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 30, 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
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(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, 1996: 13,866,406
Number of registrant's Class B Common Shares outstanding at
September 30, 1996: 8,259,451
INTERNATIONAL DAIRY QUEEN, INC.
Securities and Exchange Commission Form 10-Q
for the Third Quarter Ended August 30, 1996
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I N D E X
Page
Number
PART I: FINANCIAL INFORMATION:
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet
August 30, 1996 and November 30, 1995 3
Condensed Consolidated Statement of Income
Three months and nine months ended August 30, 1996 4
and August 25, 1995
Condensed Consolidated Statement of Cash Flows
Nine months ended August 30, 1996 and August 25, 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:
Item 1. Legal Proceedings 10
Items 2 through 6 have been omitted since such items are inapplicable or
the answers are negative.
SIGNATURES 10
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PART I
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INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED BALANCE SHEET
(Condensed and in Thousands)
(Unaudited)
ASSETS August 30, November 30,
1996 1996
---------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents and
marketable securities $ 41,348 $ 42,450
Receivables--net 45,773 33,134
Inventories 5,938 5,376
Other current assets 3,650 4,762
-------- --------
Total current assets 96,709 85,722
Notes receivable and other--net 22,737 23,616
Other revenue-producing assets--net:
Franchise rights and goodwill 98,262 88,182
Rental properties 3,421 3,305
Miscellaneous 13 17
-------- --------
Total other revenue-producing assets 101,696 91,504
Property, plant and equipment--net 13,874 10,647
-------- --------
$235,016 $211,489
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 17,281 $ 11,310
Accrued liabilities 12,885 9,493
Committed advertising 198 845
Current maturities of long-term debt 12,132 330
-------- --------
Total current liabilities 42,496 21,978
Deferred income taxes 15,070 15,070
Long-term debt 13,098 24,760
Other non-current liabilities 2,231 1,981
Minority interest in subsidiaries 643 --
Common stock and other stockholders' equity 161,478 147,700
-------- --------
$235,016 $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)
Nine Months Ended Third Quarter Ended
------------------------ -------------------------
August 30, August 25, August 30, August 25,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Revenues:
Net Sales $ 244,450 $ 231,602 $ 94,730 $ 92,477
Sales by company-operated restaurants 19,885 -- 9,438 --
Service Fees 44,347 44,345 18,370 18,178
Franchise sales and other fees 7,058 6,694 2,977 2,630
Real estate finance and rental income 5,918 5,654 1,969 1,800
Other 1,071 746 447 276
--------- --------- --------- ---------
322,729 289,041 127,931 115,361
Operating Expenses:
Cost of Sales 220,529 208,025 85,529 83,010
Cost of Sales: company-operated restaurants 17,430 -- 8,194 --
Expenses applicable to real estate finance
and rental income 5,516 5,274 1,811 1,656
Selling, general and administrative 34,444 33,393 12,069 11,762
--------- --------- --------- ---------
277,919 246,692 107,603 96,428
--------- --------- --------- ---------
Operating Income 44,810 42,349 20,328 18,933
Net Interest Income 1,685 1,466 531 484
Minority interest in earnings of consolidated
subsidiaries and joint ventures (893) -- (462) --
--------- --------- --------- ---------
Income before income taxes 45,602 43,815 20,397 19,417
Provision for income taxes 17,920 17,310 8,010 7,670
--------- --------- --------- ---------
Net income $ 27,682 $ 26,505 $ 12,387 $ 11,747
========= ========= ========= =========
Earnings per common and common equivalent
shares $ 1.22 $ 1.14 $ .55 $ .51
========= ========= ========= =========
Average common and common equivalent
shares outstanding 22,773 23,280 22,395 23,001
========= ========= ========= =========
See accompanying notes.
