Sonic 2011 Annual Report Download - page 48

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The income tax receivable at August 31, 2011 consists of $10.1 million for prior-year deductions to be claimed on
amended returns and $2.7 million of current-year overpayments.
As of August 31, 2011, the company had approximately $4,775 of unrecognized tax benefits, including approximately
$872 of interest and penalty. The liability for unrecognized tax benefits decreased by $853 in fiscal year 2011. The
majority of the change was due to the settlement of a state tax audit in the first quarter of fiscal year 2011, which resulted
in a decrease to state unrecognized tax positions from prior years. The company recognizes estimated interest and
penalties as a component of its income tax expense, net of federal benefit. If recognized, $3,074 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:
2011 2010
Opening balance at September 1 $ 5,628 $ 3,419
Additions for tax positions of prior years 672 2,724
Reductions for tax positions of prior years – (5)
Reductions for settlements (1,104) (163)
Reductions due to statute expiration (421) (347)
Ending balance at August 31 $ 4,775 $ 5,628
The company or one of its subsidiaries is subject to U.S. federal income tax and income tax in multiple U.S. state
jurisdictions. The company is currently undergoing examinations or appeals by various state and federal authorities. The
company anticipates that the finalization of these examinations or appeals, combined with the expiration of applicable
statutes of limitations and the additional accrual of interest related to unrecognized benefits on various return positions
taken in years still open for examination could result in a change to the liability for unrecognized tax benefits during the
next 12 months ranging from a decrease of $446 to a decrease of $3,578, depending on the timing and terms of the
examination resolutions.
13. Stockholders’ Equity
Employee Stock Purchase Plan
The company has an employee stock purchase plan (“ESPP”) 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 in the stock’s fair market value. The aggregate amount of stock that employees may purchase under
this plan is limited to 1,139 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
The Sonic Corp. 2006 Long-Term Incentive Plan (the “2006 Plan”) provides flexibility to award various forms of equity
compensation, such as stock options, stock appreciation rights, performance shares, restricted stock and other share-
based awards. At August 31, 2011, 1,939 shares were available for grant under the 2006 Plan. The company has
historically granted only stock options with an exercise price equal to the market price of the company’s stock at the date
of grant, a contractual term of seven to ten years, and a vesting period of three years. The company’s policy is to recognize
compensation cost for these options on a straight-line basis over the requisite ser vice period for the entire award.
Historically, the company’s policy was to issue new shares of common stock to satisfy stock option exercises, the vesting
of restricted stock units and shares issued under the ESPP. Beginning in July 2010, the company began issuing shares
from treasury stock to satisfy these items.
In November 2009, the company’s Board of Directors authorized a stock option exchange program that allowed eligible
employees the opportunity to exchange certain options granted under the 2006 Plan, the 2001 Stock Option Plan, and
the 1991 Stock Option Plan for a lesser number of replacement options with a lower exercise price. The company’s
stockholders approved the stock option exchange program on January 14, 2010, and the company executed the program
in the third quarter of fiscal year 2010. The exchange, which was accounted for as a modification of existing stock options,
was on an estimated fair value neutral basis and resulted in no incremental compensation expense. The exchange resulted
in a tax benefit of $1.8 million for the conversion of eligible incentive stock options to nonqualified stock options. This tax
benefit was recognized during the third quarter of fiscal 2010.
In January 2009, the company began awarding restricted stock units (“RSUs”) to its directors under the 2006 Plan.
In addition, in fiscal 2010, the company awarded RSUs to certain officers under the 2006 Plan. The RSUs have a vesting
period of three years, and their fair value is based on the company’s closing stock price on the date of grant.
Notes to Consolidated Financial Statements
August 31, 2011, 2010 and 2009 (In thousands, except per share data)