Sonic 2012 Annual Report Download - page 22

Management's Discussion and Analysis of Financial Condition and Results of Operations
Franchising revenues were relatively flat in fiscal year 2011 decreasing by $0.1 million, or 0.1%, to $131.9 million as
compared to $132.0 million for fiscal year 2010. Franchise royalties increased $1.7 million for fiscal year 2011, which was
comprised of a $2.0 million increase from same-store sales and incremental royalties from newly constructed and refranchised
drive-ins, partially offset by a $0.3 million decrease from a lower effective royalty rate. Franchise fees declined $1.0 million
to $1.7 million in fiscal year 2011, which was primarily related to franchisees opening fewer drive-ins during the year as a result
of the weaker overall business environment. Franchisees opened 40 new drive-ins during fiscal year 2011, down from 80 in
2010.
Other revenues increased $1.5 million to $4.7 million in fiscal year 2012 and decreased $1.3 million to $3.2 million in
fiscal year 2011 as compared to prior years, primarily due to changes in income from investments in franchise operations.
Operating Expenses. The following table presents the overall costs of drive-in operations as a percentage of Company
Drive-In sales. Other operating expenses include direct operating costs such as marketing, telephone and utilities, repair and
maintenance, rent, property tax and other controllable expenses.
Company Drive-In Margins Percentage
Year Ended August 31, Points
2012 2011 (Decrease)
Costs and expenses(1):
Company Drive-Ins:
Food and packaging 28.1% 28.1%–
Payroll and other employee benefits(2) 35.7 36.4 (0.7)
Other operating expenses 22.1 22.2 (0.1)
Cost of sales 85.9% 86.7% (0.8)
Percentage
Company Drive-In Margins Points
Year Ended August 31, Increase/
2011 2010 (Decrease)
Costs and expenses(1):
Company Drive-Ins:
Food and packaging 28.1% 27.6% 0.5
Payroll and other employee benefits(2) 36.4 35.2 1.2
Other operating expenses 22.2 22.8 (0.6)
Cost of sales 86.7% 85.6% 1.1
Noncontrolling interests(2) – 1.1% (1.1)
Pro forma cost of sales, including noncontrolling interests 86.7% 86.7%–
(1) Calculated as a percentage of Company Drive-In sales.
(2) Effective April 1, 2010, we revised our compensation program at the Company Drive-In level. As a result of these changes,
noncontrolling interests are immaterial for fiscal years 2012 and 2011 and have been included in payroll and other
employee benefits. We have included noncontrolling interests for fiscal year 2010 in the table for comparative purposes
because we believe it is helpful in understanding the impact our new compensation program had on Company Drive-In
margins.
Restaurant-level margins improved by 80 basis points during fiscal year 2012 reflecting leverage from improved same-
store sales and, to a lesser extent, the refranchising of 34 lower performing Company Drive-Ins during the second quarter of
fiscal year 2012. Food and packaging costs remained flat during fiscal year 2012, which was a combination of moderating
commodity cost inflation during the latter half of the year, effective inventory management, and moderate price increases
taken over the preceding twelve months. Payroll and other employee benefits as well as other operating expenses improved
by a combined 80 basis points primarily as a result of leveraging labor with improved sales.
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