Sonic 2012 Annual Report Download - page 45

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2012. Management of the company evaluated the impact of this adjustment and concluded the effect of this adjustment was
immaterial to the current and prior year financial statements.
The adoption of ASC Topic 810 gives an appearance of a lower effective tax rate than the company’s actual effective tax
rate. The following table reconciles the difference in the effective tax rate as a result of the adoption of ASC Topic 810:
2012 2011 2010
Effective income tax rate reconciliation:
Effective tax rate per consolidated income statement 37.7% 32.3 % 25.8%
Book income attributable to noncontrolling interests –– 3.9
Effective tax rate for the fiscal year 37.7% 32.3 % 29.7%
Deferred tax assets and liabilities consist of the following at August 31:
2012 2011
Current deferred tax assets (liabilities):
Allowance for doubtful accounts and notes receivable $ 840 $ 1,032
Capital lease liabilities and other 1,636 1,551
Prepaid expenses (1,265) (1,190)
Deferred income from franchisees 461 848
Deferred income from affiliated technology fund 597 353
Deferred income 1,903 10
Accrued liabilities and other 649 166
Current deferred tax assets, net $ 4,821 $ 2,770
Noncurrent deferred tax assets (liabilities):
Net investment in direct financing leases, including differences
related to capitalization and amortization $ 526 $ 648
Investment in partnerships, including differences in capitalization,
depreciation and direct financing leases (2,408) (2,554)
State net operating losses 7,361 6,389
Property, equipment and capital leases (22,538) (24,834)
Deferred income from affiliated franchise fees 915 1,160
Intangibles and other assets (16,694) (13,321)
Deferred income from franchisees 773 1,481
Stock compensation 11,899 12,556
Debt extinguishment (4,191) (4,146)
Allowance for doubtful accounts and notes receivable 305 256
Deferred income 1,355 1,453
Accrued liabilities and other 281 73
(22,416) (20,839)
Valuation allowance (7,361) (6,389)
Noncurrent deferred tax liabilities, net $ (29,777) $ (27,228)
Deferred tax assets and (liabilities):
Deferred tax assets (net of valuation allowance) $ 22,140 $ 21,587
Deferred tax liabilities (47,096) (46,045)
Net deferred tax liabilities $ (24,956) $ (24,458)
State net operating loss carryforwards expire generally beginning in 2012. 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 $7.4
million and $6.4 million as of August 31, 2012 and August 31, 2011, respectively.
As of August 31, 2012, the company had approximately $5,451 of unrecognized tax benefits, including approximately
$746 of interest and penalty. The liability for unrecognized tax benefits increased by $676 in fiscal year 2012. The majority
of the change was due to the expiration of statutes of limitations, additions for items under audit, and the settlement of a state
tax audit in the first quarter of fiscal year 2012, 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
Notes to Consolidated Financial Statements
August 31, 2012, 2011 and 2010 (In thousands, except per share data)