BWLD Buffalo Wild Wings, Inc. (delisted)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 28, 2008

BUFFALO WILD WINGS, INC.
(Exact name of registrant as specified in its charter)

 Minnesota No. 31-1455915
(State or Other Jurisdiction of (IRS Employer
 Incorporation or Organization) Identification No.)

5500 Wayzata Boulevard, Suite 1600, Minneapolis, MN 55416
(Address of Principal Executive Offices)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_|

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "accelerated filer," "large accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |_| Accelerated filer |X| Non-accelerated filer |_| Smaller reporting company |_|

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act).
YES |_| NO |X|

The number of shares outstanding of the registrant's common stock as of October 31, 2008: 17,826,049 shares.

TABLE OF CONTENTS

 Page
 -------


PART I - FINANCIAL INFORMATION


Item 1. Financial Statements 3


Item 2. Management's Discussion and Analysis of Financial Condition and 12
 Results of Operations


Item 3. Quantitative and Qualitative Disclosures About Market Risk 19


Item 4. Controls and Procedures 19


PART II - OTHER INFORMATION


Item 1. Legal Proceedings 20


Item 6. Exhibits 20


Signatures 21


Exhibit Index 22

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except share data)

(unaudited)

 September 28, December 30,
 2008 2007
 ------------ ------------

 Assets
Current assets:
 Cash and cash equivalents $ 4,531 1,521
 Marketable securities 40,425 66,513
 Accounts receivable - franchisees, net of allowance of $25 886 885
 Accounts receivable - other 6,245 6,976
 Inventory 2,958 2,362
 Prepaid expenses 2,704 3,060
 Refundable income tax 1,305 1,886
 Deferred income taxes 2,371 1,303
 ------------ ------------

 Total current assets 61,425 84,506

Property and equipment, net 142,166 102,742
Restricted cash 7,242 7,161
Other assets 9,874 2,320
Goodwill 10,972 369
 ------------ ------------

 Total assets $231,679 197,098
 ============ ============

 Liabilities and Stockholders' Equity
Current liabilities:
 Unearned franchise fees $ 2,369 2,316
 Accounts payable 18,333 10,692
 Accrued compensation and benefits 12,924 12,615
 Accrued expenses 6,416 6,207
 Current portion of deferred lease credits 103 660
 ------------ ------------

 Total current liabilities 40,145 32,490

Long-term liabilities:
 Other liabilities 1,119 1,031
 Marketing fund payables 7,242 7,161
 Deferred income taxes 7,163 2,166
 Deferred lease credits, net of current portion 13,301 12,585
 ------------ ------------

 Total liabilities 68,970 55,433
 ------------ ------------

Commitments and contingencies (note 11)
Stockholders' equity:
 Undesignated stock, 1,000,000 shares authorized; none
 issued -- --
 Common stock, no par value. Authorized 44,000,000 shares;
 issued and outstanding 17,823,001 and 17,657,020
 respectively 85,161 80,825
 Retained earnings 77,548 60,840
 ------------ ------------

 Total stockholders' equity 162,709 141,665
 ------------ ------------

 Total liabilities and stockholders' equity $231,679 197,098
 ============ ============

See accompanying notes to consolidated financial statements

BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Dollar and share amounts in thousands except per share data)

(unaudited)

 Three months ended Nine months ended
 --------------------------- ---------------------------
 September 28, September 30, September 28, September 30,
 2008 2007 2008 2007
 ------------- ------------- ------------ --------------
Revenue:
 Restaurant sales $ 95,492 73,280 269,850 211,874
 Franchise royalties and fees 10,582 9,086 31,354 26,393
 ------------- ------------- ----------- --------------

 Total revenue 106,074 82,366 301,204 238,267
 ------------- ------------- ----------- --------------

Costs and expenses:
 Restaurant operating costs:
 Cost of sales 28,422 22,517 81,085 65,166
 Labor 29,289 22,156 82,167 64,313
 Operating 15,675 12,272 42,807 34,473
 Occupancy 6,273 5,076 17,872 14,686
 Depreciation 5,971 4,284 16,720 12,204
 General and administrative (1) 10,684 9,147 29,072 26,302
 Preopening 2,476 988 5,419 2,293
 Loss on asset disposals and impairment 930 306 2,068 538
 ------------- ------------- ----------- --------------

 Total costs and expenses 99,720 76,746 277,210 219,975
 ------------- ------------- ----------- --------------

Income from operations 6,354 5,620 23,994 18,292
Interest income 264 768 1,096 2,223
 ------------- ------------- ----------- --------------

Earnings before income taxes 6,618 6,388 25,090 20,515
Income tax expense 2,050 2,121 8,382 6,866
 ------------- ------------- ----------- --------------

Net earnings $ 4,568 4,267 16,708 13,649
 ============= ============= =========== ==============

Earnings per common share - basic $ 0.26 0.24 0.94 0.78
Earnings per common share - diluted 0.25 0.24 0.93 0.77
Weighted average shares outstanding - basic 17,823 17,597 17,800 17,535
Weighted average shares outstanding - diluted 17,920 17,767 17,903 17,733

(1) Includes stock-based compensation of $1,297, $715, $3,221, and $3,047, respectively

See accompanying notes to consolidated financial statements

BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(unaudited)

 Nine months ended
 --------------------------
 September 28, September 30,
 2008 2007
 ---------------------------
Cash flows from operating activities:
 Net earnings $ 16,708 13,649
 Adjustments to reconcile net earnings to cash provided by
 operations:
 Depreciation 16,720 12,204
 Amortization 80 (95)
 Loss on asset disposals and impairment 2,068 538
 Deferred lease credits 1,426 2,221
 Deferred income taxes 3,929 (1,359)
 Stock-based compensation 3,221 3,047
 Excess tax benefit from the exercise of stock options (435) (660)
 Change in operating assets and liabilities, net of effect
 of acquisition:
 Trading securities (164) (315)
 Accounts receivable (62) (421)
 Inventory (327) (375)
 Prepaid expenses 438 (1,860)
 Other assets (429) (378)
 Unearned franchise fees 53 198
 Accounts payable 2,519 1,742
 Refundable income tax 1,016 (699)
 Accrued expenses 1,511 2,355
 ----------- --------------

 Net cash provided by operating activities 47,272 29,792
 ----------- --------------

Cash flows from investing activities:
 Acquisition of property and equipment (48,378) (23,127)
 Acquisition of franchised restaurants (23,071) --
 Purchase of marketable securities (98,984) (128,782)
 Proceeds of marketable securities 125,156 115,333
 ----------- --------------

 Net cash used in investing activities (45,277) (36,576)
 ----------- --------------

