Sonic 2009 Annual Report Download - page 20

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Management's Discussion and Analysis of Financial Condition and Results of Operations
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,
($ in thousands)
2009 2008 2007
Franchise fees and royalties
(1)
$ 131,712 $ 127,111 $ 115,626
Percentage increase 3.6% 9.9% 12.4%
Franchise Drive-Ins in operation
(2)
:
Total at beginning of period 2,791 2,689 2,565
Opened 130 140 146
Acquired from (sold to) company, net 205 (6) (5)
Closed (57) (32) (17)
Total at end of period 3,069 2,791 2,689
Franchise Drive-In sales $ 3,269,930 $ 3,139,996 $ 2,961,168
Percentage increase 4.1% 6.0% 8.2%
Effective royalty rate 3.87% 3.88% 3.75%
Average sales per Franchise Drive-In $ 1,122 $ 1,154 $ 1,132
Change in same-store sales
(3)
(3.9%) 1.4% 3.3%
(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 4.1% increase related primarily to royalties from new and refranchised drive-ins. This increase
was offset by the impact of the decline in same-store sales at Franchise Drive-Ins.
Franchisees opened 130 new drive-ins in fiscal year 2009, down from 140 new drive-ins in fiscal year 2008. However, franchisee
investment in existing drive-ins remained strong during fiscal year 2009, including the relocation or rebuild of 46 drive-ins (versus 64 in
the prior year) and the retrofit of 337 drive-ins (versus 800 in fiscal year 2008). Franchise fees decreased 3.1% to $5.0 million as a result
of fewer Franchise Drive-In openings, in addition to a decline in fees associated with the termination of area development agreements.
The company recognized a $13.2 million gain from the refranchising of 205 Partner Drive-Ins during fiscal year 2009. We retained
a minority ownership interest in the operations of 88 of the refranchised drive-ins.
Other income increased 90.4% to $6.5 million in fiscal year 2009 from $3.4 million in fiscal year 2008. The increase relates primarily
from rental revenue on refranchised drive-ins in which the company retained ownership of real estate.
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