<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 May 27, 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
July 1, 1994: 15,320,494
Number of registrant's Class B Common Shares outstanding at
July 1, 1994: 8,978,079
-1-
<PAGE>
INTERNATIONAL DAIRY QUEEN, INC.
Securities and Exchange Commission Form 10-Q
for the Second Quarter Ended May 27, 1994
I N D E X
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
(Unaudited)
May 27, 1994 and November 30, 1993 3
Consolidated Statement of Income
(Unaudited)
Three months and six months ended May 27, 1994
and May 28, 1993 4
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Six months ended May 27, 1994
and May 28, 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 6. 9
Items 1 through 5 have been omitted since such items are inapplicable
or the answers are negative
SIGNATURES 9
-2-
<PAGE>
PART I
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED BALANCE SHEET
(Condensed and in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
May 27, November 30,
1994 1993
---------- ------------
ASSETS (Restated)
<S> <C> <C>
Current Assets:
Cash and cash equivalents and
marketable securities $ 24,667 $ 31,178
Receivables--net 40,713 26,659
Inventories 4,551 4,561
Other current assets 2,709 2,562
-------- --------
Total current assets 72,640 64,960
Notes receivable and other--net 20,988 23,037
Other revenue producing assets--net:
Rental properties 3,079 3,241
Franchise rights and service contracts 86,386 83,771
Miscellaneous 31 39
-------- --------
Total other revenue producing assets 89,496 87,051
Property, plant and equipment--net 9,749 9,350
-------- --------
$192,873 $184,398
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Drafts and accounts payable $ 22,855 $ 16,792
Accrued liabilities 9,428 7,779
Committed advertising (2,283) 2,093
Current maturities of long-term debt 484 1,913
-------- --------
Total current liabilities 30,484 28,577
Deferred income taxes and other 15,298 15,234
Long-term debt 23,495 23,902
Common stock and other stockholders' equity 123,596 116,685
-------- --------
$192,873 $184,398
-------- --------
-------- --------
</TABLE>
See accompanying notes.
-3-
<PAGE>
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED STATEMENT OF INCOME
(Condensed and in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Second Quarter Ended
----------------- --------------------
May 27, May 28, May 27, May 28,
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenues:
Net sales $123,990 $113,064 $ 76,887 $ 68,609
Service fees 24,921 23,743 14,745 13,802
Franchise sales and other fees 3,917 3,609 2,477 2,293
Real estate finance and
rental income 4,254 4,712 2,054 2,286
Other 773 579 515 342
-------- -------- -------- --------
157,855 145,707 96,678 87,332
Operating Expenses:
Cost of sales 111,889 101,398 69,352 61,471
Expenses applicable to real estate
finance and rental income 4,015 4,441 1,933 2,142
Selling, general and administrative 19,710 18,801 10,414 9,833
-------- -------- -------- --------
135,614 124,640 81,699 73,446
-------- -------- -------- --------
22,241 21,067 14,979 13,886
Net interest income 693 518 331 301
-------- -------- -------- --------
Income before income taxes 22,934 21,585 15,310 14,187
Provision for income taxes 9,060 8,310 6,050 5,460
-------- -------- -------- --------
Net income $ 13,874 $ 13,275 $ 9,260 $ 8,727
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per common and common
equivalent share $ .57 $ .52 $ .38 $ .35
-------- -------- -------- --------
-------- -------- -------- --------
Average common and common equivalent
shares outstanding 24,531 25,351 24,473 25,217
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes.
-4-
<PAGE>
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed and in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
May 27, May 28,
1994 1993
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 6,874 $ 4,626
Cash flows from investing activities:
Marketable securities, net maturities 2,692 --
Net advanced to operators for store
renovations and equipment (2,751) (260)
Capital expenditures (1,136) (3,974)
Purchase of franchise rights and service contracts (1,090) (421)
Other 10 317
------- -------
Cash flows used in investing activities (2,275) (4,338)
Cash flows from financing activities:
Principal payments on long-term debt (1,836) (1,763)
Purchase and retirement of common shares (6,860) (9,387)
Other 287 --
------- -------
Cash flows used in financing activities (8,409) (11,150)
Effect of exchange rate changes on cash (8) 51
------- -------
Net decrease in cash and cash equivalents (3,818) (10,811)
Cash and cash equivalents at beginning of year 21,188 31,243
------- -------
Cash and cash equivalents at end of period $17,370 $20,432
------- -------
------- -------
</TABLE>
See accompanying notes.
