Buffalo Wild Wings (BWLD) 10-Q 2009 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 28, 2009

Commission File No. 000-24743

BUFFALO WILD WINGS, INC.

(Exact name of registrant as specified in its charter)

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

5500 Wayzata Boulevard, Suite 1600, Minneapolis, MN 55416

(Address of Principal Executive Offices) (Zip Code)

(952) 593-9943

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  ¨    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 July 31, 2009:  18,023,536 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 Results of Operations	11
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 4.	Submission of Matters to a Vote of Security Holders	20
Item 6.	Exhibits	20
Signatures		21
Exhibit Index		22

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands)

(unaudited)

	June 28, 2009		December 28, 2008
Assets
Current assets:
Cash and cash equivalents	$	11,139	$	8,347
Marketable securities		37,867		36,157
Accounts receivable – franchisees, net of allowance of $25		881		895
Accounts receivable – other		6,746		5,759
Inventory		3,359		3,104
Prepaid expenses		1,905		3,294
Refundable income taxes		—		1,611
Deferred income taxes		2,741		1,731
Total current assets		64,638		60,898
Property and equipment, net		168,171		154,432
Restricted cash		10,707		7,670
Other assets		9,645		9,846
Goodwill		10,972		10,972
Total assets	$	264,133		243,818
Liabilities and Stockholders’ Equity
Current liabilities:
Unearned franchise fees	$	2,680		2,514
Income tax payable		253		—
Accounts payable		12,778		16,691
Accrued compensation and benefits		14,245		14,155
Accrued expenses		5,606		7,116
Current portion of deferred lease credits		173		56
Total current liabilities		35,735		40,532
Long-term liabilities:
Other liabilities		1,350		1,270
Marketing fund payables		10,707		7,670
Deferred income taxes		11,565		8,916
Deferred lease credits, net of current portion		14,799		13,837
Total liabilities		74,156		72,225
Commitments and contingencies (note 10)
Stockholders’ equity:
Undesignated stock, 1,000,000 shares authorized; none issued		—		—
Common stock, no par value. Authorized 44,000,000 shares; issued and outstanding 18,023,450 and 17,887,271 respectively		89,241		86,318
Retained earnings		100,736		85,275
Total stockholders’ equity		189,977		171,593
Total liabilities and stockholders’ equity	$	264,133		243,818

See accompanying notes to consolidated financial statements

3

BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

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

(unaudited)

	Three months ended				Six months ended
	June 28, 2009		June 29, 2008		June 28, 2009		June 29, 2008
Revenue:
Restaurant sales	$	117,763		87,462		237,187		174,358
Franchise royalties and fees		11,859		10,406		23,990		20,772
Total revenue		129,622		97,868		261,177		195,130
Costs and expenses:
Restaurant operating costs:
Cost of sales		35,922		26,248		72,130		52,663
Labor		36,056		27,020		71,605		52,878
Operating		17,966		13,857		35,953		27,132
Occupancy		7,924		5,902		15,518		11,599
Depreciation and amortization		7,888		5,510		15,383		10,749
General and administrative (1)		11,773		9,047		23,193		18,388
Preopening		1,673		1,758		4,082		2,943
Loss on asset disposals and impairment		272		385		447		1,138
Total costs and expenses		119,474		89,727		238,311		177,490
Income from operations		10,148		8,141		22,866		17,640
Investment income		413		400		489		832
Earnings before income taxes		10,561		8,541		23,355		18,472
Income tax expense		3,586		2,926		7,894		6,332
Net earnings	$	6,975		5,615		15,461		12,140
Earnings per common share – basic	$	0.39		0.32		0.86		0.68
Earnings per common share – diluted		0.39		0.31		0.86		0.68
Weighted average shares outstanding – basic		17,999		17,810		17,990		17,788
Weighted average shares outstanding – diluted		18,070		17,906		18,052		17,893

(1) Includes stock-based compensation of $1,689, $904, $2,490, and $1,924, respectively

See accompanying notes to consolidated financial statements

4

BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollar amounts in thousands)

(unaudited)