Cash flows from financing activities:
 Issuance of common stock 569 875
 Tax payments for restricted stock units (989) (1,183)
 Excess tax benefit from the exercise of stock options 435 660
 ----------- --------------

 Net cash provided by financing activities 15 352
 ----------- --------------

 Net increase (decrease) in cash and cash
 equivalents 3,010 (6,432)

Cash and cash equivalents at beginning of period 1,521 11,756
 ----------- --------------

Cash and cash equivalents at end of period $ 4,531 5,324
 =========== ==============

See accompanying notes to consolidated financial statements

BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 28, 2008 AND
SEPTEMBER 30, 2007
(Dollar amounts in thousands, except share and per-share amounts)

(1) Basis of Financial Statement Presentation

The consolidated financial statements as of September 28, 2008 and December 30, 2007, and for the three-month and nine-month periods ended September 28, 2008 and September 30, 2007, have been prepared by Buffalo Wild Wings, Inc. pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). The financial information for the three-month and nine-month periods ended September 28, 2008 and September 30, 2007 is unaudited, but, in the opinion of management, reflects all adjustments and accruals necessary for a fair presentation of the financial position, results of operations, and cash flows for the interim periods.

References in the remainder of this document to "Buffalo Wild Wings," "we," "us" and "our" refer to the business of Buffalo Wild Wings, Inc. and our subsidiaries.

The financial information as of December 30, 2007 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 30, 2007, which is included in Item 8 in the fiscal 2007 Annual Report on Form 10-K, and should be read in conjunction with such financial statements.

The results of operations for the three-month and nine-month periods ended September 28, 2008 are not necessarily indicative of the results of operations that may be achieved for the entire year ending December 28, 2008.

(2) Summary of Significant Accounting Policies

(a) Inventories

Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method.

We purchase our 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 our purchase requirements do not create a market risk. We currently have numerous products subject to fixed price contracts. These contracts are typically less than one year in length. When these contracts are up for renewal, we may be exposed to price volatility. The primary food product used by our restaurants and our franchised restaurants is fresh chicken wings. We are currently purchasing chicken wings at market prices. Fresh chicken wings were purchased by us based on a chicken wing contract which fixed 80-90% of our chicken wing purchases at $1.23 per pound. This one-year agreement expired in March 2008. For the third quarter of 2008, fresh chicken wing prices averaged $1.17 per pound. Material increases in fresh chicken wing costs may adversely affect our operating results. For the three-month periods ended September 28, 2008 and September 30, 2007, fresh chicken wings were 19.5% and 23.3%, respectively, of restaurant cost of sales. For the nine-month periods ended September 28, 2008 and September 30, 2007, fresh chicken wings were 20.8% and 23.9%, respectively, of restaurant cost of sales.

(b) New Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141R, "Business Combinations" (SFAS No. 141R), which provides companies with principles and requirements on how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree as well as the recognition and measurement of goodwill acquired in a business combination. SFAS No. 141R also requires certain disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Acquisition costs associated with the business combination will generally be expensed as incurred. SFAS No. 141R is effective for business combinations occurring in fiscal years beginning after December 15, 2008. Early adoption of SFAS No. 141R is prohibited.

In February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS No. 159), which permitted an entity to measure certain financial assets and liabilities at fair value. The statement's objective is to improve financial reporting by allowing entities to mitigate

volatility in reported earnings caused by the measurement of related assets and liabilities using different attributes, without having to apply complex hedge accounting provisions. This statement became effective for fiscal years beginning after November 15, 2007 and was to be applied prospectively. We adopted the provisions of SFAS No. 159 on January 1, 2008. As we did not elect to measure existing assets and liabilities at fair value, the adoption of this statement did not have an effect on our financial statements.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," (SFAS No. 157). This statement does not require any new fair value measurements, but rather, it provides enhanced guidance to other pronouncements that require or permit assets or liabilities to be measured at fair value. The changes to current practice resulting from the application of this statement relate to the definition of fair value, the methods used to estimate fair value, and the requirement for expanded disclosures about estimates of fair value. This statement became effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The effective date for this statement for all nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, has been delayed by one year. We adopted the provisions of SFAS No. 157 related to financial assets and financial liabilities on December 31, 2007. The partial adoption of this statement did not have a material impact on our financial statements. It is expected that the remaining provisions of this statement will not have a material effect on our financial statements.

Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties or the amount that would be paid to transfer a liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments' complexity.

Assets recorded at fair value in our consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by SFAS No. 157 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1 - Inputs were unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 - Inputs (other than quoted prices included in Level
1) were either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life.

Level 3 - Inputs reflected management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration was given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Determining which hierarchical level an asset falls within requires significant judgment. We will evaluate our hierarchy disclosures each quarter. The following table summarizes the financial instruments measured at fair value in our consolidated balance sheet as of September 28, 2008:

 Fair Value Measurements
 --------------------------------------------
 Level 1 Level 2 Level 3 Total
 ---------- ----------- --------- ------
Assets
 Short-term investments (1) $ 1,754 $ 18,433 $ -- $ 20,187

(1) We classified a portion of our marketable securities as available-for-sale and trading securities which were reported at fair market value, using the "market approach" valuation technique. The "market approach" valuation method used prices and other relevant information observable in market transactions involving identical or comparable assets. Our trading securities are valued using the Level 1 approach. Our available-for-sale marketable securities are valued using the Level 2 approach.

SFAS No. 157 requires separate disclosure of assets measured at fair value on a recurring basis, as documented above, from those measured at fair value on a nonrecurring basis. As of September 28, 2008, no assets or liabilities were measured at fair value on a nonrecurring basis.

(c) Reclassifications

We revised our common stock issued and outstanding on the balance sheet to eliminate the inclusion of restricted stock units issued but not vested. The amount of common stock of December 30, 2007 was reduced by 276,477 shares to 17,657,020 shares.

(3) Marketable Securities

Marketable securities were comprised of the following:

 As of
 --------------------------
 September 28, December 30,
 2008 2007
 ------------- ------------
Held-to-maturity:
 Municipal securities $ 20,238 $ 23,718
Available-for-sale:
 Municipal securities 18,433 41,206
Trading:
 Mutual funds 1,754 1,589
 ------------ ------------

Total $ 40,425 66,513
 ============ ============

All held-to-maturity debt securities are due within one year and had aggregate fair values of $20,187 and $23,753 as of September 28, 2008 and December 30, 2007, respectively. Trading securities represents investments held for future needs of a non-qualified deferred compensation plan.

