Buffalo Wild Wings 2009 Annual Report Download - page 44

Goodwill
We review goodwill for impairment annually, or whenever circumstances change in a way which could indicate that
impairment may have occurred. Goodwill is associated with a reporting unit, which we define as a number of locations within a
geographic market which experience similar economic characteristics.
We identify potential goodwill impairments by using both an income and market approach, which involves comparing the
fair value of the reporting unit to its carrying amount, which includes goodwill and other intangible assets. Fair value is calculated as
the present value of expected future cash flows. In determining future cash flows, significant estimates are made by us with respect to
future operating results of each restaurant.
If the carrying amount of the market exceeds the fair value, this is an indication that impairment may exist. We calculate the
amount of the impairment by comparing the implied fair value of the assets and liabilities of the reporting unit with the carrying
amount. The fair value of the reporting unit in excess of the value of the assets and liabilities is the implied fair value of the goodwill.
If this amount is less than the carrying amount of goodwill, impairment is recognized for the difference. As of December 27, 2009, our
analysis of the fair value of our goodwill substantially exceeded the carrying value and therefore we concluded that our goodwill was
not impaired. Our analysis is based on improvement in the Las Vegas economic conditions. If such improvement does not occur,
goodwill impairment could occur. No goodwill impairment charges were recognized during 2009, 2008, or 2007.
Vendor Allowances
Vendor allowances include allowances and other funds received from vendors. Certain of these funds are determined based
on various quantitative contract terms. We also receive vendor allowances from certain manufacturers and distributors calculated
based upon purchases made by franchisees. Amounts that represent a reimbursement of costs incurred, such as advertising, are
recorded as a reduction of the related expense. Amounts that represent a reduction of inventory purchase costs are recorded as a
reduction of inventoriable costs. We record an estimate of earned vendor allowances that are calculated based upon monthly
purchases. We generally receive payment from vendors approximately 30 days after the end of a month for that month’s purchases.
During fiscal 2009, 2008, and 2007, vendor allowances were recorded as a reduction in inventoriable costs, and cost of sales was
reduced by $6.0 million, $5.2 million, and $4.6 million, respectively.
Revenue Recognition — Franchise Operations
Our franchise agreements have terms ranging from 10 to 20 years. These agreements also convey extension terms of 5 or 10
years depending on contract terms and if certain conditions are met. We provide training, preopening assistance and restaurant
operating assistance in exchange for area development fees, franchise fees and royalties of 5% of the franchised restaurant’s sales.
Franchise fee revenue from individual franchise sales is recognized upon the opening of the restaurant when we have performed all of
our material obligations and initial services. Area development fees are dependent upon the number of restaurants granted in the
agreement as are our obligations under the area development agreement. Consequently, as our obligations are met, area development
fees are recognized in relation to the expenses incurred with the opening of each new restaurant and any royalty-free periods.
Royalties are accrued as earned and are calculated each period based on reported franchisees’ sales.
Self-Insurance Liability
We are self-insured for a significant portion of our risks and associated liabilities with respect to workers’ compensation,
general liability, and employee health benefits. The accrued liabilities associated with these programs are based on our estimate of the
ultimate costs to settle known claims as well as claims that may have arisen but have not yet been reported to us as of the balance
sheet date. Our estimated liabilities are not discounted and are based on information provided by our insurance brokers and insurers,
combined with our judgments regarding a number of assumptions and factors, including the frequency and severity of claims, and
claims development history. We maintain stop-loss coverage with third-party insurers to limit our total exposure for each of these
programs. Significant judgment is required to estimate claims incurred but not reported as parties have yet to assert such claims. If
actual claims trends, including the frequency or severity of claims, differ from our estimates, our financial results could be impacted.
Stock-Based Compensation
Source: BUFFALO WILD WINGS INC, 10-K, February 26, 2010 Powered by Morningstar® Document Research℠