Sonic 2006 Annual Report Download - page 50

State net operating loss carryforwards expire generally beginning in 2010. Management does not believe the
company will be able to realize the state net operating loss carryforwards and therefore has provided a valuation
allowance as of August 31, 2006 and 2005.
12. Stockholders’ Equity
On April 30, 2004, the company’s board of directors authorized a three-for-two stock split in the form of a stock
dividend. A total of 24,845 shares of common stock were issued on May 21, 2004 in connection with the split, and an
aggregate amount equal to the par value of the common stock issued of $248 was reclassified from paid-in capital to
common stock.
On April 6, 2006, the company’s board of directors authorized a three-for-two stock split in the form of a stock
dividend. A total of 38,219 shares of common stock were issued in connection with the split, and an aggregate amount
equal to the par value of the common stock issued of $382 was reclassified from paid-in capital to common stock.
All references in the accompanying consolidated financial statements to weighted average numbers of shares
outstanding, per share amounts and Stock Purchase Plan and Stock Options share data have been adjusted to reflect
the stock splits on a retroactive basis.
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
759,375 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
Under the provisions of SFAS 123R, stock-based compensation is measured at the grant date, based on the
calculated fair value of the award, and is recognized as an expense over the requisite employee service period
(generally the vesting period of the grant).The company adopted SFAS 123R effective September 1, 2005, using the
modified retrospective application method and, as a result, financial statement amounts for the prior periods presented
have been adjusted to reflect the fair value method of expensing prescribed by SFAS 123R.
At Sonic’s annual meeting of stockholders on January 31, 2006, the stockholders approved the Sonic Corp. 2006
Long-Term Incentive Plan and the authorization of 6,750 shares for awards to employees and non-employee directors.
This omnibus 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. Prior to approval of this plan,
the company had two share-based compensation plans for employees and non-employee directors, which authorized
the granting of stock options. No further awards will be granted under the previous plans now that the 2006 Long-Term
Incentive Plan has been approved.The number of shares authorized for issuance under the company’s existing plans as
of August 31, 2006 totals 6,051, all of which were available for future issuance. Stock options historically granted under
the company’s plans have been granted with an exercise price equal to the market price of the company’s stock at the
date of grant, a contractual term of 10 years, and generally a vesting period of three years. The most recent options
granted in April and August 2006 have a contractual term of seven 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.
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 2006, 2005 and 2004. 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 2006, 2005 and 2004 was $7.90, $8.94
and $6.89, respectively. In addition to the exercise and grant date prices of the awards, certain weighted average
Sonic Corp. 2006 Annual Report
48
Notes to Consolidated
Financial Statements
August 31, 2006, 2005 and 2004
(In thousands, except per share data)