Sonic 2009 Annual Report Download - page 43

Notes to Consolidated Financial Statements
August 31, 2009, 2008 and 2007 (In thousands, except per share data)
Deferred tax assets and liabilities consist of the following at August 31, 2009 and 2008:
2009 2008
Current deferred tax assets (liabilities):
Allowance for doubtful accounts and notes receivable $ 315 $ 274
Property, equipment and capital leases 107 200
Accrued litigation costs 272 309
Prepaid expenses (570) (551)
Deferred income from franchisees 27 (282)
Deferred income from affiliated technology fund 220 250
Current deferred tax assets, net $ 371 $ 200
Noncurrent deferred tax assets (liabilities):
Net investment in direct financing leases including
differences related to capitalization and amortization $ (2,841) $ (3,062)
Investment in partnerships, including differences in capitalization,
depreciation and direct financing leases (11,158) (17,504)
Capital loss carryover – 1,419
State net operating losses 5,231 4,411
Property, equipment and capital leases (24,232) (9,429)
Deferred income from affiliated franchise fees 1,327 2,167
Accrued liabilities 331 219
Intangibles and other assets 158 166
Deferred income from franchisees 3,104 2,751
Stock compensation 8,349 7,569
Loss on cash flow hedge 928 1,357
Debt extinguishment (2,473) –
(21,276) (9,936)
Valuation allowance (5,231) (4,411)
Noncurrent deferred tax liabilities, net $ (26,507) $ (14,347)
Deferred tax assets and (liabilities):
Deferred tax assets (net of valuation allowance) $ 15,138 $ 16,681
Deferred tax liabilities (41,274) (30,828)
Net deferred tax liabilities $ (26,136) $ (14,147)
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 $5.2 million and $4.4 million
as of August 31, 2009 and August 31, 2008, respectively.
As of August 31, 2008, the company has capital loss carryovers of approximately $8.7 million which expire beginning in fiscal year
2011. Management believes the company will realize these carryovers during fiscal year 2009, and has included the benefit in the
current year tax accrual.
As of August 31, 2009, the company has approximately $3,419 of unrecognized tax benefits, including approximately $1,296 of
interest and penalty. The liability for unrecognized tax benefits decreased by $1,964. The majority of the change resulted from a reduction
due to the expiration of statutes of limitations which decreased the unrecognized tax benefit by $1,539. Other reductions included
positions for prior years in which cash settlements of audits were less than the liability recorded, and a reduction in liabilities recorded
for prior year estimated interest of $242 and $471, respectively.The company recognizes estimated interest and penalties as a component
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