
              
              
              1,150Paid-in
                  capital
              
              ****
              **193,682**
              
              
              
              173,802Retained
                  earnings
              
              ****
              **540,886**
              
              
              
              476,694Accumulated
                  other comprehensive income
              
              ****
              **(2,848**
              **)**
              
              
              (484
              )****
              **732,882**
              
              
              
              651,162Treasury
                  stock, at cost; 55,078,107 shares in 2007 and 29,506,003 shares
                  in
                  2006
              
              ****
              **(839,684**
              **)**
              
              
              (259,469
              )Total
                  stockholders’ equity (deficit)
              
              ****
              **(106,802**
              **)**
              
              
              391,693Total
                  liabilities and stockholders’ equity (deficit)
              
              **$**
              **758,520**
              
              
              $
              638,018
 
 *See
        accompanying notes.*  F-3
 **Sonic
        Corp.**
 
 **Consolidated
        Statements of Income**
 
 **Year
                  ended August 31,****2007**
              
              
              **2006**
              
              
              **2005***(In
                  Thousands, Except Per Share Data)*Revenues:Partner
                  Drive-In sales
              
              **$**
              **646,915**
              
              
              $
              585,832
              
              
              $
              525,988Franchise
                  Drive-Ins:Franchise
                  royalties
              
              ****
              **111,052**
              
              
              
              98,163
              
              
              
              88,027Franchise
                  fees
              
              ****
              **4,574**
              
              
              
              4,747
              
              
              
              4,311Other
              
              ****
              **7,928**
              
              
              
              4,520
              
              
              
              4,740****
              **770,469**
              
              
              
              693,262
              
              
              
              623,066Costs
                  and expenses:Partner
                  Drive-Ins:Food
                  and packaging
              
              ****
              **166,531**
              
              
              
              151,724
              
              
              
              137,845Payroll
                  and other employee benefits
              
              ****
              **196,785**
              
              
              
              175,610
              
              
              
              159,478Minority
                  interest in earnings of Partner Drive-Ins
              
              ****
              **26,656**
              
              
              
              25,234
              
              
              
              21,574Other
                  operating expenses, exclusive of depreciation and amortization
                  included
                  below
              
              ****
              **130,204**
              
              
              
              116,059
              
              
              
              103,009****
              **520,176**
              
              
              
              468,627
              
              
              
              421,906Selling,
                  general and administrative
              
              ****
              **58,736**
              
              
              
              52,048
              
              
              
              47,503Depreciation
                  and amortization
              
              ****
              **45,103**
              
              
              
              40,696
              
              
              
              35,821Provision
                  for impairment of long-lived assets
              
              ****
              **1,165**
              
              
              
              264
              
              
              
              387****
              **625,180**
              
              
              
              561,635
              
              
              
              505,617Income
                  from operations
              
              ****
              **145,289**
              
              
              
              131,627
              
              
              
              117,449Interest
                  expense
              
              ****
              **41,227**
              
              
              
              8,853
              
              
              
              6,418Debt
                  extinguishment and other costs
              
              ****
              **6,076**
              
              
              
              –
              
              
              
              –Interest
                  income
              
              ****
              **(2,897**
              **)**
              
              
              (1,275
              )
              
              
              (633
              )Net
                  interest expense
              
              ****
              **44,406**
              
              
              
              7,578
              
              
              
              5,785Income
                  before income taxes
              
              ****
              **100,883**
              
              
              
              124,049
              
              
              
              111,664Provision
                  for income taxes
              
              ****
              **36,691**
              
              
              
              45,344
              
              
              
              41,221Net
                  income
              
              **$**
              **64,192**
              
              
              $
              78,705
              
              
              $
              70,443Basic
                  income per share
              
              **$**
              **0.94**
              
              
              $
              0.91
              
              
              $
              0.78Diluted
                  income per share
              
              **$**
              **0.91**
              
              
              $
              0.88
              
              
              $
              0.75
 
 *See
        accompanying notes.*  F-4
 **Sonic
        Corp.**
 
 **Consolidated
        Statements of Stockholders’ Equity (Deficit)**
 
 **Accumulated
                  Other****Common
                  Stock**
              
              
              
              
              
              
              
              
              **Comprehensive**
              
              
              **Treasury
                  Stock****Shares**
              **Amount**
              
              
              **Paid-in
                  Capital**
              
              
              **Retained
                  Earnings**
              
              
              **Income**
              
              
              **Shares**
              **Amount***(In
                  Thousands)*Balance
                  at August 31, 2004
              
              
              74,618
              
              
              $
              746
              
              
              $
              132,006
              
              
              $
              327,546
              
              
              $
              –
              
              
              
              15,099
              
              
              $
              (122,398
              )Exercise
                  of common stock options
              
              
              1,148
              
              
              
              12
              
              
              
              10,796
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –Stock-based
                  compensation expense
              
              
              –
              
              
              
              –
              
              
              
              6,757
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –Tax
                  benefit related to exercise of employee stock options
              
              
              –
              
              
              
              –
              
              
              
              4,595
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –Purchase
                  of treasury stock
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              1,352
              
              
              
              (42,586
              )Net
                  income
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              70,443
              
              
              
              –
              
              
              
              –
              
              
              
              –Balance
                  at August 31, 2005
              
              
              75,766
              
              
              
              758
              
              
              
              154,154
              
              
              
              397,989
              
              
              
              –
              
              
              
              16,451
              
              
              
              (164,984
              )Exercise
                  of common stock options
              
              
              1,003
              
              
              
              10
              
              
              
              7,981
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –Stock-based
                  compensation expense, including capitalized compensation of
                  $216
              
              
              –
              
              
              
              –
              
              
              
              7,404
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –Tax
                  benefit related to exercise of employee stock options
              
              
              –
              
              
              
              –
              
              
              
              4,645
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –Purchase
                  of treasury stock
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              3,538
              
              
              
              (94,485
              )Three-for-two
                  stock split
              
              
              38,219
              
              
              
              382
              
              
              
              (382
              )
              
              
              –
              
              
              
              –
              
              
              
              9,517
              
              
              
              –Deferred
                  hedging losses, net of tax of $300
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              (484
              )
              
              
              –
              
              
              
              –Net
                  income
              
              
              –
              
              
              
              –
              
              
              
              –
              
              
              
              78,705
              
              
              
              –
              
              
              
              –
              
              
              
              –Balance
                  at August 31, 2006
              
              
              114,988
              
              
              
              1,150
              
              
              
              173,802
              
              
              
              476,694
              
              
              
              (484
              )
              
              
              29,506
              
              
              
              (259,469
              )Exercise
                  of common stock options
              
              ****
              **1,235**
              
              
              ****
              **12**
              
              
              ****
              **8,524**
              
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **–**Stock-based
                  compensation expense, including capitalized compensation of
                  $232
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **7,290**
              
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **–**Tax
                  benefit related to exercise of employee stock options
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **4,066**
              
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **–**Purchase
                  of treasury stock
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **25,572**
              
              
              ****
              **(580,215**
              **)**Net
                  change in deferred hedging losses, net of tax of $1,464
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **(2,364**
              **)**
              
              ****
              **–**
              
              
              ****
              **–**Net
                  income
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **64,192**
              
              
              ****
              **–**
              
              
              ****
              **–**
              
              
              ****
              **–**Balance
                  at August 31, 2007
              
              ****
              **116,223**
              
              
              **$**
              **1,162**
              
              
              **$**
              **193,682**
              
              
              **$**
              **540,886**
              
              
              **$**
              **(2,848**
              **)**
              
              ****
              **55,078**
              
              
              **$**
              **(839,684**
              **)**
 
 
 *See
        accompanying notes.*  F-5
 **Sonic
        Corp.**
 
 **Consolidated
        Statements of Cash Flows**
 **Year
                    ended August 31,****2007**
                
                
                **2006**
                
                
                **2005***(In
                    Thousands)***Cash
                    flows from operating activities**Net
                    income
                
                **$**
                **64,192**
                
                
                $
                78,705
                
                
                $
                70,443Adjustments
                    to reconcile net income to net
                  cash
                    provided by operating activities:Depreciation
                
                ****
                **41,078**
                
                
                
                37,074
                
                
                
                32,418Amortization
                    of assets under capital leases and other
                
                ****
                **4,025**
                
                
                
                3,622
                
                
                
                3,403Gain
                    on dispositions of assets, net
                
                ****
                **(3,267**
                **)**
                
                
                (422
                )
                
                
                (1,115
                )Stock-based
                    compensation expense
                
                ****
                **7,058**
                
                
                
                7,188
                
                
                
                6,757(Credit)
                    provision for deferred income taxes
                
                ****
                **(1,592**
                **)**
                
                
                (2,713
                )
                
                
                1,075Provision
                    for impairment of long-lived assets
                
                ****
                **1,165**
                
                
                
                264
                
                
                
                387Excess
                    tax benefit from exercise of employee stock options
                
                ****
                **(4,117**
                **)**
                
                
                (4,645
                )
                
                
                (4,595
                )Debt
                    extinguishment and other costs
                
                ****
                **5,283**
                
                
                
                --
                
                
                
                --Payment
                    for hedge termination
                
                ****
                **(5,640**
                **)**
                
                
                --
                
                
                
                --Amortization
                    of debt costs to interest expense
                
                ****
                **4,256**
                
                
                
                --
                
                
                
                --Other
                
                ****
                **185**
                
                
                
