Buffalo Wild Wings 2009 Annual Report Download - page 22

Goodwill represents the difference between the purchase price of acquired companies and the related fair values of net assets
acquired. We test goodwill for impairment annually and whenever events or changes in circumstances indicate that impairment may
have occurred. We compare the carrying value of a reporting unit, including goodwill, to the fair value of the unit. Carrying value is
based on the assets and liabilities associated with the operations of that reporting unit. If the carrying value is less than the fair value,
no impairment exists. If the carrying value is higher than the fair value, there is an indication of impairment. A significant amount of
judgment is involved in determining if an indication of impairment exists. Factors may include, among others: a significant decline in
our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse
change in legal factors or in the business climate; unanticipated competition: the testing for recoverability of a significant asset group
within a reporting unit; and slower growth rates. Any adverse change in these factors would have a significant impact on the
recoverability of these assets and negatively affect our financial condition and consolidated results of operations. We compute the
amount of impairment by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. We
are required to record a non-cash impairment charge if the testing performed indicates that goodwill has been impaired.
We evaluate the useful lives of our intangible assets to determine if they are definite- or indefinite-lived. Reaching a
determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand,
competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing
regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the
expected lives of other related groups of assets.
We cannot accurately predict the amount and timing of any impairment of assets. Should the value of goodwill or other
intangible assets become impaired, there could be an adverse effect on our financial condition and consolidated results of operations.
Failure of our internal controls over financial reporting could harm our business and financial results.
Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal
control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting for external
purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal
control over financial reporting is not intended to provide absolute assurance that we would prevent or detect a misstatement of our
financial statements or fraud. Any failure to maintain an effective system of internal control over financial reporting could limit our
ability to report our financial results accurately and timely or to detect and prevent fraud. A significant financial reporting failure or
material weakness in internal control over financial reporting could cause a loss of investor confidence and decline in the market price
of our stock.
The current economic crisis could have a material adverse impact on our landlords or other tenants in retail centers in which
we or our franchisees are located, which in turn could negatively affect our financial results.
If the recession continues or increases in severity, our landlords may be unable to obtain financing or remain in good standing
under their existing financing arrangements, resulting in failures to pay required construction contributions or satisfy other lease
covenants to us. In addition other tenants at retail centers in which we or our franchisees are located or have executed leases may fail
to open or may cease operations. If our landlords fail to satisfy required co-tenancies, such failures may result in us or our franchisees
terminating leases or delaying openings in these locations. Also, decreases in total tenant occupancy in retail centers in which we are
located may affect guest traffic at our restaurants. All of these factors could have a material adverse impact on our operations.
We are dependent on franchisees and their success.
Currently, approximately 64% of our restaurants are franchised. Franchising royalties and fees represented approximately
9.3%, 10.1%, and 11.2% of our revenues during fiscal 2009, 2008, and 2007, respectively. Our performance depends upon (i) our
ability to attract and retain qualified franchisees, (ii) the franchisees’ ability to execute our concept and capitalize upon our brand
recognition and marketing, and (iii) franchisees’ ability to timely develop restaurants. We may not be able to recruit franchisees who
have the business abilities or financial resources necessary to open restaurants on schedule, or who will conduct operations in a
manner consistent with our concept and standards. Also, our franchisees may not be able to operate restaurants in a profitable manner.
Franchisees may take actions that could harm our business.
Source: BUFFALO WILD WINGS INC, 10-K, February 26, 2010 Powered by Morningstar® Document Research℠