(4) Property and Equipment

Property and equipment were comprised of the following:

 As of
 --------------------------
 September 28, December 30,
 2008 2007
 ------------- ------------
Construction in-process $ 9,862 1,851
Buildings 5,559 1,601
Furniture, fixtures, and equipment 87,539 69,962
Leasehold improvements 114,126 96,315
 ------------- ------------
 217,086 169,729
Less accumulated depreciation (74,920) (66,987)
 ------------- ------------
 $ 142,166 102,742
 ============= ============

(5) Stockholders' Equity

(a) Stock Options

We have 3.9 million shares of common stock reserved for issuance under a stock-based compensation plan for employees, officers, and directors. The option price for shares issued under this plan is to be not less than the fair market value on the date of grant. Incentive stock options become exercisable in four equal installments from the date of the grant and have a contractual life of seven to ten years. Nonqualified stock options issued pursuant to the plan have varying vesting periods from immediately to one year and have a contractual life of ten years. Incentive stock options may be granted under this plan until May 15, 2018. We issue new shares of common stock upon exercise of stock options and disbursement of restricted stock units. Option activity is summarized for the nine months ended September 28, 2008 as follows:

 Weighted Weighted Average
 Number average Remaining Aggregate Intrinsic
 of shares exercise price Contractual Life Value
 -------------------- --------------------- ---------------------------- -----------------------
Outstanding, December 30, 2007 176,603 $ 5.61 3.9 $ 3,096

Granted 58,272 24.96
Exercised (39,297) 3.54
Cancelled (8,788) 7.75
 -------------------- --------------------- ---------------------------- -----------------------

Outstanding, September 28, 2008 186,790 11.98 4.4 5,327
Exercisable, September 28, 2008 127,293 6.00 3.5 4,391

The aggregate intrinsic value in the table above is before applicable income taxes, based on our closing stock price of $40.50 as of the last business day of the quarter ended September 28, 2008, which would have been received by the optionees had all options been exercised on that date. As of September 28, 2008, total unrecognized stock-based compensation expense related to nonvested stock options was approximately $529, which is expected to be recognized over a weighted average period of approximately 1.7 years. During the nine-month periods ended September 28, 2008 and September 30, 2007, the total intrinsic value of stock options exercised was $880 and $5,050, respectively. During the nine-month periods ended September 28, 2008 and September 30, 2007, the total fair value of options vested was $70 and $391, respectively.

The plan has 1,319,143 shares available for grant as of September 28, 2008.

(b) Restricted Stock Units

We adopted a stock performance plan in June 2004, under which restricted stock units are granted annually at the discretion of the Board. For restricted stock units granted prior to 2008, units vest annually upon achieving performance targets. Our performance targets are annual income targets set by our Board of Directors at the beginning of the year. We record compensation expense for the restricted stock units if vesting, based on the achievement of the performance targets. The restricted stock units may vest one-third annually over a ten-year period as determined by meeting performance targets. However, the second one-third of the restricted stock units is not subject to vesting until the first one-third has vested and the final one-third is not subject to vesting until the first two-thirds of the award have vested.

In 2008, we granted restricted stock units subject to cumulative one-year, two-year, and three-year net earnings targets. The number of units that vest each year are based on performance against those targets. The restricted stock units are subject to forfeiture if they have not vested at the end of the three-year period. Stock-based compensation is recognized for the expected number of units vesting at the end of each annual period. Restricted stock units expected to vest at the end of the first year are fully expensed in the first year. Restricted stock units expected to vest at the end of the second year are expensed during the first and second years. Restricted stock units expected to vest at the end of the third year are expensed over all three years. Therefore, the stock-based compensation is more heavily expensed in the first year of the grant.

Restricted stock units meeting the performance criteria will vest as of the end of our fiscal year. The distribution of vested restricted stock units as common stock typically occurs in March of the following year. The common stock is issued to participants net of the number of shares needed for the minimum employee withholding taxes. Restricted stock units are contingently issuable shares, and the activity for fiscal 2008 is as follows:

 Weighted
 average
 Number grant date
 of shares fair value
 --------------------- -----------------
Outstanding, December 30, 2007 140,692 $ 20.92

Granted 329,688 23.21
Vested (18,151) 23.14
Cancelled (4,504) 22.43
 --------------------- -----------------
Outstanding, September 28, 2008 447,725 22.50

As of September 28, 2008, the total stock-based compensation expense related to nonvested awards not yet recognized was $3,366, which is expected to be recognized over a weighted average period of 1.1 years. During the nine-month periods ended September 28, 2008 and September 30, 2007, the total fair value of vested shares were $420 and $372, respectively. The weighted average grant date fair value of restricted stock units granted during the nine months ended September 30, 2007 was $26.92.

(c) Employee Stock Purchase Plan

We have reserved 600,000 shares of common stock for issuance under the Employee Stock Purchase Plan (ESPP). The ESPP is available to substantially all employees subject to employment eligibility requirements. Participants may purchase our common stock at 85% of the beginning or ending closing price, whichever is lower, for each six-month period ending in May and November. During the first nine months of 2008 and 2007, we issued 18,071 and 12,744 shares of common stock under the plan. As of September 28, 2008, the ESPP has 414,907 shares available for future issuance.

(6) Earnings Per Share

The following is a reconciliation of basic and fully diluted earnings per share for the three-month and nine-month periods ended September 28, 2008 and September 30, 2007:

 Three months ended September 30, 2007
 --------------------------------------
 Earnings Shares Per-share
 (numerator) (denominator) amount
 ------------ ------------ -----------
Net earnings $ 4,267
 ------------

 Earnings per common share - basic 4,267 17,596,959 $0.24
Effect of dilutive securities
 Stock options -- 170,212
 ------------ -------------

 Earnings per common share - diluted $ 4,267 17,767,171 0.24
 ============ =============


 Nine months ended September 28, 2008
 --------------------------------------
 Earnings Shares Per-share
 (numerator) (denominator) amount
 ------------ ------------ -----------

Net earnings $ 16,708
 ------------

 Earnings per common share - basic 17,799,752 $0.94
Effect of dilutive securities
 Stock options -- 102,772
 ------------ -------------

 Earnings per common share - diluted $ 16,708 17,902,524 0.93
 ============ =============


 Nine months ended September 30, 2007
 --------------------------------------
 Earnings Shares Per-share
 (numerator) (denominator) amount
 ------------ ------------ -----------

Net earnings $ 13,649
 ------------

 Earnings per common share - basic 13,649 17,535,019 $0.78
Effect of dilutive securities
 Stock options -- 197,932
 ------------ -------------

 Earnings per common share - diluted $ 13,649 17,732,951 0.77
 ============ =============

Shares excluded from the fully diluted calculation because the effect on earnings per common share would have been antidilutive were 505,997 shares and 280,540 shares for the three-month periods ended September 28, 2008 and September 30, 2007, respectively, and 495,965 shares and 280,540 shares for the nine-month periods ended September 28, 2008 and September 30, 2007, respectively.

