Buffalo Wild Wings 2009 Annual Report Download - page 71

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 27, 2009 and December 28, 2008
(Dollar amounts in thousands, except per-share amounts)
(l) Fair Values of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use a
three-tier fair value hierarchy based upon observable and non-observable inputs that prioritizes the information used to develop our
assumptions regarding fair value. Fair value measurements are separately disclosed by level within the fair value hierarchy. We
adopted the guidance for fair value measurements, as it related to financial assets and liabilities on December 31, 2007, the beginning
of our 2008 fiscal year and for nonfinancial assets and liabilities on December 29, 2008, the beginning of our 2009 fiscal year. The
adoption of this guidance had no impact on our consolidated financial statements.
We are permitted by current accounting guidance to measure certain financial assets and liabilities at fair value that are not
currently required to be measured at fair value (the “Fair Value Option”). Election of the Fair Value Option is made on an
instrument-by-instrument basis and is irrevocable. At the adoption date, unrealized gains and losses on financial assets and liabilities
for which the Fair Value Option has been elected are reported as a cumulative adjustment to beginning retained earnings. We have not
elected the Fair Value Option as we had no financial assets or liabilities that qualified for this treatment. In the future, if we elect the
Fair Value Option for certain financial assets and liabilities, we would report unrealized gains and losses due to changes in their fair
value in net income at each subsequent reporting date.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and other current assets and liabilities
approximate fair value because of their short-term maturity.
(m) Asset Retirement Obligations
An asset retirement obligation associated with the retirement of a tangible long-lived asset is recognized as a liability in the
period incurred or when it becomes determinable, with an associated increase in the carrying amount of the related long-lived asset.
We must recognize a liability for the fair value of a conditional asset retirement obligation when incurred, if the liability’s fair value
can be reasonably estimated. Conditional asset retirement obligations are legal obligations to perform asset retirement activities when
the timing and/or method of settlement are conditional on a future event or may not be within our control. Asset retirement costs are
depreciated over the useful life of the related asset. As of December 27, 2009 and December 28, 2008, we had asset retirement
obligations of $259 and $211, respectively.
(n) Revenue Recognition
Franchise agreements have terms ranging from ten to twenty years. These agreements also convey multiple extension terms of
five or ten years, depending on contract terms and certain conditions that must be met. We provide the use of the Buffalo Wild Wings
trademarks, system, training, preopening assistance, and restaurant operating assistance in exchange for area development fees,
franchise fees, and royalties of 5% of a restaurant’s sales.
Franchise fee revenue from individual franchise sales is recognized upon the opening of the franchised restaurant when all
material obligations and initial services to be provided by us have been performed. Area development fees are dependent upon the
number of restaurants in the territory, as are our obligations under the area development agreement. Consequently, as obligations are
met, area development fees are recognized proportionally with 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 restaurant sales.
Sales from Company-owned restaurant revenues are recognized as revenue at the point of the delivery of meals and services.
All sales taxes are presented on a net basis and are excluded from revenue.
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Source: BUFFALO WILD WINGS INC, 10-K, February 26, 2010 Powered by Morningstar® Document Research℠