Buffalo Wild Wings 2005 Annual Report Download - page 57

BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 2004 AND DECEMBER 25, 2005
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER−SHARE AMOUNTS)
(S) EARNINGS PER COMMON SHARE
Basic earnings per common share excludes dilution and is computed by
dividing the net earnings available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings
per common share include dilutive common stock equivalents consisting of stock
options and warrants determined by the treasury stock method and dilutive
convertible securities. Restricted stock units are included for calculating both
basic and diluted earnings per share at the time that the performance criteria
is met. Both basic and diluted earnings per common share are calculated after
deducting the accretion resulting from cumulative dividend and mandatory
redemption feature of the Company's Series A preferred stock, which was
converted to common stock in November 2003.
(T) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the balance sheet carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
(U) DEFERRED LEASE CREDITS
Deferred lease credits consist of reimbursement of costs of leasehold
improvements from the Company's lessors. These reimbursements are amortized on a
straight−line basis over the term of the applicable lease, without consideration
of renewal options. In addition, this account includes adjustments to recognize
rent expense on a straight−line basis over the term of the lease commencing at
the start of the Company's construction period of the restaurant, without
consideration of renewal options.
Leases typically have an initial lease term of between 10 to 15 years and
contain renewal options under which the Company may extend the terms for periods
of three to five years. Certain leases contain rent escalation clauses that
require higher rental payments in later years. Leases may also contain rent
holidays, or free rent periods, during the lease term. Rent expense is
recognized on a straight−line basis over the initial lease term. Rent expense
recognized over the construction period is capitalized and depreciated over the
economic life of the asset, generally ten years.
(V) ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(W) STOCK−BASED COMPENSATION
The Company began granting performance−based restricted stock units in
June 2004. These units are subject to annual vesting upon the Company achieving
performance targets established by the Board of Directors. The Company records
compensation expense for the restricted stock units if vesting based on the
achievement of performance targets is probable. The restricted stock units may
vest one−third annually over a ten year period. However, the second one−third of
the restricted stock units is not subject to vesting until the first one−third
vests and the final one−third is not subject to vesting until the first
two−thirds of the award have vested. In 2004 and 2005, the Company granted
restricted stock units of 80,053 and 81,729, respectively. An aggregate 50,310
restricted stock units vested in 2005 and 75,964 restricted stock units are
subject to performance vesting requirements in future periods.
The Company applies the intrinsic−value method in accounting for its
employee stock option grants and records compensation expense for option grants
to employees under its stock option plan if the current market value of the
underlying stock at the grant date exceeds the stock option exercise price. No
such grants have been issued. Accordingly, no compensation cost has been
recognized for its stock options in the financial statements.
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