                398
                
                
                
                500Decrease
                    (increase) in operating assets:Restricted
                    cash
                
                ****
                **(8,965**
                **)**
                
                
                --
                
                
                
                --Accounts
                    and notes receivable
                
                ****
                **(709**
                **)**
                
                
                (2,275
                )
                
                
                (2,481
                )Inventories
                    and prepaid expenses
                
                ****
                **159**
                
                
                
                (2,267
                )
                
                
                (1,371
                )Increase
                    (decrease) in operating liabilities:Accounts
                    payable
                
                ****
                **106**
                
                
                
                2,821
                
                
                
                4,334Deposits
                    from franchisees
                
                ****
                **3,556**
                
                
                
                227
                
                
                
                1,513Accrued
                    and other liabilities
                
                ****
                **14,242**
                
                
                
                9,496
                
                
                
                16,417Total
                    adjustments
                
                ****
                **56,823**
                
                
                
                48,768
                
                
                
                57,242Net
                    cash provided by operating activities
                
                ****
                **121,015**
                
                
                
                127,473
                
                
                
                127,685**Cash
                    flows from investing activities**Purchases
                    of property and equipment
                
                ****
                **(110,912**
                **)**
                
                
                (86,863
                )
                
                
                (85,905
                )Acquisition
                    of businesses, net of cash received
                
                ****
                **(10,760**
                **)**
                
                
                (14,601
                )
                
                
                (820
                )Acquisition
                    of real estate, net of cash received
                
                ****
                **--**
                
                
                
                (12,125
                )
                
                
                --Proceeds
                    from sale of real estate
                
                ****
                **12,619**
                
                
                
                --
                
                
                
                --Investments
                    in direct financing leases
                
                ****
                **(302**
                **)**
                
                
                (237
                )
                
                
                (320
                )Collections
                    on direct financing leases
                
                ****
                **1,544**
                
                
                
                1,342
                
                
                
                1,266Proceeds
                    from dispositions of assets
                
                ****
                **13,668**
                
                
                
                5,271
                
                
                
                8,882Increase
                    in intangibles and other assets
                
                ****
                **(456**
                **)**
                
                
                (757
                )
                
                
                (1,053
                )Net
                    cash used in investing activities
                
                ****
                **(94,599**
                **)**
                
                
                (107,970
                )
                
                
                (77,950
                )
  
 *(Continued
        on following page)*  F-6
 **Sonic
        Corp.**
 
 **Consolidated
        Statements of Cash Flows (continued)**
 **Year
                    ended August 31,****2007**
                
                
                **2006**
                
                
                **2005***(In
                    Thousands)***Cash
                    flows from financing activities**Proceeds
                    from borrowings
                
                **$**
                **1,404,490**
                
                
                $
                274,763
                
                
                $
                127,415Payments
                    on long-term debt
                
                ****
                **(815,396**
                **)**
                
                
                (206,806
                )
                
                
                (149,390
                )Purchases
                    of treasury stock
                
                ****
                **(564,984**
                **)**
                
                
                (93,689
                )
                
                
                (42,324
                )Debt
                    issuance costs
                
                ****
                **(28,166**
                **)**
                
                
                --
                
                
                
                --Restricted
                    cash for debt obligations
                
                ****
                **(15,910**
                **)**
                
                
                --
                
                
                
                --Payments
                    on capital lease obligations
                
                ****
                **(2,471**
                **)**
                
                
                (2,444
                )
                
                
                (2,139
                )Exercises
                    of stock options
                
                ****
                **7,732**
                
                
                
                7,194
                
                
                
                10,546Excess
                    tax benefit from exercise of employee stock options
                
                ****
                **4,117**
                
                
                
                4,645
                
                
                
                4,595Net
                    cash used in financing activities
                
                ****
                **(10,588**
                **)**
                
                
                (16,337
                )
                
                
                (51,297
                )Net
                    increase (decrease) in cash and cash equivalents
                
                ****
                **15,828**
                
                
                
                3,166
                
                
                
                (1,562
                )Cash
                    and cash equivalents at beginning of the year
                
                ****
                **9,597**
                
                
                
                6,431
                
                
                
                7,993Cash
                    and cash equivalents at end of the year
                
                **$**
                **25,425**
                
                
                $
                9,597
                
                
                $
                6,431**Supplemental
                    cash flow information**Cash
                    paid during the year for:Interest
                    (net of amounts capitalized of $576, $733 and $604,
                    respectively)
                
                **$**
                **36,501**
                
                
                $
                8,769
                
                
                $
                7,144Income
                    taxes (net of refunds)
                
                ****
                **32,651**
                
                
                
                48,225
                
                
                
                27,377Obligation
                    to acquire treasury stock
                
                ****
                **14,432**
                
                
                
                --
                
                
                
                --Additions
                    to capital lease obligations
                
                ****
                **5,164**
                
                
                
                4,958
                
                
                
                877Accounts
                    and notes receivable and decrease in capital leaseobligations
                    from property and equipment sales
                
                ****
                **1,500**
                
                
                
                6,514
                
                
                
                1,063Stock
                    options exercised by stock swap
                
                ****
                **799**
                
                
                
                787
                
                
                
                250Obligations
                    for purchases of property and equipment
                
                ****
                **1,134**
                
                
                
                --
                
                
                
                --
  
 *See
        accompanying notes.*  F-7
 **Sonic
                Corp.**
 **Notes
                to Consolidated Financial
                Statements**
 **August
                31, 2007, 2006 and
                2005**
 **(In
                Thousands, Except Per Share
                Data)**
 **1. Summary
        of Significant Accounting Policies**
  **Operations**
  Sonic
        Corp. (the “Company”) operates and franchises a chain of quick-service drive-ins
        in the United States.  It derives its revenues primarily from Partner
        Drive-In sales and royalty fees from franchisees.  The Company also
        leases signs and real estate, and owns a minority interest in several Franchise
        Drive-Ins.
 
 From
        time
        to time, the Company purchases existing Franchise Drive-Ins with proven track
        records in core markets from franchisees and other minority investors as
        a means
        to deploy excess cash generated from operating activities and provide a
        foundation for future earnings growth.
 
 **Principles
        of Consolidation**
 
 The
        accompanying financial statements include the accounts of the Company, its
        wholly-owned subsidiaries and its majority-owned Partner Drive-Ins, organized
        as
        general partnerships and limited liability companies.  All significant
        intercompany accounts and transactions have been eliminated.
 
 Certain
        amounts have been reclassified in the Consolidated Financial Statements to
        conform to the fiscal year 2007 presentation.
 
 **Use
        of Estimates**
 
 The
        preparation of consolidated financial statements in conformity with accounting
        principles generally accepted in the United States requires management to
        make
        estimates and assumptions that affect the amounts reported and contingent
        assets
        and liabilities disclosed in the financial statements and accompanying
        notes.  Actual results may differ from those estimates, and such
        differences may be material to the financial statements.
 
 **Cash
        Equivalents**
 
 Cash
        equivalents consist of highly liquid investments that mature in three months
        or
        less from date of purchase.
 
 **Restricted
        Cash**
 
 As
        of
        August 31, 2007, the Company had restricted cash balances totaling $24,875
        for
        funds required to be held in trust for the benefit of senior note holders
        under
        the Company’s debt arrangements.  The current portion of restricted
        cash of $13,521 represents amounts to be returned to Sonic or paid to service
        current debt obligations.  The noncurrent portion of $11,354
        represents interest reserves required to be set aside for the duration of
        the
        debt.
 
 **Accounts
        and Notes Receivable**
 
 The
        Company charges interest on past due accounts receivable at a rate of 18%
        per
        annum.Interest
        accrues on notes receivable based on contractual terms.The Company
        monitors all accounts for delinquency and provides for estimated losses for
        specific receivables that are not likely to be collected.  In
        addition, a general provision for bad debt is estimated based on historical
        trends.
  F-8
  **Inventories**
 
 Inventories
        consist principally of food and supplies that are carried at the lower of
        cost
        (first-in, first-out basis) or market.
 
 **Property,
        Equipment and Capital Leases**
 
 Property
        and equipment are recorded at cost, and leased assets under capital leases
        are
        recorded at the present value of future minimum lease payments. Depreciation
        of
        property and equipment and capital leases is computed by the straight-line
        method over the estimated useful lives or the lease term, including cancelable
        option periods when appropriate, and are combined for presentation in the
        financial statements.
 
 **Accounting
        for Long-Lived Assets**
 
 In
        accordance with SFAS No. 144, "Accounting for the Impairment or Disposal
        of
        Long-Lived Assets,” the Company reviews long-lived assets whenever events or
        changes in circumstances indicate that the carrying amount of an asset might
        not
        be recoverable.  Assets are grouped and evaluated for impairment at
        the lowest level for which there are identifiable cash flows that are largely
        independent of the cash flows of other groups of assets, which generally
        represents the individual drive-in.  The Company’s primary test for an
        indicator of potential impairment is operating losses.  If an
        indication of impairment is determined to be present, the Company estimates
        the
        future cash flows expected to be generated from the use of the asset and
        its
        eventual disposal.  If the sum of undiscounted future cash flows is
        less than the carrying amount of the asset, an impairment loss is
        recognized.  The impairment loss is measured by comparing the fair
        value of the asset to its carrying amount.   Fair value is
        typically determined to be the value of the land, since drive-in buildings
        and
        improvements are single-purpose assets and have little value to market
        participants.  The equipment associated with a store can be easily
        relocated to another store, and therefore is not adjusted.
 
