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 Period Ended May 26, 1995
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From ___________ to ____________
Commission file number 0-6116
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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
June 30, 1995: 14,303,553
Number of registrant's Class B Common Shares outstanding at
June 30, 1995: 8,501,602
<PAGE>
INTERNATIONAL DAIRY QUEEN, INC.
-------------------------------
Securities and Exchange Commission Form 10-Q
for the Second Quarter Ended May 26, 1995
I N D E X
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Page
Number
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PART I: FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet
May 26, 1995 and November 30, 1994 3
Condensed Consolidated Statement of Income
Three months and six months ended May 26, 1995
and May 27, 1994 4
Condensed Consolidated Statement of Cash Flows
Six months ended May 26, 1995 and May 27, 1994 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 7-9
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 9
Items 2 through 6 have been omitted since such items are
inapplicable or the answers are negative. 9
SIGNATURES 10
<PAGE>
<TABLE>
PART I
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INTERNATIONAL DAIRY QUEEN, INC.
-------------------------------
CONSOLIDATED BALANCE SHEET
(Condensed and in Thousands)
(Unaudited)
<CAPTION>
May 26, November 30,
ASSETS 1995 1994
------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents and marketable securities $ 31,132 $ 38,722
Receivables--net 49,086 32,408
Inventories 4,627 5,404
Other current assets 3,979 3,718
-------- --------
Total current assets 88,824 80,252
Notes receivable and other--net 15,590 15,789
Other revenue producing assets--net:
Franchise rights and service contracts 89,381 87,754
Rental properties 2,893 2,895
Miscellaneous 15 23
------- --------
Total other revenue producing assets 92,289 90,672
Property, plant and equipment--net 10,938 9,783
-------- --------
$207,641 $196,496
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Drafts and accounts payable $ 24,466 $ 17,127
Accrued liabilities 12,900 7,758
Committed advertising (3,847) 1,108
Current maturities of long-term debt 344 367
-------- --------
Total current liabilities 33,863 26,360
Deferred income 139 436
Deferred income taxes 14,995 14,995
Long-term debt 25,014 23,344
Common stock and other stockholders' equity 133,630 131,361
-------- --------
$207,641 $196,496
======== ========
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
INTERNATIONAL DAIRY QUEEN, INC.
-------------------------------
CONSOLIDATED STATEMENT OF INCOME
(Condensed and in Thousands, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Six Months Ended Second Quarter Ended
---------------- --------------------
May 26, May 27, May 26, May 27,
1995 1994 1995 1994
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Operating Revenues:
Net Sales $139,125 $123,990 $ 86,201 $76,887
Service Fees 26,167 24,921 15,487 14,745
Franchise sales and other fees 4,064 3,917 2,299 2,477
Real estate finance and rental income 3,854 4,254 1,889 2,054
Other 470 773 274 515
------- -------- -------- -------
173,680 157,855 106,150 96,678
Operating Expenses:
Cost of Sales 125,015 111,889 77,459 69,352
Expenses applicable to real estate
finance and rental income 3,618 4,015 1,761 1,933
Selling, general and administrative 21,631 19,710 11,136 10,414
------- ------- ------- -------
150,264 135,614 90,356 81,699
-------- -------- ------- -------
23,416 22,241 15,794 14,979
Net interest income 982 693 484 331
-------- -------- ------- -------
Income before income taxes 24,398 22,934 16,278 15,310
Provision for income taxes 9,640 9,060 6,430 6,050
-------- -------- ------- -------
Net income $ 14,758 $ 13,874 $ 9,848 $ 9,260
======== ======== ======== =======
Earnings per common and common
equivalent share $ .63 $ .57 $ .42 $ .38
======== ======== ======== =======
Average common and common equivalent
shares outstanding 23,419 24,531 23,280 24,473
======== ======== ======== =======
</TABLE>
See accompanying notes.