(7) Supplemental Disclosures of Cash Flow Information

 Nine months ended
 ----------------------------------------
 September 28, September 30,
 2008 2007
 ---------------------- -----------------
Cash paid during the period for:
 Income taxes $ 3,498 $ 8,537
Noncash financing and investing transactions:
 Property and equipment not yet paid for 5,122 5,821
 Tax withholding for restricted stock units -- 1,086

(8) Income Taxes

We adopted the provisions of FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48), on January 1, 2007. The total unrecognized tax benefits reflected on our balance sheet as of September 28, 2008 and December 30, 2007 were $344 and $241, respectively. The increase was due to additions based on tax positions related to the current year. We recognize potential accrued interest and penalties related to unrecognized tax benefits within our operations in income tax expense. The accrual for interest and penalties related to unrecognized tax benefits was $97 at September 28, 2008. Included in the total unrecognized tax benefits at September 28, 2008 and December 30, 2007 are benefits of $235 and $157, respectively, which if recognized would affect the annual effective tax rate. We do not anticipate any significant change to the total unrecognized tax benefits prior to September 27, 2009.

The Internal Revenue Service has completed its examination of our 2005 U.S. Income Tax Return. No changes to the tax return were reported. With few exceptions, we are no longer subject to state income tax examinations for years before 2005.

(9) Acquisition of Don Pablo's Locations and Restaurant Impairment

During February 2008, we acquired certain leases and assets of eight locations from Avado Brands, Inc. for approximately $1,200. Due to this acquisition, we recorded an impairment charge for the assets of a restaurant being relocated. The impairment charge of $395 was recorded in the first quarter of 2008 to the extent that the carrying amount was not considered recoverable based on estimated future discounted cash flows. In the third quarter of 2008, the relocation of this restaurant resulted in a charge of $184 for remaining lease obligations and utilities.

During the third quarter of 2008, we recorded an impairment charge for the assets of one underperforming restaurant. An impairment charge of $111 was recorded to the extent that the carrying amount of these assets was not considered recoverable based on estimated discounted future cash flows and the underlying fair value of the assets.

(10) Acquisition of Las Vegas Franchise

On September 23, 2008, we acquired the assets of nine Buffalo Wild Wings franchised restaurants located in Las Vegas, Nevada. The total purchase price of $23,071, which includes acquisition costs of $426, was paid in cash and was funded by cash and the sale of marketable securities. The acquisition was accounted for as a business combination. The assets acquired were recorded based on their fair values. We recorded goodwill of $10,603 in connection with the acquisition. Intangible assets relating to the reacquisition of a franchise right were $7,040 and will be amortized over the next 14 years. Fixed assets including equipment, leasehold improvements, and a building acquired with the transaction of $4,517 and will be depreciated over their economic useful lives. Inventory, prepaid items, and other assets of $436 were also acquired. Deferred lease credits totaling $475 will be amortized over the length of the leases.

(11) Contingencies

We are involved in various legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in Item 1 of Part 1 of this Quarterly Report and the audited consolidated financial statements and related notes and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended December 30, 2007. This discussion and analysis contains certain statements that are not historical facts, including, among others, those relating to our anticipated financial performance for 2008, cash requirements, and our expectations and strategies relating to store openings. Such statements are forward-looking and risks and uncertainties include, but are not limited to, those discussed in this Form 10-Q under Item 2 of Part I as well as in Item 1A of Part I of the fiscal 2007 Form 10-K.

Critical Accounting Policies and Use of Estimates

Our most critical accounting policies, which are those that require significant judgment, include: valuation of long-lived assets and store closing reserves, vendor allowances, revenue recognition from franchise operations, and self-insurance liability. An in-depth description of these can be found in our Annual Report on Form 10-K for the fiscal year ended December 30, 2007. There have been no changes to those policies during this period.

Overview

As of September 28, 2008, we owned and operated 187 company-owned and franchised an additional 348 Buffalo Wild Wings(R) Grill & Bar restaurants in 38 states. Of the 535 system-wide restaurants, 86 are located in Ohio. The restaurants have elements of both the quick casual and casual dining styles, both of which are part of a growing industry. Our long-term focus is to grow to a national chain of over 1,000 locations, continuing the strategy of developing both company-owned and franchised restaurants.

Our growth and success depend on several factors and trends. First, we continue to monitor and react to changes in our cost of goods sold. The cost of goods sold is difficult to predict, as it ranged from 29.8% to 31.0% of restaurant sales per quarter in 2008 and 2007, respectively. We are working to counteract the volatility of chicken wing prices with the introduction of popular new menu items, effective marketing promotions, focused efforts on food costs and waste, and menu price increases. We will continue to monitor the cost of fresh chicken wings, as it can significantly affect our cost of sales and cash flow from company-owned restaurants. We are also exploring purchasing strategies to lessen the severity of cost increases and fluctuations. We are currently purchasing chicken wings at market prices. In March 2007, we had entered into a one-year pricing agreement which fixed 80-90% of our chicken wing purchases at $1.23 per pound. This agreement expired in March 2008. For the third quarter of 2008, fresh chicken wing prices averaged $1.17 per pound. We currently have numerous other products subject to fixed price contracts. These contracts are typically less than one year in length. When these contracts are up for renewal, we may be exposed to price volatility.

A second factor is our success in new markets. There are inherent risks in opening new restaurants, especially in new markets, for various reasons, including the lack of experience, logistical support, and brand awareness in a new market. These factors may result in lower than anticipated sales and cash flow for new restaurants in new markets. In 2008, we plan to develop the majority of our company-owned restaurants primarily in markets where we currently have either company-owned or franchised restaurants. We believe this development focus, together with our focus on our new restaurant opening procedures, will help mitigate the overall risk associated with opening restaurants in new markets.

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:

o Sales at our company-owned restaurants, which were 90% of total revenue in the third quarter of 2008. Food and nonalcoholic beverages accounted for 75% of restaurant sales. The remaining 25% of restaurant sales was from alcoholic beverages. The menu item with the highest sales volume was chicken wings at 20.9% of total restaurant sales.

o Royalties and franchise fees received from our franchisees.

We generate cash from the operation of company-owned restaurants and from franchise royalties and fees. We highlight the specific costs associated with the ongoing 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 quarterly based on the number of new locations opened and under construction. Loss on asset disposals and impairment expense is related to company-owned restaurants and includes the impairment of assets due to a relocation and the write-down of miscellaneous assets. Certain other expenses, such as general and administrative, relate to both company-owned and franchising operations.

We operate on a 52 or 53-week fiscal year ending on the last Sunday in December. Both of the third quarters of 2008 and 2007 consisted of thirteen weeks.

