Sonic 2015 Annual Report Download - page 42

State net operating loss carryforwards expire beginning in December 2015 through May 2036. Management does not
believe the Company will be able to realize the state net operating loss carryforwards utilizing future income exclusive of the
reversal of existing deferred tax liabilities and therefore has provided a valuation allowance of $12.0 million and $11.3 million
as of August 31, 2015 and 2014, respectively.
As of August 31, 2015 and 2014, the Company had approximately $3.7 million and $2.5 million of unrecognized tax
benefits, including approximately $0.4 million and $0.4 million of accrued interest and penalty, respectively. If recognized,
these benefits would favorably impact the effective tax rate. The liability for unrecognized tax benefits increased $1.2 million
in fiscal year 2015. The increase was primarily related to recognition of an uncertain position related to current and prior
years’ federal tax deductions. This entire change in balance impacted the Company’s tax rate.
The Company recognizes estimated interest and penalties as a component of its income tax expense, net of federal
benefit, as a component of “Provision for income taxes” in the Consolidated Statements of Income. During the year ended
August 31, 2015, the Company recognized net expenses of $0.1 million. The Company recognized negligible net expenses in
fiscal year 2014 and a net benefit of $0.4 million in fiscal year 2013.
A reconciliation of unrecognized tax benefits is as follows for fiscal years ended August 31:
2015 2014
Balance at beginning of year $ 2,461 $ 2,583
Additions based on tax positions related to the current year 254 255
Additions for tax positions of prior years 937 115
Reductions for tax positions of prior years – (492)
Balance at end of year $ 3,652 $ 2,461
The Company or one of its subsidiaries is subject to U.S. federal income tax and income tax in multiple U.S. state
jurisdictions. At August 31, 2015, the Company was subject to income tax examinations for its U.S. federal income taxes
and for state and local income taxes generally after fiscal year 2009. The Company anticipates that the results of any
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 $0.1 million
to a decrease of $3.0 million 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”) that permits eligible employees to purchase the Company’s
common stock at a 15% discount from the stock’s fair market value. Participating employees may purchase shares of common
stock each year up to the lesser of 10% of their base compensation or $25 thousand in the stock’s fair market value. At August
31, 2015, 0.8 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 units (“RSUs”) and
other share-based awards. At Sonic’s annual meeting of stockholders on January 16, 2014, the stockholders approved an
amendment to the 2006 Plan which added an additional 6.6 million shares of common stock available for issuance. At August
31, 2015, 7.6 million shares were available for grant under the 2006 Plan. The Company grants stock options with contractual
terms of seven to 10 years and a vesting period of three years and RSUs also with a vesting period of three years. Effective
in January 2013, awards granted to the Company’s Board of Directors vest over one year. 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.
Total stock-based compensation cost recognized for fiscal years 2015, 2014 and 2013 was $3.5 million, $3.7 million and
$3.6 million, respectively, net of related income tax benefits of $1.0 million, $1.7 million and $1.2 million, respectively. At
August 31, 2015, total remaining unrecognized compensation cost related to unvested stock-based arrangements was $6.3
million and is expected to be recognized over a weighted average period of 2.1 years.
Notes to Consolidated Financial Statements
August 31, 2015, 2014 and 2013 (In thousands, except per share data)
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