Baskin Robbins 2013 Annual Report Download - page 54

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International sales of ice cream products increased $1.4 million driven by strong sales to the Middle East, offset by a decline in
sales to Afghanistan as a result of the border closure earlier in 2012.
Offsetting the decline in sales of ice cream products was an increase in royalty income of $0.9 million primarily as a result of
higher sales and additional royalties earned in South Korea and Russia.
The decrease in Baskin-Robbins International segment profit for fiscal year 2012 resulted primarily from an increase in general
and administrative expenses of $2.0 million driven primarily by investments in personnel and advertising, as well as a $1.6
million decline in net margin on sales of ice cream products due primarily to the one-time delay in revenue recognition and the
extra week in the prior year. Offsetting these declines in segment profit was an increase in income from the South Korea joint
venture of $2.2 million, as well as the increase in royalty income of $0.9 million.
Liquidity and capital resources
As of December 28, 2013, we held $256.9 million of cash and cash equivalents, which included $134.5 million of cash held for
advertising funds and reserved for gift card/certificate programs. In addition, as of December 28, 2013, we had a borrowing
capacity of $97.0 million under our $100.0 million revolving credit facility. During fiscal year 2013, net cash provided by
operating activities was $141.8 million, as compared to net cash provided by operating activities of $154.4 million for fiscal
year 2012. Net cash provided by operating activities for fiscal years 2013 and 2012 includes net cash inflows of $2.0 million
and $2.3 million, respectively, related to advertising funds and gift card/certificate programs. Excluding cash flows related to
advertising funds and gift card/certificate programs, we generated $116.9 million and $129.2 million of free cash flow during
fiscal years 2013 and 2012, respectively.
The decrease in free cash flow from fiscal year 2012 to 2013 was primarily due to an unfavorable impact from changes in
operating assets and liabilities, driven by a delay in cash collections of accounts receivable as a result of a change in shipping
terms related to ice cream shipments to certain international markets, as well as fluctuations in other current liabilities, due
primarily to the timing of interest payments. The unfavorable impacts were offset by the increase in net income.
Free cash flow is a non-GAAP measure reflecting net cash provided by operating and investing activities, excluding the cash
flows related to advertising funds and gift card/certificate programs. The Company uses free cash flow as a key performance
measure for the purpose of evaluating performance internally and our ability to generate cash. We also believe free cash flow
provides our investors with useful information regarding our historical cash flow results. This non-GAAP measurement is not
intended to replace the presentation of our financial results in accordance with GAAP. Use of the term free cash flow may differ
from similar measures reported by other companies.
Free cash flow is reconciled from net cash provided by operating activities determined under GAAP as follows (in thousands):
Fiscal year
2013 2012
Net cash provided by operating activities $ 141,799 154,420
Less: Increase related to advertising funds and gift card/certificate programs (2,006)(2,315)
Less: Net cash used in investing activities (22,906)(22,947)
Free cash flow $ 116,887 129,158
Net cash provided by operating activities of $141.8 million during fiscal year 2013 was primarily driven by net income of
$146.3 million, increased by depreciation and amortization of $49.4 million, and dividends received from joint ventures of $7.2
million, offset by $21.2 million of other net non-cash reconciling adjustments, as well as $39.9 million of changes in operating
assets and liabilities. The $21.2 million of other net non-cash reconciling adjustments primarily resulted from net income from
equity method investments, gain on sale of 80% of our Baskin-Robbins Australia business, and a deferred tax benefit, offset by
share-based compensation expense, loss on debt extinguishment and refinancing transactions, and the amortization of deferred
financing costs and original issue discount. The $39.9 million of changes in operating assets and liabilities was primarily driven
by cash paid for income taxes, increases in accounts receivable related to sales of ice cream products, and increases in
receivables related to gift cards, offset by the reserve related to the third-party product volume guarantee. During fiscal year
2013, we invested $31.1 million in capital additions to property and equipment, and received net proceeds from the Baskin-
Robbins Australia sale of $6.7 million. Net cash used in financing activities was $114.2 million during fiscal year 2013, driven
primarily by dividend payments of $81.0 million, the repurchase of common stock of $28.0 million, and repayment of long-
term debt of $24.2 million, offset by additional tax benefits of $15.4 million realized from the exercise of stock options.
Net cash provided by operating activities of $154.4 million during fiscal year 2012 was primarily driven by net income of
$107.6 million, increased by depreciation and amortization of $56.0 million, and dividends received from joint ventures of $6.5