Buffalo Wild Wings (BWLD)

Fiscal Year 2003 Compared to Fiscal Year 2002

Restaurant sales increased by $27.5 million, or 32.1%, to $113.0 million in 2003 from $85.5 million in 2002. The increase in restaurant sales was due to a $24.2 million increase associated with the opening of 15 new company-owned restaurants in 2003 and the 8 company-owned restaurants opened before 2003 that did not meet the criteria for same-store sales and $3.3 million related to a 4.3% increase in same-store sales. The increase in

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same-store sales from 1.6% in 2002 to 4.3% in 2003 was due to more effective marketing promotions, better economic conditions, and the lower level of same-store sales growth in 2002.

Franchise royalties and fees increased by $2.9 million, or 27.5%, to $13.5 million in 2003 from $10.6 million in 2002. The increase was due primarily to additional royalties collected from the 36 new franchised restaurants that opened in 2003 and a full year of operations for the 28 franchised restaurants that opened in 2002. Same-store sales for franchised restaurants increased 5.6%.

Cost of sales increased by $10.4 million, or 41.8%, to $35.4 million in 2003 from $25.0 million in 2002 due primarily to more restaurants being operated in 2003. Cost of sales as a percentage of restaurant sales increased to 31.4% in 2003 from 29.2% in 2002. The increase in cost of sales as a percentage of restaurant sales was primarily due to higher fresh chicken wing costs. We are susceptible to wing price fluctuations. Annual average wing prices have ranged from $0.89 to $1.18 per pound during the last three years. For 2003, wing prices averaged $1.06 per pound which was a 19.1% increase over 2002.

Labor expenses increased by $8.0 million, or 32.7%, to $32.7 million in 2003 from $24.6 million in 2002 due primarily to more restaurants being operated in 2003. Labor expenses as a percentage of restaurant sales were essentially flat year over year, at 28.9% in 2003 compared to 28.8% in 2002.

Operating expenses increased by $4.2 million, or 31.9%, to $17.6 million in 2003 from $13.3 million in 2002 due primarily to more restaurants being operated in 2003. Operating expenses as a percentage of restaurant sales decreased to 15.5% in 2003 from 15.6% in 2002. The decrease in operating expenses as a percentage of restaurant sales was primarily due to lower restaurant repairs and maintenance.

Occupancy expenses increased by $2.0 million, or 35.0%, to $7.7 million in 2003 from $5.7 million in 2002 due primarily to more restaurants being operated in 2003. Occupancy expenses as a percentage of restaurant sales increased to 6.9% in 2003 from 6.7% in 2002, primarily due to higher rent expense on new free-standing restaurants opened in 2003 and increasing common area maintenance costs for all restaurants.

Depreciation and amortization increased by $1.5 million, or 27.0%, to $7.0 million in 2003 from $5.5 million in 2002. The increase was primarily due to the additional depreciation on 15 new restaurants in 2003 and 18 new restaurants opened in 2002 and operated for a full year in 2003.

General and administrative expenses increased by $2.8 million, or 19.8%, to $16.9 million in 2003 from $14.1 million in 2002 due to higher corporate headcount. General and administrative expenses as a percentage of total revenue decreased to 13.4% in 2003 from 14.7% in 2002. This decrease was primarily due to a planned decrease in general and administrative expense growth relative to sales growth, and to our ability to leverage existing corporate infrastructure.

Preopening costs increased by $70,000, or 6.5%, to $1.2 million in 2003 from $1.1 million in 2002. The Company opened 15 new restaurants in 2003 versus 18 new restaurants in 2002. Preopening costs per restaurant opened increased in 2003 due to higher labor and training costs.

Restaurant closures and asset impairment increased by $160,000, or 22.5%, to $868,000 in 2003 from $708,000 in 2002. The expense in 2003 represented the asset impairment of one underperforming restaurant, closure of one restaurant, additional reserves related to a restaurant which closed in 2002, and impairment of liquor licenses in Ohio. The expense in 2002 represents the impairment and closure of an underperforming restaurant and impairment of liquor licenses in Pennsylvania.

Interest income increased by $23,000, or 26.5%, to $112,000 in 2003 from $88,000 in 2002. The increase was due to interest income generated on the higher cash balances as a result of the initial public offering of common stock. Cash balances at the end of the year were $49.5 million in 2003 compared to $4.6 million in 2002.

Interest expense decreased by $19,000, or 2.0%, to $947,000 in 2003 from $966,000 in 2002. We repaid all long-term debt and capital lease obligations in early December 2003 with proceeds from the initial public

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offering. The decrease was due to debt being held for the full year in 2002 versus 11 months in 2003. In addition to the interest expense noted earlier, we incurred a cost of debt extinguishment of $411,000 relating to the repayment.

Provision for income taxes increased $264,000, or 13.0%, to $2.3 million in 2003 from $2.0 million in 2002. The effective tax rate as a percentage of income before taxes decreased to 39.0% in 2003 from 39.8% in 2002. Our effective tax rate reflects the full federal and state statutory rates on taxable income. The reduction in our effective tax rate period over period was due to more restaurants being added in states with lower effective rates.