Buffalo Wild Wings 2009 Annual Report Download - page 42

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Third, we will continue our focus on trends in company-owned and franchised same-store sales as an indicator of the
continued acceptance of our concept by consumers. We also review the overall trend in average weekly sales as an indicator of our
ability to increase the sales volume, and, therefore, cash flow per location. We remain committed to high quality operations and guest
hospitality.
Our revenue is generated by:
• Sales at our company-owned restaurants, which represented 91% of total revenue in 2009. Food and nonalcoholic
beverages accounted for 76% of restaurant sales. The remaining 24% of restaurant sales was from alcoholic beverages.
The menu item with the highest sales volume is chicken wings at 21% of total restaurant sales.
• Royalties and franchise fees received from our franchisees.
We generate cash from the operation of our company-owned restaurants and also from franchise royalties and fees. We
highlight the specific costs associated with the on-going operation of our company-owned restaurants in the statement of earnings
under “Restaurant operating costs.” Nearly all of our depreciation expense relates to assets used by our company-owned restaurants.
Preopening costs are those costs associated with opening new company-owned restaurants and will vary annually based on the number
of new locations opening. Loss on asset disposals and impairment expense is related to company-owned restaurants, and includes the
write-down of underperforming locations, the costs associated with closures of locations and normal asset retirements. Certain other
expenses, such as general and administrative, relate to both company-owned restaurant and franchising operations.
We operate on a 52 or 53-week fiscal year ending on the last Sunday in December. Each of the fiscal years in the five years
ended December 27, 2009 were 52-week years except for the fiscal year ended December 31, 2006, which was a 53-week year.
Critical Accounting Policies and Use of Estimates
Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements, which were prepared in
accordance with GAAP. Critical accounting policies are those that we believe are both important to the portrayal of our financial
condition and results and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain.
We believe that the following discussion represents our more critical accounting policies and estimates used in the
preparation of our consolidated financial statements, although it is not inclusive.
Valuation of Long-Lived Assets and Store Closing Reserves
We review long-lived assets quarterly to determine if triggering events have occurred which would require a test to determine
if the carrying amount of these assets may not be recoverable based on estimated future cash flows. Assets are reviewed at the lowest
level for which cash flows can be identified, which is at the individual restaurant level. In the absence of extraordinary circumstances,
restaurants are included in the impairment analysis after they have been open for 15 months. We evaluate the recoverability of a
restaurant’s long-lived assets, including leasehold improvements, equipment and fixtures over its remaining lease term, after
considering the potential impact of planned operational improvements, marketing programs, and anticipated changes in the trade area.
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 assets are determined to be impaired, the impairment charge is measured by calculating the amount by
which the asset carrying amount exceeds its fair value based on our estimate of discounted future cash flows. The determination of
asset fair value is also subject to significant judgment. During fiscal 2009 and 2008, we recognized $237,000 and $549,000,
respectively, of asset impairment charges. No asset impairment charges were recognized during 2007.
In addition to the valuation of long-lived assets, we also record a store closing reserve when a restaurant is abandoned due to
closure or relocation. The store closing reserve is subject to significant judgment as accruals are made for lease payments on
abandoned leased facilities. Many factors, including the local business environment, other available lease sites, the willingness of
lessors to negotiate lease buyouts, and the ability to sublease our sites are considered in making the accruals. We estimate future lease
Source: BUFFALO WILD WINGS INC, 10-K, February 26, 2010 Powered by Morningstar® Document Research℠