	Six months ended
	June 28, 2009			June 29, 2008
Cash flows from operating activities:
Net earnings	$	15,461			12,140
Adjustments to reconcile net earnings to cash provided by operations:
Depreciation		15,077			10,749
Amortization		306			36
Loss on asset disposals and impairment		447			1,138
Deferred lease credits		840			1,113
Deferred income taxes		1,639			2,386
Stock-based compensation		2,490			1,924
Excess tax benefit from the exercise of stock options		(31	)		(302	)
Change in operating assets and liabilities:
Trading securities		(1,204	)		(76	)
Accounts receivable		(734	)		182
Inventory		(255	)		(155	)
Prepaid expenses		1,389			1,098
Other assets		(105	)		(79	)
Unearned franchise fees		166			89
Accounts payable		(61	)		376
Income taxes		1,895			960
Accrued expenses		20			(928	)
Net cash provided by operating activities		37,340			30,651
Cash flows from investing activities:
Acquisition of property and equipment		(33,115	)		(24,643	)
Purchase of marketable securities		(25,284	)		(68,578	)
Proceeds of marketable securities		24,778			69,852
Net cash used in investing activities		(33,621	)		(23,369	)
Cash flows from financing activities:
Issuance of common stock		555			562
Tax payments for restricted stock units		(1,513	)		(989	)
Excess tax benefit from the exercise of stock options		31			302
Net cash used in financing activities		(927	)		(125	)
Net increase in cash and cash equivalents		2,792			7,157
Cash and cash equivalents at beginning of period		8,347			1,521
Cash and cash equivalents at end of period	$	11,139			8,678

See accompanying notes to consolidated financial statements

5

BUFFALO WILD WINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 28, 2009 AND JUNE 29, 2008

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

(1) Basis of Financial Statement Presentation

The consolidated financial statements as of June 28, 2009 and December 28, 2008, and for the three-month and six-month periods ended June 28, 2009 and June 29, 2008, 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 six-month periods ended June 28, 2009 and June 29, 2008 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. In preparing the accompanying financial statements, we have evaluated subsequent events through August 5, 2009, the issuance date of this Quarterly Report on Form 10-Q. We have determined that no events or transactions have occurred subsequent to June 28, 2009 which require recognition or disclosure in the financial statements.

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 28, 2008 is derived from our audited consolidated financial statements and notes thereto for the fiscal year ended December 28, 2008, which is included in Item 8 in the Fiscal 2008 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 six-month periods ended June 28, 2009 are not necessarily indicative of the results of operations that may be achieved for the entire year ending December 27, 2009.

(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. The primary food product used by our restaurants and our franchised restaurants is fresh chicken wings. Fresh chicken wings are purchased by us at market prices. Material increases in fresh chicken wing costs may adversely affect our operating results. For the three-month periods ended June 28, 2009 and June 29, 2008, fresh chicken wings were 25.5% and 20.4%, respectively, of restaurant cost of sales. For the six-month periods ended June 28, 2009 and June 29, 2008, fresh chicken wings were 24.5% and 21.5%, respectively, of restaurant cost of sales.

(b) Fair Values of Financial Instruments

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, “Fair Value Measurements,” and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

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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 June 28, 2009:

	Fair Value Measurements
	Level 1			Level 2			Level 3			Total
Assets
Short-term investments (1)		$	2,771		$	22,485		$	—		$	25,256

(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 a 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 June 28, 2009, no assets or liabilities were measured at fair value on a nonrecurring basis.

(c) New Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141R, “Business Combinations.” SFAS No. 141R 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. We will apply SFAS No. 141R to all future business combinations.

In June 2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 provides that unvested share-based payment awards that contain nonforfeitable rights to dividends are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The two-class method is an earnings allocation method for computing earnings per share when an entity’s capital structure includes either two or more classes of common stock or common stock and participating securities. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. The adoption of FSP EITF 03-6-1 did not have an impact on our consolidated financial statements.

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(3) Marketable Securities

Marketable securities were comprised of the following:

	As of
	June 28, 2009		December 28, 2008
Held-to-maturity:
Municipal securities	$	12,611	$	17,254
Available-for-sale:
Municipal securities		22,485		17,336
Trading:
Mutual funds		2,771		1,567
Total	$	37,867	$	36,157

All held-to-maturity debt securities are due within one year and had aggregate fair values of $12,618 and $17,278 as of June 28, 2009 and December 28, 2008, respectively. Trading securities represents investments held for future needs of a non-qualified deferred compensation plan.

