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.

The Company measures the compensation cost associated with stock-based payments by estimating the fair value of stock options as of the grant date using the Black-Scholes option pricing model. The Company believes the valuation technique and approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company's stock options granted during 2012, 2011 and 2010. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive equity awards. The fair value of RSUs granted is equal to the Company's closing stock price on the date of the grant.

The per share weighted average fair value of stock options granted during 2012, 2011 and 2010 was $2.88, $4.63 and $3.50, respectively. In addition to the exercise and grant date prices of the awards, certain weighted average assumptions that were used to estimate the fair value of stock option grants in the respective periods are listed in the table below:


	2012		2011		2010
Expected term (years)	4.9		4.7		4.5
Expected volatility	48	%	46	%	45	%
Risk-free interest rate	0.8	%	2.0	%	2.2	%
Expected dividend yield	0	%	0	%	0	%

The Company estimates expected volatility based on historical daily price changes of the Company's common stock for a period equal to the current expected term of the options. The risk-free interest rate is based on the United States treasury yields in effect at the time of grant corresponding with the expected term of the options. The expected option term is the number of years the Company estimates that options will be outstanding prior to exercise considering vesting schedules and our historical exercise patterns.

Stock Options

A summary of stock option activity under the Company's stock-based compensation plans for the year ended August 31, 2012 is presented in the following table:


					Weighted
				Weighted	Average
				Average	Remaining		Aggregate
				Exercise	Contractual		Intrinsic
	Options			Price	Life (Yrs.)		Value
Outstanding at September 1, 2011	7,331		$	13.06
Granted	1,019			6.91
Exercised	(31	)		9.14
Forfeited or expired	(1,061	)		11.70
Outstanding at August 31, 2012	7,258		$	12.41	3.46	$	3,330
Exercisable at August 31, 2012	5,467		$	13.80	2.73	$	569

Proceeds from the exercise of stock options for fiscal years 2012, 2011 and 2010 were $0.3 million, $2.1 million and $3.4 million, respectively. The total intrinsic value of options exercised during the years ended August 31, 2012, 2011 and 2010 was $0.1 million, $0.8 million and $2.6 million, respectively.

Restricted Stock Units

A summary of the Company's RSU activity during the year ended August 31, 2012 is presented in the following table:


				Weighted Average
	Restricted			Grant Date Fair
	Stock Units			Value
Outstanding at September 1, 2011	150		$	9.20
Granted	46			6.92
Vested	(77	)		9.20
Forfeited	—			—
Outstanding at August 31, 2012	119		$	8.31

The aggregate fair value of restricted stock that vested during the years ended August 31, 2012, 2011 and 2010 was $0.5 million, $0.7 million and $0.1 million, respectively.

Stock Repurchase Programs

On October 13, 2011, the Company's Board of Directors approved a $30 million stock repurchase program. Under that program, the Company was authorized to purchase up to $30 million of its outstanding shares of common stock through August 31, 2012. During fiscal year 2012, the Company completed this stock repurchase program.

On August 15, 2012, the Company's Board of Directors approved a new stock repurchase program. Under the new program, the Company is authorized to purchase up to $40 million of its outstanding shares of common stock through August 31, 2013. During the fourth quarter of fiscal year 2012, approximately 0.1 million shares were acquired pursuant to this program for a total cost of $1.1 million. As of August 31, 2012, the total remaining amount authorized for repurchase was $38.9 million. Share repurchases may be made from time to time in the open market or in negotiated transactions, depending on share price, market conditions and other factors. The stock repurchase program may be extended, modified, suspended or discontinued at any time.

Comprehensive Income

Comprehensive income is defined as the change in equity of a business entity during a period from transactions and other events and circumstances from non-owner sources and is reflected in the Consolidated Statements of Stockholders' Equity (Deficit).

In August 2006, the Company entered into a forward starting swap agreement with a financial institution to hedge part of the exposure to changing interest rates until new financing was closed. The forward starting swap was designated as a cash flow hedge, and was subsequently settled in conjunction with the closing of the 2006 Fixed Rate Notes, as planned. The loss resulting from settlement was recorded net of tax in accumulated other comprehensive income and amortized to interest expense over the expected term of the debt. In conjunction with the Company's May 2011 refinancing discussed in note 9 – Debt, the Company's deferred hedging loss was reclassified from accumulated other comprehensive income into earnings during third quarter fiscal year 2011.