Quarterly Results of Operations

Our operating results for the periods indicated are expressed below as a percentage of total revenue, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant sales. The information for each three-month and nine-month period is unaudited, and we have prepared it on the same basis as the audited financial statements. In the opinion of management, all necessary adjustments, consisting only of normal recurring adjustments, have been included to present fairly the unaudited quarterly results.

Quarterly and annual operating results may fluctuate significantly as a result of a variety of factors, including increases or decreases in same-store sales, changes in commodity prices, the timing and number of new restaurant openings and related expenses, asset impairment charges, store closing charges, general economic conditions, stock-based compensation, and seasonal fluctuations. As a result, our quarterly results of operations are not necessarily indicative of the results that may be achieved for any future period.

 Three months ended Nine months ended
 --------------------------------------- -----------------------------------
 September 28, September 30, September 28, September 30,
 2008 2007 2008 2007
 -------------------- ------------------ ----------------- ----------------
Revenue:
 Restaurant sales 90.0% 89.0% 89.6% 88.9%
 Franchising royalties and fees 10.0 11.0 10.4 11.1
 -------------------- ------------------ ----------------- ----------------

 Total revenue 100.0 100.0 100.0 100.0
 -------------------- ------------------ ----------------- ----------------

Costs and expenses:
 Restaurant operating costs:
 Cost of sales 29.8 30.7 30.0 30.8
 Labor 30.7 30.2 30.4 30.4
 Operating 16.4 16.7 15.9 16.3
 Occupancy 6.6 6.9 6.6 6.9
 Depreciation 5.6 5.2 5.6 5.1
 General and administrative 10.1 11.1 9.7 11.0
 Preopening 2.3 1.2 1.8 1.0
 Loss on asset disposals and impairment 0.9 0.4 0.7 0.2
 -------------------- ------------------ ----------------- ----------------

 Total costs and expenses 94.0 93.2 92.0 92.3
 -------------------- ------------------ ----------------- ----------------

Income from operations 6.0 6.8 8.0 7.7
Interest income 0.2 0.9 0.4 0.9
 -------------------- ------------------ ----------------- ----------------

Earnings before income taxes 6.2 7.8 8.3 8.6
Income tax expense 1.9 2.6 2.8 2.9
 -------------------- ------------------ ----------------- ----------------

Net earnings 4.3 5.2 5.5 5.7
 ==================== ================== ================= ================

The number of company-owned and franchised restaurants open are as follows:

 As of
 -----------------------------
 September 28, September 30,
 2008 2007
 -------------- --------------
Company-owned restaurants 187 148
Franchised restaurants 348 313

 Three months ended Nine months ended
 ----------------------------------- ----------------------------------
 September 28, September 30, September 28, September 30,
 2008 2007 2008 2007
 ------------------ ---------------- ----------------- ----------------
Company-owned restaurant sales $ 95,492 73,280 269,850 211,874
Franchised restaurant sales 212,408 180,356 626,018 527,742

Increases in comparable same-store sales are as follows (based on restaurants operating at least fifteen months):

 Three months ended Nine months ended
 ------------------------------------------ ---------------------------------------
 September 28, September 30, September 28, September 30,
 2008 2007 2008 2007
 --------------------- -------------------- ------------------- -------------------
Company-owned same-store sales 6.8% 8.3% 6.4% 8.4%
Franchised same-store sales 2.1 5.9 2.9 4.4

The average prices paid per pound for fresh chicken wings are as follows:

 Three months ended Nine months ended
 --------------------------------- ---------------------------------
 September 28, September 30, September 28, September 30,
 2008 2007 2008 2007
 ---------------- ---------------- ---------------- ----------------
Average price per pound $ 1.17 1.24 1.21 1.29

Results of Operations for the Three Months Ended September 28, 2008 and September 30, 2007

Restaurant sales increased by $22.2 million, or 30.3%, to $95.5 million in 2008 from $73.3 million in 2007. The increase in restaurant sales was due to a $17.7 million increase associated with 21 new company-owned restaurants that opened in 2008 and 37 company-owned restaurants opened before 2008 that did not meet the criteria for same-store sales for all or part of the three-month period and $4.5 million related to a 6.8% increase in same-store sales.

Franchise royalties and fees increased by $1.5 million, or 16.5%, to $10.6 million in 2008 from $9.1 million in 2007. The increase was primarily due to additional royalties collected from 29 new franchised restaurants that opened in 2008 and 20 franchised restaurants that opened in the last three months of 2007. Same-store sales for franchised restaurants increased 2.1% in 2008.

Cost of sales increased by $5.9 million, or 26.2%, to $28.4 million in 2008 from $22.5 million in 2007 due primarily to more restaurants being operated in 2008. Cost of sales as a percentage of restaurant sales decreased to 29.8% in 2008 from 30.7% in 2007. The decrease in cost of sales as a percentage of restaurant sales was primarily due to the leverage of food and alcohol costs as a result of menu price increases and lower chicken wing prices. Also, boneless wing sales have increased as a part of our menu mix providing better margins and a corresponding lower cost of goods percentage. The pricing agreement which fixed 80-90% of our chicken wing purchases at $1.23 per pound in the third quarter of 2007 expired in March 2008. For the third quarter of 2008, wing prices averaged $1.17 per pound which was a 5.6% decrease over the same period in 2007.

Labor expenses increased by $7.1 million, or 32.2%, to $29.3 million in 2008 from $22.2 million in 2007 due primarily to more restaurants being operated in 2008. Labor expenses as a percentage of restaurant sales increased to 30.7% in 2008 from 30.2% in 2007. The increase in labor expenses as a percentage of restaurant sales was primarily due to higher management salaries and unit-level bonuses at the restaurants.

Operating expenses increased by $3.4 million, or 27.7%, to $15.7 million in 2008 from $12.3 million in 2007 due primarily to more restaurants being operated in 2008. Operating expenses as a percentage of restaurant sales decreased to 16.4% in 2008 from 16.7% in 2007. The decrease in operating expenses as a percentage of restaurant sales is primarily due to lower local store marketing costs, repair and maintenance costs and general liability insurance costs partially offset by higher natural gas hedging costs for future months.

Occupancy expenses increased by $1.2 million, or 23.6%, to $6.3 million in 2008 from $5.1 million in 2007 due primarily to more restaurants being operated in 2008. Occupancy expenses as a percentage of restaurant sales decreased to 6.6% in 2008 from 6.9% in 2007 due to increased leverage from higher sales volume.

Depreciation increased by $1.7 million, or 39.4%, to $6.0 million in 2008 from $4.3 million in 2007. The increase was primarily due to the additional depreciation on 21 new restaurants opened in 2008, the 14 new restaurants that opened in the last three months of 2007, and the nine restaurants acquired from a franchisee in the third quarter of 2008.