(4) Property and Equipment

Property and equipment consisted of the following:

	As of
	June 28, 2009			December 28, 2008
Construction in-process	$	6,015		$	10,703
Buildings		13,237			6,639
Furniture, fixtures, and equipment		106,697			95,460
Leasehold improvements		136,815			122,796
		262,764			235,598
Less accumulated depreciation		(94,593	)		(81,166	)
	$	168,171		$	154,432

(5) Derivative Instruments

We use commodities derivatives to manage our exposure to commodity price fluctuations. We enter into options and future contracts to reduce our risk of natural gas price fluctuations. These derivatives do not qualify for hedge accounting and changes in fair value are included in current net income. These changes are classified as a component of restaurant operating expenses. All changes in the fair value of these contracts are recorded in earnings in the period in which they occur. Net gains (losses) of ($253) and $33 were recognized in the first six months of 2009 and 2008, respectively. The fair value of our derivative instruments as of June 28, 2009 and December 28, 2008 was $176 and $461, respectively, and is a liability in accrued expenses in the accompanying consolidated balance sheets. As of June 28, 2009, the maximum length of time over which we are hedging our exposure to the variability in future cash flows related to the purchase of natural gas is ten months. As of June 28, 2008 and December 28, 2008 we were party to natural gas swap contracts with notional values of $2,413 and $5,797, respectively.

(6) Stockholders’ Equity

(a) Stock Options

We have 3.9 million shares of common stock reserved for issuance under the Equity Incentive Plan (the 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 with respect to incentive and nonqualified stock options. 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 seven to ten years. In 2008, our shareholders approved amendments to the plan which extended the plan to 2018. We issue new shares of common stock upon exercise of stock options. Option activity is summarized for the six months ended June 28, 2009 as follows:

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	Number of shares			Weighted average exercise price		Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Outstanding, December 28, 2008		146,548		$	13.71		4.5	$	1,627
Granted		56,302			30.90
Exercised		(1,235	)		13.24
Cancelled		(610	)		10.45
Outstanding, June 28, 2009		201,005		$	18.54		4.7	$	2,806
Exercisable, June 28, 2009		102,349			9.08		3.4		2,397

The aggregate intrinsic value in the table above is before applicable income taxes, based on our closing stock price of $32.50 as of the last business day of the quarter ended June 28, 2009, which would have been received by the optionees had all options been exercised on that date. As of June 28, 2009, total unrecognized stock-based compensation expense related to nonvested stock options was approximately $1,121, which is expected to be recognized over a weighted average period of approximately 1.8 years. During the six-month periods ended June 28, 2009 and June 29, 2008, the total intrinsic value of stock options exercised was $26 and $867, respectively. During the six-month periods ended June 28, 2009 and June 29, 2008, the total fair value of options vested was $5 and $24, respectively.

The plan has 775,381 shares available for grant as of June 28, 2009.

(b) Restricted Stock Units

We have a stock-based performance plan under which restricted stock units are granted annually at the discretion of the Board of Directors. For restricted stock units granted prior to 2008, units vest annually upon achievement of performance targets. The performance targets for these restricted stock units are annual income targets set by our Board of Directors at the beginning of the year. We record compensation expense for these restricted stock units if vesting is probable, based on the achievement of the performance targets. These 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 is based on performance against those cumulative targets. These 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.

In 2009, we granted restricted stock units subject to three-year cliff vesting and a cumulative three-year earnings target. The number of units which vest at the end of the three-year period is based on performance against the target. These 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 the period and is expensed over the three-year period.

For each 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 required minimum employee withholding taxes. We issue new shares of common stock upon the disbursement of restricted stock units. Restricted stock units are contingently issuable shares, and the activity for fiscal 2009 is as follows:

9

	Number of shares			Weighted average grant date fair value
Outstanding, December 28, 2008		284,845		$	20.19
Granted		340,124			33.34
Vested		(10,440	)		34.48
Cancelled		(2,386	)		21.28
Outstanding, June 28, 2009		612,143		$	27.25

As of June 28, 2009, the total stock-based compensation expense related to nonvested awards not yet recognized was $7,547, which is expected to be recognized over a weighted average period of 1.4 years. During the six-month periods ended June 28, 2009 and June 29, 2008, the total fair value of shares vested was $360 and $420, respectively. The weighted average grant date fair value of restricted stock units granted during the six months ended June 29, 2008 was $23.10.

(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 six months of 2009 and 2008, we issued 29,183 and 17,974 shares of common stock under the plan. As of June 28, 2009, we have 359,892 shares available for future issuance under the ESPP.

