Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

     Our Board of Directors has authorized us to repurchase up to 115.4 million shares of our common stock. Net cash flows used in financing activities included our repurchase of 10.7 million shares of our common stock for $213 million in fiscal 2003 compared to 9.0 million shares for $209 million in fiscal 2002 and 12.7 million shares for $177 million in fiscal 2001. As of May 25, 2003, a total of 98.5 million shares have been repurchased under the authorization. The repurchased common stock is reflected as a reduction of stockholders’ equity. Net cash flows used in financing activities also included dividends paid to stockholders of $14 million, $9 million, and $9 million in fiscal 2003, 2002, and 2001, respectively.
     Net cash flows used in investing activities included capital expenditures incurred principally for building new restaurants, replacing equipment, and remodeling existing restaurants. Capital expenditures were $423 million in fiscal 2003, compared to $318 million in fiscal 2002, and $355 million in fiscal 2001. The increased expenditures in fiscal 2003 resulted primarily from increased spending associated with building more new restaurants and replacing equipment. The reduced expenditures in fiscal 2002 resulted primarily from a reduction in spending associated with building new restaurants. We estimate that our fiscal 2004 capital expenditures will approximate $400 million.
     Net cash flows provided by operating activities for fiscal 2003 also included a $20 million contribution to our defined benefit pension plans, which enabled the plans to maintain a fully funded status as of the plans’ February 28, 2003 annual valuation date. Our defined benefit and other post-retirement benefit costs and liabilities are calculated using various actuarial assumptions and methodologies prescribed under the Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standards (SFAS) No. 87, “Employers’ Accounting for Pensions” and No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” We use certain assumptions including, but not limited to, the selection of a discount rate, expected long-term rate of return on plan assets, and expected health care cost trend rates. We set the discount rate assumption annually for each plan at its valuation date to reflect the yield of high-quality, fixed-income debt instruments, with lives that approximate the maturity of the plan benefits. As of May 25, 2003, our discount rate was 6.25 percent. The expected long-term rate of return on plan assets and health care cost trend rates are based upon several factors, including our historical assumptions compared with actual results, an analysis of current market conditions, asset allocations, and the views of leading financial advisers and economists. Based on our recent analysis, we lowered our defined benefit plans’ expected
long-term rate of return on plan assets for fiscal 2004 from 10.4 percent to 9.0 percent. The change in our defined benefit plans’ expected long-term rate of return on plan assets will decrease earnings before income taxes by approximately $2.0 million in fiscal 2004. As of May 25, 2003, our expected health care costs trend rates ranged from 12.0 percent to 13.0 percent for fiscal 2004, depending on the medical service category. The rates gradually decrease to 5.0 percent through fiscal 2011 and remain at that level thereafter.
     The expected long-term rate of return on plan assets component of our net periodic benefit cost is calculated based on the market-related value of plan assets. Our target asset allocation is 35 percent U.S. equities, 30 percent high-quality, long-duration fixed-income securities, 15 percent international equities, 10 percent private equities, and 10 percent real assets. We monitor our actual asset allocation to ensure that it approximates our target allocation and believe that our long-term asset allocation will continue to approximate our target allocation. Our historical ten-year rate of return on plan assets, calculated using the geometric method average of returns, is approximately 9.4 percent.
     We have an unrecognized net actuarial loss for the defined benefit plans and post-retirement benefit plan as of May 25, 2003, of $80 million and $6 million, respectively. The unrecognized net actuarial loss represents changes in the amount of the projected benefit obligation and plan assets resulting from differences in the assumptions used and actual experience. The amortization of the unrecognized net actuarial loss component of our fiscal 2004 net periodic benefit cost for the defined benefit plans and post-retirement benefit plan is expected to be approximately $4 million and $0.3 million, respectively.
     We believe our defined benefit and post-retirement benefit plan assumptions are appropriate based upon the factors discussed above. However, other assumptions could also be reasonably applied that could differ from the assumptions used. A quarter percentage point change in the defined benefit plans’ discount rate and the expected long-term rate of return on plan assets would increase or decrease earnings before income taxes by $0.6 million and $0.4 million, respectively. A quarter percentage point change in our post-retirement benefit plan discount rate would increase or decrease earnings before income taxes by less than $0.1 million. If the health care cost trend rates were to be increased or decreased by one percentage point each future year, the aggregate of the service cost and interest cost components of net periodic post-retirement benefit cost would change by $0.3 million. These changes in assumptions would not significantly impact our funding requirements.