<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended February 25, 1994
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period from ___________ to _____________
Commission file number 0-6116
INTERNATIONAL DAIRY QUEEN, INC.
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(Exact name of registrant as specified in its charter)
Delaware 41-0852869
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(State of Incorporation) (I.R.S. Employer
Identification Number)
7505 Metro Boulevard, Minneapolis, Minnesota 55439
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number 612/830-0200
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Neither name, address nor fiscal year has been changed since the last report.
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Number of registrant's Class A Common Shares outstanding at
April 4, 1994: 15,356,479
Number of registrant's Class B Common Shares outstanding at
April 4, 1994: 9,021,448
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INTERNATIONAL DAIRY QUEEN, INC.
Securities and Exchange Commission Form 10-Q
for the First Quarter Ended February 25, 1994
I N D E X
Page
Number
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
(Unaudited)
February 25, 1994 and November 30, 1993 3
Consolidated Statement of Income
(Unaudited)
Three months ended February 25, 1994
and February 26, 1993 4
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Three months ended February 25, 1994
and February 26, 1993 5
Notes to Condensed Consolidated Financial
Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders 9
Items 1 through 6 (except Item 4) have been omitted since such
items are inapplicable or the answers are negative
SIGNATURES 9
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PART I
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED BALANCE SHEET
(Condensed and in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
February 25, November 30,
1994 1993
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ASSETS (Restated)
<S> <C> <C>
Current Assets:
Cash and cash equivalents and
marketable securities $ 24,390 $ 31,178
Receivables--net 33,506 26,659
Inventories 5,757 4,561
Other current assets 2,917 2,562
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Total current assets 66,570 64,960
Notes receivable and other--net 20,633 23,037
Other revenue producing assets--net:
Rental properties 3,189 3,241
Franchise rights and service contracts 86,961 83,771
Miscellaneous 35 39
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Total other revenue producing assets 90,185 87,051
Property, plant and equipment--net 9,421 9,350
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$186,809 $184,398
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Drafts and accounts payable $ 20,379 $ 16,792
Accrued liabilities 9,196 7,779
Committed advertising 775 2,093
Current maturities of long-term debt 280 1,913
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Total current liabilities 30,630 28,577
Deferred income taxes and other 15,080 15,234
Long-term debt 24,067 23,902
Common stock and other stockholders' equity 117,032 116,685
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$186,809 $184,398
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</TABLE>
See accompanying notes.
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INTERNATIONAL DAIRY QUEEN, INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
First Quarter Ended
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February 25, November 30,
1994 1993
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<S> <C> <C>
Operating Revenues:
Net sales $47,103 $44,455
Service fees 10,176 9,941
Franchise sales and other fees 1,440 1,316
Real estate finance and rental income 2,200 2,426
Other 258 237
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61,177 58,375
Operating Expenses:
Cost of sales 42,538 39,927
Expenses applicable to real estate
finance and rental income 2,081 2,299
Selling, general and administrative 9,296 8,968
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53,915 51,194
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7,262 7,181
Net interest income 362 217
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Income before income taxes 7,624 7,398
Provision for income taxes 3,010 2,850
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Net income $ 4,614 $ 4,548
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Earnings per common share and
common equivalent share $ .19 $ .18
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Coverage common and common equivalent
shares outstanding 24,577 25,486
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------- -------
</TABLE>
See accompanying notes.
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<PAGE>
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed and in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
First Quarter Ended
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February 25, November 30,
1994 1993
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<S> <C> <C>
Net cash (used in) provided by operating activities $(2,071) $ 1,752
Cash flows from investing activities:
Marketable securities, net maturities 2,204 --
Net payments received from (advanced to) operators
for store renovations and equipment 1,507 (969)
Capital expenditures (463) (3,446)
Purchase of franchise rights and service contracts (134) (420)
Other 5 16
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Cash flows provided by (used in) investing activities 3,119 (4,819)
Cash flows from financing activities:
Principal payments on long-term debt (1,468) (1,663)
Purchase and retirement of common shares (4,175) (5,100)
Other 19 --
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Cash flows used in financing activities (5,624) (6,763)
Effect of exchange rate changes on cash (8) 80
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Net decrease in cash and cash equivalents (4,584) (9,750)
Cash and cash equivalents at beginning of year 21,188 31,243
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Cash and cash equivalents at end of period $16,604 $21,493
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</TABLE>
See accompanying notes.
