Sonic 2010 Annual Report Download - page 45

Deferred tax assets and liabilities consist of the following at August 31:
2010 2009
Current deferred tax assets (liabilities):
Allowance for doubtful accounts and notes receivable $ 1,229 $ 315
Property, equipment and capital leases 37 107
Accrued litigation costs 408 272
Prepaid expenses (585) (570)
Deferred income from franchisees 972 27
Deferred income from affiliated technology fund (143) 220
Current deferred tax assets, net $ 1,918 $ 371
Noncurrent deferred tax assets (liabilities):
Net investment in direct financing leases, including
differences related to capitalization and amortization $ (2,729) $ (2,841)
Investment in partnerships, including differences in capitalization,
depreciation and direct financing leases (2,631) (11,158)
State net operating losses 5,550 5,231
Property, equipment and capital leases (20,737) (24,232)
Deferred income from affiliated franchise fees 1,271 1,327
Accrued liabilities 445 331
Intangibles and other assets (2,589) 158
Deferred income from franchisees 1,801 3,104
Stock compensation 11,989 8,349
Loss on cash flow hedge 522 928
Debt extinguishment (2,323) (2,473)
(9,431) (21,276)
Valuation allowance (5,550) (5,231)
Noncurrent deferred tax liabilities, net $ (14,981) $ (26,507)
Deferred tax assets and (liabilities):
Deferred tax assets (net of valuation allowance) $ 18,674 $ 15,138
Deferred tax liabilities (31,737) (41,274)
Net deferred tax liabilities $ (13,063) $ (26,136)
State net operating loss carryforwards expire generally beginning in 2011. 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 $5.5 million and
$5.2 million as of August 31, 2010 and August 31, 2009, respectively.
As of August 31, 2010, the company had approximately $5,628 of unrecognized tax benefits, including approximately $1,368
of interest and penalty. The liability for unrecognized tax benefits increased by $2,209 in fiscal year 2010. The majority of the
change resulted from an increase to tax positions of prior years due to an uncertain tax position that was challenged under audit.
Reductions included positions for prior years in which cash settlements of audits were less than the liability recorded and positions
in which the statute of limitations has expired. The company recognizes estimated interest and penalties as a component of its
income tax expense, net of federal benefit. If recognized, $3,891 of unrecognized tax benefits would favorably impact the effective
tax rate. A reconciliation of the beginning and ending amount of the unrecognized tax benefits follows:
2010 2009
Opening balance at September 1 $ 3,419 $ 5,383
Additions for tax positions of prior years 2,724 494
Reductions for tax positions of prior years (5) (713)
Reductions for settlements (163) (206)
Reductions due to statute expiration (347) (1,539)
Ending balance at August 31 $ 5,628 $ 3,419
Notes to Consolidated Financial Statements
August 31, 2010, 2009 and 2008 (In thousands, except per share data)
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