Buffalo Wild Wings 2010 Annual Report Download - page 43

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 26, 2010 and December 27, 2009
(Dollar amounts in thousands, except per-share amounts)
Trading securities are stated at fair value, with gains or losses resulting from changes in fair value recognized currently
in earnings as investment income. We have funded a deferred compensation plan using trading assets in a marketable equity
portfolio. This portfolio is held to generate returns that seek to offset changes in liabilities related to the equity market risk of
certain deferred compensation arrangements. These deferred compensation liabilities were $4,815 and $3,487 as of December
26, 2010 and December 27, 2009, respectively, and are included in accrued compensation and benefits in the accompanying
consolidated balance sheets.
(g) Accounts Receivable
Accounts receivable – franchisees represents royalty receivables from our franchisees. Accounts receivable – other
consists primarily of contractually-determined receivables for leasehold improvements, credit cards, vendor allowances, and
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 to 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 chicken wings. Chicken wings are purchased by us at market prices. For fiscal 2010, 2009, and 2008, chicken
wings were 24%, 25%, and 21% 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 10 to 20
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 triggering events have
occurred which would require a test 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 the reporting unit to its net book value, which includes goodwill and other intangible
assets. The fair value of the reporting unit is calculated using a combination of the income and market approaches. This
amount is compared to the carrying value of the entity. 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, this is an indication that impairment may exist. We
calculate the amount of the impairment by comparing the implied fair value of the assets and liabilities of the reporting unit