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 August 26, 1994
-------------------------
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.
- - ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-0852869
- - ----------------------- ---------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
7505 Metro Boulevard, Minneapolis, Minnesota 55439
- - -------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number 612/830-0200
--------------
Neither name, address nor fiscal year has been changed since the last report.
- - -----------------------------------------------------------------------------
(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
--- ---
Number of registrant's Class A Common Shares outstanding at
September 30, 1994: 15,718,064
Number of registrant's Class B Common Shares outstanding at
September 30, 1994: 8,989,819
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<PAGE>
INTERNATIONAL DAIRY QUEEN, INC.
Securities and Exchange Commission Form 10-Q
for the Second Quarter Ended August 26, 1994
I N D E X
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
(Unaudited)
August 26, 1994 and November 30, 1993 3
Consolidated Statement of Income
(Unaudited)
Three months and nine months ended August 26, 1994
and August 27, 1993 4
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Nine months ended August 26, 1994
and August 27, 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:
Items 1 through 6 have been omitted since such items are inapplicable
or the answers are negative.
SIGNATURES 9
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<PAGE>
PART I
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED BALANCE SHEET
(Condensed and in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
August 26, November 30,
1994 1993
---------- -----------
ASSETS (Restated)
<C> <C>
Current Assets:
Cash and cash equivalents and
marketable securities $ 35,517 $ 31,178
Receivables--net 39,928 26,659
Inventories 5,833 4,561
Other current assets 2,670 2,562
-------- --------
Total current assets 83,948 64,960
Notes receivable and other--net 19,960 23,037
Other revenue producing assets--net:
Rental properties 2,993 3,241
Franchise rights and service contracts 85,838 83,771
Miscellaneous 27 39
-------- ---------
Total other revenue producing assets 88,858 87,051
Property, plant and equipment--net 9,926 9,350
-------- --------
$202,692 $184,398
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Drafts and accounts payable $ 22,788 $ 16,792
Accrued liabilities 10,657 7,779
Committed advertising 1,043 2,093
Current maturities of long-term debt 247 1,913
-------- --------
Total current liabilities 34,735 28,577
Deferred income 255 279
Deferred income taxes 14,952 14,955
Long-term debt 23,548 23,902
Common stock and other stockholders' equity 129,202 116,685
-------- --------
$202,692 $184,398
-------- --------
-------- --------
</TABLE>
See accompanying notes.
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<PAGE>
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED STATEMENT OF INCOME
(Condensed and in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Third Quarter Ended
-------------------- --------------------
August 26, August 27, August 26, August 27,
1994 1993 1994 1993
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Operating Revenues:
Net sales $209,705 $190,275 $ 85,715 $ 77,211
Service fees 42,063 40,373 17,142 16,630
Franchise sales and other fees 6,540 5,996 2,623 2,387
Real estate finance and
rental income 6,197 6,924 1,943 2,212
Other 811 912 38 333
-------- -------- -------- --------
265,316 244,480 107,461 98,773
Operating Expenses:
Cost of sales 189,028 170,929 77,139 69,531
Expenses applicable to real estate
finance and rental income 5,817 6,505 1,802 2,064
Selling, general and administrative 30,164 28,330 10,454 9,529
-------- -------- -------- --------
225,009 205,764 89,395 81,124
-------- -------- -------- --------
40,307 38,716 18,066 17,649
Net interest income 1,081 876 388 358
-------- -------- -------- --------
Income before income taxes 41,388 39,592 18,454 18,007
Provision for income taxes 16,350 15,640 7,290 7,330
-------- -------- -------- --------
Net income $ 25,038 $ 23,952 $ 11,164 $ 10,677
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per common and common
equivalent share $ 1.03 $ .95 $ .46 $ .43
-------- -------- -------- --------
Average common and common equivalent
shares outstanding 24,395 25,233 24,189 24,995
-------- -------- -------- --------
-------- -------- -------- --------
</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>
Nine Months Ended
----------------------------
August 26, August 27,
1994 1993
---------- ----------
<S> <C> <C>
Net cash provided by operating activities $23,639 $21,310
Cash flows from investing activities:
Net maturities(investments) in
marketable securities 5,833 (3,845)
Net advanced to operators for store
renovations and equipment (2,205) (1,692)
Capital expenditures (1,691) (6,517)
Purchase of franchise rights and service contracts (1,107) (590)
Other 24 33
------- -------
Cash flows provided by(used in) investing activities 854 (12,611)
Cash flows from financing activities:
Principal payments on long-term debt (2,020) (1,915)
Purchase and retirement of common shares (12,577) (13,453)
Other 306 --
------- -------
Cash flows used in financing activities (14,291) (15,368)
Effect of exchange rate changes on cash (29) (92)
------- -------
Net increase(decrease) in cash and cash equivalents 10,173 (6,761)
Cash and cash equivalents at beginning of year 21,188 31,243
------- -------
Cash and cash equivalents at end of period $31,361 $24,482
------- -------
------- -------
</TABLE>
See accompanying notes.
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<PAGE>
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 August 26, 1994, and August 27,
1993, and results of operations and cash flows for the three-month and
nine-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 consoli-dated 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 three-month and nine-month periods ended August 26, 1994, and for the
nine-month period ended August 27, 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, retroactive to January 1, 1993. This
retroactive increase resulted in an additional tax charge of $220,000 for the
first six months of 1993, which was charged against third quarter 1993
earnings.
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 nine months ended August 26, 1994, may not be indicative of the
results for the full year.