(7) Earnings Per Share

The following is a reconciliation of basic and fully diluted earnings per share for the three-month and six-month periods ended June 28, 2009 and June 29, 2008:

	Three months ended June 28, 2009
	Earnings (numerator)		Shares (denominator)		Per-share amount
Net earnings	$	6,975
Earnings per common share – basic		6,975		17,999,324	$	0.39
Effect of dilutive securities – stock options		—		70,487
Earnings per common share – diluted	$	6,975		18,069,811	$	0.39

	Three months ended June 29, 2008
	Earnings (numerator)		Shares (denominator)		Per-share amount
Net earnings	$	5,615
Earnings per common share – basic		5,615		17,810,391	$	0.32
Effect of dilutive securities – stock options		—		96,085
Earnings per common share – diluted	$	5,615		17,906,476	$	0.31

	Six months ended June 28, 2009
	Earnings (numerator)		Shares (denominator)		Per-share amount
Net earnings	$	15,461
Earnings per common share – basic		15,461		17,989,591	$	0.86
Effect of dilutive securities – stock options		—		62,758
Earnings per common share – diluted	$	15,461		18,052,349	$	0.86

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	Six months ended June 29, 2008
	Earnings (numerator)		Shares (denominator)		Per-share amount
Net earnings	$	12,140
Earnings per common share – basic		12,140		17,788,361	$	0.68
Effect of dilutive securities – stock options		—		104,341
Earnings per common share – diluted	$	12,140		17,892,702	$	0.68

Shares excluded from the fully diluted calculation because the effect on net earnings per share would have been antidilutive were 658,445 shares and 501,430 shares for the three-month periods ended June 28, 2009 and June 29, 2008, respectively, and 705,659 shares and 486,382 shares for the six-month periods ended June 28, 2009 and June 29, 2008, respectively.

(8) Supplemental Disclosures of Cash Flow Information

	Six months ended
	June 28, 2009			June 29, 2008
Cash paid during the period for:
Income taxes	$	4,434			3,023
Noncash financing and investing transactions:
Property and equipment not yet paid for		(3,852	)		5,811

(9) 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 consolidated balance sheet as of June 28, 2009, and December 28, 2008 were $502 and $442 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 in income tax expense. Interest and penalties related to unrecognized tax benefits totaled $96 at June 28, 2009. Included in the balance at June 28, 2009 and December 28, 2008, are unrecognized tax benefits of $326 and $287, 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 June 27, 2010.

The Internal Revenue Service completed their examination of our 2005 U.S. Income Tax Return in 2008. 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.

(10) 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 28, 2008. This discussion and analysis contains certain statements that are not historical facts, including, among others, those relating to our anticipated financial performance for 2009, cash requirements, and our expected store openings. Such statements are forward-looking and speak only as of the date on which they are made. There are risks and uncertainties including, but 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 2008 Form 10-K.

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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, goodwill, vendor allowances, revenue recognition from franchise operations, self-insurance liability, and stock-based compensation. An in-depth description of these can be found in our Annual Report on Form 10-K for the fiscal year ended December 28, 2008. There have been no changes to those policies during this period.

Overview

As of June 28, 2009, we owned and operated 215 company-owned and franchised an additional 383 Buffalo Wild Wings® Grill & Bar restaurants in 40 states. Of the 598 system-wide restaurants, 85 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 in the United States, continuing the strategy of developing both company-owned and franchised restaurants.

Our growth targets for 2009 are 15% unit growth, 25% revenue growth, and 20% to 25% net earnings growth. 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 has ranged from 29.3% to 30.5% of restaurant sales per quarter in our 2008 fiscal year and year-to-date in 2009. 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 change 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. If a satisfactory long-term price agreement for chicken wings were to arise, we would consider locking in prices to reduce our 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. These factors may result in lower than anticipated sales and cash flow for new restaurants in new markets. In 2009, 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:

• Sales at our company-owned restaurants, which were 91% of total revenue in the second quarter of 2009. Food and nonalcoholic beverages accounted for 77% of restaurant sales. The remaining 23% of restaurant sales was from alcoholic beverages. The menu item with the highest sales volume is chicken wings at 20% of total restaurant sales.

• 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 on-going operation of our company-owned restaurants in the consolidated 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 second quarters of 2009 and 2008 consisted of thirteen weeks.

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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 six-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						Six months ended
	June 28, 2009			June 29, 2008			June 28, 2009			June 29, 2008
Revenue:
Restaurant sales		90.9	%		89.4	%		90.8	%		89.4	%
Franchising royalties and fees		9.1			10.6			9.2			10.6
Total revenue		100.0			100.0			100.0			100.0
Costs and expenses:
Restaurant operating costs:
Cost of sales		30.5			30.0			30.4			30.2
Labor		30.6			30.9			30.2			30.3
Operating		15.3			15.8			15.2			15.6
Occupancy		6.7			6.7			6.5			6.7
Depreciation and amortization		6.1			5.6			5.9			5.5
General and administrative		9.1			9.2			8.9			9.4
Preopening		1.3			1.8			1.6			1.5
Loss on asset disposals and impairment		0.2			0.4			0.2			0.6
Total costs and expenses		92.2			91.7			91.2			91.0
Income from operations		7.8			8.3			8.8			9.0
Investment income		0.3			0.4			0.2			0.4
Earnings before income taxes		8.1			8.7			8.9			9.5
Income tax expense		2.8			3.0			3.0			3.2
Net earnings		5.4			5.7			5.9			6.2

