Sonic 2013 Annual Report Download - page 39

Notes to Consolidated Financial Statements
August 31, 2013, 2012 and 2011 (In thousands, except per share data)
Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis, which means these
assets and liabilities are not measured at fair value on an ongoing basis but are subject to periodic impairment tests.
For the Company, these items primarily include long-lived assets, goodwill and other intangible assets. Refer to
sections “Accounting for Long-Lived Assets” and “Goodwill and Other Intangible Assets,” discussed above, for
inputs and valuation techniques used to measure the fair value of these nonfinancial assets. The fair value was
based upon management’s assessment as well as independent market value assessments which involved Level 2
and Level 3 inputs.
New Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2012-02, “Testing Indefinite-
Lived Intangible Assets for Impairment.” This pronouncement was issued to simplify how entities test for impairment
of indefinite-lived intangible assets. Under this pronouncement, an entity has the option first to assess qualitative
factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. In
conclusion of this assessment, if an entity finds that it is not more likely than not that an indefinite-lived intangible
asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise,
then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative
impairment test by comparing the fair value with the carrying amount in accordance with ASC Topic 350, “Intangibles
– Goodwill and Other.” This pronouncement is effective for annual and interim impairment tests performed for fiscal
years beginning after September 15, 2012, with early adoption permitted. The adoption of this pronouncement is
not expected to have a material impact on the Company’s consolidated financial statements.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Year Ended August 31,
2013 2012 2011
Numerator:
Net income $ 36,701 $ 36,085 $ 19,225
Denominator:
Weighted average common shares outstanding– basic 56,384 60,078 61,781
Effect of dilutive employee stock options and
unvested restricted stock units 807 94 162
Weighted average common shares – diluted 57,191 60,172 61,943
Net income per common share – basic $ 0.65 $ 0.60 $ 0.31
Net income per common share – diluted $ 0.64 $ 0.60 $ 0.31
Anti-dilutive securities excluded (1) 3,278 6,705 6,367
(1) Anti-dilutive securities consist of stock options and unvested restricted stock units that were not included in
the computation of diluted earnings per share because either the exercise price of the options was greater than
the average market price of the common stock or the total assumed proceeds under the treasury stock method
resulted in negative incremental shares and thus the inclusion would have been anti-dilutive.
3. Impairment of Long-Lived Assets
During the fiscal years ended August 31, 2013, 2012 and 2011, the Company identified impairments for certain
brand technology assets, surplus property and drive-in assets through regular quarterly reviews of long-lived assets.
The recoverability of Company Drive-Ins is assessed by estimating the undiscounted net cash flows expected to be
generated over the remaining life of the Company Drive-Ins. This involves estimating same-store sales and margins
for the cash flow periods. When impairment exists, the carrying value of the asset is written down to fair value.
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