Buffalo Wild Wings 2012 Annual Report Download - page 42

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BUFFALO WILD WINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 30, 2012 and December 25, 2011
(Dollar amounts in thousands, except per-share amounts)
certain deferred compensation arrangements. These deferred compensation liabilities were $6,172 and $5,153 as of December
30, 2012 and December 25, 2011, respectively, and are included in accrued compensation and benefits in the accompanying
consolidated balance sheets.
(g) Accounts Receivable
Accounts receivable consists primarily of contractually-determined receivables for leasehold improvements, credit
cards, vendor allowances, and franchise royalties. 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. Current month chicken wing prices are determined based on the average of the previous
month’s spot rates. For fiscal 2012, 2011, and 2010, chicken wings were 27%, 19%, and 24%, respectively, of restaurant cost
of sales.
(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. Leasehold improvements related to remodels are depreciated using the straight-line method over the estimated useful
life, which is typically 5 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, Reacquired Franchise Rights, 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 carrying amount, which includes goodwill and other
intangible assets. The fair value of the reporting unit is calculated using a market approach. 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 fair value of the assets
and liabilities to the fair value of the reporting unit. The fair value of the reporting unit in excess of the value of the assets and
liabilities is the implied fair value of the goodwill.