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INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed and in Thousands)
(Unaudited)
Nine Months Ended
-----------------------
August 30, August 25,
1996 1995
---------- ----------
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Net cash provided by operating activities $ 27,763 $ 23,797
Investing Activities:
Net investments in marketable securities (2,559) (24)
Cost of acquisitions, net of cash acquired (5,483) --
Net advances to operators for store renovations
and equipment (728) (1,890)
Net capital expenditures (3,575) (2,323)
Purchase of franchise rights and goodwill (3,141) (1,170)
Other 62 90
-------- --------
Cash flows used in investing activities (15,424) (5,317)
Financing Activities:
Purchase and retirement of common shares (14,703) (16,924)
Principal payments on long-term debt (810) (355)
Other 1,120 541
-------- --------
Cash flows used in financing activities (14,393) (16,738)
Effect of exchange rate changes on cash (17) 32
-------- --------
Net (decrease)/increase in cash and cash equivalents (2,071) 1,774
Cash and cash equivalents at beginning of year 34,699 31,766
-------- --------
Cash and cash equivalents at end of period $ 32,628 $ 33,540
======== ========
See accompanying notes.
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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 August 30, 1996,
and the related condensed consolidated statements of income for the three-month
and nine-month periods ended August 30, 1996 and August 25, 1995 and the
condensed consolidated statements of cash flows for the nine-month periods ended
August 30, 1996 and August 25, 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 nine-month periods ended August 30, 1996, and 39.5 percent for
the three-month and nine-month periods ended August 25, 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 periods ended August 30, 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 8/30/96
-------- ------ ------ --------- --------- -------
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DAIRY QUEEN(R) SYSTEM
United States
Franchised by the Company:
DAIRY QUEEN(R)stores 3,283 45 (64) 0 15 3,279
TREAT CENTER(R)units 124 13 (1) 3 0 139
Franchised by territorial
operators 1,593 50 (20) 0 (47) 1,576
Company-operated stores 1 32 33
----- ---- ---- --- ---- -----
5,000 109 (85) 3 0 5,027
----- ---- ---- --- ---- -----
Canada
Franchised by the Company:
DAIRY QUEEN(R)stores 447 10 (3) 0 0 454
TREAT CENTER(R)units 21 0 (1) 0 0 20
----- ---- ---- --- ---- -----
468 10 (4) 0 0 474
----- ---- ---- --- ---- -----
Other Foreign 162 33 (3) 0 0 192
----- ---- ---- --- ---- -----
Total DAIRY QUEEN(R)stores 5,630 152 (92) 3 0 5,693
----- ---- ---- --- ---- -----
ORANGE JULIUS(R)Stores 433 18 (26) (3) 0 422
KARMELKORN(R)Shoppes 69 1 (7) 0 0 63
GOLDEN SKILLET(R)Restaurants 21 0 0 0 0 21
----- ---- ---- --- ---- -----
TOTAL 6,153 171 (125) 0 0 6,199
===== ==== ==== === ==== =====
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Results of Operations:
The improvement in the Company's results of operations for the third quarter and
first nine months of 1996 compared to the third quarter and first nine 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
half 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 nine months of 1996 with the first nine months of 1995.
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Percentage of Revenue
Nine Months Ended
---------------------------- Percentage
August 30, August 25, Increase
1996 1995 (Decrease)
---------- ---------- ----------
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Operating Revenues:
Net Sales 75.8 80.1 5.5
Sales by company-operated restaurants 6.2 -- *
Service Fees 13.7 15.3 --
Franchise Sales & other fees 2.2 2.3 5.4
Real estate finance & rental income 1.8 2.0 4.7
Other .3 .3 43.6
----- -----
Total Revenues 100.0 100.0 11.7
----- -----
Operating Expenses:
Cost of Sales 68.3 71.9 6.0
Cost of Sales: company-operated restaurants 5.4 -- *
Expense applicable to real estate finance
& rental income 1.7 1.8 4.6
Selling, general & administrative 10.7 11.6 3.1
----- -----
Total Operating Expenses 86.1 85.3 12.7
Operating Income 13.9 14.7 5.8
Net interest income .5 .5 14.9
Minority interest (.3) -- *
----- -----
Income before income taxes 14.1 15.2 4.1
Provision for income taxes 5.5 6.0 3.5
----- -----
Net income 8.6 9.2 4.4
===== =====
*Not meaningful
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The increase during the first nine months of 1996 when compared to the first
nine months of 1995 of $12,846,963 in net sales resulted primarily from an
increase of $11,441,881 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 $1,292,919 in sales of promotional items sold to
DAIRY QUEEN stores and an increase of $963,307 in permanent and temporary
placement and training fees by Firstaff, Inc. These increases were partially
offset by a reduction in equipment sales to franchisees of $1,025,865. The
reasons for the net changes when comparing the third quarter of 1996 with the
third quarter of 1995 are basically the same.
