Buffalo Wild Wings 2011 Annual Report Download - page 43

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 2011 and December 26, 2010
(Dollar amounts in thousands, except per-share amounts)
If the fair value of the asset is less than the carrying amount, impairment is recognized for the difference. All goodwill was
considered recoverable as of December 25, 2011.
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 fair value of the liquor
licenses with the carrying amount. If the fair value of the asset is less than the carrying amount, an impairment is recorded.
The carrying amount of the liquor licenses not subject to amortization as of December 25, 2011 and December 26, 2010 was
$2,455 and $598, respectively, and is included in other assets in the accompanying consolidated balance sheets.
(k) Fair Values of Financial Instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal
or most advantageous market for the asset or liability in an orderly transaction between market participants at the
measurement date. We use a three-tier fair value hierarchy based upon observable and non-observable inputs that prioritizes
the information used to develop our assumptions regarding fair value. Fair value measurements are separately disclosed by
level within the fair value hierarchy.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and other current assets and
liabilities approximate fair value because of their short-term maturity.
(l) Asset Retirement Obligations
An asset retirement obligation associated with the retirement of a tangible long-lived asset is recognized as a liability in
the period incurred or when it becomes determinable, with an associated increase in the carrying amount of the related long-
lived asset. We must recognize a liability for the fair value of a conditional asset retirement obligation when incurred, if the
liability’s fair value can be reasonably estimated. Conditional asset retirement obligations are legal obligations to perform
asset retirement activities when the timing and/or method of settlement are conditional on a future event or may not be within
our control. Asset retirement costs are depreciated over the useful life of the related asset. As of December 25, 2011 and
December 26, 2010, we had asset retirement obligations of $304 and $301, respectively.
(m) Foreign Currency
Our reporting currency is the U.S. dollar, while the functional currency of our Canadian operations is the Canadian
dollar. Our assets and liabilities denominated in foreign currencies are translated at the rate of exchange on the balance sheet
date. Revenues and expenses are translated using the average exchange rate for the period.
(n) Revenue Recognition
Franchise agreements have terms ranging from 10 to 20 years. These agreements also convey multiple extension terms
of five or ten years, depending on contract terms and certain conditions that must be met. We provide the use of the Buffalo
Wild Wings trademarks, system, training, preopening assistance, and restaurant operating assistance in exchange for area
development fees, franchise fees, and royalties of 5% of a restaurant’s sales.
Franchise fee revenue from individual franchise sales is recognized upon the opening of the franchised restaurant when
all material obligations and initial services to be provided by us have been performed. Area development fees are dependent
upon the number of restaurants in the territory, as are our obligations under the area development agreement. Consequently,
as obligations are met, area development fees are recognized proportionally with expenses incurred with the opening of each
new restaurant and any royalty-free periods. Royalties are accrued as earned and are calculated each period based on
restaurant sales.