Sonic 2008 Annual Report Download - page 69

Note  Consolidate nancia Satement
August 31, 2008, 2007 and 2006 (In thousands, except per share data)
23
Sonic Corp. 2008 Annual Report
Stock-Based Compensation
In accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based
Payment” (“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 all periods presented reflect
the fair value method of expensing prescribed by SFAS 123R.
The following table shows total stock-based compensation expense and the tax benefit included in
the Consolidated Statements of Income and the effect on basic and diluted earnings per share for the years
ended August 31:
2008 2007 2006
Selling, general and administrative $ 7,428 $ 7,059 $ 7,187
Income tax benefit (2,820) (2,254) (2,266)
Net stock-based compensation expense $ 4,608 $ 4,805 $ 4,921
Impact on net income per share:
Basic $ 0.08 $ 0.07 $ 0.06
Diluted $ 0.07 $ 0.07 $ 0.06
Many of the options granted by Sonic are incentive stock options, for which a tax benefit only results if the
option holder has a disqualifying disposition. For grants of non-qualified stock options, the company expects
to recognize a tax benefit on exercise of the option, so the full tax benefit is recognized on the related stock-
based compensation expense. As a result of the limitation on the tax benefit for incentive stock options, the
tax benefit for stock-based compensation will generally be less than the company’s overall tax rate, and will
vary depending on the timing of employees’ exercises and sales of stock.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.
Income tax benefits credited to equity relate to tax benefits associated with amounts that are deductible
for income tax purposes but do not affect earnings. These benefits are principally generated from employee
exercises of non-qualified stock options and disqualifying dispositions of incentive stock options.
New Accounting Pronouncements
In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measures” (“SFAS 157”). SFAS 157
defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands
disclosures about fair value measurements. This standard was issued to be effective for our fiscal year beginning
September 1, 2008. The FASB approved a one-year deferral of adoption of the standard as it relates to non-
financial assets and liabilities with the issuance in February 2008 of FASB Staff Position SFAS 157-2, “Effective Date
of FASB Statement No. 157.” In addition, the FASB has excluded leases from the scope of SFAS 157 with the
issuance of FASB Staff Position SFAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13
and Other Accounting Pronouncements that Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13.” In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”).
SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair
value. If the fair value option is elected, unrealized gains and losses will be recognized in earnings at each
subsequent reporting date. SFAS 159 has the same effective date as SFAS 157. The company continues to assess
the impact that these standards may have on its consolidated financial position and results of operations.