 Surplus
        property assets are carried at the lower of depreciated cost or fair value
        less
        cost to sell.  The majority of the value in surplus property is
        land.  Fair values are estimated based upon appraisals or independent
        assessments of the assets’ estimated sales values.
 
 **Goodwill
        and Other Intangible Assets**
 
 The
        Company accounts for goodwill and other intangible assets in accordance with
        SFAS No. 142, “Goodwill and Other Intangible Assets”.  Goodwill is
        determined based on acquisition purchase price in excess of the fair value
        of
        identified assets.  Intangible assets with lives restricted by
        contractual, legal, or other means are amortized over their useful
        lives.  Goodwill and other intangible assets not subject to
        amortization are tested for impairment annually or more frequently if events
        or
        changes in circumstances indicate that the asset might be
        impaired.  SFAS No. 142 requires a two-step process for testing
        impairment.  First, the fair value of each reporting unit is compared
        to its carrying value to determine whether an indication of impairment
        exists.  If impairment is indicated, then the fair value of the
        reporting unit’s goodwill is determined by allocating the unit’s fair value to
        its assets and liabilities (including any unrecognized intangible assets)
        as if
        the reporting unit had been acquired in a business combination.  The
        amount of impairment for goodwill and other intangible assets is measured
        as the
        excess of its carrying value over its fair value.
 F-9
 The
        Company’s intangible assets subject to amortization under SFAS No. 142 consist
        primarily of acquired franchise agreements, franchise fees, and other
        intangibles.  Amortization expense is calculated using the
        straight-line method over the expected period of benefit, not exceeding 20
        years.  The Company’s trademarks and trade names were deemed to have
        indefinite useful lives and are not subject to amortization.  See Note
        5 for additional disclosures related to goodwill and other
        intangibles.
 
 **Ownership
        Program**
 
 The
        Company’s drive-in philosophy stresses an ownership relationship with drive-in
        supervisors and managers.  Most supervisors and managers of Partner
        Drive-Ins own an equity interest in the drive-in, which is financed by third
        parties.  Supervisors and managers are neither employees of the
        Company nor of the drive-in in which they have an ownership
        interest.
 
 The
        minority ownership interests in Partner Drive-Ins of the managers and
        supervisors are recorded as a minority interest liability on the Consolidated
        Balance Sheets, and their share of the drive-in earnings is reflected as
        Minority interest in earnings of Partner Drive-Ins in the Costs and expenses
        section of the Consolidated Statements of Income. The ownership agreements
        contain provisions, which give the Company the right, but not the obligation,
        to
        purchase the minority interest of the supervisor or manager in a
        drive-in.   The amount of the investment made by a partner and
        the amount of the buy-out are based on a number of factors, primarily upon
        the
        drive-in’s financial performance for the preceding 12 months, and is intended to
        approximate the fair value of a minority interest in the drive-in.
 
 The
        Company acquires and sells minority interests in Partner Drive-Ins from time
        to
        time as managers and supervisors buy-out and buy-in to the partnerships or
        limited liability companies.   If the purchase price of a
        minority interest that we acquire exceeds the net book value of the assets
        underlying the partnership interest, the excess is recorded as
        goodwill.  The acquisition of a minority interest for less than book
        value is recorded as a reduction in purchased goodwill.  Any
        subsequent sale of the minority interest to another minority partner is recorded
        as a pro-rata reduction of goodwill, and no gain or loss is recognized on
        the
        sale of the minority ownership interest.   Goodwill created as a
        result of the acquisition of minority interests in Partner Drive-Ins is not
        amortized but is tested annually for impairment under the provisions of SFAS
        No.
        142.
 
 **Revenue
        Recognition, Franchise Fees and Royalties**
 
 Revenue
        from Partner Drive-In sales is recognized when food and beverage products
        are
        sold.
 
 Initial
        franchise fees 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 and the fees are nonrefundable.  Area
        development fees are nonrefundable and are recognized in income on a pro
        rata
        basis when the conditions for revenue recognition under the individual
        development agreements are met.  Both initial franchise fees and area
        development fees are generally recognized upon the opening of a franchise
        drive-in or upon termination of the agreement between the Company and the
        franchisee.
  F-10
 The
        Company’s franchisees are required under the provisions of the license
        agreements to pay the Company royalties each month based on a percentage
        of
        actual net royalty sales.  However, the royalty payments and
        supporting financial statements are not due until the 10th of the
        following
        month for the new form of license agreement (Number 7) and the 20th of the
        following
        month for all prior forms.  As a result, the Company accrues royalty
        revenue in the month earned based on estimates of Franchise Drive-In
        sales.  These estimates are based on actual sales at Partner Drive-Ins
        and projections of average unit volume growth at Franchise
        Drive-Ins.
  **Operating
        Leases**
 
 Rent
        expense is recognized on a straight-line basis over the expected lease term,
        including cancelable option periods when it is deemed to be reasonably assured
        that we would incur an economic penalty for not exercising the
        options.  Within the provisions of certain of our leases, there are
        rent holidays and/or escalations in payments over the base lease term, as
        well
        as renewal periods.  The effects of the holidays and escalations have
        been reflected in rent expense on a straight-line basis over the expected
        lease
        term, which includes cancelable option periods when appropriate.  The
        lease term commences on the date when we have the right to control the use
        of
        the leased property, which can occur before rent payments are due under the
        terms of the lease.  Percentage rent expense is generally based on
        sales levels and is accrued at the point in time we determine that it is
        probable that such sales levels will be achieved.
 
 **Advertising
        Costs**
 
 Costs
        incurred in connection with the advertising and promoting of the Company’s
        products are included in other operating expenses and are expensed as
        incurred.  Such costs amounted to $35,241, $30,948, and $28,216 for
        fiscal years 2007, 2006 and 2005, respectively.
 
 Under
        the
        Company’s license agreements, both Partner-Drive-Ins and Franchise Drive-Ins
        must contribute a minimum percentage of revenues to a national media production
        fund (Sonic Brand Fund, formerly known as the Sonic Advertising Fund) and
        spend
        an additional minimum percentage of gross revenues on local advertising,
        either
        directly or through Company-required participation in advertising cooperatives.
        A portion of the local advertising contributions is redistributed to a System
        Marketing Fund, which purchases advertising on national cable and broadcast
        networks and other national media and sponsorship opportunities.  As
        stated in the terms of existing license agreements, these funds do not
        constitute assets of the Company, and the Company acts with limited agency
        in
        the administration of these funds. Accordingly, neither the revenuesand expenses nor the
        assets and liabilities of the advertising cooperatives, the Sonic Brand Fund,
        or
        the System Marketing Fund are included in the Company’s consolidated financial
        statements.  However, all advertising contributions by Partner
        Drive-Ins are recorded as expense on the Company’s financial
        statements.
 
 **Stock-Based
        Compensation**
 
 In
        accordance with Statement of Financial Accounting Standards No. 123 (revised
        2004), “Share-Based Payment” (“SFAS 123R”), stock-based compensation is measured
        at the grant date, based on the calculated fair value of the award, and is
        recognized as an expense over the requisite employee service period (generally
        the vesting period of the grant).  The Company adopted SFAS 123R
        effective September 1, 2005, using the modified retrospective application
        method
        and, as a result, financial statement amounts for all periods presented in
        this
        Form 10-K reflect the fair value method of expensing prescribed by SFAS
        123R.
 F-11
  The
        following table shows total stock-based compensation expense and the tax
        benefit
        included in the Consolidated Statements of Income and the effect on basic
        and
        diluted earnings per share for the years ended August 31:
 
 **2007**
              
              
              **2006**
              
              
              **2005**Selling,
                  general and administrative
              
              **$**
              **7,059**
              
              
              $
              7,187
              
              
              $
              6,757Income
                  tax benefit
              
              ****
              **(2,254**
              **)**
              
              
              (2,266
              )
              
              
              (1,819
              )Net
                  stock-based compensation expense
              
              **$**
              **4,805**
              
              
              $
              4,921
              
              
              $
              4,938Impact
                  on net income per share:Basic
              
              **$**
              **.07**
              
              
              $
              .06
              
              
              $
              .05Diluted
              
              **$**
              **.07**
              
              
              $
              .06
              
              
              $
              .05
 
 Many
        of
        the options granted by Sonic are incentive stock options, for which a tax
        benefit only results if the option holder has a disqualifying
        disposition.  For grants of non-qualified stock options, the Company
        expects to recognize a tax benefit on exercise of the option, so the full
        tax
        benefit is recognized on the related stock-based compensation
        expense.  As a result of the limitation on the tax benefit for
        incentive stock options, the tax benefit for stock-based compensation will
        generally be less than the Company’s overall tax rate, and will vary depending
        on the timing of employees’ exercises and sales of stock.
 
 **Income
        Taxes**
 
 Deferred
        tax assets and liabilities are recognized for the future tax consequences
        attributable to differences between the financial statement carrying amounts
        of
        existing assets and liabilities and their respective tax bases. Deferred
        tax
        assets and liabilities are measured using enacted tax rates expected to apply
        to
        taxable income in the years in which those temporary differences are expected
        to
        be recovered or settled. The effect on deferred tax assets and liabilities
        of a
        change in tax rates is recognized in income in the period that includes the
        enactment date.
 
