Stockholders’ Equity (Deficit)

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, 2018, 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, RSUs and other share-based awards. At August 31, 2018, 5.8 million shares were available for grant under the 2006 Plan. The Company grants stock options to employees with a seven-year term and a three-year vesting period and grants RSUs to employees with a minimum full vesting period of three years. The Company grants stock options to its Board of Directors with a seven-year term and one-year vesting period and also grants RSUs to its Board of Directors that 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 2018, 2017 and 2016 was $4.6 million, $3.9 million and $3.8 million, respectively, net of related income tax benefits of $0.3 million, $1.3 million and $1.2 million, respectively. At August 31, 2018, the total remaining unrecognized compensation cost related to unvested stock-based arrangements was $7.1 million and is expected to be recognized over a weighted average period of 1.8 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 fiscal years 2018, 2017 and 2016. 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 2018, 2017 and 2016 was $6.37, $6.65 and $8.23, 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:



	2018		2017		2016
Expected term (years)	5.2		5.3		5.3
Expected volatility	31	%	34	%	34	%
Risk-free interest rate	2.5	%	2.0	%	1.4	%
Expected dividend yield	2.5	%	2.2	%	1.5	%

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 U.S. 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, 2018, is presented in the following table:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Yrs.)	Aggregate Intrinsic Value
Outstanding September 1, 2017	2,536		$	20.42
Granted	713		25.84
Exercised	(1,055	)	15.59
Forfeited or expired	(101	)	27.93
Outstanding at August 31, 2018	2,093		$	24.34	4.68	$	24,117

Exercisable at August 31, 2018	968		$	22.42	3.18	$	13,013

Proceeds from the exercise of stock options for fiscal years 2018, 2017 and 2016 were $4.1 million, $2.7 million and $3.8 million, respectively. The total intrinsic value of options exercised during the years ended August 31, 2018, 2017 and 2016 was $14.8 million, $4.6 million and $18.9 million, respectively.

Restricted Stock Units

A summary of the Company’s RSU activity during the year ended August 31, 2018 is presented in the following table:



	Restricted Stock Units		Weighted Average Grant Date Fair Value
Outstanding September 1, 2017	95		$	26.64
Granted	34		25.82
Vested	(39	)	27.20
Forfeited	(7	)	29.26
Outstanding at August 31, 2018	83		$	25.75

The aggregate fair value of RSUs that vested during the fiscal years ended August 31, 2018, 2017 and 2016 was $1.2 million, $0.5 million and $0.4 million, respectively.

Share Repurchase Programs

In August 2015, the Board of Directors extended the Company’s share repurchase program, authorizing the Company to purchase up to $145.0 million of its outstanding shares of common stock through August 31, 2016. The Board of Directors further extended the share repurchase program effective May 2016, authorizing the purchase of up to an additional $155.0 million of the Company's outstanding shares of common stock through August 31, 2017. During fiscal year 2016, approximately 5.2 million shares were repurchased for a total cost of $148.3 million, resulting in an average price per share of $28.48.

In October 2016, the Board of Directors increased the authorization under the share repurchase program by $40.0 million. During fiscal year 2017, approximately 6.7 million shares were repurchased for a total cost of $172.9 million, resulting in an average price per share of $25.71. In August 2017, the Board of Directors approved an incremental $160.0 million share repurchase authorization of the Company's outstanding shares of common stock through August 31, 2018.

In June 2018, the Board of Directors authorized a $500.0 million share repurchase program through August 31, 2021, replacing the Company’s previous fiscal year 2018 authorization. During fiscal year 2018, approximately 5.2 million shares were repurchased for a total cost of $139.2 million, resulting in an average price per share of $26.69. We do not intend to repurchase outstanding shares of our common stock during the pendency of our merger with Inspire Brands, Inc.

Dividends

The Company paid dividends on common stock as follows (in thousands, except per share amounts):



	Dividend per share		Total amount		Payment date
Fiscal year 2018
First Quarter	$	0.16	$	6,243	November 17, 2017
Second Quarter	0.16		6,103		February 16, 2018
Third Quarter	0.16		5,879		May 18, 2018
Fourth Quarter	0.16		5,746		August 17, 2018

Fiscal year 2017
First Quarter	$	0.14	$	6,359	November 18, 2016
Second Quarter	0.14		6,100		February 17, 2017
Third Quarter	0.14		6,041		May 19, 2017
Fourth Quarter	0.14		5,588		August 18, 2017

Subsequent to the end of fiscal year 2018, the Company and Inspire Brands, Inc. ("Inspire") entered into a definitive merger agreement under which Inspire will acquire Sonic. The agreement remains subject to shareholder approval, and the Company is not permitted to pay a dividend prior to the effective time of the merger. For more information regarding the merger agreement, see note 16 - Subsequent events.