Buffalo Wild Wings 2015 Annual Report Download - page 47

47
(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 is
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. If this
amount is less than the carrying amount of goodwill, impairment is recognized for the difference. No goodwill impairment
charges were recognized during fiscal years 2015, 2014, and 2013.
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.
Other assets consist primarily of liquor licenses and investments in affiliates. Liquor licenses are either amortized over
their renewal period or, if transferable, are carried at the lower of fair value or cost. We identify potential impairments for
transferable 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 fair value of the asset is less than the carrying amount, an impairment is recorded.
The carrying amount of the transferable liquor licenses not subject to amortization as of December 27, 2015 and December 28,
2014 was $8,876 and $5,911, respectively, and is included in other assets in the accompanying consolidated balance sheets.
(k) Fair Value 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 27, 2015 and
December 28, 2014, we had asset retirement obligations of $690 and $525, 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, costs and expenses, and cash flows are translated using the average exchange rate for the period. Collection of
royalties from our international franchise partners is received in U.S. dollars.
(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 if certain conditions are met. We provide the use of the Buffalo Wild Wings
and R Taco 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
we have performed all of our material obligations and initial services. Area development fees are dependent upon the number