 Income
        tax benefits credited to equity relate to tax benefits associated with amounts
        that are deductible for income tax purposes but do not affect earnings. These
        benefits are principally generated from employee exercises of non-qualified
        stock options and disqualifying dispositions of incentive stock
        options.
 
 **New
        Accounting Pronouncements**
 
 In
        June
        2006, the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes – an
        interpretation of FASB Statement 109,” which clarifies the accounting for
        uncertainty in income taxes recognized in an enterprise’s financial statements
        in accordance with FAS 109, “Accounting for Income Taxes.”  FIN 48
        prescribes a recognition threshold and measurement attribute for the financial
        statement recognition and measurement of a tax position taken or expected
        to be
        taken in a tax return.  FIN 48 is effective for fiscal years beginning
        after December 15, 2006.  The Company is adopting the provisions of
        FIN 48 effective September 1, 2007.  The cumulative effect of
        implementation of FIN 48 is approximately a $1 to 1.5 million increase in
        the
        liability for unrecognized tax benefits, which will be accounted for as a
        decrease in the September 1, 2007 balance of retained earnings.
 F-12
  In
        September 2006, the FASB issued Statement of Financial Accounting Standards
        No.
        157, “Fair Value Measurements” (“SFAS 157”).  SFAS 157 defines fair
        value, establishes a framework for using fair value to measure assets and
        liabilities, and expands disclosures about fair value
        measurements.  This statement applies under other accounting
        pronouncements that currently require or permit fair value measurements and
        is
        effective for fiscal year beginning after November 15, 2007, which will be
        our
        fiscal year beginning September 1, 2008.  In February 2007, the FASB
        issued Statement of Financial Accounting Standards No. 159, “The Fair Value
        Option for Financial Assets and Financial Liabilities” (“SFAS
        159”).  SFAS 159 permits companies to choose to measure many financial
        instruments and certain other items at fair value.  If the fair value
        option is elected, unrealized gains and losses will be recognized in earnings
        at
        each subsequent reporting date.  SFAS 159 has the same effective date
        as SFAS 157.  We are currently in the process of assessing the impact
        that SFAS 157 and 159 may have on the Company’s consolidated financial
        statements.
 
 **2.  Net
        Income Per Share**
 
 The
        following table sets forth the computation of basic and diluted earnings
        per
        share for the years ended August 31:
 
 **2007**
              
              
              **2006**
              
              
              **2005**Numerator:Net
                  income
              
              **$**
              **64,192**
              
              
              $
              78,705
              
              
              $
              70,443Denominator:Weighted
                  average shares
                  outstanding – basic
              
              ****
              **68,019**
              
              
              
              86,260
              
              
              
              89,992Effect
                  of dilutive employee stock
                  options
              
              ****
              **2,573**
              
              
              
              2,979
              
              
              
              3,655Weighted
                  average shares –
                  diluted
              
              ****
              **70,592**
              
              
              
              89,239
              
              
              
              93,647Net
                  income per share – basic
              
              **$**
              **0.94**
              
              
              $
              0.91
              
              
              $
              0.78Net
                  income per share – diluted
              
              **$**
              **0.91**
              
              
              $
              0.88
              
              
              $
              0.75Anti-dilutive
                  employee stock options excluded
              
              ****
              **1,858**
              
              
              
              1,378
              
              
              
              249
 
 **3.  Impairment
        of Long-Lived Assets**
 
 During
        the fiscal years ended August 31, 2007, 2006 and 2005, the Company identified
        impairments for certain drive-in assets and surplus property through regular
        quarterly reviews of long-lived assets. During fiscal year 2007, these analyses
        resulted in provisions for impairment totaling $1,165, including $412 to
        reduce
        the carrying amount of assets in excess of fair value for two drive-ins,
        and
        $753 to reduce to fair value the carrying amount of assets for three properties
        leased to franchisees.  During fiscal year 2006, these analyses
        resulted in provisions for impairment totaling $264 to reduce the carrying
        amount of three surplus properties down to fair value.  During fiscal
        year 2005, these analyses resulted in provisions for impairment totaling
        $387,
        including $286 to writedown the carrying amount of building and leasehold
        improvements on an underperforming drive-in, and $101 to reduce the carrying
        amount of a surplus property down to fair value.
  F-13
 **4. Accounts
        and Notes Receivable**
 
 Accounts
        and notes receivable consist of the following at August 31, 2007 and
        2006:
 
 **2007**
              
              
              **2006****Current
                  Accounts and Notes Receivable:**Royalties
                  and other trade receivables
              
              **$**
              **12,792**
              
              
              $
              12,863Notes
                  receivable from franchisees
              
              ****
              **528**
              
              
              
              353Notes
                  receivable from advertising funds
              
              ****
              **4,083**
              
              
              
              3,681Other
              
              ****
              **6,275**
              
              
              
              4,682****
              **23,678**
              
              
              
              21,579Less
                  allowance for doubtful accounts and notes receivable
              
              ****
              **594**
              
              
              
              308**$**
              **23,084**
              
              
              $
              21,271**Noncurrent
                  Notes Receivable:**Notes
                  receivable from franchisees
              
              **$**
              **5,649**
              
              
              $
              5,509Less
                  allowance for doubtful notes receivable
              
              ****
              **117**
              
              
              
              327**$**
              **5,532**
              
              
              $
              5,182
 
 The
        Company’s receivables are primarily due from franchisees, all of whom are in the
        restaurant business.  The notes receivable from advertising funds
        represent transactions in the normal course of
        business.  Substantially all of the notes receivable from franchisees
        are collateralized by real estate or equipment.
 
 **5. Goodwill,
        Trademarks, Trade Names and Other Intangibles**
 
 The
        gross
        carrying amount of franchise agreements, franchise fees and other intangibles
        subject to amortization was $6,529 and $5,245 at August 31, 2007 and 2006,
        respectively.  The estimated amortization expense for each of the five
        years after August 31, 2007 is approximately $400. Accumulated amortization
        related to these intangible assets was $1,212 and $543 at August 31, 2007
        and
        2006, respectively.  The carrying amount of trademarks and trade names
        not subject to amortization was $6,044 at August 31, 2007 and 2006.
 
 The
        changes in the carrying amount of goodwill for fiscal years ending August
        31,
        2007 and 2006 were as follows:
 **2007**
                
                
                **2006**Balance
                    as of September 1,
                
                **$**
                **96,949**
                
                
                $
                88,471Goodwill
                    acquired during the year
                
                
                **5,464**
                
                
                
                8,504Goodwill
                    acquired (disposed of) related to the acquisitions anddispositions
                    of
                    minority interests in Partner Drive-Ins, net
                
                
                **316**
                
                
                
                (26
                )Goodwill
                    disposed of related to the sale of Partner Drive-Ins
                
                
                **(101**
                **)**
                
                ─Balance
                    as of August 31,
                
                **$**
                **102,628**
                
                
                $
                96,949
  F-14
  **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 16
        years.   The equipment portions of these leases are classified
        principally as direct financing leases and expire principally over the next
        10
        years. These leases include provisions for contingent rentals that may be
        received on the basis of a percentage of sales in excess of stipulated amounts.
        Income is not recognized on contingent rentals until sales exceed the stipulated
        amounts.  Some leases contain escalation clauses over the lives of the
        leases.  Most of the leases contain one to four renewal options at the
        end of the initial term for periods of five years.  The Company
        classifies income from leasing operations as other revenue in the Consolidated
        Statements of Income.
 
 Certain
        Partner Drive-Ins lease land and buildings from third parties. These leases,
        which expire over the next 18 years, include provisions for contingent rentals
        that may be paid on the basis of a percentage of sales in excess of stipulated
        amounts. For the majority of leases, the land portions are classified as
        operating leases and the building portions are classified as capital
        leases.
 
 **Direct
        Financing Leases**
 
 Components
        of net investment in direct financing leases are as follows at August 31,
        2007
        and 2006:
 
 **2007**
              
              
              **2006**Minimum
                  lease payments receivable
              
              **$**
              **5,098**
              
              
              $
              6,827Less
                  unearned income
              
              ****
              **1,238**
              
              
              
              1,725Net
                  investment in direct financing leases
              
              ****
              **3,860**
              
              
              
              5,102Less
                  amount due within one year
              
              ****
              **1,267**
              
              
              
              1,287Amount
                  due after one year
              
              **$**
              **2,593**
              
              
              $
              3,815
 
 Initial
        direct costs incurred in the negotiations and consummations of direct financing
        lease transactions have not been material.  Accordingly, no portion of
        unearned income has been recognized to offset those costs.
  F-15
  Future
        minimum rental payments receivable as of August 31, 2007 are as
        follows:
 
 **Operating**
              
              
              **Direct
                  Financing**Year
                  ending August 31:2008
              
              **$**
              **478**
              
              
              **$**
              **1,725**2009
              
              ****
              **483**
              
              
              ****
              **1,277**2010
              
              ****
              **464**
              
              
              ****
              **703**2011
              
              ****
              **452**
              
              
              ****
              **477**2012
              
              ****
              **433**
              
              
              ****
              **336**Thereafter
              
              ****
              **2,380**
              
              
              ****
              **580******
              **4,690**
              
              
              ****
              **5,098**Less
                  unearned income
              
              ─
              
              
              ****
              **1,238****$**
              **4,690**
              
              
              **$**
              **3,860**
 
 **Capital
        Leases**
 
 Components
        of obligations under capital leases are as follows at August 31, 2007 and
        2006:
 