General and administrative expenses increased by $1.5 million, or 16.8%, to $10.7 million in 2008 from $9.1 million in 2007 primarily due to additional headcount and higher payroll. General and administrative expenses as a percentage of total revenue decreased to 10.1% in 2008 from 11.1% in 2007. Exclusive of stock-based compensation, we reduced our general and administrative expenses as a percentage of revenue to 8.9% from 10.2% with lower travel, professional fees, meeting expenses, and better overall leveraging of our general and administrative expenses.

Preopening costs increased by $1.5 million, to $2.5 million in 2008 from $988,000 in 2007. In 2008, we incurred costs of $1.7 million for 12 new company-owned restaurants opened in the third quarter of 2008, $77,000 related to the purchase of nine franchise restaurants, and $516,000 for restaurants that will open in the fourth quarter of 2008 or later. In 2007, we incurred costs of $497,000 for the three new company-owned restaurants opened in the third quarter of 2007, and incurred $479,000 for restaurants that opened in the fourth quarter of 2007 or later. In the fourth quarter of 2008, we expect average preopening costs per restaurant to be $225,000.

Loss on asset disposals and impairment increased by $624,000 to $930,000 in 2008 from $306,000 in 2007. In 2008, the loss was related to the asset impairment of one underperforming restaurant of $110,000, store closing reserves for one restaurant relocated in the quarter of $184,000, disposals related to remodels of $322,000, and the write-off of miscellaneous equipment. In 2007, the loss was due to the write-off of miscellaneous equipment.

Interest income decreased by $504,000 to $264,000 in 2008 from $768,000 in 2007. The decrease was primarily due to lower rates of return on investments. Cash and marketable securities balances at the end of the quarter totaled $45.0 million in 2008 compared to $72.0 million for the third quarter of 2007.

Provision for income taxes was $2.1 million in 2008 and 2007. The effective tax rate as a percentage of income before taxes decreased to 31.0% in 2008 from 33.2% in 2007. The 2008 income tax rate was lower due to changes in estimates for annual tax credits. For the full year 2008, we believe our effective tax rate will be approximately 33.5%.

Results of Operations for the Nine Months Ended September 28, 2008 and September 30, 2007

Restaurant sales increased by $58.0 million, or 27.4%, to $269.9 million in 2008 from $211.9 million in 2007. The increase in restaurant sales was due to a $45.3 million increase associated with 21 new company-owned restaurants that opened in 2008, the nine restaurants acquired from a franchisee on September 23, 2008, and 34 company-owned restaurants opened before 2008 that did not meet the criteria for same-store sales for all or part of the nine-month period and $12.7 million related to a 6.4% increase in same-store sales.

Franchise royalties and fees increased by $5.0 million, or 18.8%, to $31.4 million in 2008 from $26.4 million in 2007. The increase was primarily due to additional royalties collected from 29 new franchised restaurants that opened in 2008 and 20 franchised restaurants that opened in the last three months of 2007. Same-store sales for franchised restaurants increased 2.9% in 2008.

Cost of sales increased by $15.9 million, or 24.4%, to $81.1 million in 2008 from $65.2 million in 2007 due primarily to more restaurants being operated in 2008. Cost of sales as a percentage of restaurant sales decreased to 30.0% in 2008 from 30.8% in 2007. The decrease in cost of sales as a percentage of restaurant sales was primarily due to the leverage of food and alcohol costs as a result of menu price increases and lower fresh chicken wing prices. Also, boneless wing sales have increased as a part of our menu mix providing better margins and a corresponding lower cost of goods percentage. The pricing agreement which fixed 80-90% of our chicken wing purchases at $1.23 per pound in the second and third quarters of 2007 expired in March 2008. For the first nine months of 2008, wing prices averaged $1.21 per pound which was a 6.2% decrease from an average price of $1.29 per pound during the same period in 2007.

Labor expenses increased by $17.9 million, or 27.8%, to $82.2 million in 2008 from $64.3 million in 2007 due primarily to more restaurants being operated in 2008. Labor expenses as a percentage of restaurant sales remained consistent at 30.4% in 2008 and 2007 with lower workers compensation costs offsetting higher management salaries at the restaurant level.

Operating expenses increased by $8.3 million, or 24.2%, to $42.8 million in 2008 from $34.5 million in 2007 due primarily to more restaurants being operated in 2008. Operating expenses as a percentage of restaurant sales decreased to 15.9% in 2008 from 16.3% in 2007. The decrease in operating expenses as a percentage of restaurant sales is primarily due to lower repair and maintenance costs and lower general liability insurance costs partially offset by higher utility charges and natural gas hedging costs for future months.

Occupancy expenses increased by $3.2 million, or 21.7%, to $17.9 million in 2008 from $14.7 million in 2007 due primarily to more restaurants being operated in 2008. Occupancy expenses as a percentage of restaurant sales decreased to 6.6% in 2008 from 6.9% in 2007.

Depreciation increased by $4.5 million, or 37.0%, to $16.7 million in 2008 from $12.2 million in 2007. The increase was primarily due to the additional depreciation on 21 new restaurants opened in 2008, the nine restaurants acquired from a franchisee on September 23, 2008, and the 14 new restaurants that opened in the last three months of 2007. Accelerated depreciation related to three relocations as part of the conversion of Don Pablo's sites also contributed to the increase.

General and administrative expenses increased by $2.8 million, or 10.5%, to $29.1 million in 2008 from $26.3 million in 2007 primarily due to additional headcount and higher payroll and travel-related expenditures. General and administrative expenses as a percentage of total revenue decreased to 9.7% in 2008 from 11.0% in 2007. Exclusive of stock-based compensation, we reduced our general and administrative expenses as a percentage of revenue to 8.6% from 9.8% with lower professional fees, conference costs, and better leverage of our wage-related expenses.

Preopening costs increased by $3.1 million, to $5.4 million in 2008 from $2.3 million in 2007. In 2008, we incurred costs of $4.6 million for 21 new company-owned restaurants opened in the first nine months of 2008, $77,000 related to the purchase of nine franchise restaurants, and $709,000 for restaurants that will open in the fourth quarter of 2008 or later. In 2007, we incurred costs of $1.8 million for the nine new company-owned restaurants opened in the first nine months of 2007, and incurred $484,000 for restaurants that opened in the fourth quarter of 2007 or later.

Loss on asset disposals and impairment increased by $1.5 million to $2.1 million in 2008 from $538,000 in 2007. In 2008, we impaired the assets of two restaurants for $506,000 and incurred store closing costs for one restaurant being relocated for $184,000. The remaining loss was related to the HDTV upgrades, remodels, and the write-off of miscellaneous equipment. In 2007, the loss was due to the write-off of miscellaneous equipment.

