UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended November 30, 1995
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 I.D. No.
7505 Metro Boulevard, Minneapolis, Minnesota 55439
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 830-0200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, par value $.01 per share
Class B Common Stock, par value $.01 per share
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X]
Number of shares of Common Stock outstanding as of
February 2, 1996:
Class A Common Stock - 14,383,815
Class B Common Stock - 8,414,448
Approximate aggregate market value of voting stock
held by non-affiliates as of February 2, 1996:
Class A Common Stock - $256,019,750
Class B Common Stock - $ 84,371,741
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Total $340,391,491
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Documents incorporated by reference:
1. Portions of the Annual Report to Stockholders for the year ended November 30,
1995 are incorporated by reference into Parts I and II.
2. Portions of the definitive proxy statement for the annual meeting of
stockholders to be held on March 19, 1996 are incorporated by reference into
Part III.
PART I
ITEM 1.BUSINESS
GENERAL
The Company develops and services a system of more than 5,600 Dairy Queen stores
in the United States, Canada and other foreign countries featuring hamburgers,
hot dogs, various dairy desserts and beverages; more than 430 Orange Julius
stores in the United States, Canada and other foreign countries featuring
blended drinks made from orange juice, fruits and fruit flavors, along with
various snack items; and more than 60 Karmelkorn stores featuring popcorn and
other treat items. The Company also owns 60% of Firstaff, Inc., specialists in
the placement and training of permanent and temporary office support personnel.
To support and promote the businesses of its franchisees, the Company
undertakes product development and market testing, creates and coordinates
advertising programs, provides training and advisory services for store
operators and enforces quality control standards.
A major portion of the Company's operating income is derived from franchise
fees paid by franchised stores and stores licensed by territorial operators.
The Company does not itself operate stores.
The Company also sells equipment to stores and sells other products used in
store operations to a system of independently-owned warehouses, which also
purchase approved products from other suppliers. These warehouses in turn sell
products to retail stores in their geographical areas.
Except for providing financing for the sale of specialized equipment to its
franchisees, offering limited financing services for the remodeling of existing
franchised stores and for providing certain leasing services for stores located
in shopping malls, the Company has not generally provided financial assistance
or guarantees for the construction or operation of franchised stores.
FRANCHISING SYSTEM
DAIRY QUEEN. Stores are located in all states, except Rhode Island, as well as
Canada, Japan and several other countries. Most stores are located in smaller
towns and suburbs of larger cities. Some franchised stores offer only soft serve
dairy products, while others also offer some or all of the food items in the
Brazier line. The Company endeavors to have its Dairy Queen franchisees offer a
more complete line of authorized products.
The first Dairy Queen store was opened in Illinois in 1940. In 1945, two
predecessor companies began to develop the Dairy Queen system on a national
basis by granting territorial franchise rights for specific geographical areas.
In 1962, certain territorial operators formed International Dairy Queen, Inc.,
by contributing their territorial franchise rights and acquiring ownership of
the Dairy Queen trademarks and other franchise rights.
Dairy Queen/Brazier stores offer a menu of fast food items, including
hamburgers, various dairy desserts (including soft serve and frozen yogurt) and
beverages which are marketed under the Dairy Queen and Brazier trademarks.
Retail prices are determined by the store operators.
The Dairy Queen dairy dessert product line includes cones of various sizes,
Blizzard Flavor Treats, as well as shakes, malts and sundaes, hardpacked
products for home consumption and specialty frozen confections. These products
are prepared in the store from the Company's specially formulated mixes by means
of distinctive freezing and dispensing units.
The Brazier product line, adopted nationally in 1968, consists of a food menu
featuring hamburgers, hot dogs, chicken strips, barbecue and chicken sandwiches,
french fried potatoes and onion rings.
The Company franchises Dairy Queen stores either directly through agreements
with individual retail store operators or indirectly through agreements with
territorial operators who are authorized to grant franchise rights to store
operators within a specified territory.
