Buffalo Wild Wings 2014 Annual Report Download - page 29

28
Valuation of Long-Lived Assets and Store Closing Reserves
We review long-lived assets quarterly to determine if triggering events have occurred which would require a test to
determine if the carrying amount of these assets may not be recoverable based on estimated future cash flows. Assets are
reviewed at the lowest level for which cash flows can be identified, which is at the individual restaurant level. In the absence of
extraordinary circumstances, restaurants are included in the impairment analysis after they have been open for 15 months. We
evaluate the recoverability of a restaurant’s long-lived assets, including buildings, intangibles, leasehold improvements,
furniture, fixtures, and equipment over the remaining life of the primary asset in the asset group, after considering the potential
impact of planned operational improvements, marketing programs, and anticipated changes in the trade area. In determining
future cash flows, significant estimates are made by us with respect to future operating results of each restaurant over the
remaining life of the primary asset in the asset group. If assets are determined to be impaired, the impairment charge is
measured by calculating the amount by which the asset carrying amount exceeds its fair value based on our estimate of
discounted future cash flows. The determination of asset fair value is also subject to significant judgment. During 2014 and
2013, we recorded restaurant impairments of $1.7 million and $1.1 million, respectively. No impairments were recognized in
fiscal 2012. We are currently monitoring several restaurants in regards to the valuation of long-lived assets. Based on our
current estimates of the future operating results of these restaurants, we believe that the assets at these restaurants are not
impaired. As we periodically refine our estimated future operating results, changes in our estimates and assumptions may cause
us to realize impairment charges in the future. We do not believe that these charges would be material.
In addition to the valuation of long-lived assets, we also record a store closing reserve when a restaurant is abandoned
due to closure or relocation. The store closing reserve is subject to significant judgment as accruals are made for lease
obligations on abandoned leased facilities. Many factors, including the local business environment, other available lease sites,
the willingness of lessors to negotiate lease buyouts, and the ability to sublease our sites are considered in making the accruals.
We estimate future lease obligations based on these factors and evaluate quarterly the adequacy of the estimated reserve based
on current market conditions. During 2014, 2013, and 2012, we recorded expenses of $315,000, $38,000, and $413,000,
respectively, for restaurants that closed.
Goodwill
We review goodwill for impairment annually, or whenever circumstances change in a way which could indicate that
impairment may have occurred. Goodwill is tested at the reporting unit level.
We identify potential goodwill impairments by comparing the fair value of the reporting unit to its carrying amount,
which includes goodwill and other intangible assets. The fair value of the reporting unit is calculated using a market approach.
If the carrying amount of the reporting unit exceeds the fair value, this is an indication that impairment may exist. We
calculate the amount of the impairment by comparing the fair value of the assets and liabilities to the fair value of the reporting
unit. 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 28, 2014, our estimate of the fair value of our goodwill substantially exceeded the carrying value and therefore we
concluded that our goodwill was not impaired. No goodwill impairment charges were recognized during 2014, 2013, or 2012.
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 and use of actuaries 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
We account for stock-based compensation for options in accordance with the fair value recognition provisions, under
which we use the Black-Scholes-Merton pricing model, which requires the input of subjective assumptions. These assumptions
include the expected life of the options, expected volatility over the expected term, the risk-free interest rate.