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. Two additional stores have subsequently been acquired.
Net sales for these 33 stores through August 30, 1996, were $19,884,467 and
related cost of sales was $17,430,109. Net sales for the third quarter were
$9,437,777 and related cost of sales was $8,194,149.
Service fee income was flat primarily due to the elimination in 1996 of
intercompany service fees of $795,379 in the first nine months and $377,511 in
the third quarter of 1996 due from company-operated restaurants acquired in
1996.
The increase of $1,049,351 in the first nine months and $306,750 in the third
quarter of 1996 in selling, general and administrative expenses was primarily
from an increase in personnel and legal support costs.
The increase in net interest income of $218,319 in the first nine months and
$46,207 in the third quarter of 1996 is primarily the result of an increase in
the funds available for investing in interest-generating activities.
Minority interest represents the income from operations allocated to the
minority ownership in 21 DAIRY QUEEN/BRAZIER stores and Firstaff, Inc.
The increase in net income per share when comparing the 1996 periods with the
1995 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 30, 1996, include $41.3 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 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-MAC (WDO), commenced April 5, 1994). This matter,
previously reported in the Company's Annual Reports (Forms 10-K) for fiscal 1994
and 1995, began as 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 were 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. ss. 1), a breach of contract, a breach of an implied
covenant of good faith and fair dealing between the parties, and breach of a
prior settlement agreement. The Company and ADQ filed an answer to plaintiff's
complaints. 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. Plaintiffs later amended the complaint to add new claims under
federal antitrust law and state law, and to have the case certified as a class
action. The Company subsequently filed motions for summary judgment dismissing
the antitrust claims. The plaintiffs later withdrew their claims for breach of
implied covenant of good faith and fair dealing. The Company and ADQ filed an
answer to the amended complaint. On August 30, 1996, the Court granted the
plaintiffs' motion for class certification, and denied the Company and ADQ's
motion for summary judgment on the antitrust tying motions. No ruling has been
made on the cup and lid motions, on the Company and ADQ's motions to stay the
action to all potential class members who have arbitration clauses in their
franchise agreements, or on the Company and ADQ's motions to certify the class
action and antitrust tying claims for interlocutory appeal, or to reconsider
those orders. No trial date has been set. The Company and ADQ intend to
vigorously defend against plaintiffs' claims.
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)
October 11, 1996 /s/ CHARLES W. MOOTY
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Date Charles W. Mooty
Chief Financial Officer,
Vice President and Treasurer
October 11, 1996 /s/ DAVID M. BOND
- ------------------------ ----------------------------------------
Date David M. Bond
Secretary/Assistant Treasurer
and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-1-1995
<PERIOD-END> AUG-30-1996
<CASH> 32,628
<SECURITIES> 8,720
<RECEIVABLES> 46,199
<ALLOWANCES> 426
<INVENTORY> 5,938
<CURRENT-ASSETS> 96,709
<PP&E> 24,971
<DEPRECIATION> 11,097
<TOTAL-ASSETS> 235,016
<CURRENT-LIABILITIES> 42,496
<BONDS> 13,098
0
0
<COMMON> 228
<OTHER-SE> 161,250
<TOTAL-LIABILITY-AND-EQUITY> 235,016
<SALES> 264,335
<TOTAL-REVENUES> 322,729
<CGS> 237,959
<TOTAL-COSTS> 243,475
<OTHER-EXPENSES> 34,444
<LOSS-PROVISION> 54
<INTEREST-EXPENSE> 1,605
<INCOME-PRETAX> 45,602
<INCOME-TAX> 17,920
<INCOME-CONTINUING> 27,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,682
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.22
</TABLE>
