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 31, 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
July 1, 1996: 14,003,434
Number of registrant's Class B Common Shares outstanding at
July 1, 1996: 8,298,597
INTERNATIONAL DAIRY QUEEN, INC.
Securities and Exchange Commission Form 10-Q
for the Second Quarter Ended May 31, 1996
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I N D E X
Page
Number
PART I: FINANCIAL INFORMATION:
<S> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet
May 31, 1996 and November 30, 1995 3
Condensed Consolidated Statement of Income
Three months and six months ended May 31, 1996 4
and May 26, 1995
Condensed Consolidated Statement of Cash Flows
Six months ended May 31, 1996 and May 26, 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 have been omitted since such items are inapplicable or the answers are 9
negative.
SIGNATURES 9
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PART I
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED BALANCE SHEET
(Condensed and in Thousands)
(Unaudited)
May 31, November 30,
ASSETS 1996 1995
--------- ---------
Current Assets:
Cash and cash equivalents and $ 32,196 $ 42,450
marketable securities
Receivables--net 50,217 33,134
Inventories 6,002 5,376
Other current assets 3,590 4,762
--------- ---------
Total current assets 92,005 85,722
Notes receivable and other--net 20,993 23,616
Other revenue-producing assets--net:
Franchise rights and goodwill 96,142 88,182
Rental properties 3,291 3,305
Miscellaneous 13 17
--------- ---------
Total other revenue-producing assets 99,446 91,504
Property, plant and equipment--net 14,204 10,647
--------- ---------
$ 226,648 $ 211,489
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,974 $ 11,310
Accrued liabilities 11,094 9,493
Committed advertising (6,773) 845
Current maturities of long-term debt 12,257 330
--------- ---------
Total current liabilities 39,552 21,978
Deferred income taxes 15,070 15,070
Long-term debt 13,272 24,760
Other non-current liabilities 2,299 1,981
Minority interest in subsidiaries 513 --
Common stock and other stockholders' equity 155,942 147,700
--------- ---------
$ 226,648 $ 211,489
========= =========
See accompanying notes.
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INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED STATEMENT OF INCOME
(Condensed and in Thousands, Except Per Share Amounts)
(Unaudited)
Six Months Ended Second Quarter Ended
---------------- --------------------
May 31, May 26, May 31, May 26,
1996 1995 1996 1995
--------- --------- --------- ---------
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Operating Revenues:
Net Sales $ 149,720 $ 139,125 $ 90,861 $ 86,201
Sales by company-operated restaurants 10,447 -- 8,279 --
Service Fees 25,977 26,167 15,291 15,487
Franchise sales and other fees 4,081 4,064 2,496 2,299
Real estate finance and rental income 3,949 3,854 1,945 1,889
Other 624 470 392 274
--------- --------- --------- ---------
194,798 173,680 119,264 106,150
Operating Expenses:
Cost of Sales 135,000 125,015 81,799 77,459
Cost of Sales: company-operated restaurants 9,236 -- 7,269 --
Expenses applicable to real estate finance
and rental income 3,705 3,618 1,815 1,761
Selling, general and administrative 22,375 21,631 11,679 11,136
--------- --------- --------- ---------
170,316 150,264 102,562 90,356
--------- --------- --------- ---------
Operating Income 24,482 23,416 16,702 15,794
Net Interest Income 1,154 982 428 484
Minority interest in earnings of consolidated
subsidiaries and joint ventures (431) -- (314) --
--------- --------- --------- ---------
Income before income taxes 25,205 24,398 16,816 16,278
Provision for income taxes 9,910 9,640 6,610 6,430
--------- --------- --------- ---------
Net income $ 15,295 $ 14,758 $ 10,206 $ 9,848
========= ========= ========= =========
Earnings per common and common equivalent
shares $ .67 $ .63 $ .45 $ .42
========= ========= ========= =========
Average common and common equivalent
shares outstanding 22,967 23,419 22,838 23,280
========= ========= ========= =========
See accompanying notes
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INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed and in Thousands)
(Unaudited)
Six Months Ended
--------------------
May 31, May 26,
1996 1995
-------- --------
Net cash provided by operating activities $ 6,253 $ 9,388
Investing Activities:
Net investments in marketable securities (339) (3,907)
Cost of acquisitions, net of cash acquired (5,483) --
Net advances to operators for store renovations
and equipment (625) (1,012)
Net capital expenditures (2,549) (2,000)
Purchase of franchise rights and goodwill (223) (1,167)
Other 61 8
-------- --------
Cash flows used in investing activities (9,158) (8,078)
Financing Activities:
Purchase and retirement of common shares (7,454) (12,557)
Principal payments on long-term debt (510) (218)
Other 644 --
-------- --------
Cash flows used in financing activities (7,320) (12,775)
Effect of exchange rate changes on cash (11) (33)
-------- --------
Net decrease in cash and cash equivalents (10,236) (11,498)
Cash and cash equivalents at beginning of year 34,699 31,766
-------- --------
Cash and cash equivalents at end of period $ 24,463 $ 20,268
======== ========
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 condensed consolidated balance sheet as of May 31, 1996, and
the related condensed consolidated statements of income for the three-month and
six-month periods ended May 31, 1996 and May 26, 1995 and the condensed
consolidated statements of cash flows for the six-month periods ended May 31,
1996 and May 26, 1995. 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
three-month and six-month periods ended May 31, 1996, and 39.5 percent for the
three-month and six-month periods ended May 26, 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 May 31, 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(R), Orange Julius(R), Karmelkorn(R), and Golden Skillet(R)
systems.
