Buffalo Wild Wings 2007 Annual Report Download - page 41

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 30, 2007 and December 31, 2006
(Dollar amounts in thousands, except per-share amounts)
(q) 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 recorded 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 2007, 2006, and 2005, vendor allowances were recorded as a reduction
in inventoriable costs, and cost of sales was reduced by $4,636, $4,246, and $4,020, respectively.
(r) National Advertising Fund
We have a system-wide marketing and advertising fund. Company-owned and franchised restaurants are required to
remit a designated portion of sales, to a separate advertising fund that is used for marketing and advertising efforts throughout
the system. In 2007, 2006, and 2005 that amount was 3%, 3%, and 2.5%, respectively. Certain payments received from
various vendors are deposited into the National Advertising Fund. These funds are used for development and implementation
of system-wide initiatives and programs. We account for cash and receivables of these funds as “restricted cash” with an
offsetting “marketing fund payables” on our accompanying consolidated balance sheet.
(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. Restricted stock units are included for calculating both basic and diluted earnings per share at the time
that the performance criteria is met.
(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. A valuation allowance is recorded to reduce the carrying amounts of
deferred tax assets unless it is more likely than not that such assets will be realized.
(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 our construction period for 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 we 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. In 2005, rent expense recognized over the construction period
was 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.