Buffalo Wild Wings 2008 Annual Report Download - page 43

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2008 and December 30, 2007
(Dollar amounts in thousands, except per-share amounts)
purchased interest on investments. Cash flows related to accounts receivable are classified in net cash provided by operating
activities in the Consolidated Statements of Cash Flows.
(h) Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. Cash
flows related in inventory sales are classified in net cash provided by operating activities in the Consolidated Statements of
Cash Flows.
We purchase products from a number of suppliers and believe there are alternative suppliers. We have minimum
purchase commitments from some of our vendors but the terms of the contracts and nature of the products are such that
purchase requirements do not create a market risk. The primary food product used by Company-owned and franchised
restaurants is fresh chicken wings. Fresh chicken wings are purchased by us at market prices. In 2007 and early 2008, we
purchased chicken wings based on a contract which fixed 80-90% of our chicken wing purchases at $1.23 per pound. For
fiscal 2008, 2007, and 2006, fresh chicken wings were 22%, 24%, and 24% of restaurant cost of sales, respectively.
(i) Property and Equipment
Property and equipment are recorded at cost. Leasehold improvements, which include the cost of improvements funded
by landlord incentives or allowances, are amortized using the straight-line method over the lesser of the term of the lease,
without consideration of renewal options, or the estimated useful lives of the assets, which typically range from five to ten
years. Buildings are depreciated using the straight-line method over the estimated useful life, which ranges from ten to twenty
years. Furniture and equipment are depreciated using the straight-line method over the estimated useful lives of the assets,
which range from two to eight years. Maintenance and repairs are expensed as incurred. Upon retirement or disposal of
assets, the cost and accumulated depreciation are eliminated from the respective accounts and the related gains or losses are
credited or charged to earnings.
We review property and equipment, along with other long-lived assets, quarterly to determine if the carrying value of
these assets may not be recoverable based on estimated future undiscounted cash flows. Assets are reviewed at the lowest
level for which cash flows can be identified, which is the individual restaurant level. In determining future cash flows,
significant estimates are made by us with respect to future operating results of each restaurant over its remaining lease term.
If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Fair value is generally determined by estimated discounted future
cash flows.
(j) Goodwill and Other Assets
Goodwill represents the excess of cost over the fair value of identified net assets of businesses acquired. Goodwill and
indefinite-life purchased liquor licenses are subject to an annual impairment analysis. We identify potential impairments of
goodwill by comparing the fair value of a reporting unit, which we define as a geographic market, estimated using an income
approach, with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds the carrying amount,
the assets are not impaired. If the carrying amount exceeds the fair value, we calculate the possible impairment by comparing
the implied fair value of the asset with the carrying amount. If the implied value of the asset is less than the carrying amount,
a write-down is recorded. All goodwill was considered recoverable as of December 28, 2008.
Other assets consist primarily of reacquired franchise rights and liquor licenses. Reacquired franchise rights are
amortized over the life of the related franchise agreement. We evaluate reacquired franchise rights in conjunction with our
impairment evaluation of long-lived assets. Liquor licenses are either amortized over their annual renewal period or, if
purchased, are carried at the lower of fair value or cost. We identify potential impairments for liquor licenses by comparing
the fair value with its carrying amount. If the fair value exceeds the carrying amount, the liquor licenses are not impaired. If
the carrying amount exceeds the fair value, we calculate the possible impairment by comparing the implied fair value of the
liquor licenses with the carrying amount. If the implied value of the asset is less than the carrying amount, a write-down is
recorded. The carrying amount of the liquor licenses not subject to amortization as of December 28, 2008 and December 30,
2007 was $482 and $414, respectively, and is included in other assets in the accompanying consolidated balance sheets.