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

	As of
	June 28, 2009		June 29, 2008
Company-owned restaurants		215		169
Franchised restaurants		383		346

The restaurant sales for company-owned and franchised restaurants are as follows (amounts in thousands):

	Three months ended				Six months ended
	June 28, 2009		June 29, 2008		June 28, 2009		June 29, 2008
Company-owned restaurant sales	$	117,763	$	87,462	$	237,187	$	174,358
Franchised restaurant sales		238,490		206,718		480,607		413,606

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

	Three months ended						Six months ended
	June 28, 2009			June 29, 2008			June 28, 2009			June 29, 2008
Company-owned same-store sales		2.8	%		8.3	%		4.6	%		6.1	%
Franchised same-store sales		3.7			4.5			4.9			3.3

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

	Three months ended				Six months ended
	June 28, 2009		June 29, 2008		June 28, 2009		June 29, 2008
Average price per pound	$	1.69		1.17		1.66		1.25

Results of Operations for the Three Months Ended June 28, 2009 and June 29, 2008

Restaurant sales increased by $30.3 million, or 34.6%, to $117.8 million in 2009 from $87.5 million in 2008. The increase in restaurant sales was due to a $27.8 million increase associated with 19 new company-owned restaurants that opened in 2009, 9 stores acquired from our franchisee in Nevada in 2008, and 32 company-owned restaurants opened before 2009 that did not meet the criteria for same-store sales for all or part of the three-month period and $2.5 million related to a 2.8% increase in same-store sales.

Franchise royalties and fees increased by $1.5 million, or 14.0%, to $11.9 million in 2009 from $10.4 million in 2008. The increase was primarily due to additional royalties collected from 22 new franchised restaurants that opened in 2009 and 29 franchised restaurants that opened in the last six months of 2008. Same-store sales for franchised restaurants increased 3.7% in 2009.

Cost of sales increased by $9.7 million, or 36.9%, to $35.9 million in 2009 from $26.2 million in 2008 due primarily to more restaurants being operated in 2009. Cost of sales as a percentage of restaurant sales increased to 30.5% in 2009 from 30.0% in 2008. The increase in cost of sales as a percentage of restaurant sales was primarily due to higher fresh chicken wing prices partially offset by menu mix changes. The steady shift from traditional wings to boneless wings also lowered our cost of goods percentage. Traditional wings accounted for 20% of our restaurant sales for the second quarter of 2009, down from 22% in the second quarter of 2008. Boneless wings, which are a better margin item than traditional wings, increased to 19% of sales, from 16% in 2008. For the second quarter of 2009, wing prices averaged $1.69 per pound which was a 44.4% increase over the same period in 2008.

Labor expenses increased by $9.0 million, or 33.4%, to $36.1 million in 2009 from $27.0 million in 2008 due primarily to more restaurants being operated in 2009. Labor expenses as a percentage of restaurant sales decreased to 30.6% in 2009 from 30.9% in 2008. The decrease in labor expenses as a percentage of restaurant sales was primarily due to lower hourly labor partially offset by higher workers’ compensation costs.

Operating expenses increased by $4.1 million, or 29.7%, to $18.0 million in 2009 from $13.9 million in 2008 due primarily to more restaurants being operated in 2009. Operating expenses as a percentage of restaurant sales decreased to 15.3% in 2009 from 15.8% in 2008. The decrease in operating expenses as a percentage of restaurant sales is primarily due to lower natural gas charges.

Occupancy expenses increased by $2.0 million, or 34.3%, to $7.9 million in 2009 from $5.9 million in 2008 due primarily to more restaurants being operated in 2009. Occupancy expenses as a percentage of restaurant sales remained consistent at 6.7% in 2009 and 2008.

Depreciation and amortization increased by $2.4 million, or 43.2%, to $7.9 million in 2009 from $5.5 million in 2008. The increase was primarily due to the additional depreciation on 19 new restaurants opened in 2009 and the 22 new restaurants that opened in the last six months of 2008.