The terms of direct store franchise agreements used by the Company have been
modified from time to time as experience and changing circumstances have
required. The present Dairy Queen/Brazier franchise agreement provides that the
store franchisee shall pay to the Company an initial service and set-up fee of
$30,000 ($15,000 for a Limited Brazier), and a continuing franchise service fee
of 4% of gross retail sales. The Company may permit certain qualified existing
franchisees to open additional stores by paying a reduced service and set-up
fee. Other forms of store agreements currently in force, most of which were
entered into prior to 1968, provide for varying levels of service fees computed
on different bases, such as the amount of total Dairy Queen mix or products
dispensed. All direct franchisees pay some fees to the Company, and at November
30, 1995, 2,744 of the 3,875 stores franchised by the Company in the United
States and Canada were paying a continuing franchise service fee of 4% or more.
At November 30, 1995, there were 140 Dairy Queen territorial operators in the
United States who are licensed by the Company to grant franchise rights in
specific geographical areas. Most of the existing territorial operator
agreements were granted prior to 1950 during the early stages of development of
the predecessor companies. Since 1973, the Company has acquired the rights of a
number of territorial operators and has sought to convert subfranchisees to a
direct franchise basis. The Company expects to continue to acquire the rights of
territorial operators when it has the opportunity to do so on terms acceptable
to the Company.
While the business terms of individual territorial operator agreements may
differ in certain respects, they generally provide for substantial uniformity in
terms of operation and product quality. The territory covered by territorial
operator agreements vary, although most are for limited geographical areas as is
evidenced by the fact that most have five or fewer stores. Many of the Company's
territorial franchises provide for continuing payments to the Company generally
computed on the basis of a percentage of the franchise service fees collected by
the territorial operator. However, at November 30, 1995, 138 stores were
subfranchised or operated by territorial operators who do not have any
obligation to pay the Company any franchise service fees. As to most of these
stores, the Company's right to control and supervise quality standards and
methods of operation is limited to that activity normally required of the holder
of a trademark or service mark under the laws related to trademark protection to
control the nature and quality of goods sold under its trademark or service
mark.
TREAT CENTER. With the acquisition of Karmelkorn in 1986 and Orange Julius in
1987, the Treat Center concept has emerged. This franchising concept combines
Dairy Queen treat items together with either or both Orange Julius and
Karmelkorn menu items under one storefront within a shopping mall. By combining
the products of these franchising systems, the Company seeks to substantially
increase store sales volumes in order to support the signing of leases that
would be too expensive for a one product-line store. The present Treat Center
franchise agreement provides that the store franchisee shall pay to the Company
an initial service and set-up fee of $15,000, and a continuing franchise service
fee of 6% of gross retail sales. The Company permits certain existing
franchisees to open additional stores without paying an initial service and
set-up fee. At November 30, 1995, there were 145 Treat Center units, of which
124 were in the United States and 21 in Canada, all of which were franchised by
the Company.
ORANGE JULIUS. In August 1987, the Company acquired Orange Julius of America
and Orange Julius Canada Limited, franchisors of retail stores which feature
blended drinks made from orange juice, fruits and fruit flavors. Most of the
stores are located in shopping malls. At November 30, 1995, there were 433
Orange Julius stores, of which 305 were in the United States, 103 were in
Canada, and 25 in other foreign countries, all of which were franchised by the
Company.
The present Orange Julius franchise agreement provides that the store
franchisee shall pay to the Company an initial service and set-up fee of $15,000
($5,000 for certain existing franchises), and a continuing franchise service
fee of 6% of gross retail sales.
KARMELKORN. In March 1986, the Company acquired Karmelkorn Shoppes, Inc., a
franchisor of retail stores which sells popcorn, candy and other treat items.
Most of the stores are located in shopping malls. At November 30, 1995, there
were 69 Karmelkorn stores, of which 64 were in the United States and 5 were in
foreign countries, all of which were franchised by the Company.
GOLDEN SKILLET. In December 1981, the Company acquired the United States and
international (exclusive of Canada) franchise rights and other selected assets
of the Golden Skillet system. Golden Skillet stores feature fried chicken and
side dishes. In October 1992, the Company assigned the franchises, trademarks
and related assets for Golden Skillet in the contiguous 48 United States and the
District of Columbia to a non-affiliated company. The Company continues to hold
the Golden Skillet franchises and rights for the rest of the world. At November
30, 1995, there were 21 Golden Skillet stores in foreign countries, all of which
were franchised by the Company.