-5-
<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 May 27, 1994, and May 28, 1993, and
results of operations and cash flows for the three-month and six-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 six-month periods ended May 27, 1994, and 38.5 percent for
the comparable periods ended May 28, 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 six months ended May 27, 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>
Converted
Total to Treat Ownership Total
11/30/93 Opened Closed Centers Changes 05/27/94
-------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
DAIRY QUEEN SYSTEM
United States
Franchised by the Company:
"Dairy Queen" stores 3,083 18 (20) 0 57 3,138
"Treat Center" units 93 3 (1) 3 98
Franchised by territorial operators 1,683 26 (21) 0 (57) 1,631
Company operated stores 1 -- - -- -- 1
----- --- --- --- --- -----
4,860 47 (42) _3 __0 4,868
----- --- --- --- --- -----
Canada
Franchised by the Company:
"Dairy Queen" stores 420 7 (1) 426
"Treat Centers" units 18 -- -- -- -- 18
----- --- --- --- --- -----
438 7 (1) 444
----- --- --- --- --- -----
Other foreign 173 18 (13) -- -- 178
----- --- --- --- --- -----
Total "Dairy Queen" stores 5,471 72 (56) 3 0 5,490
----- --- --- --- --- -----
"Orange Julius" stores 480 6 (17) (3) -- 466
"Karmelkorn" shoppes 95 1 (8) -- -- 88
"Golden Skillet" restaurants 17 2 -- -- -- 19
----- --- --- --- --- -----
Total 6,063 81 (81) 0 0 6,063
----- --- --- --- --- -----
----- --- --- --- --- -----
</TABLE>
-7-
<PAGE>
Results of Operations:
The improvement in the Company's results of operations for the second quarter
and first six months of 1994, compared to the second quarter and first six
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 six months of 1994 with the first six months of 1993.
<TABLE>
Percentage of Revenue
Six Months Ended
-------------------------- Percentage
May 27, May 28, Increase
1994 1993 (Decrease)
------------ ------------ ----------
<S> <C> <C> <C>
Operating Revenues:
Net sales 78.5 77.6 9.7
Service fees 15.8 16.3 5.0
Franchise sales & other fees 2.5 2.5 8.5
Real estate finance & rental income 2.7 3.2 (9.7)
Other .5 .4 33.6
----- -----
Total Revenues 100.0 100.0 8.3
----- -----
Operating Expenses:
Cost of Sales 70.9 69.6 10.3
Expenses applicable to real
estate finance & rental income 2.5 3.0 (9.6)
Selling, general & administrative 12.5 12.9 4.8
----- -----
Total Operating Expenses 85.9 85.5 8.8
----- -----
Net interest income .4 .3 33.7
Income before income taxes 14.5 14.8 6.3
Provision for income taxes 5.7 5.7 9.0
----- -----
Net income 8.8 9.1 4.5
----- -----
----- -----
</TABLE>
The increase of $10,926,254 in net sales resulted primarily from an increase
of $6,853,331 in unit sales of perishable (frozen and non-frozen foods) to
authorized warehouses (who in turn sell to franchisees), an increase of
$1,947,942 in sales promotional items sold to "Dairy Queen" stores, and an
increase of $1,601,146 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 $1,571,842 in the
first six 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 second
quarter of 1993).
-8-
<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 May 27, 1994, include $24.7 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 6. The Company filed with the Commission a current report - Form 8-K,
dated March 9, 1994, reporting matters under item 1, thereof.
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.
------------------------------------
(Registrant)
July 8, 1994 /s/ Charles W. Mooty
- - ------------ ------------------------------------
Date Charles W. Mooty
Chief Financial Officer,
Vice President and Treasurer
July 8, 1994 /s/ David M. Bond
- - ------------ ------------------------------------
Date David M. Bond
Secretary/Assistant Treasurer
and Controller
-9-