 **2007**
              
              
              **2006**Total
                  minimum lease payments
              
              **$**
              **57,332**
              
              
              $
              54,437Less
                  amount representing interest averaging 7.1% in 2007 and 8.0% in
                  2006
              
              ****
              **18,014**
              
              
              
              17,812Present
                  value of net minimum lease payments
              
              ****
              **39,318**
              
              
              
              36,625Less
                  amount due within one year
              
              ****
              **2,545**
              
              
              
              2,330Amount
                  due after one year
              
              **$**
              **36,773**
              
              
              $
              34,295
 F-16
 Maturities
        of these obligations under capital leases and future minimum rental payments
        required under operating leases that have initial or remaining noncancelable
        lease terms in excess of one year as of August 31, 2007 are as
        follows:
 
 **Operating**
              
              
              **Capital**Year
                  ending August 31:2008
              
              **$**
              **11,948**
              
              
              **$**
              **4,385**2009
              
              ****
              **11,893**
              
              
              ****
              **5,376**2010
              
              ****
              **11,713**
              
              
              ****
              **5,398**2011
              
              ****
              **11,454**
              
              
              ****
              **5,199**2012
              
              ****
              **11,207**
              
              
              ****
              **4,944**Thereafter
              
              ****
              **131,959**
              
              
              ****
              **32,030******
              **190,174**
              
              
              ****
              **57,332**Less
                  amount representing interest
              
              ****
              **–**
              
              
              ****
              **18,014****$**
              **190,174**
              
              
              **$**
              **39,318**
 
 Total
        rent expense for all operating leases and capital leases consists of the
        following for the years ended August 31:
 
 **2007**
              
              
              **2006**
              
              
              **2005**Operating
                  leases:Minimum
                  rentals
              
              **$**
              **13,644**
              
              
              $
              12,731
              
              
              $
              11,355Contingent
                  rentals
              
              ****
              **229**
              
              
              
              199
              
              
              
              289Sublease
                  rentals
              
              ****
              **(553**
              **)**
              
              
              (542
              )
              
              
              (536
              )Capital
                  leases:
              
              ****Contingent
                  rentals
              
              ****
              **1,300**
              
              
              
              1,123
              
              
              
              1,109**$**
              **14,620**
              
              
              $
              13,511
              
              
              $
              12,217
 
 The
        aggregate future minimum rentals receivable under noncancelable subleases
        of
        operating leases as of August 31, 2007 was $2,405.
 F-17
 **7.
         Property, Equipment and Capital Leases**
 
 Property,
        equipment and capital leases consist of the following at August 31, 2007
        and
        2006:
 
 **Estimated
                  Useful Life**
              
              **2007**
              
              
              **2006**Property
                  and equipment:Home
                  office:Leasehold
                  improvements
              Life
                  of lease
              
              **$**
              **3,082**
              
              
              $
              3,066Computer
                  and other equipment
              2
–
                  5 yrs
              
              ****
              **33,134**
              
              
              
              28,842Drive-ins,
                  including those leased to others:Land
              
              
              ****
              **158,968**
              
              
              
              154,092Buildings
              8
–
                  25 yrs
              
              ****
              **331,901**
              
              
              
              275,924Equipment
              5
–
                  7 yrs
              
              ****
              **179,863**
              
              
              
              168,019Property
                  and equipment, at cost
              
              
              ****
              **706,948**
              
              
              
              629,943Less
                  accumulated depreciation
              
              
              ****
              **211,327**
              
              
              
              185,275Property
                  and equipment, net
              
              
              ****
              **495,621**
              
              
              
              444,668
 
 Capital
                  Leases:Leased
                  home office building
              Life
                  of lease
              
              ****
              **9,321**
              
              
              
              9,321Leased
                  drive-in buildings, equipment and other assets undercapital
                  leases, including those held for sublease
              Life
                  of lease
              
              ****
              **40,125**
              
              
              
              35,844Less
                  accumulated amortization
              
              
              ****
              **15,074**
              
              
              
              12,779Capital
                  leases, net
              
              
              ****
              **34,372**
              
              
              
              32,386Property,
                  equipment and capital leases, net
              
              
              **$**
              **529,993**
              
              
              $
              477,054
 
 Land,
        buildings and equipment with a carrying amount of $29,245 at August 31, 2007
        were leased under operating leases to franchisees or other
        parties.  The accumulated depreciation related to these buildings and
        equipment was $6,085 at August 31, 2007.  As of August 31, 2007, the
        Company had drive-ins under construction with costs to complete which aggregated
        $12,793.  F-18
 **8.  Accrued
        Liabilities**
 
 Accrued
        liabilities consist of the following at August 31, 2007 and 2006:
 
 **2007**
              
              
              **2006**Wages
                  and other employee benefits
              
              **$**
              **8,178**
              
              
              $
              9,707Taxes,
                  other than income taxes
              
              ****
              **15,296**
              
              
              
              13,476Accrued
                  interest
              
              ****
              **1,122**
              
              
              
              389Minority
                  interest in consolidated drive-ins
              
              ****
              **3,690**
              
              
              
              2,610Obligation
                  to acquire treasury stock
              
              ****
              **14,432**
              
              
              
              –Unredeemed
                  gift cards and gift certificates
              
              ****
              **5,997**
              
              
              
              4,400Other
              
              ****
              **6,992**
              
              
              
              3,292**$**
              **55,707**
              
              
              $
              33,874
 
 **9.
         Long-Term Debt**
 
 Long-term
        debt consists of the following at August 31, 2007 and 2006:
 
 **2007**
              
              
              **2006**5.7%
                  Class A-2 senior notes, due December 2031
              
              **$**
              **593,440**
              
              
              $
              –6.58%
                  Series A senior unsecured notes, due August 2008
              
              ****
              **–**
              
              
              
              2,0006.87%
                  Series B senior unsecured notes, due August 2011
              
              ****
              **–**
              
              
              
              17,857Class
                  A-1 senior variable funding notes
              
              ****
              **116,000**
              
              
              
              –Line
                  of credit
              
              ****
              **–**
              
              
              
              101,150Other
              
              ****
              **1,303**
              
              
              
              1,392****
              **710,743**
              
              
              
              122,399Less
                  long-term debt due within one year
              
              ****
              **20,306**
              
              
              
              5,227Long-term
                  debt due after one year
              
              **$**
              **690,437**
              
              
              $
              117,172
 
 Maturities
        of long-term debt for each of the five years after August 31, 2007 are $20,306
        in 2008, $38,472 in 2009, $55,143 in 2010, $73,437 in 2011, $93,416 in 2012,
        and
        $429,969 thereafter.
 
 In
        October 2006, the Company refinanced its senior unsecured notes and line
        of
        credit and funded a tender offer to repurchase shares of its common stock
        with
        proceeds from a senior secured credit facility until the Class A-2 senior
        notes
        were financed in December 2006.  Loan origination costs associated
        with this debt totaled $4,631 and the unamortized loan origination costs
        of
        $4,544 were expensed as debt extinguishment costs when the financing was
        closed
        in December 2006.  F-19
 
 In
        December 2006, various subsidiaries of the Company issued $600,000 of Class
        A-2
        senior notes in a private transaction.  The proceeds were used to
        refinance the outstanding balance under the senior secured credit facility,
        along with costs associated with the transaction.  The Class A-2 notes
        are the first issuance under a facility that will allow Sonic to issue
        additional series of notes in the future subject to certain
        conditions.  These notes have a fixed interest rate of 5.7%, subject
        to upward adjustment after the expected six-year repayment term.  Loan
        origination costs associated with this debt totaled $24,329, and the unamortized
        balance is categorized as debt origination costs, net, on the Consolidated
        Balance Sheet as of August 31, 2007.  Amortization of these loan costs
        and the hedge loss discussed below produces an overall weighted average interest
        cost of 6.8%.  The Class A-2 notes have an expected life of six years,
        with a legal final repayment date in December 2031. If the debt extends beyond
        the expected life, rapid amortization and cash trapping provisions of the
        debt
        agreements will be triggered which will cause the remaining  principle
        balance to be given higher priority of payment from the secured sources.
        The
        Company anticipates paying the debt in full based on the expected life.
 
 In
        connection with issuance of the Class A-2 notes, various subsidiaries of
        the
        Company also completed a securitized financing facility of Class A-1 senior
        variable funding notes.  This facility allows for the issuance of up
        to $200,000 of notes and certain other credit instruments, including letters
        of
        credit.  Considering the $116,000 outstanding at August 31, 2007 and
        $325 in outstanding letters of credit, $83,675 was unused and available under
        the Class A-2 notes.  The effective interest rate on the $116,000
        outstanding at August 31, 2007 was 6.44%, and there is a commitment fee on
        the
        unused portion of the Class A-1 notes of 0.5%.
 
 The
        Class
        A-1 and Class A-2 senior notes were issued by special purpose, bankruptcy
        remote, indirect subsidiaries of the Company that hold substantially all
        of
        Sonic’s franchising assets and Partner Drive-In real estate used in operation of
        the Company’s existing business.  As of August 31, 2007, total assets
        for these combined indirect subsidiaries were approximately $410,000, including
        receivables for royalties, Partner Drive-In real estate, intangible assets,
        loan
        origination costs and restricted cash balances of $24,875.  The Class
        A-1 and Class A-2 notes are secured by Sonic’s franchise royalty payments,
        certain lease and other payments and fees and, as a result, the repayment
        of
        these notes is expected to be made solely from the income derived from these
        indirect subsidiaries’ assets.  Sonic Industries LLC, which is the
        subsidiary that acts as franchisor, has guaranteed the obligations of the
        co-issuers and pledged substantially all of its assets to secure such
        obligations.
 
