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.

The Company measures the compensation cost associated with stock option-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 2015, 2014 and 2013. 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 2015, 2014 and 2013 was $8.83, $6.82 and $4.69, 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:



	2015		2014		2013
Expected term (years)	5.0		4.7		4.9
Expected volatility	34	%	37	%	48	%
Risk-free interest rate	1.3	%	1.5	%	0.8	%
Expected dividend yield	1.2	%	-	%	-	%

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 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, 2015, is presented in the following table:


	Options		Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (Yrs.)		Aggregate Intrinsic Value
Outstanding September 1, 2014	4,160	$	12.73
Granted	424		31.08
Exercised	(1,519)		14.56
Forfeited or expired	(192)		19.77
Outstanding at August 31, 2015	2,873	$	14.00	3.38	$	38,892

Exercisable at August 31, 2015	2,119	$	10.46	2.55	$	35,035

Proceeds from the exercise of stock options for fiscal years 2015, 2014 and 2013 were $18.7 million, $17.4 million and $16.3 million, respectively. The total intrinsic value of options exercised during the years ended August 31, 2015, 2014 and 2013 was $21.8 million, $13.0 million and $3.8 million, respectively.

Restricted Stock Units

A summary of the Company’s RSU activity during the year ended August 31, 2015 is presented in the following table:


	Restricted Stock Units		Weighted Average Grant Date Fair Value
Outstanding September 1, 2014	46	$	16.78
Granted	53		30.26
Vested	(33)		15.19
Forfeited	-
Outstanding at August 31, 2015	66	$	28.49

The aggregate fair value of RSUs that vested was $1.1 million during the years ended August 31, 2015 and 2014 and was $0.9 million for the year ended August 31, 2013.

Share Repurchase Programs

In August 2012, the Company’s Board of Directors approved a share repurchase program authorizing the Company to purchase up to $40 million of its outstanding shares of common stock. In January 2013, the Board of Directors increased the repurchase program to $55 million in authorized purchases through August 31, 2013. During fiscal year 2013, approximately 3.3 million shares were acquired pursuant to this program for a total cost of $35.5 million; this is in addition to the approximately 0.1 million shares that were acquired for a total cost of $1.1 million during the fourth quarter of fiscal year 2012.

In August 2013, the Board of Directors extended the share repurchase program through August 31, 2014, with a total authorization of up to $40 million of its outstanding shares of common stock. In January 2014, the Company’s Board of Directors approved an incremental $40 million authorization for the program that allowed for up to $80 million of common stock to be repurchased through August 31, 2014. As part of this program, in February 2014, the Company entered into an accelerated share repurchase (“ASR”) agreement with a financial institution to purchase $40 million of the Company’s common stock. In exchange for a $40 million up-front payment, the financial institution delivered approximately 2.1 million shares. During March 2014, the ASR purchase period concluded with no additional shares delivered, resulting in an average price per share of $19.13. The Company completed this share repurchase program during fiscal year 2014, with approximately 4.1 million shares repurchased, resulting in an average price per share of $19.61.

In August 2014, the Board of Directors further extended the Company’s share repurchase program, authorizing the Company to purchase up to $105 million of its outstanding shares of common stock beginning September 1, 2014 through August 31, 2015. In October 2014, the Company entered into an ASR agreement with a financial institution to purchase $15 million of the Company’s common stock. In exchange for a $15 million up-front payment, the financial institution delivered approximately 0.6 million shares. During January 2015, the ASR purchase period concluded. The Company paid an additional $0.1 million with no additional shares delivered, resulting in an average price per share of $26.32. In February 2015, the Company entered into additional ASR agreements with a financial institution to purchase $75 million of the Company’s common stock. In exchange for a $75 million up-front payment, the financial institution delivered approximately 2.1 million shares. The ASR transactions completed in July 2015 with 0.3 million additional shares delivered, resulting in an average price per share of $31.38. The Company reflected the ASR transactions as a repurchase of common stock for purposes of calculating earnings per share and as a forward contract indexed to its own common stock. The forward contract met all of the applicable criteria for equity classification.

In August 2015, the Board of Directors further extended the Company’s share repurchase program, authorizing the Company to purchase up to $145 million of its outstanding shares of common stock through August 31, 2016.

Including shares repurchased through the ASR transactions described above, during the fiscal year 2015, approximately 4.2 million shares were repurchased for a total cost of $123.8 million, resulting in an average price per share of $29.46. The total remaining amount authorized under the share repurchase program, as of August 31, 2015, was $126.3 million.

Share repurchases will be made from time to time in the open market or otherwise, including through an accelerated share repurchase program, under the terms of a Rule 10b5-1 plan, in privately negotiated transactions or in round lot or block transactions. The share repurchase program may be extended, modified, suspended or discontinued at any time. We plan to fund the share repurchase program from existing cash on hand at August 31, 2015, cash flows from operations and borrowings under our 2011 Variable Funding Notes.

Dividends

In August 2014, the Company initiated a quarterly cash dividend program and paid a quarterly dividend of $0.09 per share of common stock, totaling $18.8 million for the fiscal year. Subsequent to the end of the fiscal year, the Company declared a quarterly dividend of $0.11 per share of common stock to be paid to stockholders of record as of the close of business on November 11, 2015, with a payment date of November 20, 2015. The Company did not pay any cash dividends on its common stock prior to fiscal 2015. The future declaration of quarterly dividends and the establishment of future record and payment dates are subject to the final determination of the Company’s Board of Directors.