<PAGE>
<TABLE>
INTERNATIONAL DAIRY QUEEN, INC.
-------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed and in Thousands)
(Unaudited)
<CAPTION>
Six Months Ended
----------------------
May 26, May 27,
1995 1994
-------- -------
<S> <C> <C>
Net cash provided by operating activities $ 9,388 $ 6,874
Cash flows from investing activities:
Marketable securities, net (investments)/maturities (3,907) 2,692
Net advanced to operators for store renovations
and equipment (1,012) (2,751)
Capital expenditures (2,000) (1,136)
Purchase of franchise rights and service contracts (1,167) (1,090)
Other 8 10
------- -------
Cash flows used in investing activities (8,078) (2,275)
Cash flows from financing activities:
Principal payments on long-term debt (218) (1,836)
Purchase and retirement of common shares (12,557) (6,860)
Other -- 287
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Cash flows used in financing activities (12,775) (8,409)
Effect of exchange rate changes on cash (33) (8)
------- -------
Net decrease in cash and cash equivalents (11,498) (3,818)
Cash and cash equivalents at beginning of year 31,766 21,188
------- -------
Cash and cash equivalents at end of period $20,268 $17,370
======= =======
</TABLE>
See accompanying notes.
<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 26, 1995, and May 27, 1994, 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 consolidated financial statements and footnotes thereto included
in the Company's Annual Report and Form 10-K for the year ended November 30,
1994.
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 26, 1995, and May 27, 1994.
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 26, 1995, may not be indicative of the results
for the full year.
<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 equipment 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 Ownership Total
11/30/94 Opened Closed Converted Changes 5/26/95
-------- ------ ------ --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
DAIRY QUEEN SYSTEM
United States
Franchised by the Company:
Dairy Queen stores 3,194 42 (40) 26 3,222
Treat Center units 104 6 110
Franchised by territorial
operators 1,615 22 (19) (26) 1,592
Company operated stores 1 (1)
----- -- --- ----- --- -----
4,914 70 (60) 0 0 4,924
----- -- --- ----- --- -----
Canada
Franchised by the Company:
Dairy Queen stores 432 9 (1) 440
Treat Center units 20 1 21
----- -- --- ----- --- -----
452 10 (1) 0 0 461
----- -- --- ----- --- -----
Other foreign 176 14 (17) 173
----- -- --- ----- --- -----
Total Dairy Queen stores 5,542 94 (78) 0 0 5,558
----- -- --- ----- --- -----
Orange Julius stores 454 7 (23) 438
Karmelkorn shoppes 82 (9) 73
Golden Skillet restaurants 21 21
----- -- --- ----- --- -----
TOTAL 6,099 101 (110) 0 0 6,090
===== === ==== ===== === =====
</TABLE>
<PAGE>
Results of Operations:
- -----------------------
The improvement in the Company's results of operations for the second quarter
and first six months of 1995, compared to the second quarter and first six
months of 1994, 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 1995 with the first six months of 1994.
<TABLE>
<CAPTION>
Percentage of Revenue
Six Months Ended
---------------------- Percentage
May 26, May 27, Increase
1995 1994 (Decrease)
------- ------- ----------
<S> <C> <C> <C>
Operating Revenues:
Net Sales 80.1 78.5 12.2
Service Fees 15.1 15.8 5.0
Franchise sales & other fees 2.3 2.5 3.7
Real estate finance & rental income 2.2 2.7 (9.4)
Other .3 .5 (39.2)
------- -------
Total Revenues 100.0 100.0 10.0
Operating Expenses:
Cost of Sales 72.0 70.9 11.7
Expense applicable to real estate
finance & rental income 2.0 2.5 (9.9)
Selling, general & administrative 12.5 12.5 9.8
------- -------
Total Operating Expenses 86.5 85.9 10.8
Net interest income .6 .4 41.8
Income before income taxes 14.1 14.5 6.4
Provision for income taxes 5.6 5.7 6.4
Net income 8.5 8.8 6.4
</TABLE>
The increase of $15,134,768 in net sales resulted primarily from an increase
of $8,640,896 in unit sales of frozen and non-frozen foods, paper and
plastics to authorized warehouses (who in turn sell to franchisees), an
increase of $2,057,288 in equipment sales due primarily to a higher level of
new store development, an increase of $1,960,417 in sales of promotional
items sold to Dairy Queen stores, and an increase of $1,685,543 in fees by
Firstaff, Inc.