 Although
        the Company does not guarantee the Class A-1 and Class A-2 notes, the Company
        has agreed to cause the performance of certain obligations of its subsidiaries,
        principally related to the servicing of the assets included as collateral
        for
        the notes and certain indemnity obligations.
 
 In
        August
        2006, the Company entered into a forward starting swap agreement with a
        financial institution to hedge part of the exposure to changing interest
        rates
        until new financing was closed in December 2006.  The forward starting
        swap was designated as a cash flow hedge, and was subsequently settled in
        conjunction with the closing of the Class A-2 notes, as planned.  The
        loss resulting from settlement of $5,640 ($3,483, net of tax) was recorded
        in
        accumulated other comprehensive income and is being amortized to interest
        expense over the expected term of the Class A-2 notes.  Amortization
        of this loss during fiscal year 2007 totaled $753 ($465, net of tax) in interest
        expense, and over the next 12 months, the Company expects to amortize $1,063
        ($656, net of tax) to interest expense for this loss.  The ineffective
        portion of the hedge was $275 ($170, net of tax) and is reflected in debt
        extinguishment and other costs on the Consolidated Income
        Statement.  The cash flows resulting from these hedge transactions are
        included in cash flows from operating activities on the Consolidated Statement
        of Cash Flows.  F-20
  The
        following table presents the components of comprehensive income for the years
        ended August 31, 2007 and 2006:
  **2007**
              
              
              **2006**Net
                  Income
              
              **$**
              **64,192**
              
              
              **$**
              78,705Increase
                  in deferred hedging loss, net of tax
              
              ****
              **(2,364**
              **)**
              
              ****
              (484
              )Total
                  comprehensive income
              
              **$**
              **61,828**
              
              
              **$**
              78,221
 
 **10. 
        Other Noncurrent Liabilities**
 
 Other
        noncurrent liabilities consist of the following at August 31, 2007 and
        2006:
 
 **2007**
              
              
              **2006**Minority
                  interests in consolidated drive-ins
              
              **$**
              **3,789**
              
              
              $
              4,566Deferred
                  area development fees
              
              ****
              **6,227**
              
              
              
              2,385Other
              
              ****
              **7,196**
              
              
              
              5,553**$**
              **17,212**
              
              
              $
              12,504
 F-21
 **11.
         Income Taxes**
 
 The
        Company’s income before the provision for income taxes is classified by source
        as domestic income.
 
 The
        components of the provision for income taxes consist of the following for
        the
        years ended August 31:
 
 **2007**
              
              
              **2006**
              
              
              **2005**Current:Federal
              
              **$**
              **31,369**
              
              
              $
              42,629
              
              
              $
              37,572State
              
              ****
              **3,859**
              
              
              
              4,163
              
              
              
              3,269****
              **35,228**
              
              
              
              46,792
              
              
              
              40,841Deferred:Federal
              
              ****
              **1,272**
              
              
              
              (1,127
              )
              
              
              284State
              
              ****
              **191**
              
              
              
              (321
              )
              
              
              96****
              **1,463**
              
              
              
              (1,448
              )
              
              
              380Provision
                  for income taxes
              
              **$**
              **36,691**
              
              
              $
              45,344
              
              
              $
              41,221
 
 The
        provision for income taxes differs from the amount computed by applying the
        statutory federal income tax rate due to the following for the years ended
        August 31:
 
 **2007**
              
              
              **2006**
              
              
              **2005**Amount
                  computed by applying a tax rate of 35%
              
              **$**
              **35,309**
              
              
              $
              43,417
              
              
              $
              39,083State
                  income taxes (net of federal income tax benefit)
              
              ****
              **2,726**
              
              
              
              2,767
              
              
              
              2,481Employment
                  related and other tax credits, net
              
              ****
              **(1,443**
              **)**
              
              
              (1,014
              )
              
              
              (1,092
              )Other
              
              ****
              **99**
              
              
              
              174
              
              
              
              749Provision
                  for income taxes
              
              **$**
              **36,691**
              
              
              $
              45,344
              
              
              $
              41,221
 
  F-22
  **11.  Income
        Taxes (continued)**
 
 Deferred
        tax assets and liabilities consist of the following at August 31, 2007 and
        2006:
 
 **2007**
              
              
              **2006**Current
                  deferred tax assets (liabilities):Allowance
                  for doubtful accounts and notes receivable
              
              **$**
              **176**
              
              
              $
              83Property,
                  equipment and capital leases
              
              ****
              **197**
              
              
              
              272Accrued
                  litigation costs
              
              ****
              **371**
              
              
              
              76Prepaid
                  expenses
              
              ****
              **(424**
              **)**
              
              ─Deferred
                  income from franchisees
              
              ****
              **79**
              
              
              
              (327
              )Deferred
                  income from affiliated technology fund
              
              ****
              **118**
              
              
              
              203Current
                  deferred tax assets, net
              
              **$**
              **517**
              
              
              $
              307Noncurrent
                  deferred tax assets (liabilities):Net
                  investment in direct financing leases including differences related
                  to
                  capitalization and amortization
              
              **$**
              **(2,458**
              **)**
              
              $
              (2,390
              )Investment
                  in partnerships, including differences in capitalization
                  anddepreciation
                  related to direct financing leases and different year ends
                  forfinancial
                  and tax reporting purposes
              
              ****
              **(13,466**
              **)**
              
              
              (8,764
              )Capital
                  loss carryover
              
              ****
              **1,695**
              
              
              ─State
                  net operating losses
              
              ****
              **3,319**
              
              
              
              4,247Property,
                  equipment and capital leases
              
              ****
              **(2,720**
              **)**
              
              
              (1,150
              )Allowance
                  for doubtful accounts and notes receivable
              
              ****
              **97**
              
              
              
              160Deferred
                  income from affiliated franchise fees
              
              ****
              **1,976**
              
              
              
              1,830Accrued
                  liabilities
              
              ****
              **241**
              
              
              
              296Intangibles
                  and other assets
              
              ****
              **117**
              
              
              
              107Deferred
                  income from franchisees
              
              ****
              **798**
              
              
              
              877Stock
                  compensation
              
              ****
              **5,544**
              
              
              
              4,420Loss
                  on cash flow hedge
              
              ****
              **1,765**
              
              
              
              300Other
              
              ****
              **(2**
              **)**
              
              
              55****
              **(3,094**
              **)**
              
              
              (12
              )Valuation
                  allowance
              
              ****
              **(3,319**
              **)**
              
              
              (4,247
              )Noncurrent
                  deferred tax liabilities, net
              
              **$**
              **(6,413**
              **)**
              
              $
              (4,259
              )Deferred
                  tax assets and (liabilities):Deferred
                  tax assets (net of valuation allowance)
              
              **$**
              **13,174**
              
              
              $
              8,679Deferred
                  tax liabilities
              
              ****
              **(19,070**
              **)**
              
              
              (12,631
              )Net
                  deferred tax liabilities
              
              **$**
              **(5,896**
              **)**
              
              $
              (3,952
              )
  F-23
 
 State
        net
        operating loss carryforwards expire generally beginning in
        2010.  Management does not believe the Company will be able to realize
        the state net operating loss carryforwards and therefore has provided a
        valuation allowance as of August 31, 2007 and 2006.
 
 The
        Company has capital loss carryovers of approximately $4.4 million which expire
        beginning in fiscal year 2011.  Management believes the Company will
        realize these carryovers before they expire.
 
 **12.  Stockholders’
        Equity**
 
 On
        April
        6, 2006, the Company’s board of directors authorized a three-for-two stock split
        in the form of a stock dividend.  A total of 38,219 shares of common
        stock were issued in connection with the split, and an aggregate amount equal
        to
        the par value of the common stock issued of $382 was reclassified from paid-in
        capital to common stock.
 
 **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 759,375 shares. The purchase price will be
        between
        85% and 100% of the stock’s fair market value and will be determined by the
        Company’s board of directors.
 
 **Stock-Based
        Compensation**
 
 The
        Sonic
        Corp. 2006 Long-Term Incentive Plan (the “2006 Plan”) provides flexibility to
        award various forms of equity compensation, such as stock options, stock
        appreciation rights, performance shares, restricted stock and other stock-based
        awards.  At August 31, 2007, 4,871 shares were available for grant
        under the 2006 Plan.  The Company has historically granted only stock
        options with an exercise price equal to the market price of the Company’s stock
        at the date of grant, a contractual term of seven to ten years, and a vesting
        period of three years.  The Company’s policy is to recognize
        compensation cost for these options on a straight-line basis over the requisite
        service period for the entire award.  Additionally, the Company’s
        policy is to issue new shares of common stock to satisfy stock option
        exercises.
 