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Total Ownership Total
11/30/95 Opened Closed Converted Changes 5/31/96
-------- ------ ------ --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
DAIRY QUEEN SYSTEM
United States
Franchised by the Company:
Dairy Queen(R)stores 3,283 31 (47) 0 (33) 3,234
Treat Center(R)units 124 6 (1) 1 0 130
Franchised by territorial
operators 1,593 36 (12) 0 1 1,618
Company operated stores 32 32
------ ------ ------ ------ ------ ------
5,000 73 (60) 1 0 5,014
------ ------ ------ ------ ------ ------
Canada
Franchised by the Company:
Dairy Queen(R)stores 447 7 (2) 0 0 452
Treat Center(R)units 21 0 0 0 0 21
------ ------ ------ ------ ------ ------
468 7 (2) 0 0 473
------ ------ ------ ------ ------ ------
Other foreign 162 19 (3) 0 0 178
------ ------ ------ ------ ------ ------
Total Dairy Queen(R)stores 5,630 99 (65) 1 0 5,665
------ ------ ------ ------ ------ ------
Orange Julius(R)stores 433 10 (19) (1) 0 423
Karmelkorn(R)shoppes 69 1 (4) 0 0 66
Golden Skillet(R)restaurants 21 0 0 0 0 21
------ ------ ------ ------ ------ ------
TOTAL 6,153 110 (88) 0 0 6,175
====== ====== ====== ====== ====== ======
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Results of Operations:
The improvement in the Company's results of operations for the second quarter
and first six months of 1996 compared to the second quarter and first six months
of 1995, 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 strong influence of weather on revenue was readily apparent in the first six
months of 1996 when cold, snowy and very wet weather across much of North
America adversely affected sales by franchisees.
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 1996 with the first six months of 1995.
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Percentage of Revenue
Six Months Ended
--------------------------------------- Percentage
May 31, May 26, Increase
1996 1995 (Decrease)
------- ------- ----------
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Operating Revenues:
Net Sales 76.9 80.1 7.6
Sales by company-operated restaurants 5.4 -- --
Service Fees 13.3 15.1 (.7)
Franchise sales & other fees 2.1 2.3 .4
Real estate finance & rental income 2.0 2.2 2.5
Other .3 .3 33.0
------ ------
Total Revenues 100.0 100.0 12.2
----- -----
Operating Expenses:
Cost of Sales 69.3 72.0 8.0
Cost of sales: company-operated restaurants 4.7 -- *
Expense applicable to real estate finance
& rental income 1.9 2.0 2.4
Selling, general & administrative 11.5 12.5 3.4
------ ------
Total Operating Expenses 87.4 86.5 13.3
------ ------
Operating Income 12.6 13.5 4.6
Net interest income .6 .6 17.5
Minority interest (.2) -- *
------- ------
Income before income taxes 13.0 14.1 3.3
Provision for income taxes 5.1 5.6 2.8
------ ------
Net income 7.8 8.5 3.6
====== ======
*Not meaningful
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The increase of $10,594,754 in net sales resulted primarily from an increase of
$8,922,869 in unit sales of frozen, non-frozen foods, paper, plastics and
manufactured novelties to authorized warehouses (who in turn sell to
franchisees), an increase of $1,198,627 in sales of promotional items sold to
Dairy Queen stores and an increase of $565,342 in permanent and temporary
placement and training fees by Firstaff, Inc.
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. On April 29, one additional store was acquired. Net sales
for these 32 stores from the dates of acquisition to May 31, 1996 were
$10,446,690 and related cost of sales was $9,235,960.
The decrease in service fee income of $190,279 was primarily due to the
elimination in 1996 of intercompany service fees of $417,867 due from
company-operated restaurants acquired in 1996.
The increase of $924,319 in selling, general and administrative expenses was
primarily from an increase in personnel and legal support costs.
The increase in net interest income of $172,112 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 May 31, 1996, include $32.2 million in cash, cash
equivalents and marketable securities. 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 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)
July 11, 1996 /s/ CHARLES W. MOOTY
Date Charles W. Mooty
Chief Financial Officer,
Vice President and Treasurer
July 11, 1996 /s/ DAVID M. BOND
Date David M. Bond
Secretary/Assistant Treasurer
and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> MAY-31-1996
<CASH> 24,463
<SECURITIES> 7,733
<RECEIVABLES> 50,660
<ALLOWANCES> 443
<INVENTORY> 6,002
<CURRENT-ASSETS> 92,005
<PP&E> 24,749
<DEPRECIATION> 10,545
<TOTAL-ASSETS> 226,648
<CURRENT-LIABILITIES> 39,552
<BONDS> 13,272
0
0
<COMMON> 228
<OTHER-SE> 155,714
<TOTAL-LIABILITY-AND-EQUITY> 226,648
<SALES> 160,167
<TOTAL-REVENUES> 194,798
<CGS> 144,236
<TOTAL-COSTS> 147,941
<OTHER-EXPENSES> 22,375
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 1,060
<INCOME-PRETAX> 25,205
<INCOME-TAX> 9,910
<INCOME-CONTINUING> 15,295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,295
<EPS-PRIMARY> .67
<EPS-DILUTED> .67
</TABLE>
