Buffalo Wild Wings 2006 Annual Report Download - page 41

BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2006 and December 25, 2005
(Dollar amounts in thousands, except per-share amounts)
(w) Stock-Based Compensation
We maintain a stock equity incentive plan under which we may grant non-qualified stock options, incentive stock
options, and restricted stock units to employees, non-employee directors and consultants. We also have an employee stock
purchase plan (“ESPP”).
Prior to the December 26, 2005 adoption of the Financial Accounting Standards Board (“FASB”) Statement No. 123R,
“Shared-Based Payment” (“SFAS 123R”), we accounted for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and
related interpretations. Accordingly, because the stock option grant price equaled the market price on the date of grant, and
any purchase discounts under our stock purchase plan were within statutory limits, no compensation expense was recognized
for stock-based compensation related to stock options or ESPP shares. Restricted stock units vesting upon the achievement of
certain performance targets were expensed under the requirements of APB 25. Stock-based compensation recognized for
restricted stock during 2005 and 2004 were $1,700 and $909, respectively. As permitted by SFAS No. 123, “Accounting for
Stock-Based Compensation” (“SFAS 123”), stock-based compensation was included as a pro forma disclosure in the notes to
the consolidated financial statements.
Effective December 26, 2005, we adopted the fair value recognition provisions of SFAS 123R, using the modified-
prospective transition method. Under this transition method, stock-based compensation expense is recognized in the
consolidated financial statements for granted, modified, or settled stock options and for expense related to the ESPP, since
the related purchase discounts exceeded the amount allowed under SFAS 123R for non-compensatory treatment.
Compensation expense recognized includes the estimated expense for the portion of stock options vesting in the period for
options granted prior to, but not vested as of December 26, 2005, based on the grant date fair value estimated in accordance
with the original provisions of SFAS 123. There were no new stock option grants in 2006. Restricted stock units vesting upon
the achievement of certain performance targets are expensed based on the fair value on the date of grant. Results for prior
periods have not been restated, as provided for under the modified-prospective transition method.
Total stock-based compensation expense recognized in the consolidated statement of earnings for fiscal year 2006 was
$3,216 before income taxes and consisted of restricted stock, stock options, and employee stock purchase plan (ESPP)
expense of $3,000, $82 and $134, respectively. The related total tax benefit was $1,153 during 2006. All stock-based
compensation is recognized as general and administrative expense.
Prior to the adoption of SFAS 123R, we presented all tax benefits resulting from the exercise of stock options as
operating cash inflows in the consolidated statements of cash flows, in accordance with the provisions of the Emerging Issues
Task Force (“EITF”) Issue No 00-15, “Classification in the Statement of Cash Flows of the Income Tax Benefit Received by
a Company upon Exercise of a Nonqualified Employee Stock Option.” SFAS 123R requires the benefits of tax deductions in
excess of the compensation cost recognized for those options to be classified as financing cash inflows, rather than operating
cash inflows, on a prospective basis. This amount is shown as “Excess tax benefit from stock issuance” on the consolidated
statement of cash flows for the fiscal year ended December 31, 2006.
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