Chili's 2002 Annual Report Download - page 36

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
expenses, depreciation and amortization expenses, and general and administrative expenses as a percent of
revenues.
IMPACT OF INFLATION
The Company has not experienced a significant overall impact from inflation. As operating expenses
increase, the Company, to the extent permitted by competition, recovers increased costs through a combination
of menu price increases and reviewing, then implementing, alternative products or processes.
LIQUIDITY AND CAPITAL RESOURCES
The working capital deficit increased from $110.0 million at June 27, 2001 to $160.3 million at June 26, 2002,
and net cash provided by operating activities increased from $246.8 million for fiscal 2001 to $390.0 million for
fiscal 2002 due primarily to the timing of operational receipts and payments. The Company believes that its
various sources of capital, including availability under existing credit facilities and cash flow from operating
activities, are adequate to finance operations as well as the repayment of current debt obligations.
Long-term debt outstanding at June 26, 2002 consisted of $255.0 million of zero coupon convertible senior
debentures ($431.7 million principal less $176.7 million representing an unamortized debt discount),
$46.0 million of unsecured senior notes ($42.8 million principal plus $3.2 million representing the effect of
changes in interest rates on the fair value of the debt), $43.5 million in assumed debt related to the acquisition of
restaurants from a former franchise partner ($38.8 million principal plus $4.7 million representing a debt
premium), $35.0 million in assumed capital lease obligations related to the acquisition of restaurants from a
former franchise partner ($19.5 million principal plus $15.5 million representing a debt premium), $63.5 million
of borrowings on credit facilities, and obligations under other capital leases. The Company has credit facilities
totaling $375.0 million. At June 26, 2002, the Company had $311.5 million in available funds from these facilities.
In October 2001, the Company issued $431.7 million of zero coupon convertible senior debentures and
received proceeds totaling approximately $250.0 million. The Company used the proceeds for repayment of
existing indebtedness, restaurant acquisitions, purchases of outstanding common stock under the Company’s
stock repurchase plan and for general corporate purposes.
In July 2001, the Company made a $12.3 million capital contribution to Rockfish Seafood Grill (‘‘Rockfish’’)
in exchange for an approximate 40% ownership interest in the legal entities owning and developing Rockfish.
Additionally, in June and November 2001, the Company acquired three On The Border and thirty-nine Chili’s
restaurants from its franchise partners Hal Smith and Sydran, respectively, for $60.5 million. The Company
financed these acquisitions through existing credit facilities, the zero coupon convertible senior debentures and
cash provided by operations.
In February 2002, the Company acquired the remaining assets leased under its $80.0 million equipment
leasing facilities and $75.0 million real estate leasing facility for $36.2 million and $56.8 million, respectively, and
terminated the leasing arrangements. The acquisitions were primarily funded by utilizing amounts available
under existing credit facilities.
Capital expenditures consist of purchases of land for future restaurant sites, the cost of new restaurant
construction, purchases of new and replacement restaurant furniture and equipment, the acquisition of
previously leased equipment and real estate assets, and ongoing remodeling programs. Capital expenditures, net
of amounts funded under the respective equipment and real estate leasing facilities, were $371.1 million for fiscal
2002 compared to $205.2 million for fiscal 2001. The increase is due primarily to the acquisition of the remaining
assets leased under the equipment and real estate leasing facilities and an increase in the number of new store
openings. The Company estimates that its fiscal 2003 capital expenditures will approximate $335.0 million. These
capital expenditures will be funded primarily from operations and existing credit facilities.
The Board of Directors authorized an increase in the stock repurchase plan of $100.0 million in August 2001
and an additional $100.0 million in April 2002, bringing the Company’s total share repurchase program to
$410.0 million. Pursuant to the Company’s stock repurchase plan, approximately 5.1 million shares of its common
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