Sonic 2012 Annual Report Download - page 46

44
benefit. If recognized, $1,862 of unrecognized tax benefits would favorably impact the effective tax rate. As of August 31,
2012 and 2011, an immaterial net benefit for interest and penalties was recognized in our Consolidated Statements of Income
as a component of “provision for income taxes.” A reconciliation of unrecognized tax benefits for fiscal years 2012 and 2011
is as follows:
2012 2011
Balance at beginning of year $ 4,775 $ 5,628
Additions based on tax positions related to the current year 834 –
Additions for tax positions of prior years 1,670 672
Reductions for tax positions of prior years (469) –
Reductions for settlements (68) (1,104)
Reductions due to statute expiration (1,291) (421)
Balance at end of year $ 5,451 $ 4,775
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 an increase of $123 to a decrease of $4,872, depending on the timing and terms of the examination resolutions. At
August 31, 2012, the company was subject to income tax examinations for its U.S. federal income taxes after fiscal year 2007
and for state and local income taxes generally after fiscal year 2007.
At August 31, 2012 and 2011, the company had an income tax receivable of $10.3 million and $12.8 million, respectively,
primarily relating to expected refunds from amended tax returns. Based on new information available at August 31, 2012,
the company does not anticipate receiving or being able to apply these refunds to other tax obligations during fiscal year
2013. As a result, this balance was reclassified from current assets to non-current assets during fiscal year 2012 and is
included within “other assets, net” on the Consolidated Balance Sheets.
12. Stockholders’ Equity
Employee Stock Purchase Plan
The company has an employee stock purchase plan (“ESPP”) that permits full-time regular employees to purchase the
company’s common stock at a 15% discount from the stock’s fair market value. Employees are eligible to purchase shares
of common stock each year up to the lesser of 10% of their base compensation or $25 in the stock’s fair market value. At
August 31, 2012, 0.9 million shares were available for grant under the ESPP.
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, 2012, 1.8 million shares were available for grant under the 2006 Plan. The company grants stock
options with contractual terms of seven to ten years and a vesting period of three years and RSUs also with a vesting period
of three years. The company’s policy is to issue shares from treasury stock to satisfy stock option exercises, the vesting of
RSUs and shares issued under the ESPP. Prior to July 2010, the company issued new shares of common stock to satisfy
these items.
Total stock-based compensation cost recognized for fiscal years 2012, 2011 and 2010 was $4.3 million, $5.6 million
and $7.7 million, respectively, with related income tax benefits of $1.2 million, $1.3 million and $4.3 million, respectively. At
August 31, 2012, total remaining unrecognized compensation cost related to unvested stock-based arrangements was $4.9
million and is expected to be recognized over a weighted average period of 1.7 years.
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 in the third quarter of fiscal year 2010 related to the conversion of eligible ISOs to NQs.
Notes to Consolidated Financial Statements
August 31, 2012, 2011 and 2010 (In thousands, except per share data)