Buffalo Wild Wings 2008 Annual Report Download - page 44

44
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)
(k) Fair Values of Financial Instruments
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS No. 157). This statement
does not require any new fair value measurements, but rather, it provides enhanced guidance to other pronouncements that
require or permit assets or liabilities to be measured at fair value. The changes to current practice resulting from the
application of this statement relate to the definition of fair value, the methods used to estimate fair value, and the requirement
for expanded disclosures about estimates of fair value. This statement became effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The effective date for this statement for all nonfinancial
assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on
a recurring basis, has been delayed by one year. We adopted the provisions of SFAS No. 157 related to financial assets and
financial liabilities on December 31, 2007. The partial adoption of this statement did not have a material impact on our
financial statements. It is expected that the remaining provisions of this statement will not have a material effect on our
financial statements.
Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable,
willing parties or the amount that would be paid to transfer a liability to a new obligor, not the amount that would be paid to
settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived
from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These
valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the
price transparency for the instruments or market and the instruments’ complexity.
Assets recorded at fair value in our consolidated balance sheets are categorized based upon the level of judgment
associated with the inputs used to measure their fair value. Hierarchical levels, defined by SFAS No. 157 and directly related
to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
Level 1 – Inputs were unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement
date.
Level 2 – Inputs (other than quoted prices included in Level 1) were either directly or indirectly observable for the asset
or liability through correlation with market data at the measurement date and for the duration of the instrument’ s
anticipated life.
Level 3 – Inputs reflected management’ s best estimate of what market participants would use in pricing the asset or
liability at the measurement date. Consideration was given to the risk inherent in the valuation technique and the risk
inherent in the inputs to the model.
Determining which hierarchical level an asset falls within requires significant judgment. We will evaluate our hierarchy
disclosures each quarter. The following table summarizes the financial instruments measured at fair value in our consolidated
balance sheet as of December 28, 2008:
Fair Value Measurements
Level 1 Level 2 Level 3 Total
Assets
Short-term investments (1) $1,567 $17,336 $— $ 18,903
(1) We classified a portion of our marketable securities as available-for-sale and trading securities which
were reported at fair market value, using the “market approach” valuation technique. The “market
approach” valuation method used prices and other relevant information observable in market transactions
involving identical or comparable assets. Our trading securities are valued using the Level 1 approach.
Our available-for-sale marketable securities are valued using the Level 2 approach.