 The
        Company measures the compensation cost associated with share-based payments
        by
        estimating the fair value of stock options as of the grant date using the
        Black-Scholes option pricing model.  The Company believes that the
        valuation technique and the approach utilized to develop the underlying
        assumptions are appropriate in calculating the fair values of the Company’s
        stock options granted during 2007, 2006 and 2005.  Estimates of fair
        value are not intended to predict actual future events or the value ultimately
        realized by the employees who receive equity awards.
  F-24
  The
        per
        share weighted average fair value of stock options granted during 2007, 2006
        and
        2005 was $7.10, $7.90 and $8.94, respectively.  In addition to the
        exercise and grant date prices of the awards, certain weighted average
        assumptions that were used to estimate the fair value of stock option grants
        in
        the respective periods are listed in the table below:
 
 **2007**
              **2006**
              **2005**Expected
                  term (years)
              **4.5**
              4.5
              5.1Expected
                  volatility
              **28%**
              34%
              41%Risk-free
                  interest rate
              **4.6%**
              4.7%
              4.0%Expected
                  dividend yield
              **0%**
              0%
              0%
 
 The
        Company estimates expected volatility based on historical daily price changes
        of
        the Company’s common stock for a period equal to the current expected term of
        the options.  The risk-free interest rate is based on the United
        States treasury yields in effect at the time of grant corresponding with
        the
        expected term of the options.  The expected option term is the number
        of years the Company estimates that options will be outstanding prior to
        exercise considering vesting schedules and our historical exercise
        patterns.
 
 SFAS
        123R
        requires the cash flows resulting from the tax benefits for tax deductions
        in
        excess of the compensation expense recorded for those options (excess tax
        benefits) to be classified as financing cash flows.  These excess tax
        benefits were $­­­­­­­­4,117, $4,645 and $4,595
        for the years ended August 31, 2007, 2006 and 2005, respectively, and are
        classified as a financing cash inflow in the Company’s Consolidated Statements
        of Cash Flows.  The proceeds from exercises of stock options are also
        classified as cash flows from financing activities and totaled $7,732, $7,194
        and $10,546 for each of the years ended August 31, 2007, 2006 and 2005,
        respectively.
 
 A
        summary
        of stock option activity under the Company’s share-based compensation plans for
        the year ended August 31, 2007 is presented in the following table:
 **Options**
              
              
              **Weighted
                  Average Exercise Price**
              
              
              **Weighted
                  Average Remaining Contractual Life (Yrs.)**
              
              
              **Aggregate
                  Intrinsic Value**Outstanding-beginning
                  of year
              
              
              7,230
              
              
              $
              11.98Granted
              
              
              1,259
              
              
              
              22.36Exercised
              
              
              (1,234
              )
              
              
              6.91Forfeited
                  or expired
              
              
              (132
              )
              
              
              21.18Outstanding
                  August 31, 2007
              
              
              7,123
              
              
              $
              14.53
              
              
              
              5.08
              
              
              $
              53,436Exercisable
                  August 31, 2007
              
              
              5,054
              
              
              $
              11.40
              
              
              
              4.45
              
              
              $
              52,895
 
 The
        total
        intrinsic value of options exercised during the years ended August 31, 2007,
        2006 and 2005 was $19,408, $19,567 and $20,923, respectively.  At
        August 31, 2007, total remaining unrecognized compensation cost related to
        unvested stock-based arrangements was $12,893 and is expected to be recognized
        over a weighted average period of 1.6 years.
 F-25
 **Stockholder
        Rights Plan**
 
 The
        Company had a stockholder rights plan 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.  This plan expired by its terms on June 16,
        2007.
 
 **Stock
        Repurchase Program**
 
 The
        Company has a stock repurchase program that is authorized by the Board of
        Directors.  In addition to the ongoing stock repurchase program, the
        Board authorized a “modified Dutch auction” tender offer that resulted in the
        repurchase of 15,918 shares of common stock at a purchase price of $23.00
        per
        share for a total purchase price of $366,117 in October 2006.  Costs
        incurred in relation to the tender offer totaled $1,205 and are included
        in
        treasury stock, resulting in an average cost of $23.08 per share for the
        tender
        offer shares.  Subsequent to the tender offer, the Board authorized
        the continuation of the stock repurchase program.  On January 31,
        2007, the Board of Directors approved an increase in the stock repurchase
        program from $10,705 to $100,000, followed by an additional authorization
        on
        August 2, 2007 of $75,000 and extension of the program through August 31,
        2008.  Pursuant to this program, the Company acquired 9,574 shares for
        a total cost of $211,135 during fiscal year 2007.  The total remaining
        amount authorized for repurchase as of August 31, 2007 was $42,571 and is
        scheduled to expire August 31, 2008.
 
 **Accumulated
        Other Comprehensive Income**
 
 In
        August
        2006, the Company entered into a forward starting swap agreement with a
        financial institution to hedge part of the interest rate risk associated
        with
        the pending securitized debt transaction.  The forward starting swap
        was designated as a cash flow hedge, and was subsequently settled in conjunction
        with the closing of the Class A-2 notes, as planned.  The loss
        resulting from settlement was recorded net of tax in accumulated other
        comprehensive income and is being amortized to interest expense over the
        expected term of the debt.  See Note 9 for additional
        information.
 
 **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.  The Company recognized as expense incentive bonuses of $2,943,
        $3,247, and $2,997 during fiscal years 2007, 2006 and 2005,
        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 $8,710 at August 31, 2007
        due
        to loss of employment in the event of a change in control (as defined in
        the
        contracts).
 F-26
 **15.
         Contingencies**
 
 The
        Company is involved in various legal proceedings and has certain unresolved
        claims pending.  Based on the information currently available,
        management believes that all claims currently pending are either covered
        by
        insurance or would not have a material adverse effect on the Company’s business
        or financial condition.
 The
          Company initiated a new agreement with Irwin Franchise Capital Corporation
          (“Irwin”) in September 2006, pursuant to which existing Sonic franchisees may
          qualify with Irwin to finance drive-in retrofit projects.  The
          agreement provides that Sonic will guarantee at least $250 of such financing,
          limited to 5% of the aggregate amount of loans, not to exceed
          $2,500.  As of August 31, 2007, the total amount guaranteed under the
          Irwin agreement was $250.  The agreement provides for release of
          Sonic’s guarantee on individual loans under the program that meet certain
          payment history criteria at the mid-point of each loans’
term.  Existing loans under the program have terms through
          2014.  In the event of default by a franchisee, the Company is
          obligated to pay Irwin the outstanding balances, plus limited interest
          and
          charges up to Sonic’s guarantee limitation.  Irwin is obligated to
          pursue collections as if Sonic’s guarantee were not in place, therefore,
          providing recourse with the franchisee under the notes.
 
 The
          Company has an agreement with GE Capital Franchise Finance Corporation
          (“GEC”),
          pursuant to which GEC made loans to existing Sonic franchisees who met
          certain
          underwriting criteria set by GEC.  Under the terms of the agreement
          with GEC, the Company provided a guarantee of 10% of the outstanding balance
          of
          loans from GEC to the Sonic franchisees, limited to a maximum amount of
          $5,000.  As of August 31, 2007, the total amount guaranteed under the
          GEC agreement was $2,201.  The Company ceased guaranteeing new loans
          under the program during fiscal year 2002 and has not been required to
          make any
          payments under its agreement with GEC.   Existing loans under
          guarantee will expire through 2012.  In the event of default by a
          franchisee, the Company has the option to fulfill the franchisee’s obligations
          under the note or to become the note holder, which would provide an avenue
          of
          recourse with the franchisee under the notes.
 
 The
          Company has obligations under various lease agreements with third-party
          lessors
          related to the real estate for Partner Drive-Ins that were sold to
          franchisees.  Under these agreements, the Company remains secondarily
          liable for the lease payments for which it was responsible as the original
          lessee.  As of August 31, 2007, the amount remaining under the
          guaranteed lease obligations totaled $3,653.
 
 Effective
          November 30, 2005, the Company extended a note purchase agreement to a
          bank that
          serves to guarantee the repayment of a franchisee loan and also benefits
          the
          franchisee with a lower financing rate.  In the event of default by
          the franchisee, the Company would purchase the franchisee loan from the
          bank,
          thereby becoming the note holder and providing an avenue of recourse with
          the
          franchisee.  As of August 31, 2007, the balance of the loan was
          $1,880.
 