Interest income decreased by $1.1 million to $1.1 million in 2008 from $2.2 million in 2007. The decrease was primarily due to lower rates of return on our investments. Cash and marketable securities balances at the end of the quarter totaled $45.0 million in 2008 compared to $72.0 million for the third quarter of 2007.

Provision for income taxes increased $1.5 million to $8.4 million in 2008 from $6.9 million in 2007. Our effective tax rate was approximately the same at 33.4% in 2008 and 33.5% in 2007.

Liquidity and Capital Resources

Our primary liquidity and capital requirements have been for new restaurant construction, remodeling and maintaining our existing company-owned restaurants, working capital, and other general business needs. We fund these expenses primarily with cash from operations. The cash and marketable securities balance at September 28, 2008 was $45.0 million. We invest our marketable securities balances in debt securities with the focus on protection of principal, adequate liquidity, and maximization of after-tax returns. As of September 28, 2008, nearly all excess cash was invested in high-quality municipal securities.

For the nine months ended September 28, 2008, net cash provided by operating activities was $47.8 million. Net cash provided by operating activities consisted primarily of net earnings adjusted for non-cash expenses, and an increase in accounts payable, accrued expenses, and refundable income taxes. The increase in accounts payable is due to an increase in the number of restaurants and the timing of payments. The increase in income taxes was due to the timing of income tax payments. The increase in accrued expenses was due to accruals for fuel hedges that will be settled in future quarters as well as activity related to additional restaurants.

For the nine months ended September 30, 2007, net cash provided by operating activities was $29.8 million. Net cash provided by operating activities consisted primarily of net earnings adjusted for non-cash expenses, and an increase in accounts payable and accrued expenses. The increase in accounts payable was due to a greater number of restaurants open and higher seasonal sales activity and corresponding purchases. The increase in accrued expenses was primarily due to higher accrued incentive compensation and activity from more restaurants.

For the nine months ended September 28, 2008 and September 30, 2007, net cash used in investing activities was $44.8 million and $36.6 million, respectively. Investing activities included purchases of property and equipment related to the opening of new company-owned restaurants and restaurants under construction in both periods. During the first nine months of 2008, we purchased nine Las Vegas franchised locations for $22.6 million and opened 21 new restaurants. During the first nine months of 2007, we opened nine restaurants. In the fourth quarter of 2008, we expect capital expenditures to be approximately $1.5 million per location for approximately 10 to 12 new company-owned restaurants. In 2008, we purchased $99.0 million of marketable securities and received proceeds of $125.2 million as these investments matured or were sold. In 2007, we purchased $128.8 million of marketable securities and received proceeds of $115.3 million as these investments matured or were sold.

For the nine months ended September 28, 2008 and September 30, 2007, net cash provided by financing activities was $15,000 and $352,000, respectively. Net cash provided by financing activities for the first nine months of 2008 resulted from proceeds from the exercise of stock options of $569,000 and the excess tax benefit from stock issuance of $435,000, offset by tax payments for restricted stock units of $989,000. No additional funding from the issuance of common stock (other than from the exercise of options and purchase of stock under the employee stock purchase plan) is anticipated for the remainder of 2008. Net cash provided by financing activities for the first nine months of 2007 resulted in proceeds from the exercise of stock options of $875,000 and excess tax benefits from stock issuance of $660,000, offset by tax payments for restricted stock units of $1.2 million.

Our liquidity is impacted by minimum cash payment commitments resulting from operating lease obligations for our restaurants and our corporate offices. Lease terms are generally 10 to 15 years with renewal options and generally require us to pay a proportionate share of real estate taxes, insurance, common area maintenance, and other operating costs. Some restaurant leases provide for contingent rental payments based on sales thresholds. We own a few of the buildings in which our restaurants operate and, therefore, have limited ability to enter into sale-leaseback transactions as a potential source of cash.

The following table presents a summary of our contractual operating lease obligations and commitments as of September 28, 2008:

 Payments Due By Period (in thousands)
 -----------------------------------------------------------
 Less than After 5
 Total One year 1-3 years 3-5 years years
 ------------------ ---------------- -------------- ------------ --------------
Operating lease obligations $ 194,507 23,211 43,952 39,663 87,681
Lease commitments for restaurants under development 44,122 2,296 6,488 6,506 28,832
 ------------------ ---------------- -------------- ------------ --------------

Total $ 238,629 25,507 50,440 46,169 116,513
 ================== ================ ============== ============ ==============

We believe the cash flows from our operating activities and our balance of cash and marketable securities will be sufficient to fund our operations and building commitments and meet our obligations for the foreseeable future. Our future cash flows related to income tax uncertainties amount to $344,000. These amounts are excluded from the contractual obligations table due to the high degree of uncertainty regarding the timing of these liabilities.

Risk Factors/Forward-Looking Statements

The foregoing discussion and other statements in this report contain various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on current expectations or beliefs concerning future events. Such statements can be identified by the use of terminology such as "anticipate," "believe," "estimate," "expect," "intend," "may," "could," "possible," "plan," "project," "will," "forecast" and similar words or expressions. Our forward-looking statements generally relate to our long-term goal of over 1,000 locations, efforts to manage cost of sales particularly related to chicken wing costs, plans for entry into new markets, expansion and improving existing markets, estimated tax rates for 2008, expected store openings for 2008, anticipated capital expenditures for new and remodeled restaurants, our expectations regarding preopening costs, sources of funding and cash requirements, and our belief that our investment policy restrictions mitigate our market risk on our investment portfolio. Although it is not possible to foresee all of the factors that may cause actual results to differ from our forward-looking statements, such factors include, among others, the following risk factors (each of which is discussed in greater detail in our Annual Report on Form 10-K for the fiscal year ended December 30, 2007):

o Fluctuations in chicken wing prices could reduce our operating income.

o If we are unable to successfully open new restaurants, our revenue growth rate and profits may be reduced.

o We must identify and obtain a sufficient number of suitable new restaurant sites for us to sustain our revenue growth rate.

o Our restaurants may not achieve market acceptance in the new geographic regions we enter.

o New restaurants added to our existing markets may take sales from existing restaurants.

o Implementing our expansion strategy may strain our resources.

o We are dependent on franchisees and their success.

o Franchisees may take actions that could harm our business.

o We could face liability from our franchisees.

o We may be unable to compete effectively in the restaurant industry.

o A reduction in vendor allowances currently received could affect our costs of goods sold.

o Our quarterly operating results may fluctuate due to the timing of special events and other factors, including the recognition of impairment losses.

o We may not be able to attract and retain qualified personnel to operate and manage our restaurants.

o We may not be able to obtain and maintain licenses and permits necessary to operate our restaurants.

o Changes in employment laws or regulation could harm our performance.

o Changes in consumer preferences or discretionary consumer spending could harm our performance.

o We are susceptible to adverse trends in Ohio.

o Changes in public health concerns may impact our performance.

o A decline in visitors to any of the business districts near the locations of our restaurants could negatively affect our restaurant sales.

o The acquisition of existing restaurants from our franchisees or other acquisitions may have unanticipated consequences that could harm our business and our financial condition.

o Improper food handling may affect our business adversely.

o Complaints or litigation may hurt us.

o Our current insurance may not provide adequate levels of coverage against claims.

o Natural disasters and other events could harm our performance.

o We may not be able to protect our trademarks, service marks or trade secrets.

o General economic conditions may affect consumer discretionary spending and harm our performance.

