Sonic 2008 Annual Report Download - page 53

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Managemen' Discuio  Anali  nancia Condo  Resu  Operaon
7
Sonic Corp. 2008 Annual Report
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.
Franchise Information
Year ended August 31,
2008 2007 2006
($ in thousands)
Franchise fees and royalties
(1)
$ 127,111 $ 115,626 $ 102,910
Percentage increase 9.9% 12.4% 11.4%
Franchise Drive-Ins in operation
(2)
:
Total at beginning of period 2,689 2,565 2,465
Opened 140 146 138
Acquired from (sold to) company, net (6) (5) (15)
Closed (32) (17) (23)
Total at end of period 2,791 2,689 2,565
Franchise Drive-In sales $ 3,139,996 $ 2,961,168 $ 2,735,802
Percentage increase 6.0% 8.2% 10.6%
Effective royalty rate 3.88% 3.75% 3.59%
Average sales per Franchise Drive-In $ 1,154 $ 1,132 $ 1,092
Change in same-store sales
(3)
1.4% 3.3% 5.1%
(1)
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.
(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 experienced a 9.9% increase related primarily to royalties from new Franchise Drive-Ins
and the increasing effective royalty rate. A smaller portion of the increase relates to growth in same-store sales
at Franchise Drive-Ins.
The increase in the effective royalty rate includes the beneficial impact from the conversion of licenses for
approximately 790 Franchise Drive-Ins in April 2007. These conversions resulted in the franchisees paying a
higher royalty rate in exchange for the extension of their license term.
Franchisees opened 140 new drive-ins in fiscal year 2008, down from 146 new drive-ins in fiscal year 2007.
However, franchisee investment in existing drive-ins increased considerably during fiscal year 2008, including the
relocation or rebuild of 64 drive-ins (versus 35 in the prior year) and the retrofit of 800 drive-ins (versus 316 in
fiscal year 2007). Despite the decrease in new drive-ins opened, franchise fees increased 13.0% to $5.2 million.
Fees associated with the termination of area development agreements increased $0.5 million in fiscal year 2008
compared to prior year. These termination fees were the primary reason for the year-over-year increase in
overall franchise fees, and despite the termination of some of these agreements, the number of drive-ins
expected to be built in connection with such agreements has increased over the prior year. For fiscal year 2007,
franchise fees decreased 3.6% as a result of approximately $0.3 million more in fees recognized in fiscal year 2006
from terminations of area development agreements.