NEW STORES
The Company is continuously seeking to open new stores. The ability of the
Company to open new stores is most dependent upon recruiting qualified operators
with suitable sites. New stores franchised by the Company are constructed in
accordance with the Company's specifications and standards. Substantially all
stores have a standardized appearance as well as uniform product lines and
operating methods.
The Company also has a program whereby existing franchisees in good standing
with the Company may be awarded an additional store franchise at reduced cost.
FOREIGN OPERATIONS
Foreign operations, excluding Canada, did not have a significant effect on
consolidated operations for the year ended November 30, 1995. The Company's
operations in Canada are substantially similar to its U.S. operations. Of the
763 foreign stores, at November 30, 1995, 571 were located in Canada, 84 in
Japan and 108 in 23 other foreign countries.
COMPANY SERVICES
PRODUCT DEVELOPMENT AND TEST MARKETING. The Company continually attempts to
develop new products. New product concepts are obtained from vendors,
franchisees and Company personnel who work with the Company's Research and
Development personnel to develop a product concept into a finished product
suitable for the system.
ADVERTISING AND SALES PROMOTION. The Company develops and conducts national
and area sales promotion and advertising programs principally through
television, radio and newspapers. For each of the four food systems, the Company
is assisted by an advisory council, the majority of whose members are elected by
members of the system. Substantially all amounts expended for advertising and
promotion are provided by franchisees who contribute to advertising funds.
The present franchise agreements provide that franchisees shall pay an amount
equal to 3% to 6% of gross sales to the advertising and sales promotion funds
administered by the Company. Funds administered by the Company for advertising
and sales promotion during 1995, 1994 and 1993 aggregated approximately
$57,100,000, $51,000,000 and $47,800,000, respectively.
In addition to the funds administered by the Company, many stores expend
funds for local and regional advertising. Unexpended advertising funds were
$844,714 and $2,498,816 at November 30, 1995 and 1994, respectively.
MANUFACTURING AND DISTRIBUTION. The Company is one of over 80 approved
manufacturers of Dairy Queen mix. In addition to Dairy Queen mix and
concentrates, the Company sells equipment which is manufactured by independent
manufacturers. The Company also purchases approved perishable and nonperishable
supplies and resells them to independently-owned authorized warehouses described
below. Substantially all of the Company's sales of products consist of products
purchased for resale from manufacturers and suppliers unrelated to the Company.
Neither the retail stores nor the authorized warehouses are required to purchase
any products from the Company.
In order to provide stores with a convenient source of approved merchandise,
the Company has arranged for a system of over 80 authorized warehouses which
purchase, inventory and sell approved food and miscellaneous supplies to stores.
In addition to the authorized warehouses, there are a number of warehouses which
are not under contract with the Company which purchase products directly from
approved manufacturers for resale to stores.
TRAINING AND ADVISORY SERVICES. The Company provides a wide range of training
and advisory services to its franchisees. New store operators franchised by the
Company are to attend a two-week course of intensive training at the Company's
training center in Minneapolis, Minnesota. The attendees are given classroom and
practical instruction in procedures for product preparation, business and
financial management, marketing and promotion and related operational matters.
Periodic refresher training and instruction are available to all franchisees at
the Company's training center and at state, regional and national conferences
and seminars. The Company also makes available training aids and materials for
the franchisees' use in instructing store employees.
QUALITY CONTROL. The Company conducts a periodic evaluation program designed
to insure a high standard of operation, quality and product uniformity. Through
114 field consultants and 14 regional managers, the Company furnishes
franchisees with information, advice and recommendations relating to facility
image, menu/product preparation, financial management, personnel management and
marketing.
In order to maintain quality control, stores are generally required to use
approved products. The Company maintains a system of approved manufacturers
which are authorized to manufacture and sell products such as mix, meat,
containers, paper goods, equipment and sales promotion materials.