General and administrative expenses increased by $2.7 million, or 30.1%, to $11.8 million in 2009 from $9.0 million in 2008 primarily due to additional headcount and higher incentive compensation costs and event-related costs. General and administrative expenses as a percentage of total revenue decreased to 9.1% in 2009 from 9.2% in 2008. Exclusive of stock-based compensation, we reduced our general and administrative expenses as a percentage of revenue to 7.8% from 8.3% due to better leverage of our wage-related expenses against higher revenue.

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Preopening costs decreased by $85,000, to $1.7 million in 2009 from $1.8 million in 2008. In 2009, we incurred costs of $1.5 million for nine new company-owned restaurants opened in the second quarter of 2009 and costs of $143,000 for restaurants that will open in the second half of 2009. In 2008, we incurred costs of $988,000 for five new company-owned restaurants opened in the second quarter of 2008 and costs of $674,000 for restaurants that opened in the second half of 2008. In 2009, we expect average preopening costs per restaurant to be $230,000.

Loss on asset disposals and impairment decreased by $113,000 to $272,000 in 2009 from $385,000 in 2008. In 2009, the loss was related to the write-off of miscellaneous equipment. In 2008, the loss was related to HDTV upgrades and write-off of miscellaneous equipment.

Investment income increased by $13,000 to $413,000 in 2009 from $400,000 in 2008. The increase was primarily due to gains on investments held for a deferred compensation plan partially offset by decreases in interest income due to lower interest rates and lower cash and marketable securities balances. Cash and marketable securities balances at the end of the quarter totaled $49.0 million in 2009 compared to $74.0 million at the end of the second quarter of 2008. The change in cash and marketable securities balances was primarily due to the acquisition of nine Buffalo Wild Wings franchised restaurants located in Las Vegas, Nevada during the third quarter of 2008.

Provision for income taxes increased $660,000 to $3.6 million in 2009 from $2.9 million in 2008. The effective tax rate as a percentage of income before taxes decreased to 34.0% in 2009 from 34.3% in 2008. The 2009 income tax rate was lower due to an increase in employer tax credits and a decrease in state taxes which were partially offset by a decrease in tax exempt interest income. For 2009, we believe our effective tax rate will be approximately 34%.

Results of Operations for the Six Months Ended June 28, 2009 and June 29, 2008

Restaurant sales increased by $62.8 million, or 36.0%, to $237.2 million in 2009 from $174.4 million in 2008. The increase in restaurant sales was due to a $55.0 million increase associated with 19 new company-owned restaurants that opened in 2009, 9 stores acquired from our franchisee in Nevada in 2008, and 46 company-owned restaurants opened before 2009 that did not meet the criteria for same-store sales for all or part of the six-month period and $7.8 million related to a 4.6% increase in same-store sales.

Franchise royalties and fees increased by $3.2 million, or 15.5%, to $24.0 million in 2009 from $20.8 million in 2008. The increase was primarily due to additional royalties collected from 22 new franchised restaurants that opened in 2009 and 29 franchised restaurants that opened in the last six months of 2008. Same-store sales for franchised restaurants increased 4.9% in 2009.

Cost of sales increased by $19.5 million, or 37.0%, to $72.1 million in 2009 from $52.7 million in 2008 due primarily to more restaurants being operated in 2009. Cost of sales as a percentage of restaurant sales increased to 30.4% in 2009 from 30.2% in 2008. The increase in cost of sales as a percentage of restaurant sales was primarily due to higher fresh chicken wing prices partially offset by menu mix changes. The steady shift from traditional wings to boneless wings also lowered our cost of goods percentage. Traditional wings accounted for 20% of our restaurant sales for the first six months of 2009, down from 22% in the first six months of 2008. Boneless wings, which are a better margin item than traditional wings, increased to 19% of sales in 2009, from 15% in 2008. For the first half of 2009, wing prices averaged $1.66 per pound which was a 32.8% increase over the same period in 2008.

Labor expenses increased by $18.7 million, or 35.4%, to $71.6 million in 2009 from $52.9 million in 2008 due primarily to more restaurants being operated in 2009. Labor expenses as a percentage of restaurant sales decreased to 30.2% in 2009 from 30.3% in 2008. The decrease in labor expenses as a percentage of restaurant sales was primarily due to lower hourly and management labor costs partially offset by higher store bonuses and health insurance costs.

Operating expenses increased by $8.8 million, or 32.5%, to 36.0 million in 2009 from $27.1 million in 2008 due primarily to more restaurants being operated in 2009. Operating expenses as a percentage of restaurant sales decreased to 15.2% in 2009 from 15.6% in 2008. The decrease in operating expenses as a percentage of restaurant sales is primarily due to lower natural gas charges, cable, and televised sport package costs partially offset by higher repair and maintenance costs.

