Sonic 2006 Annual Report Download - page 7

As you might expect, considering Sonic's solid financial results, the company continued to generate strong cash
flow from operations, well beyond that needed to support our development program, capital expenditures and
other needs. Traditionally, we have used this excess cash flow for franchise acquisitions and to repurchase our
common stock in open-market transactions. In fiscal 2006, we purchased 4.8 million shares at a total value of
approximately $94 million. At the beginning of the year, we also acquired 15 franchise drive-ins operating in our
core markets.
Taking advantage of our strong balance sheet, our Board recently authorized a modified "Dutch Auction" tender
offer to accelerate these efforts. In this program, we offered to buy up to 24.3 million shares of common stock, or
about 30% percent of the total outstanding, at a price per share of up to $23.00, for a total value of $560 million.
We completed the modified Dutch Auction in October 2006; 15.9 million shares ultimately were tendered at an
effective price of $23.00 per share. The final expenditure for these shares was $366 million, which was financed
with new debt. Although interest costs will rise in connection with the tender offer, we anticipate that the effect
of fewer shares outstanding will more than offset its impact on a per share basis, making the overall capital
management strategy accretive to future earnings per share in 2008 and beyond.
As we look ahead to the coming year, we remain optimistic that the key drivers responsible for our growth in
2006 and in recent years will continue to shape a successful future for Sonic and all associated with our brand.
Despite the obvious economic challenges facing consumers, we remain convinced that Sonic – as perhaps the
most highly differentiated brand in the quick-service restaurant sector – remains well positioned with a unique
menu offering to deliver quality and value to our customers. We think this will translate into continued sales
momentum in fiscal 2007. In tandem with this, we anticipate that the company and its partners and franchisees
will be avid in their pursuit of new drive-in opportunities, and we expect to see further penetration of existing
markets, follow-on development in states where we have recently opened, and the addition of markets beyond that.
Lastly, I should point out that Sonic embarked on a new retrofit program during the past year and already has
implemented the new Sonic look at 110 partner drive-ins. In the coming fiscal year, Sonic expects to roll out the
retrofit program to 150 additional partner drive-ins and, in January 2007, will begin to extend the program to
franchised drive-ins. We think this initiative, like the last effort in the mid-1990s, will help keep us distinctive in
the eyes of consumers and will play a key role in the years ahead, as it is fully implemented, in producing the
industry-leading results for which Sonic has become known.
Sincerely,
Clifford Hudson
Chairman, Chief Executive Officer
and President
Sonic Corp. 2006 Annual Report
5