Sonic 2008 Annual Report Download - page 77

Note  Consolidate nancia Satement
August 31, 2008, 2007 and 2006 (In thousands, except per share data)
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Sonic Corp. 2008 Annual Report
Deferred tax assets and liabilities consist of the following at August 31, 2008 and 2007:
2008 2007
Current deferred tax assets (liabilities):
Allowance for doubtful accounts and notes receivable $ 274 $ 176
Property, equipment and capital leases 200 197
Accrued litigation costs 309 371
Prepaid expenses (551) (424)
Deferred income from franchisees (282) 79
Deferred income from affiliated technology fund 250 118
Current deferred tax assets, net $ 200 $ 517
Noncurrent deferred tax assets (liabilities):
Net investment in direct financing leases including differences
related to capitalization and amortization $ (3,062) $ (2,458)
Investment in partnerships, including differences in capitalization,
depreciation and direct financing leases (17,504) (13,466)
Capital loss carryover 1,419 1,695
State net operating losses 4,411 3,319
Property, equipment and capital leases (9,429) (2,720)
Allowance for doubtful accounts and notes receivable – 97
Deferred income from affiliated franchise fees 2,167 1,976
Accrued liabilities 219 241
Intangibles and other assets 166 117
Deferred income from franchisees 2,751 798
Stock compensation 7,569 5,544
Loss on cash flow hedge 1,357 1,765
Other – (2)
(9,936) (3,094)
Valuation allowance (4,411) (3,319)
Noncurrent deferred tax liabilities, net $ (14,347) $ (6,413)
Deferred tax assets and (liabilities):
Deferred tax assets (net of valuation allowance) $ 16,681 $ 13,174
Deferred tax liabilities (30,828) (19,070)
Net deferred tax liabilities $ (14,147) $ (5,896)
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 of $4.4 million and $3.3 million as of August 31, 2008 and August 31, 2007, respectively.
The company has capital loss carryovers of approximately $3.7 million which expire beginning in fiscal year
2011. Management believes the company will realize these carryovers before they expire.
On September 1, 2007, the company adopted the provisions of FASB Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. As a result of implementing FIN 48, the company
recognized a $1,249 increase in its liability for uncertain tax positions, which was accounted for as an adjustment
to the beginning balance of accumulated retained earnings. As of August 31, 2008 the company has
approximately $5,383 of unrecognized tax benefits, including approximately $1,788 of interest and penalty.
The liability for unrecognized tax benefits decreased by $1,846 for the year, exclusive of the reclass of $1,182 of
uncertain positions from current taxes payable to the FIN 48 liability. The majority of the change resulted from