Chili's 2002 Annual Report Download - page 35

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
increases were partially offset by increased sales leverage and menu price increases. Restaurant expenses
decreased in fiscal 2001 due primarily to increased sales leverage, menu price increases, and labor productivity
gains, but were partially offset by increased labor wage rates and utility costs.
Depreciation and amortization increased in fiscal 2002 due primarily to new unit construction, ongoing
remodel costs, the acquisition of previously leased equipment and certain real estate assets, and restaurants
acquired during fiscal 2002 and 2001. These increases were partially offset by increased sales leverage, a declining
depreciable asset base for older units, and the elimination of goodwill and certain other intangibles amortization
in accordance with Statement of Financial Accounting Standards (‘‘SFAS’’) No. 142. Depreciation and
amortization decreased in fiscal 2001 due primarily to increased sales leverage, utilization of equipment leasing
facilities, and a declining depreciable asset base for older units. Partially offsetting these decreases were increases
in depreciation and amortization related to new unit construction, ongoing remodel costs and restaurants
acquired during fiscal 2001.
General and administrative expenses decreased in fiscal 2002 and fiscal 2001 as compared to the respective
prior fiscal years as a result of the Company’s continued focus on controlling corporate expenditures relative to
increasing revenues and increased sales leverage resulting from new unit openings and acquisitions.
Interest expense increased for fiscal 2002 as compared to fiscal 2001 as a result of amortization of debt
issuance costs and debt discounts on the Company’s $431.7 million convertible debt. These increases were
partially offset by lower interest rates on floating rate debt, a decrease in interest expense on senior notes due to
a scheduled repayment, and an increase in interest capitalization related to new restaurant construction activity.
Interest expense decreased for fiscal 2001 as compared to fiscal 2000 as a result of decreased average borrowings
and interest rates on the Company’s credit facilities, increased sales leverage, and a decrease in interest expense
on senior notes due to a scheduled repayment. These decreases were partially offset by a decrease in the
construction-in-progress balances subject to interest capitalization and an increase in borrowings related to
restaurants acquired.
Other, net increased in fiscal 2002 as compared to fiscal 2001 due to a decrease in the market value of the
Company’s savings plan investments which are used to offset the savings plan obligation, partially offset by a
reduction in the Company’s share of losses in equity method investees. Other, net decreased in fiscal 2001 as a
result of a reduction in the Company’s share of losses in equity method investees, caused in part by the
acquisition of the remaining interest in the Big Bowl restaurant concept, which is now consolidated in the
accompanying financial statements, and the sale of the Wildfire restaurant concept.
INCOME TAXES
The Company’s effective income tax rate was 34.1%, 34.6%, and 35.1% in fiscal 2002, 2001, and 2000,
respectively. The decrease in fiscal 2002 is primarily due to the elimination of goodwill amortization in
accordance with SFAS No. 142 and a decrease in the effective state tax rates. The decrease in fiscal 2001 is due to
the receipt of a tax credit refund.
NET INCOME AND NET INCOME PER SHARE
Fiscal 2002 net income and diluted net income per share increased 5.2% and 7.0%, respectively, compared
to fiscal 2001. Excluding the after-tax effects of the California labor law settlement ($7.3 million) and Eatzi’s
impairment charge ($5.8 million), net income and diluted net income per share increased for fiscal 2002 by
14.3% and 16.2%, respectively, compared to fiscal 2001. The increase in both net income and diluted net income
per share, excluding the one-time charges, was primarily due to increasing revenues driven by increases in sales
weeks and comparable store sales, decreases in general and administrative expenses and the elimination of
goodwill amortization, partially offset by increases in restaurant expenses and depreciation and amortization as a
percent of revenues.
Fiscal 2001 net income and diluted net income per share increased 23.2% and 21.4%, respectively,
compared to fiscal 2000. The increase in both net income and diluted net income per share was primarily due to
increasing revenues driven by increases in comparable store sales and sales weeks and decreases in restaurant
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