-6-
<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>
Total to Treat Ownership Total
11/30/93 Opened Closed Centers Changes 08/26/94
-------- -------- -------- --------- --------- --------
<C> <C> <C> <C> <C> <C>
DAIRY QUEEN SYSTEM
United States
Franchised by the Company:
"Dairy Queen" stores 3,083 40 (32) 0 57 3,148
"Treat Center" units 93 7 (1) 3 102
Franchised by territorial operators 1,683 50 (26) 0 (57) 1,650
Company operated stores 1 -- -- -- -- 1
----- --- --- --- --- -----
4,860 97 (59) _3 __0 4,901
----- --- --- --- --- -----
Canada
Franchised by the Company:
"Dairy Queen" stores 420 9 (1) (1) 427
"Treat Centers" units 18 1 (1) 1 0 19
----- --- --- --- --- -----
438 10 (2) 0 0 446
----- --- --- --- --- -----
Other foreign 173 22 (23) 0 0 172
----- --- --- --- --- -----
Total "Dairy Queen" stores 5,471 129 (84) 3 0 5,519
----- --- --- --- --- -----
"Orange Julius" stores 480 7 (23) (3) 0 461
"Karmelkorn" shoppes 95 2 (10) 0 0 87
"Golden Skillet" restaurants 17 2 0 0 0 19
----- --- --- --- --- -----
Total 6,063 140 (117) 0 0 6,086
----- --- --- --- --- -----
----- --- --- --- --- -----
</TABLE>
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<PAGE>
Results of Operations:
The improvement in the Company's results of operations for the third quarter
and first nine months of 1994, compared to the third quarter and first nine
months 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 nine months of 1994 with the first nine months of 1993.
<TABLE>
<CAPTION>
Percentage of Revenue
Nine Months Ended
----------------------- Percentage
August 26, August 27, Increase
1994 1993 (Decrease)
---------- --------- ----------
<S> <C> <C> <C>
Operating Revenues:
Net sales 79.0 77.8 10.2
Service fees 15.9 16.5 4.2
Franchise sales & other fees 2.5 2.5 9.1
Real estate finance & rental income 2.3 2.8 (10.5)
Other .3 .4 (11.1)
----- -----
Total Revenues 100.0 100.0 8.5
----- -----
Operating Expenses:
Cost of Sales 71.2 69.9 10.6
Expenses applicable to real
estate finance & rental income 2.2 2.7 (10.6)
Selling, general & administrative 11.4 11.6 6.5
----- -----
Total Operating Expenses 84.8 84.2 9.4
----- -----
Net interest income .4 .4 23.5
Income before income taxes 15.6 16.2 4.5
Provision for income taxes 6.2 6.4 4.5
----- -----
Net income 9.4 9.8 4.5
----- ----- -----
----- ----- -----
</TABLE>
The increase of $19,430,082 in net sales resulted primarily from an increase
of $8,215,876 in unit sales of perishable (frozen and non-frozen foods) to
authorized warehouses (who in turn sell to franchisees), an increase of
$3,133,451 in sales promotional items sold to "Dairy Queen" stores, and an
increase of $2,114,118 in permanent and temporary placement fees by Firstaff,
Inc.
During the second quarter, the Company introduced its newly-designed menu
boards to the "Dairy Queen" system. These boards are being offered to stores
at discounted prices during the introduction period to encourage system-wide
utilization of this product and resulted in net sales of $5,654,879 in the
first nine months of 1994.
The increase in net interest income is primarily the result of reduced
borrowings ($12 million in long-term debt has been retired since the third
quarter of 1993).
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<PAGE>
The increase in net income per share when comparing the 1994 periods with the
1993 periods 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 August 26, 1994, include $35.5 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 nine months of its fiscal year. The Company believes it has
sufficient capital to meet existing and presently anticipated needs.
PART II
All 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.
-------------------------------
(Registrant)
October 7, 1994 /s/ Charles W. Mooty
- - --------------- -------------------------------
Date Charles W. Mooty
Chief Financial Officer,
Vice President and Treasurer
October 7, 1994 /s/ David M. Bond
- - --------------- -------------------------------
Date David M. Bond
Secretary/Assistant Treasurer
and Controller
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains financial information extracted from the financial
statements for the periods indicated and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> NOV-30-1994 NOV-30-1993
<PERIOD-START> DEC-01-1993 DEC-01-1992
<PERIOD-END> AUG-26-1994 NOV-30-1993
<CASH> 31,361 21,188
<SECURITIES> 4,156 9,989
<RECEIVABLES> 40,661 24,029
<ALLOWANCES> 733 782
<INVENTORY> 5,833 4,561
<CURRENT-ASSETS> 83,948 64,785
<PP&E> 18,881 18,191
<DEPRECIATION> 8,955 8,841
<TOTAL-ASSETS> 202,692 184,203
<CURRENT-LIABILITIES> 35,528 28,523
<BONDS> 0 0
<COMMON> 247 247
0 0
0 0
<OTHER-SE> 128,955 126,298
<TOTAL-LIABILITY-AND-EQUITY> 202,692 184,203
<SALES> 209,705 241,612
<TOTAL-REVENUES> 265,315 311,094
<CGS> 189,028 217,155
<TOTAL-COSTS> 194,845 225,596
<OTHER-EXPENSES> 30,164 37,516
<LOSS-PROVISION> 323 257
<INTEREST-EXPENSE> 982 2,197
<INCOME-PRETAX> 41,388 49,408
<INCOME-TAX> 16,350 19,520
<INCOME-CONTINUING> 25,038 29,888
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 25,038 29,888
<EPS-PRIMARY> 1.03 1.19
<EPS-DILUTED> 1.03 1.19
</TABLE>
