Sonic 2013 Annual Report Download - page 48

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As of August 31, 2013, 2012 and 2011, there are $2.6 million, $1.9 million and $3.1 million, respectively, of
unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate. A reconciliation of
unrecognized tax benefits is as follows for fiscal years ended August 31:
2013 2012
Balance at beginning of year $ 5,451 $ 4,775
Additions based on tax positions related to the current year 628 834
Additions for tax positions of prior years 960 1,670
Reductions for tax positions of prior years (3,816) (469)
Reductions for settlements –(68)
Reductions due to statute expiration (640) (1,291)
Balance at end of year $ 2,583 $ 5,451
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 an increase of $1.3 million to a decrease of $2.0
million depending on the timing and terms of the examination resolutions. At August 31, 2013, the Company was
subject to income tax examinations for its U.S. federal income taxes and for state and local income taxes generally
after fiscal year 2009.
At August 31, 2013 and 2012, the Company had an income tax receivable of $9.8 million and $10.3 million,
respectively, primarily relating to expected refunds from amended tax returns. Based on information available at
August 31, 2013, the Company anticipates receiving or being able to apply a majority of these refunds to other tax
obligations during fiscal year 2014. As a result, $7.7 million was classified as current during fiscal year 2013.
13. Stockholders’ Equity
Employee Stock Purchase Plan
The Company has an employee stock purchase plan (“ESPP”) that permits eligible employees to purchase the
Company’s common stock at a 15% discount from the stock’s fair market value. Participating employees may
purchase shares of common stock each year up to the lesser of 10% of their base compensation or $25 thousand
in the stock’s fair market value. At August 31, 2013, 0.9 million shares were available for grant under the ESPP.
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 share-based awards. At August 31, 2013, 1.7 million shares were available for grant under the 2006 Plan.
The Company grants stock options with contractual terms of seven to ten years and a vesting period of three years
and RSUs also with a vesting period of three years. Effective in January 2013, awards granted to the Company’s
Board of Directors vest over one year. The Company’s policy is to issue shares from treasury stock to satisfy stock
option exercises, the vesting of RSUs and shares issued under the ESPP.
Total stock-based compensation cost recognized for fiscal years 2013, 2012 and 2011 was $3.6 million, $4.3
million and $5.6 million, respectively, with related income tax benefits of $1.2 million, $1.2 million and $1.3 million,
respectively. At August 31, 2013, total remaining unrecognized compensation cost related to unvested stock-
based arrangements was $4.6 million and is expected to be recognized over a weighted average period of 1.9 years.
The Company measures the compensation cost associated with stock option-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 the valuation technique and approach utilized to develop the underlying assumptions are appropriate in
calculating the fair values of the Company’s stock options granted during 2013, 2012 and 2011. 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 fair value of RSUs granted is equal to the Company’s closing stock price on the date of the grant.
Notes to Consolidated Financial Statements
August 31, 2013, 2012 and 2011 (In thousands, except per share data)