<PAGE>
Selling, general and administrative expenses increased $1,782,632 due to
additional personnel and support costs, increased marketing and research
costs, legal costs, and other costs required to support and develop a higher
overall level of operations.
The increase in net income per share when comparing the 1995 period with the
1994 period 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 26, 1995, include 31.1 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 1. Legal Proceedings
- --------------------------
Hugh Collins, et al. v. International Dairy Queen, Inc. and American Dairy
Queen Corporation ("ADQ") (United States District Court, Middle District of
Georgia, Macon Division, No. 94-95-4-MCA (WDO), commenced April 5, 1994).
This matter, previously reported in the Company's Annual Report (Form 10-K)
for fiscal 1994, is an action by five franchisees in the State of Georgia for
declaratory judgment, injunctive relief, actual damages in an unspecified
amount, treble damages under federal antitrust law, costs, and attorneys'
fees. Plaintiffs' claims are that ADQ's approved supplier program and
procedures constitute a tying arrangement prohibited under Section I of the
Sherman Antitrust Act (15 U.S.C. S 1), a breach of contract, a breach of an
implied convenant of good faith and fair dealing between the parties, and
breach of a prior settlement agreement. The Company and ADQ have filed an
answer to plaintiffs' complaint and intend to vigorously defend against
plaintiffs' claims. The court has appointed a Special Discovery Master, and
pretrial proceedings are expected to be extensive. In December 1994,
the parties filed cross-motions for summary judgment on all issues relating
to the supply of cups and lids to the Dairy Queen system. The Court held an
evidentiary hearing on those motions on February 7-8, 1995. The parties have
engaged in settlement negotiations at the suggestion of the Court. On
June 28, 1995, plaintiffs filed motions to amend the complaint to add new
claims under federal antitrust law and state law, and to have the case
certified as a class action. No ruling has been made on those motions. No
trial date has been set.
All other items required under Part II have been omitted since they are
inapplicable or the answers are negative.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
International Dairy Queen, Inc.
------------------------------------
(Registrant)
July 10, 1995 /s/ CHARLES W. MOOTY
- ----------------------------- ------------------------------------
Date Charles W. Mooty
Chief Financial Officer,
Vice President and Treasurer
July 10, 1995 /s/ DAVID M. BOND
- ----------------------------- ------------------------------------
Date David M. Bond
Secretary/Assistant Treasurer
and Controller
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> DEC-01-1994
<PERIOD-END> MAY-26-1995
<CASH> 20,268
<SECURITIES> 10,863
<RECEIVABLES> 49,700
<ALLOWANCES> 614
<INVENTORY> 4,627
<CURRENT-ASSETS> 88,824
<PP&E> 20,578
<DEPRECIATION> 9,640
<TOTAL-ASSETS> 207,641
<CURRENT-LIABILITIES> 33,278
<BONDS> 25,014
<COMMON> 237
0
0
<OTHER-SE> 133,393
<TOTAL-LIABILITY-AND-EQUITY> 207,641
<SALES> 139,125
<TOTAL-REVENUES> 173,680
<CGS> 125,015
<TOTAL-COSTS> 128,633
<OTHER-EXPENSES> 21,631
<LOSS-PROVISION> 58
<INTEREST-EXPENSE> 1,073
<INCOME-PRETAX> 24,398
<INCOME-TAX> 9,640
<INCOME-CONTINUING> 14,758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,758
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
</TABLE>
