Chili's 2002 Annual Report Download - page 40

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
this time, anticipate any occurring in the future, there can be no assurance that the Company will not experience
material difficulties or failures that could delay the opening of restaurants in the future.
The Company is subject to federal and state environmental regulations, and although these have not had a
material negative effect on the Company’s operations, there can be no assurance that there will not be a material
negative effect in the future. More stringent and varied requirements of local and state governmental bodies with
respect to zoning, land use and environmental factors could delay or prevent development of new restaurants in
particular locations. The Company is subject to the Fair Labor Standards Act, which governs such matters as
minimum wages, overtime and other working conditions, along with the Americans With Disabilities Act, family
leave mandates and a variety of other laws enacted by the states that govern these and other employment law
matters. Although the Company expects increases in payroll expenses as a result of federal and state mandated
increases in the minimum wage, and although such increases are not expected to be material, there can be no
assurance that there will not be material increases in the future. However, the Company’s vendors may be
affected by higher minimum wage standards, which may result in increases in the price of goods and services
supplied to the Company.
Inflation may increase the Company’s operating expenses.
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 by increasing menu
prices, by reviewing, then implementing, alternative products or processes, or by implementing other
cost-reduction procedures. There can be no assurance, however, that the Company will be able to continue to
recover increases in operating expenses due to inflation in this manner.
Increased energy costs may adversely affect the Company’s profitability.
The Company’s success depends in part on its ability to absorb increases in utility costs. Various regions of
the United States in which the Company operates multiple restaurants, particularly California, experienced
significant increases in utility prices during the 2001 fiscal year. If these increases should recur, they will have an
adverse effect on the Company’s profitability.
If the Company is unable to meet its growth plan, the Company’s profitability in the future may be adversely
affected.
The Company’s ability to meet its growth plan is dependent upon, among other things, its ability to identify
available, suitable and economically viable locations for new restaurants, obtain all required governmental
permits (including zoning approvals and liquor licenses) on a timely basis, hire all necessary contractors and
subcontractors, and meet construction schedules. The costs related to restaurant and concept development
include purchases and leases of land, buildings and equipment and facility and equipment maintenance, repair
and replacement. The labor and materials costs involved vary geographically and are subject to general price
increases. As a result, future capital expenditure costs of restaurant development may increase, reducing
profitability. There can be no assurance that the Company will be able to expand its capacity in accordance with
its growth objectives or that the new restaurants and concepts opened or acquired will be profitable.
Unfavorable publicity relating to one or more of the Company’s restaurants in a particular brand may taint
public perception of the brand.
Multi-unit restaurant businesses can be adversely affected by publicity resulting from poor food quality,
illness or other health concerns or operating issues stemming from one or a limited number of restaurants. In
particular, since the Company depends heavily on the ‘‘Chili’s’’ brand for a majority of its revenues, unfavorable
publicity relating to one or more Chili’s restaurants could have a material adverse effect on the Company’s
business, results of operations and financial condition.
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