Sonic 2014 Annual Report Download - page 44

As of August 31, 2014 and 2013, there are $2.5 million and $2.6 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:
2014 2013
Balance at beginning of year $ 2,583 $ 5,451
Additions based on tax positions related to the current year 255 628
Additions for tax positions of prior years 115 960
Reductions for tax positions of prior years (492) (3,816)
Reductions due to statute expiration – (640)
Balance at end of year $ 2,461 $ 2,583
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 $0.1
million to a decrease of $1.9 million depending on the timing and terms of the examination resolutions. At August 31, 2014, 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, 2014 and 2013, the Company had an income tax receivable of $1.9 million and $9.8 million, respectively, primarily
relating to expected refunds from amended tax returns. Based on information available at August 31, 2014, the Company anticipates
receiving or being able to apply a majority of these refunds to other tax obligations during fiscal year 2015. As a result, the entire
amount was classified as current during fiscal year 2014.
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,
2014, 0.8 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 Sonic’s annual meeting of stockholders on January 16, 2014, the stockholders approved an amendment to the 2006
Plan which added an additional 6.6 million shares of common stock available for issuance. At August 31, 2014, 7.8 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 2014, 2013 and 2012 was $3.7 million, $3.6 million and $4.3
million, respectively, with related income tax benefits of $1.7 million, $1.2 million and $1.2 million, respectively. At August 31, 2014,
total remaining unrecognized compensation cost related to unvested stock-based arrangements was $4.9 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 2014, 2013 and 2012. 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, 2014, 2013 and 2012 (In thousands, except per share data)
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