Chili's 2012 Annual Report Download - page 43

restaurants closed in prior years and $1.9 million in severance and other benefits resulting from organizational
changes. These charges were partially offset by gains of $4.9 million related to the sale of 21 restaurants to a
franchisee and land sales.
Interest expense decreased $1.5 million in fiscal 2012 as a result of lower interest rates on our variable
interest rate debt, partially offset by the impact of higher borrowing balances and a $0.4 million write-off of
deferred financing fees related to the revision of the unsecured senior credit facility that was executed in August
2011. Interest expense was flat in fiscal 2011 as a result of higher average interest rates on our variable interest
rate debt, offset by the impact of lower borrowing balances and $1.7 million in accelerated expense in the prior
year related to the remaining capitalized financing costs associated with the terminated revolving credit facility in
fiscal 2010.
Other, net in fiscal 2012, 2011 and 2010 includes $3.3 million, $5.3 million and $4.7 million, respectively,
of sublease income from Mac Acquisition, OTB Acquisition and franchisees as part of the respective sale
agreements, as well as other subtenants. Other, net in fiscal 2011 and 2010 also includes $0.6 million of interest
income on short-term investment balances.
In fiscal 2010, we sold the On The Border restaurants and recorded a $16.5 million pre-tax gain, which was
included in income from discontinued operations, net of taxes, of $34.0 million.
INCOME TAXES
The effective income tax rate from continuing operations increased to 27.6% for fiscal 2012 from 23.1% in
fiscal 2011 primarily due to increased earnings and a lower impact from resolved tax positions. Excluding the
impact of special items and resolved tax positions, the effective income tax rate from continuing operations
increased to 29.1% in fiscal 2012 from 27.8% in fiscal 2011 primarily due to increased earnings.
The effective income tax rate from continuing operations increased to 23.1% for fiscal 2011 from 21.4% in
fiscal 2010 primarily due to an increase in earnings, partially offset by the resolution of certain tax positions
resulting in a positive impact in the current year greater than the prior year. Excluding the impact of special items
and resolved tax positions, the effective income tax rate from continuing operations increased to 27.8% in fiscal
2011 from 26.0% in fiscal 2010 due to an increase in earnings, partially offset by a decrease in state income tax
expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash Flow from Operating Activities—Continuing Operations
During fiscal 2012, net cash flow provided by operating activities of continuing operations was $303.4
million compared to $260.0 million in the prior year. The increase was driven by significant changes in working
capital during the prior fiscal year resulting primarily from the sale of On The Border. The settlement of
liabilities and payment of transaction costs subsequent to the sale of the brand negatively impacted prior year
operating cash flow. Increased earnings and working capital changes during fiscal 2012 also contributed to the
current year increase in operating cash flow.
The working capital deficit increased to $206.9 million at June 27, 2012 from $184.2 million at June 29,
2011. The increase was driven primarily by cash paid for share repurchases and quarterly dividends.
Additionally, accounts payable increased in the current year due to higher purchasing volume and payment
timing. This increase was partially offset by a decline in accrued liabilities due to decreased insurance liabilities,
lease payments and payroll related liabilities.
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