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INTERNATIONAL DAIRY QUEEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The interim financial statements included herein have been prepared by the
Company without audit, but include all adjustments which are of a normal
recurring nature and which the Company believes are necessary for a fair
presentation of its financial position at February 25, 1994, and February 26,
1993, and results of operations and cash flows for the three-month periods
then ended. The condensed financial statements do not include all disclosures
required under generally accepted accounting principles since certain footnote
information has been omitted. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report and Form 10-K for the year ended November 30, 1993.
The Company calculates its income tax provision for interim periods by
estimating its annual effective tax rate and applying this rate to the income
of the interim period. The effective tax rate applied was 39.5 percent for
the quarter ended February 25, 1994, and 38.5 percent for the comparable
period ended February 26, 1993. The Omnibus Budget Reconciliation Act of
1993, which was signed into law on August 10, 1993, increased corporate income
tax rates from 34 to 35 percent.
On December 1, 1993, the Company adopted Financial Accounting Standards No.
109, "Accounting for Income Taxes" which requires the Company to recognize
deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's consolidated financial
statements or tax returns. Deferred tax assets and liabilities are calculated
based on the difference between the financial statement carrying amounts and
the tax basis of assets and liabilities using enacted tax rates in effect in
the years in which the differences are expected to reverse.
The adoption of FAS 109 resulted in the restatement of the Company's
previously issued consolidated financial statements, the principle effect of
which was to record a net increase in deferred taxes and a reduction of
$9,860,000 in retained earnings as of December 1, 1992. These changes related
principally to the differences in the amortization of franchise rights and
service contracts for financial statement and income tax purposes. The
adoption of FAS 109 had no impact on previously reported net income.
Earnings per common share amounts are based on the weighted average number of
common and common equivalent shares outstanding during each period.
The Company's business is seasonal in nature, and the results of operations
for the three months ended February 25, 1994, may not be indicative of the
results for the full year.
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<PAGE>
INTERNATIONAL DAIRY QUEEN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL:
The Company's revenues are derived primarily from service and franchise fees
received from franchisees and the sale of perishable and nonperishable
supplies and equip-ment for use by franchised stores. Although the Company
does not allocate interest or selling, general and administrative expenses by
products sold or services rendered, it believes that a major portion of its
operating income results from franchise service fees.
The following table sets forth certain information as to the number of stores
in the "Dairy Queen, "Orange Julius", "Karmelkorn", and "Golden Skillet"
systems.
<TABLE>
<CAPTION>
Converted
Total to Treat Ownership Total
11/30/93 Opened Closed Centers Changes 02/25/94
-------- ------ ------ --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
DAIRY QUEEN SYSTEM
United States
Franchised by the Company:
"Dairy Queen" stores 3,083 7 (10) -- 57 3,137
"Treat Center" units 93 1 -- 2 -- 96
Franchised by territorial operators 1,683 7 (9) -- (57) 1,624
Company operated stores 1 -- -- -- -- 1
----- ---- ---- ---- ---- -----
4,860 15 (19) 2 0 4,858
----- ---- ---- ---- ---- -----
Canada
Franchised by the Company:
"Dairy Queen" stores 420 2 (1) -- -- 421
"Treat Centers" units 18 -- -- -- -- 18
----- ---- ---- ---- ---- -----
438 2 (1) 0 0 439
----- ---- ---- ---- ---- -----
Other foreign 173 9 (3) -- -- 179
----- ---- ---- ---- ---- -----
Total "Dairy Queen" stores 5,471 26 (23) 2 0 5,476
----- ---- ---- ---- ---- -----
"Orange Julius" stores 480 2 (3) (2) -- 477
"Karmelkorn" shoppes 95 1 (2) -- -- 94
"Golden Skillet" restaurants 17 2 -- -- -- 19
----- ---- ---- ---- ---- -----
Total 6,063 31 (28) 0 0 6,066
----- ---- ---- ---- ---- -----
----- ---- ---- ---- ---- -----
</TABLE>
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<PAGE>
RESULTS OF OPERATIONS:
The improvement in the Company's results of operations for the first quarter
of 1994, compared to the first quarter of 1993, reflects an increase in net
sales, increased service fees received from stores franchised by the Company
and an increase in net interest income. These increases were partially offset
by an increase in selling, general and administrative expenses.