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>
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Converted
Total to Treat Ownership Total
11/30/94 Opened Closed Centers Changes 11/30/95
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<S> <C> <C> <C> <C> <C> <C>
Dairy Queen system
United States
Franchised by the Company:
Dairy Queen stores 3,195 78 (56) 66 3,283
Treat Center units 104 16 4 124
Franchised by territorial operators 1,614 75 (30) (66) 1,593
Company operated stores 1 (1) 0
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4,914 169 (87) 4 0 5,000
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Canada
Franchised by the Company:
Dairy Queen stores 432 20 (5) 447
Treat Center units 20 1 21
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452 21 (5) 0 0 468
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Other foreign 176 21 (35) 162
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Total Dairy Queen stores 5,542 211 (127) 4 0 5,630
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Orange Julius stores 454 19 (37)(a) (3) 433
Karmelkorn shoppes 82 2 (14) (1) 69
Golden Skillet restaurants 21 21
- -------------------------------------------------------------------------------------------------------------------------------
Total 6,099 232 (178) 0 0 6,153
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</TABLE>
(a) The Orange Julius stores which closed in 1995 reflect the continued high
concentration of lease expirations during the 1988 through the 1995 period. The
Company's policy is not to renew its lease obligations with respect to stores
which have not achieved satisfactory operating results.
REGULATION OF FRANCHISE BUSINESS
The Company and its franchisees are subject to various federal, state and local
laws affecting their businesses. The Company and its franchisees are subject to
a variety of regulatory provisions relating to wholesomeness of food,
sanitation, health and safety.
The Company is also subject to a substantial number of state laws regulating
the offer and sale of franchises. Such laws impose registration and disclosure
requirements on franchisors in the offer and sale of franchises and may also
regulate termination, renewal fees and other substantive aspects of the
relationship between franchisor and franchisee. The Company is also subject to
Federal Trade Commission regulations governing disclosure requirements in the
sale of franchises. The Company believes it is in compliance with applicable
laws and regulations governing its operations.
COMPETITION
All areas of the fast food service business are highly competitive, and the
Company has many competitors, some of whom are large companies selling a more
diversified line of products and having greater financial resources than the
Company. The Dairy Queen/Brazier, Orange Julius, Karmelkorn and Golden Skillet
stores compete with a large number of national chains as well as locally-owned
restaurants, drive-ins, take-home outlets and similar establishments, offering
food at low and medium prices. Extensive and active competition also exists in
the acquisition of commercial locations suitable for stores.
A key competitive factor is the reputation and image of the system. The
Company believes that public recognition of Dairy Queen/Brazier, Orange Julius
and Karmelkorn names contributes significantly to sales by stores.
The Company owns the Dairy Queen and Brazier trademarks registered in the
United States Patent Office and in each of the fifty states and in the Canadian
Trademarks Office. The Company also owns a number of United States and foreign
registrations of other trademarks, including Orange Julius, Karmelkorn and
Golden Skillet, and service marks used in the conduct of its business. The
Company believes that the success of its business depends to a large extent on
its trademark and service mark protection and, where and when necessary, intends
to continue to protect its trademarks by appropriate legal action.
EMPLOYEES
At November 30, 1995, the Company employed 595 persons (including 86 persons
employed by Firstaff, Inc.) primarily in sales, supervisory, clerical and
managerial activities. The Company maintains a 401(k) Retirement Savings Plan
which is available to all full-time employees with one year or more of service.
The Company also maintains a Section 125 Plan which is available to full-time
employees after 30 days of service. The Company has never experienced a work
stoppage due to labor difficulty and considers its employee relations to be
satisfactory.
ITEM 2. PROPERTIES
The Company owns an office building aggregating approximately 114,000 square
feet, of which 75,500 square feet is utilized by the Company for its principal
administrative offices and training center. Of the remaining 38,500 square feet,
approximately 18,900 is leased to a third party under a lease expiring August
31, 1996.
The Company also owns a mix manufacturing plant in Decatur, Georgia, a
Canadian office building/warehouse and the store facilities described below.