Occupancy expenses increased by $3.9 million, or 33.8%, to $15.5 million in 2009 from $11.6 million in 2008 due primarily to more restaurants being operated in 2009. Occupancy expenses as a percentage of restaurant sales decreased to 6.5% in 2009 from 6.7% in 2008.

Depreciation and amortization increased by $4.6 million, or 43.1%, to $15.4 million in 2009 from $10.7 million in 2008. The increase was primarily due to the additional depreciation on 19 new restaurants opened in 2009 and the 22 new restaurants that opened in the last six months of 2008.

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General and administrative expenses increased by $4.8 million, or 26.1%, to $23.2 million in 2009 from $18.4 million in 2008 primarily due to additional headcount and higher incentive compensation costs and professional fees. General and administrative expenses as a percentage of total revenue decreased to 8.9% in 2009 from 9.4% in 2008. Exclusive of stock-based compensation, we reduced our general and administrative expenses as a percentage of revenue to 7.9% from 8.4% due to better leverage of our wage-related expenses with the higher revenue.

Preopening costs increased by $1.1 million, to $4.1 million in 2009 from $2.9 million in 2008. In 2009, we incurred costs of $3.9 million for 19 new company-owned restaurants opened in the first six months of 2009 and costs of $144,000 for restaurants that will open in the third or fourth quarters of 2009. In 2008, we incurred costs of $1.9 million for nine new company-owned restaurants opened in the first six months of 2008 and costs of $990,000 for restaurants that opened in the third or fourth quarters of 2008. In 2009, we expect average preopening costs per restaurant to be $230,000.

Loss on asset disposals and impairment decreased by $691,000 to $447,000 in 2009 from $1.1 million in 2008. In 2009, the loss was related to the write-off of miscellaneous equipment. In 2008, we impaired the assets of one of our Texas restaurants due to a relocation for $395,000. The remaining loss was related to the HDTV upgrades and write-off of miscellaneous equipment.

Investment income decreased by $343,000 to $489,000 in 2009 from $832,000 in 2008. The decrease was primarily due to lower cash and marketable securities balances and lower interest rates. Cash and marketable securities balances at the end of the quarter totaled $49.0 million in 2009 compared to $74.0 million at the end of the second quarter of 2008. The change in cash and marketable securities balances was primarily due to the acquisition of nine Buffalo Wild Wings franchised restaurants located in Las Vegas, Nevada during the third quarter of 2008.

Provision for income taxes increased $1.6 million to $7.9 million in 2009 from $6.3 million in 2008. The effective tax rate as a percentage of income before taxes decreased to 33.8% in 2009 from 34.3% in 2008. The 2009 income tax rate was lower due to an increase in employer tax credits and a decrease in state taxes which were partially offset by a decrease in tax exempt interest income. For 2009, we believe our effective tax rate will be approximately 34%.

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 June 28, 2009 was $49.0 million. We invest our cash balances in debt securities with the focus on protection of principal, adequate liquidity, and return on investment based on risk. As of June 28, 2009, nearly all excess cash was invested in high-quality municipal securities.

For the six months ended June 28, 2009, net cash provided by operating activities was $37.3 million. Net cash provided by operating activities consisted primarily of net earnings adjusted for non-cash expenses and decreases in prepaid expenses and refundable income taxes. The change in prepaid expenses was due to the timing of insurance payments. The change in income taxes was due to the timing of income tax payments.

For the six months ended June 29, 2008, net cash provided by operating activities was $30.7 million. Net cash provided by operating activities consisted primarily of net earnings adjusted for non-cash expenses, a decrease in prepaid expenses and refundable income taxes, and a decrease in accrued expenses. The decrease in prepaid expenses was due to the timing of insurance payments. The decrease in income taxes was due to the timing of income tax payments. The decrease in accrued expenses was due to the payout of year-end incentive compensation.

For the six months ended June 28, 2009 and June 29, 2008, net cash used in investing activities was $33.6 million and $23.4 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 six months of 2009 and 2008, we opened 19 restaurants and 9 restaurants, respectively. In 2009, we expect capital expenditures for approximately 35 new company-owned restaurants to cost approximately $1.7 million per location and expenditures to be approximately $22.5 million for the maintenance and remodel of existing restaurants. In 2009, we purchased $25.3 million of marketable securities and received proceeds of $24.8 million as these investments matured or were sold. In 2008, we purchased $68.6 million of marketable securities and received proceeds of $69.9 million as these investments matured or were sold.

