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 March 1, 1996.
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
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
April 1, 1996: 14,308,400
Number of registrant's Class B Common Shares outstanding at
April 1, 1996: 8,360,548
INTERNATIONAL DAIRY QUEEN, INC.
Securities and Exchange Commission Form 10-Q
for the First Quarter Ended March 1, 1996
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
March 1, 1996 and November 30, 1995 3
Condensed Consolidated Statement of Income
Three months ended March 1, 1996
and February 24, 1995 4
Condensed Consolidated Statement of Cash Flows
Three months ended March 1, 1996 and February 24, 1995 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:
Items 1 through 6 (except Item 4) have been omitted since such items
are inapplicable or the answers are negative. 10
SIGNATURES 10
PART I
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED BALANCE SHEET
(Condensed and in Thousands)
(Unaudited)
<TABLE>
March 1, November 30,
ASSETS 1996 1995
------------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents and $ 36,654 $ 42,450
marketable securities
Receivables--net 40,850 33,134
Inventories 6,121 5,376
Other current assets 3,659 4,762
-------- -------
Total current assets 87,284 85,722
Notes receivable and other--net 19,203 23,616
Other revenue-producing assets--net:
Franchise rights and goodwill 96,084 88,182
Rental properties 2,840 3,305
Miscellaneous 15 17
-------- --------
Total other revenue-producing assets 98,939 91,504
Property, plant and equipment--net 13,666 10,647
-------- --------
$219,092 $211,489
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,798 $ 11,310
Accrued liabilities 12,005 9,493
Committed advertising (2,524) 845
Current maturities of long-term debt 12,165 330
-------- --------
Total current liabilities 36,444 21,978
Deferred income taxes 15,070 15,070
Long-term debt 13,352 24,760
Other non-current liabilities 2,023 1,981
Minority interest in subsidiaries 313 ---
Common stock and other stockholders' equity 151,890 147,700
-------- --------
$219,092 $211,489
======== ========
</TABLE>
See accompanying notes.
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED STATEMENT OF INCOME
(Condensed and in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
First Quarter Ended
-----------------------------
March 1, February 24,
1996 1995
------------- ------------
<S> <C> <C>
Operating Revenues:
Net Sales $58,859 $52,924
Sales by company-operated restaurants 2,168
Service Fees 10,686 10,681
Franchise sales and other fees 1,585 1,764
Real estate finance and rental income 2,004 1,965
Other 232 196
------- -------
75,534 67,530
Operating Expenses:
Cost of Sales 53,201 47,556
Cost of Sales: company-operated restaurants 1,967
Expenses applicable to real estate finance
and rental income 1,890 1,856
Selling, general and administrative 10,696 10,496
------- -------
67,754 59,908
Operating Income 7,780 7,622
Net interest income 726 498
Minority interest in earnings of consolidated (117)
subsidiaries and joint ventures ------- -------
Income before income taxes 8,389 8,120
Provision for income taxes 3,300 3,210
------- -------
Net income $ 5,089 $ 4,910
======= =======
Earnings per common and common equivalent shares $ .22 $ .21
------- -------
Average common and common equivalent
shares outstanding 23,084 23,557
======= =======
</TABLE>
See accompanying notes.
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed and in Thousands)
(Unaudited)
<TABLE>
First Quarter Ended
-------------------------------
March 1, February 24,
1996 1995
--------------- ------------
<S> <C> <C>
Net cash provided by operating activities $ 2,442 $ 1,885
Cash flows from investing activities:
Net maturities of marketable securities 561 2,200
Cost of acquisitions, net of cash acquired (4,713)
Net advances to operators for store renovations
and equipment (1,322) (715)
Net capital expenditures (943) (675)
Purchase of franchise rights and goodwill (131) (1,108)
Other 7 4
------- -------
Cash flows used in investing activities (6,541) (294)
Cash flows from financing activities:
Purchase and retirement of common shares (1,130) (7,065)
Principal payments on long-term debt (344) (52)
Other 356 ---
------- -------
Cash flows used in financing activities (1,118) (7,117)
Effect of exchange rate changes on cash (18) (35)
------- -------
Net decrease in cash and cash equivalents (5,235) (5,561)
Cash and cash equivalents at beginning of year 34,699 31,766
------- -------
Cash and cash equivalents at end of period $29.464 $26,205
======= =======
</TABLE>
See accompanying notes.
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 March 1, 1996, and February 24,
1995, and results of operations and cash flows for the quarters 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, 1995.
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 39.3 percent for
the quarters ended March 1, 1996, and 39.5 percent for the period ended
February 24, 1995.
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 quarters ended March 1, 1996, may not be indicative of the results for
the full year.
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>
Total Ownership Total
11/30/95 Opened Closed Converted Changes 3/1/96
-------- ------ ------ --------- --------- ------
<C> <C> <C> <C> <C> <C>
DAIRY QUEEN SYSTEM
United States
Franchised by the Company:
"Dairy Queen" stores 3,283 11 (21) (31) 3,242
"Treat Center" units 124 3 1 128
Franchised by territorial
operators 1,593 13 (9) 1,597
Company operated stores 31 31
----- -- --- -- --- -----
5,000 27 (30) 1 0 4,998
----- -- --- -- --- -----
Canada
Franchised by the Company:
"Dairy Queen" stores 447 1 (2) 446
"Treat Center" units 21 21
----- -- --- -- --- -----
468 1 (2) 467
----- -- --- -- --- -----
Other foreign 162 7 (1) 168
----- -- --- -- --- -----
Total "Dairy Queen" stores 5,630 35 (33) 1 5,633
----- -- --- -- --- -----
"Orange Julius" stores 433 6 (11) (1) 427
"Karmelkorn" shoppes 69 1 (2) 68
"Golden Skillet" restaurants 21 21
----- -- --- -- --- -----
TOTAL 6,153 42 (46) 0 0 6,149
===== == === == === =====
</TABLE>
Results of Operations:
The improvement in the Company's results of operations for the first quarter
of 1995 compared to the first quarter of 1994, reflects an increase in net
sales 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 three months of 1996 with the first three months of 1995.
