Buffalo Wild Wings 2014 Annual Report Download - page 50

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(o) Franchise Operations
We enter into franchise agreements with unrelated third parties to build and operate restaurants using the Buffalo Wild
Wings brand within a defined geographical area. We believe that franchising is an effective and efficient means to expand the
Buffalo Wild Wings brand. The franchisee is required to operate its restaurants in compliance with its franchise agreement that
includes adherence to operating and quality control procedures established by us. We do not provide loans, leases, or guarantees
to the franchisee or the franchisee’s employees and vendors. If a franchisee becomes financially distressed, we do not provide
financial assistance. If financial distress leads to a franchisee’s noncompliance with the franchise agreement and we elect to
terminate the franchise agreement, we have the right but not the obligation to acquire the assets of the franchisee at fair value as
determined by an independent appraiser. We have financial exposure for the collection of the royalty payments. Franchisees
generally remit royalty payments weekly for the prior week’s sales, which substantially minimizes our financial exposure.
Historically, we have experienced insignificant write-offs of franchisee royalties. Franchise and area development fees are paid
upon the signing of the related agreements. We also enter into franchise agreements with unrelated third parties to build and
operate restaurants using the RustyTaco brand.
(p) Advertising Costs
Contributions from franchisees related to the national advertising fund constitute agency transactions and are not
recognized as revenues and expenses. Related advertising obligations are accrued and the costs expensed at the same time the
related contributions are recognized. These advertising fees are recorded as a liability against which specific costs are charged.
Contributions to the national advertising fund related to company-owned restaurants are expensed as contributed and
local advertising costs for company-owned restaurants are expensed as incurred. These costs totaled $52,780, $44,025, and
$35,080, in fiscal years 2014, 2013, and 2012, respectively.
(q) Preopening Costs
Costs associated with the opening of new company-owned restaurants are expensed as incurred.
(r) Payments Received from Vendors
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 from the end of a month for that
month’s purchases. During fiscal 2014, 2013, and 2012, vendor allowances were recorded as a reduction in inventoriable costs,
and cost of sales was reduced by $11,186, $8,548, and $8,731, respectively.
(s) Restricted Assets and System-wide Payables
We have a system-wide marketing and advertising fund for Buffalo Wild Wings. Company-owned and franchised
restaurants are required to remit a designated portion of restaurant sales to a national advertising fund that is used for marketing
and advertising efforts throughout the system. Generally, that amount was 3% of restaurant sales in all years presented. Certain
payments received from various vendors are also deposited into the national advertising fund. These funds are used for
development and implementation of brand initiatives and programs. As of December 28, 2014 and December 29, 2013, the
national advertising fund liability was $12,455 and $15,579, respectively.
We have a system-wide gift card fund which consists of a cash balance, which is restricted to funding of future gift card
redemptions and gift card related costs as well as receivables from retail gift card partners, and a corresponding liability for
those outstanding gift cards which we believe will be redeemed in the future. As of December 28, 2014 and December 29,
2013, the gift card liability was $67,213 and $51,439, respectively. Recognized gift card breakage is transferred to the national
advertising fund.
We account for the assets and liabilities of these funds as “restricted assets” and “system-wide payables” on our
accompanying consolidated balance sheets.