 The
          Company has not recorded a liability for its obligations under the guarantees,
          other than immaterial amounts related to the fair value of the Irwin guarantee
          and the guarantee associated with the note purchase agreement, and has
          not been
          required to make any payments under any of these guarantees.  F-27
 **16.
         Selected Quarterly Financial
        Data
        (Unaudited)**
 
 **First
                  Quarter**
              
              
              **Second
                  Quarter**
              
              
              **Third
                  Quarter**
              
              
              **Fourth
                  Quarter**
              
              
              **Full
                  Year****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Income
                  statement data:Partner
                  Drive-In sales
              
              **$**
              **146,419**
              
              
              $
              135,422
              
              
              **$**
              **137,007**
              
              
              $
              126,376
              
              
              **$**
              **175,027**
              
              
              $
              156,921
              
              
              **$**
              **188,
                  462**
              
              
              $
              167,113
              
              
              **$**
              **646,915**
              
              
              $
              585,832Other
              
              ****
              **28,371**
              
              
              
              24,378
              
              
              ****
              **24,445**
              
              
              
              22,572
              
              
              ****
              **34,894**
              
              
              
              29,548
              
              
              ****
              **35,844**
              
              
              
              30,932
              
              
              ****
              **123,554**
              
              
              
              107,430Total
                  revenues
              
              ****
              **174,790**
              
              
              
              159,800
              
              
              ****
              **161,452**
              
              
              
              148,948
              
              
              ****
              **209,921**
              
              
              
              186,469
              
              
              ****
              **224,306**
              
              
              
              198,045
              
              
              ****
              **770,469**
              
              
              
              693,262Partner
                  Drive-In operating expenses
              
              ****
              **119,480**
              
              
              
              110,125
              
              
              ****
              **112,050**
              
              
              
              102,615
              
              
              ****
              **139,402**
              
              
              
              123,755
              
              
              ****
              **149,244**
              
              
              
              132,132
              
              
              ****
              **520,176**
              
              
              
              468,627Selling,
                  general and administrative
              
              ****
              **14,033**
              
              
              
              12,196
              
              
              ****
              **14,401**
              
              
              
              13,214
              
              
              ****
              **15,236**
              
              
              
              13,293
              
              
              ****
              **15,066**
              
              
              
              13,345
              
              
              ****
              **58,736**
              
              
              
              52,048Other
              
              ****
              **10,758**
              
              
              
              9,897
              
              
              ****
              **11,099**
              
              
              
              9,997
              
              
              ****
              **11,967**
              
              
              
              10,361
              
              
              ****
              **12,444**
              
              
              
              10,705
              
              
              ****
              **46,268**
              
              
              
              40,960Total
                  expenses
              
              ****
              **144,271**
              
              
              
              132,218
              
              
              ****
              **137,550**
              
              
              
              125,826
              
              
              ****
              **166,605**
              
              
              
              147,409
              
              
              ****
              **176,754**
              
              
              
              156,182
              
              
              ****
              **625,180**
              
              
              
              561,635Income
                  from operations
              
              ****
              **30,519**
              
              
              
              27,582
              
              
              ****
              **23,902**
              
              
              
              23,122
              
              
              ****
              **43,316**
              
              
              
              39,060
              
              
              ****
              **47,552**
              
              
              
              41,863
              
              
              ****
              **145,289**
              
              
              
              131,627Debt
                  extinguishment and other costs
              
              ****
              **1,258**
              
              
              ─
              
              
              ****
              **4,818**
              
              
              ─
              
              
              **─**
              
              
              ─
              
              
              **─**
              
              
              ─
              
              
              ****
              **6,076**
              
              
              ─Interest
                  expense, net
              
              ****
              **5,759**
              
              
              
              1,307
              
              
              ****
              **10,304**
              
              
              
              2,096
              
              
              ****
              **10,921**
              
              
              
              2,215
              
              
              ****
              **11,346**
              
              
              
              1,960
              
              
              ****
              **38,330**
              
              
              
              7,578Income
                  before income taxes
              
              ****
              **23,502**
              
              
              
              26,275
              
              
              ****
              **8,780**
              
              
              
              21,026
              
              
              ****
              **32,395**
              
              
              
              36,845
              
              
              ****
              **36,206**
              
              
              
              39,903
              
              
              ****
              **100,883**
              
              
              
              124,049Provision
                  for income
                  taxes
              
              ****
              **8,216**
              
              
              
              9,845
              
              
              ****
              **2,555**
              
              
              
              8,122
              
              
              ****
              **11,747**
              
              
              
              13,011
              
              
              ****
              **14,173**
              
              
              
              14,366
              
              
              ****
              **36,691**
              
              
              
              45,344Net
                  income
              
              **$**
              **15,286**
              
              
              $
              16,430
              
              
              **$**
              **6,225**
              
              
              $
              12,904
              
              
              **$**
              **20,648**
              
              
              $
              23,834
              
              
              **$**
              **22,033**
              
              
              $
              25,537
              
              
              **$**
              **64,192**
              
              
              $
              78,705Net
                  income per share:Basic
              
              **$**
              **0.20**
              
              
              $
              0.19
              
              
              **$**
              **0.09**
              
              
              $
              0.15
              
              
              **$**
              **0.32**
              
              
              $
              0.28
              
              
              **$**
              **0.35**
              
              
              $
              0.30
              
              
              **$**
              **0.94**
              
              
              $
              0.91Diluted
              
              **$**
              **0.19**
              
              
              $
              0.18
              
              
              **$**
              **0.09**
              
              
              $
              0.14
              
              
              **$**
              **0.31**
              
              
              $
              0.27
              
              
              **$**
              **0.34**
              
              
              $
              0.29
              
              
              **$**
              **0.91**
              
              
              $
              0.88Weighted
                  average shares outstanding:Basic
              
              ****
              **76,606**
              
              
              
              87,415
              
              
              ****
              **67,325**
              
              
              
              86,227
              
              
              ****
              **64,985**
              
              
              
              85,993
              
              
              ****
              **63,162**
              
              
              
              85,405
              
              
              ****
              **68,019**
              
              
              
              86,260Diluted
              
              ****
              **79,489**
              
              
              
              90,521
              
              
              ****
              **70,026**
              
              
              
              89,261
              
              
              ****
              **67,408**
              
              
              
              89,007
              
              
              ****
              **65,445**
              
              
              
              88,168
              
              
              ****
              **70,592**
              
              
              
              89,239
 
  F-28
  **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 that would currently
        be
        offered for loans with similar terms to borrowers of similar credit quality
        and/or the same remaining maturities.
 
 As
        of
        August 31, 2007 and 2006, 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, including accrued interest, and estimated fair values of
        the
        Company’s fixed-rate borrowings at August 31, 2007 were $594,364 and $591,668,
        respectively, and at August 31, 2006 were $19,857 and $19,925,
        respectively.
 F-29
   **Sonic
          Corp**.
 
 **Schedule
          II – Valuation and Qualifying Accounts**
 
 **Description**
                **Balance
                    at Beginning of Year**
                **Additions
                    Charged to Costs and Expenses**
                **Amounts
                    Written Off Against the Allowance**
                **(Transfer)**
                  **Recoveries**
                **Balance**
                  **at
                    End**
                  **of
                    Year***(In
                    Thousands)***Allowance
                    for doubtful accounts and notes receivable**Year
                    ended:August
                    31, 2007
                635
                269
                235
                42
                711August
                    31, 2006
                507
                (5)
                86
                219
                635August
                    31, 2005
                526
                414
                542
                109
                507**Accrued
                    carrying costs**
                  **for
                    drive-in closings and disposals**Year
                    ended:August
                    31, 2007
                113
                **–**
                22
                **–**
                91August
                    31, 2006
                162
                **–**
                49
                **–**
                113August
                    31, 2005
                198
                –
                36
                –
                162
  F-30
 
 **SIGNATURES**
 
 Pursuant
        to the requirements of Section
        13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant
        has caused the undersigned, duly-authorized, to sign this report on its behalf
        on this 26th day of October, 2007.
 
 Sonic
        Corp.
 
 By:           /s/  J.
        Clifford Hudson
 J.
        Clifford
        Hudson
 *Chairman,
        Chief Executive Officer and
        President*
 
 Pursuant
        to the requirements of the
        Securities Exchange Act of 1934, as amended, the undersigned have signed
        this
        report on behalf of the registrant, in the capacities and as of the dates
        indicated.
 Signature
              Title
              Date/s/ 
                J. Clifford Hudson
              Chairman
                of the Board of Directors, Chief Executive Officer and President
              October
                26, 2007J.
                  Clifford Hudson,
                Principal
                  Executive Officer/s/
                Stephen C. Vaughan
              Vice
                President and Chief Financial Officer
              October
                26, 2007Stephen
                  C. Vaughan,
                Principal
                  Financial Officer/s/
                Terry D. Harryman
              Controller
              October
                26, 2007Terry
                  D. Harryman,
                Principal
                  Accounting Officer/s/
                Leonard Lieberman
              Director
              October
                26, 2007Leonard
                  Lieberman/s/
                Michael J. Maples
              Director
              October
                26, 2007Michael
                  J. Maples/s/
                Federico F. Pena
              Director
              October
                26, 2007Federico
                  F. Peña/s/
                J. Larry Nichols
              Director
              October
                26, 2007J.
                  Larry Nichols/s/
                H. E. Rainbolt
              Director
              October
                26, 2007H.E.
                  Rainbolt/s/
                Frank E. Richardson
              Director
              October
                26, 2007Frank
                  E. Richardson/s/
                Robert M. Rosenberg
              Director
              October
                26, 2007Robert
                  M. Rosenberg
 
  
 EXHIBIT
        INDEX
    Exhibit Number and Description
  10.08.      Form of Sonic
        Industries LLC License Agreement (the Number 4.4/5.4 License
        Agreement).
 10.09.      Form of Sonic
        Industries LLC License Agreement (the Number 5.5 License
        Agreement).
 10.10.      Form of Sonic
        Industries LLC License Agreement (the Number 7 License
        Agreement).
 10.11.      Form of Sonic
        Industries LLC License Agreement (the Number 7NT License
        Agreement).
 10.13.      Form of Sonic
        Industries LLC Area Development Agreement (the Number 7 Area Development Agreement).
 21.01.      Subsidiaries of
        the Company
 23.01.      Consent of
        Independent Registered Public Accounting Firm
 31.01.      Certification of
        Chief Executive Officer pursuant to S.E.C. Rule 13a-14
 31.02.      Certification of
        Chief Financial Officer pursuant to S.E.C. Rule 13a-14
 32.01.      Certification of
        Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
 32.02.      Certification of
        Chief Financial Officer Pursuant to 18 U.S.C. Section 1350