The following table indicates as a percentage of revenue, line items from the
income statement, and the percentage increase/decrease of such items when
comparing the first quarter of 1994 with the first quarter of 1993.
<TABLE>
<CAPTION>
Percentage of Revenue
Three Months Ended
------------------------- Percentage
February 25, February 26, Increase
1994 1993 (Decrease)
------------ ------------ ----------
<S> <C> <C> <C>
Operating Revenues:
Net sales 77.0 76.2 6.0
Service fees 16.6 17.0 2.4
Franchise sales & other fees 2.4 2.2 9.4
Real estate finance & rental income 3.6 4.2 (9.3)
Other .4 .4 9.2
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Total Revenues 100.0 100.0 4.8
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Operating Expenses:
Cost of Sales 69.5 68.4 6.5
Expenses applicable to real
estate finance & rental income 3.4 3.9 (9.5)
Selling, general & administrative 15.2 15.4 3.5
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Total Operating Expenses 88.1 87.7 5.3
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Net interest income .6 .4 66.7
Income before income taxes 12.5 12.7 3.1
Provision for income taxes 5.0 4.9 5.6
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Net income 7.5 7.8 1.5
----- ----- -----
----- ----- -----
</TABLE>
The increase of $2,648,400 in net sales resulted primarily from an increase of
$1,748,784 in unit sales of perishable (frozen and non-frozen foods) to
authorized warehouses (who in turn sell to franchisees), and an increase of
$867,325 in permanent and temporary placement fees by Firstaff, Inc. These
increases were partially offset by a reduction in the sale of other products
sold to authorized warehouses due to the timing of promotional terms which are
planned to occur later in the current fiscal year.
The increase in net interest income is primarily the result of reduced
borrowings ($12 million in long-term debt has been retired since the first
quarter of 1993).
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<PAGE>
The one cent increase in net income per share when comparing the first quarter
of 1994 with the first quarter of 1993 was due to an increase in the Company's
net income and to a decrease in the average number of common and common
equivalent shares outstanding.
LIQUIDITY AND CAPITAL RESOURCES:
Available liquid resources at February 25, 1994, include $24.4 million in
cash, cash equivalents and marketable securities. The Company's business is
highly seasonal with its working capital requirements generally being the
greatest during the first six months of its fiscal year. The Company believes
it has sufficient capital to meet existing and presently anticipated needs.
PART II
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held on Wednesday, March 9,
1994. All members of the Board of Directors were re-elected and the selection
of Ernst & Young as independent auditors for the fiscal year ending November
30, 1994 was ratified and approved (7,510,178 shares voted for, 2,630 shares
voted against and 756 shares abstained). No additional items requiring a vote
were presented.
All other items required under Part II have been omitted since they are
inapplicable or the answers negative.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the reg-
istrant has duly caused this report to be signed on its behalf by the under-
signed thereunto duly authorized.
International Dairy Queen, Inc.
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(Registrant)
April 8, 1994 /s/ Charles W. Mooty
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Date Charles W. Mooty
Chief Financial Officer,
Vice President and Treasurer
April 8, 1994 /s/ David M. Bond
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Date David M. Bond
Secretary/Assistant Treasurer
and Controller
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