First quarter 2012 income before income taxes increased approximately $4.1 million, or 15.2%, excluding the $3.7 million impact of the Incentive Contribution, primarily due to the following:
- Domestic company-owned restaurants operating income improved approximately $400,000, excluding the benefit of a $1.0 million advertising credit from PJNMF related to the Incentive Contribution, primarily due to an increase of 3.0% in comparable sales.
- Domestic commissaries operating income increased $1.6 million primarily due to an increase in the number of North American restaurants.
- International operating income improved due to increased royalties attributable to strong comparable sales of 8.4% and net unit growth. In addition, our United Kingdom results improved due to restaurant openings and our company-owned restaurant results improved in Beijing, China.
- The improvement in the All others segment was primarily due to an improvement in the operating results of our eCommerce business unit.
The first quarter 2012 effective income tax rate was 33.4%, representing a decrease of 1.1% from the first quarter 2011 rate of 34.5%. Our effective income tax rate may fluctuate from quarter to quarter for various reasons, including the settlement or resolution of specific federal and state issues.
The company’s free cash flow for the first quarters of 2012 and 2011 was as follows (in thousands):
|Mar. 25,||Mar. 27,|
|Net cash provided by operating activities||$||44,093||$||26,687|
|Purchase of property and equipment||(6,403||)||(4,823||)|
|Free cash flow *||$||37,690||$||21,864|
|*The increase in free cash flow is due to favorable changes in working capital.|
We define free cash flow as net cash provided by operating activities (from the consolidated statements of cash flows) less the purchase of property and equipment. We view free cash flow as an important measure because it is one factor that management uses in determining the amount of cash available for discretionary investment. Free cash flow is not a term defined by accounting principles generally accepted in the United States (“GAAP”) and as a result our measure of free cash flow might not be comparable to similarly titled measures used by other companies. Free cash flow should not be construed as a substitute for or a better indicator of the company’s performance than the company’s GAAP measures.
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