For the six months ended June 28, 2009 and June 29, 2008, net cash used in financing activities was $927,000 and $125,000, respectively. Net cash used in financing activities for 2009 resulted primarily from tax payments for restricted stock units of $1.5 million partially offset by proceeds from the exercise of stock options of $555,000. 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 2009. Net cash used in financing activities for 2008 resulted primarily from tax payments for restricted stock units of $989,000, offset by proceeds from the exercise of stock options of $562,000 and the excess tax benefit from stock issuance of $302,000.

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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 the buildings in which 23 of our restaurants operate and, therefore, have very 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 June 28, 2009:

			Payments Due By Period (in thousands)
	Total		Less than One year		1-3 years		3-5 years		After 5 years
Operating lease obligations	$	224,966		26,723		50,458		45,604		102,181
Lease commitments for restaurants under development		31,283		1,325		3,905		3,939		22,114
Total	$	256,249		28,048		54,363		49,543		124,295

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 outflows related to income tax uncertainties amount to $502,000. These amounts are excluded from the contractual obligations table due to the high degree of uncertainty regarding the timing of these liabilities.

Off-Balance Sheet Arrangements

As of June 28, 2009, we had no off-balance sheet arrangements or transactions.

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 expected restaurant openings for 2009 and the longer term, our efforts to manage the cost of fresh chicken wings and other costs of sales, our growth strategy in new and existing markets, our expectations and beliefs with respect to the impact of certain accounting pronouncements on our financial statements, our estimated tax rates for 2009, our anticipated capital expenditures, our expectations regarding pre-opening costs, sources of funding and cash requirements, our expectations and beliefs regarding various legal actions arising in the ordinary course of business, and our beliefs relating to commodity price and investment risks. 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 28, 2008):

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

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

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

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

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

· Implementing our expansion strategy may strain our resources.

· We are dependent on franchisees and their success.

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· Franchisees may take actions that could harm our business.

· We could face liability from our franchisees.

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

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

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

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

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

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

· Changes in consumer preferences, consumer confidence, or discretionary consumer spending could harm our performance.

· We are susceptible to adverse trends in Ohio.

· Changes in public health concerns may impact our performance.

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

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

· Improper food handling may affect our business adversely.

· Complaints or litigation may hurt us.

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

· Natural disasters and other events could harm our performance.

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

Investors are cautioned that all forward-looking statements involve risk and uncertainties and speak only as of the date on which they are made.

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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, 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. 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 currently purchase chicken wings at market prices. If a satisfactory long-term price agreement for chicken wings were to arise, we would consider locking in prices to reduce our price volatility. 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 25.5% and 20.4% of our cost of sales in the second quarter of 2009 and 2008, respectively, with a quarterly average price per pound of $1.69 and $1.17, respectively.

ITEM 4. CONTROLS AND PROCEDURES

Management’s Report on Internal Control Over Financial Reporting

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 13a-15(e) and 15d-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 accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Changes in Internal Control Over Financial Reporting

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.

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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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Annual Shareholders meeting held on May 21, 2009, we submitted to a vote of our shareholders the following matters. Each proposal received the votes as indicated below, with shareholders approving proposals 1 through 3 and not approving proposal 4.

1. Approved setting the number of members of the Board of Directors at seven (7):

For:  16,056,634 Against: 62,675 Abstain:  48,277 Broker Non-Vote:  0

2. Election of Directors:

	For:		Withheld:
Sally J. Smith		15,734,553		433,033
Dale M. Applequist		15,731,648		435,938
Robert W. MacDonald		15,943,300		224,286
Warren E. Mack		15,475,759		691,827
J. Oliver Maggard		15,983,850		183,736
Michael P. Johnson		15,906,276		261,310
James Damian		15,987,854		179,732

3. Ratified appointment of KPMG LLP as our independent registered public accounting firm for fiscal year ending December 27, 2009:

For:  15,814,960 Against: 326,952 Abstain:  25,674 Broker Non-Vote:  0

4. Shareholder proposal to encourage the Company to give purchasing preference to certain suppliers was not approved:

For:  540,718 Against: 5,734,389 Abstain:  3,935,710 Broker Non-Vote:  5,956,769

ITEM 6. EXHIBITS

See Exhibit Index following the signature page of this report.

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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: August 5, 2009	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)

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EXHIBIT INDEX

BUFFALO WILD WINGS, INC.

FORM 10-Q FOR QUARTER ENDED JUNE 28, 2009

Exhibit Number	Description
3.1	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on May 27, 2009)
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

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