<TABLE>
Percentage of Revenue
Three Months Ended Percentage
March 1, February 24, Increase
1996 1995 (Decrease)
-------- ------------ ----------
Operating Revenues:
<S> <C> <C> <C>
Net Sales 77.9 78.4 11.2
Sales by company-operated restaurants 2.9 --- *
Service Fees 14.1 15.8 .0
Franchise sales & other fees 2.1 2.6 (10.2)
Real estate finance & rental income 2.7 2.9 2.0
Other .3 .3 18.6
----- -----
Total Revenues 100.0 100.0
----- -----
Operating Expenses:
Cost of Sales 70.4 70.4 11.9
Cost of sales: company-operated restaurants 2.6 --- *
Expense applicable to real estate finance
& rental income 2.5 2.7 1.8
Selling, general & administrative 14.2 15.5 1.9
----- -----
Total Operating Expenses 89.7 88.6 13.1
----- -----
Operating Income 10.3 11.4 2.1
Net interest income 1.0 .7 45.9
Minority interest (.2) --- *
----- -----
Income before income taxes 11.1 12.1 3.3
Provision for income taxes 4.4 4.8 2.8
----- -----
Net income 6.7 7.3 3.6
===== =====
</TABLE>
*Not meaningful
On February 7, 1996, the Company acquired 10 "Dairy Queen"/"Brazier" stores
and a majority interest in 21 other "Dairy Queen"/"Brazier" stores located in
Kentucky, Tennessee and Indiana. Net sales for these 31 stores from the date
of acquisition to March 1, 1996 (22 days) were $2,167,564 and related cost of
sales was $1,966,916.
The increase of $5,935,057 (excluding corporate store sales) in net sales
resulted primarily from an increase of $4,445,964 in unit sales of non-frozen
foods, paper and plastics to authorized warehouses (who in turn sell to
franchisees), a decrease of $668,455 in equipment sales due primarily to a
lower level of new store development, an increase of $678,035 in sales of
promotional items sold to "Dairy Queen" stores and an increase of $867,649 in
permanent and temporary placement fees by Firstaff, Inc.
The increase of $199,999 in selling, general and administrative expenses was
primarily from an increase in personnel and legal support costs.
The increase in net interest income of $228,562 is primarily the result of an
increase in the funds available for investing in interest-generating activities.
The increase in net income per share when comparing the 1996 period with the
1995 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 March 1, 1996, include $38.6 million in cash,
cash equivalents and marketable securities. 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 Tuesday, March 19,
1996, and the following resolutions were approved.
The following were elected to serve as directors of the Corporation until the
next Annual Meeting of Stockholders:
<TABLE>
To Represent VOTES To Represent VOTES
Class A Stockholders For Withheld Class B Stockholders For Withheld
<S> <C> <C> <S> <C> <C>
Michael P. Sullivan 12,380,134 129,227 John Mooty 7,583,668 4,374
Frank Heit 12,381,384 127,977 Ernest Dorn, Jr. 7,582,398 5,644
Richard Giertsen 7,583,098 4,944
C. David Luther 7,582,768 5,274
Raymond Mithun 7,568,055 19,987
Jane Mooty 7,583,698 4,344
Thomas R. Stuart 7,582,748 5,294
</TABLE>
The appointment of Ernst & Young LLP as the independent auditors of the
Corporation for the fiscal year ending November 30, 1996, was approved.
7,584,622 shares voted for, 3,414 against, and 6 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 are negative.
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)
April 11, 1996 /s/ CHARLES W. MOOTY
- -------------------------- -----------------------------------
Date Charles W. Mooty
Chief Financial Officer,
Vice President and Treasurer
April 11, 1996 /s/ DAVID M. BOND
- --------------------------- -----------------------------------
Date David M. Bond
Secretary/Assistant Treasurer
and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> MAR-01-1996
<CASH> 29,464
<SECURITIES> 7,190
<RECEIVABLES> 41,400
<ALLOWANCES> 550
<INVENTORY> 6,121
<CURRENT-ASSETS> 87,284
<PP&E> 23,554
<DEPRECIATION> 9,888
<TOTAL-ASSETS> 219,092
<CURRENT-LIABILITIES> 36,444
<BONDS> 13,352
<COMMON> 228
0
0
<OTHER-SE> 151,662
<TOTAL-LIABILITY-AND-EQUITY> 219,092
<SALES> 61,027
<TOTAL-REVENUES> 75,534
<CGS> 55,168
<TOTAL-COSTS> 57,058
<OTHER-EXPENSES> 10,696
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 516
<INCOME-PRETAX> 8,389
<INCOME-TAX> 3,300
<INCOME-CONTINUING> 5,089
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,089
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
