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Management's Discussion and Analysis of Financial Condition and Results of Operations
21
as compared to 2012. This decrease was primarily attributable to an $11.3 million reduction in sales from the
refranchising of 34 lower-performing drive-ins during the second quarter of fiscal year 2012 and a $2.5 million
decrease related to drive-ins that were closed during or subsequent to fiscal year 2012, partially offset by a $10.0
million improvement in same-store sales and $1.7 million of incremental sales from new drive-in openings.
For fiscal year 2012, Company Drive-In sales decreased $6.4 million, or 1.6%, as compared to 2011. This
decrease was primarily attributable to an $18.6 million reduction in sales from the refranchised drive-ins discussed
earlier and a $2.3 million decrease related to drive-ins that were closed during or subsequent to fiscal year 2011,
partially offset by an $11.0 million improvement in same-store sales and $3.5 million of incremental sales from new
drive-in openings.
The following table reflects the change in franchise sales, the number of Franchise Drive-Ins, average unit
volumes and franchising revenues. While we do not record Franchise Drive-In sales as revenues, we believe this
information is important in understanding our financial performance since these sales are the basis on which we
calculate and record franchise royalties. This information is also indicative of the financial health of our franchisees.
Franchise Information
Year Ended August 31,
($ in thousands) 2013 2012 2011
Franchise Drive-In sales $ 3,479,880 $ 3,386,218 $ 3,278,208
Percentage increase 2.8% 3.3 % 2.3 %
Franchise Drive-Ins in operation (1):
Total at beginning of year 3,147 3,115 3,117
Opened 25 36 40
Acquired from (sold to) the Company, net (1) 35 5
Closed (net of re-openings) (45) (39) (47)
Total at end of year 3,126 3,147 3,115
Average sales per Franchise Drive-In $ 1,125 $ 1,081 $ 1,054
Change in same-store sales (2) 2.3% 2.2 % 0.4 %
Franchising revenues (3) $ 135,522 $ 134,588 $ 131,894
Percentage increase (decrease) 0.7% 2.0 % (0.1)%
Effective royalty rate (4) 3.74% 3.72 % 3.79 %
(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.
(3) Consists of revenues derived from franchising activities, including royalties, franchise fees and lease revenues.
See Revenue Recognition Related to Franchise Fees and Royalties in the Critical Accounting Policies and
Estimates section of “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
(4) Represents franchise royalties as a percentage of Franchise Drive-In sales.
Same-store sales for Franchise Drive-Ins increased 2.3% for fiscal year 2013 and 2.2% for fiscal year 2012,
showing continued momentum from the initiatives we have implemented to improve product quality, service and
value perception. Furthermore, we continued to focus on our innovative product pipeline and increased media
effectiveness. Franchising revenues increased $0.9 million, or 0.7%, for fiscal year 2013 as compared to 2012. The
increase in franchising revenues was primarily driven by a $4.0 million increase in franchise royalties partially offset
by a $1.8 million decline in lease revenue and a $1.3 million decline in franchise fees. The increase in franchise
royalties is primarily attributable to a 2.3% increase in same-store sales, partially offset by various development
incentives and certain franchisee restructuring efforts. In addition, approximately $0.4 million of the increase in
royalties during fiscal year 2013 was attributable to incremental royalties from the 34 drive-ins refranchised in the
second quarter of fiscal year 2012. Lease revenues decreased compared to the prior year resulting from a
franchisee’s purchase of land and buildings leased or subleased from the Company relating to previous refranchised
drive-ins. The effective royalty rate increased slightly compared to fiscal year 2012 primarily as a result of improved
same-store sales offset by various development incentives and certain franchisee restructuring efforts.