Sonic 2009 Annual Report Download - page 44

Notes to Consolidated Financial Statements
August 31, 2009, 2008 and 2007 (In thousands, except per share data)
of its income tax expense, net of federal benefit. The entire balance of unrecognized tax benefits, if recognized, would favorably impact
the effective tax rate. A reconciliation of the beginning and ending amount of the unrecognized tax benefits follows:
2009
Opening balance upon adoption at September 1, 2008 $ 5,383
Additions based on tax positions related to the current year –
Additions for tax positions of prior years 494
Reductions for tax positions of prior years (713)
Reductions for settlements (206)
Reductions due to statute expiration (1,539)
Balance at August 31, 2009 $ 3,419
The company or one of its subsidiaries is subject to U.S. federal income tax and income tax in multiple U.S. state jurisdictions. The
company is currently undergoing examinations or appeals by various state and federal authorities. The company anticipates that the
finalization of these examinations or appeals, combined with the expiration of applicable statutes of limitations and the additional
accrual of interest related to unrecognized benefits on various return positions taken in years still open for examination could result in
a change to the liability for unrecognized tax benefits during the next 12 months ranging from a decrease of $165 to $1,280, depending
on the timing and terms of the examination resolutions.
13. Stockholders’ Equity
Stock Purchase Plan
The company has an employee stock purchase plan for all full-time regular employees. Employees are eligible to purchase shares
of common stock each year through a payroll deduction not in excess of the lesser of 10% of compensation or $25. The aggregate
amount of stock that employees may purchase under this plan is limited to 1,139 shares. The purchase price will be between 85% and
100% of the stock’s fair market value and will be determined by the company’s Board of Directors.
Stock-Based Compensation
The Sonic Corp. 2006 Long-Term Incentive Plan (the “2006 Plan”) provides flexibility to award various forms of equity compensation,
such as stock options, stock appreciation rights, performance shares, restricted stock and other stock-based awards. At August 31, 2009,
1,761 shares were available for grant under the 2006 Plan. The company has historically granted only stock options with an exercise
price equal to the market price of the company’s stock at the date of grant, a contractual term of seven to ten years, and a vesting period
of three years. The company’s policy is to recognize compensation cost for these options on a straight-line basis over the requisite service
period for the entire award. Additionally, the company’s policy is to issue new shares of common stock to satisfy stock option exercises.
In January 2009, in addition to issuing stock options, the company awarded 426 performance share units (“PSUs”) to certain
executives under the 2006 Plan. These PSUs, which vest at the end of the three-year period if certain company performance criteria are
met, are payable in the company’s common stock. Also, in January 2009, the company began to award restricted stock units (“RSUs”)
to its directors under the 2006 Plan. A total of 42 RSUs were granted in 2009. The RSUs have a vesting period of three years and their
fair value is based on our closing stock price on the date of grant and are payable in the company’s common stock.
The company measures the compensation cost associated with share-based payments by estimating the fair value of stock options
as of the grant date using the Black-Scholes option pricing model. The company believes that the valuation technique and the approach
utilized to develop the underlying assumptions are appropriate in calculating the fair values of the company’s stock options granted during
2009, 2008 and 2007. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the
employees who receive equity awards.
The per share weighted average fair value of stock options granted during 2009, 2008 and 2007 was $3.50, $6.10 and $7.10,
respectively. In addition to the exercise and grant date prices of the awards, certain weighted average assumptions that were used to
estimate the fair value of stock option grants in the respective periods are listed in the table below:
2009 2008 2007
Expected term (years) 4.6 4.5 4.5
Expected volatility 38% 28% 28%
Risk-free interest rate 1.4% 3.1% 4.6%
Expected dividend yield 0% 0% 0%
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