Investors are cautioned that all forward-looking statements involve risk and uncertainties.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk related to our cash and cash equivalents and marketable securities. We invest our excess cash in highly liquid short-term investments with maturities of less than one year. These investments are not held for trading or other speculative purposes. Changes in interest rates affect the investment income we earn on our cash and cash equivalents and marketable securities and, therefore, impact our cash flows and results of operations. We also hold investments in mutual funds for the future needs of a non-qualified deferred compensation plan.

Financial Instruments

Financial instruments that potentially subject us to concentrations of credit risk consist principally of municipal securities. We do not believe there is a significant risk of non-performance by these municipalities because of our investment policy restrictions as to acceptable investment vehicles.

Inflation

The primary inflationary factors affecting our operations are food and alcohol, labor, and restaurant operating costs. Substantial increases in these costs could impact operating results to the extent that such increases cannot be passed along through higher menu prices. A large number of our restaurant personnel are paid at rates based on the applicable federal and state minimum wages, and increases in the minimum wage rates and tip-credit wage rates could directly affect our labor costs. Many of our leases require us to pay taxes, maintenance, repairs, insurance, and utilities, all of which are generally subject to inflationary increases.

Commodity Price Risk

Many of the food products purchased by us are affected by weather, production, availability, and other factors outside our control. We believe that almost all of our food and supplies are available from several sources, which helps to control food product risks. We negotiate directly with independent suppliers for our supply of food and paper products. We use members of UniPro Food Services, Inc., a national cooperative of independent food distributors, to distribute these products from the suppliers to our restaurants. We have minimum purchase requirements with some of our vendors, but the terms of the contracts and nature of the products are such that our purchase requirements do not create a market risk. We currently have numerous products subject to fixed price contracts. These contracts are typically less than one year in length. When these contracts are up for renewal, we may be exposed to price volatility. The primary food product used by company-owned and franchised restaurants is fresh chicken wings. We work to counteract the effect of the volatility of chicken wing prices, which can significantly change our cost of sales and cash flow, with the introduction of popular new menu items, effective marketing promotions, focused efforts on food costs and waste, and menu price increases. We also explore purchasing strategies to reduce the severity of cost increases and fluctuations. We are currently purchasing chicken wings at market prices. In March 2007, we entered into a one-year pricing agreement with one of our chicken suppliers which limited the price volatility that we had experienced in our quarterly cost of sales percentage. This one-year agreement expired in March 2008. If there is a significant rise in the price of fresh chicken wings, and we are unable to successfully adjust menu prices or menu mix or otherwise make operational adjustments to account for the higher wing prices, our operating results could be adversely affected. Fresh chicken wings accounted for approximately 19.5% and 23.3% of our cost of sales in the third quarter of 2008 and 2007, respectively, with a quarterly average price per pound of $1.17 and $1.24, respectively.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures as defined in Rules 13(a)-15(e) under the Securities Exchange Act of 1934 ("the Exchange Act"). Based on this evaluation, the principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There were no changes in our internal controls over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Occasionally, we are a defendant in litigation arising in the ordinary course of our business, including claims arising from personal injuries, contract claims, franchise-related claims, dram shop claims, employment-related claims and claims from guests or employees alleging injury, illness or other food quality, health or operational concerns. To date, none of these types of litigation, most of which are typically covered by insurance, has had a material effect on us. We have insured and continue to insure against most of these types of claims. A judgment significantly in excess of our insurance coverage or involving punitive damages, which may not be covered by insurance, could materially adversely affect our financial condition or results of operations.

ITEM 6. EXHIBITS

See Exhibit Index following the signature page of this report.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 7, 2008 BUFFALO WILD WINGS, INC.


 By: /s/ Sally J. Smith
 --------------------------------------------
 Sally J. Smith, President and Chief Executive
 Officer
 (principal executive officer)


 By: /s/ Mary J. Twinem
 ---------------------------------------------
 Mary J. Twinem, Executive Vice President,
 Chief Financial Officer and Treasurer
 (principal financial and accounting officer)

EXHIBIT INDEX

BUFFALO WILD WINGS, INC.
FORM 10-Q FOR QUARTER ENDED SEPTEMBER 28, 2008

Exhibit
Number Description
-------- ---------------------------------------------------------------------
 10.1 Employment Agreement dated September 16, 2008 with Sally J. Smith
 (incorporated by reference to Exhibit 10.1 to our Form 8-K filed on
 September 22, 2008)*

 10.2 Employment Agreement dated September 16, 2008 with Mary J. Twinem
 (incorporated by reference to Exhibit 10.2 to our Form 8-K filed on
 September 22, 2008)*

 10.3 Employment Agreement dated September 16, 2008 with James M. Schmidt
 (incorporated by reference to Exhibit 10.3 to our Form 8-K filed on
 September 22, 2008)*

 10.4 Employment Agreement dated September 16, 2008 with Judith A. Shoulak
 (incorporated by reference to Exhibit 10.4 to our Form 8-K filed on
 September 22, 2008)*

 10.5 Employment Agreement dated September 16, 2008 with Kathleen M.
 Benning (incorporated by reference to Exhibit 10.5 to our Form 8-K
 filed on September 22, 2008)*

 10.6 Form of Amendment to Notice of Restricted Stock Unit Award Relating
 to Awards in Fiscal Years 2006 and 2007 to Executive Officers
 (incorporated by reference to Exhibit 10.6 to our Form 8-K filed on
 September 22, 2008)*

 10.7 Employment Agreement dated September 16, 2008 with Linda G. Traylor*

 10.8 Employment Agreement dated September 16, 2008 with Mounir N. Sawda*

 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
 the Sarbanes-Oxley Act

 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
 the Sarbanes-Oxley Act

 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of
 the Sarbanes-Oxley Act

 32.2 Certification of Chief Financial Officer Pursuant to Section 906 of
 the Sarbanes-Oxley Act

*Management agreement or compensatory plan or arrangement.

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