Warehouse space aggregating 35,023 square feet is under lease expiring in 2001
and twelve regional offices comprising 13,868 square feet are under leases
expiring from 1996 to 1999. Firstaff, Inc. has six offices in Minnesota,
aggregating 20,640 square feet, which are under leases expiring from 1996 to
2001. The aggregate rental charges for the Company's administrative, Firstaff
and operating facilities, excluding stores, were approximately $750,000 and
$670,000 for fiscal 1995 and fiscal 1994, respectively.
At November 30, 1995, the Company owned real property relating to nine stores
with an aggregate net book value of approximately $1,830,000, all of which were
leased to franchisees. See Notes 4 and 5 of Notes to Consolidated Financial
Statements for additional information regarding the Company's properties.
ITEM 3. LEGAL PROCEEDINGS
From time to time, and at present, the Company is subject to various claims and
lawsuits in the ordinary course of business, some of which include allegations
by franchisees and subfranchisees that the Company has violated antitrust and
other laws. Such claims sometimes arise in connection with actions by the
Company to collect amounts owed by franchisees or to enforce or terminate
franchise agreements.
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 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. 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 have filed an answer to
plaintiffs' complaint and intend to vigorously defend against plaintiffs'
claims. In December 1994, the parties filed cross-motions for summary judgement
on all issues relating to the supply of cups and lids to the "Dairy Queen"
system. The Court held an evidentiary hearing on these motions in February 1995.
Plaintiffs later 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. The Company subsequently filed a motion for summary judgment dismissing
the antitrust tying claims. The Court granted plaintiffs' motion to amend their
complaint. The plaintiffs withdrew their claims for breach of the implied
covenant of good faith and fair dealing. The Company and ADQ filed an answer to
the amended complaint and are vigorously defending against plaintiffs' claims.
No ruling has been made on the cup and lid, class certification, and antitrust
tying motions. No trial date has been set.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Both Class A common stock and Class B common stock are listed on the Nasdaq
National Market and trade under the symbols INDQA and INDQB, respectively.
The following table sets forth for the periods indicated the high and low
prices for the Class A common stock and Class B common stock as reported by
Nasdaq. The prices shown below do not include retail markups, markdowns or
commissions.
Class A Class B
Common Stock Common Stock
Low High Low High
Fiscal Year Ended
November 30, 1994
First Quarter $15.75 $18.50 $16.00 $19.50
Second Quarter $17.00 $18.50 $17.00 $19.50
Third Quarter $15.75 $18.50 $16.00 $19.00
Fourth Quarter $16.25 $17.75 $16.25 $18.25
Fiscal Year Ended
November 30, 1995
First Quarter $15.75 $18.00 $16.00 $19.00
Second Quarter $17.25 $19.75 $17.50 $20.00
Third Quarter $18.25 $22.00 $18.50 $22.37
Fourth Quarter $20.75 $23.25 $20.50 $22.00
As of February 2, 1996, the approximate number of record holders of the
Company's Class A common stock was 946 and the approximate number of record
holders of the Company's Class B common stock was 441.
The Company has not paid cash dividends on its common stock. Future dividends
will be determined by the Company's Board of Directors whose decision will be
made in light of the earnings, financial position and cash requirements of the
Company and other relevant factors existing at the time. The Company's credit
agreements contain provisions limiting the payment of dividends. See Notes 3 and
7 of Notes to Consolidated Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Financial Data" on page 7
of the Registrant's 1995 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, items from the
Company's statement of income expressed as percentages of revenues, and the
percentage changes in the dollar amounts of such items from the prior period.
<TABLE>
<CAPTION>
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Percentages of Percentage Increase
Revenues (Decrease)
- ------------------------------------------------------------------------------------------------------------
Years Ended November 30, Fiscal 1995 Fiscal 1994
1995 1994 1993 over 1994 over 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales 80.0 78.9 77.7 10.8 11.3
Service fees 15.4 15.9 16.6 5.4 5.0
Franchise sales and other fees 2.3 2.5 2.4 (.2) 13.1
Real estate finance and rental income 2.0 2.4 2.9 (6.7) (10.1)
Other .3 .3 .4 (14.0) (9.3)
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Total revenues 100.0 100.0 100.0 9.1 9.6
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Costs and expenses:
Cost of sale 72.0 71.1 69.8 10.5 11.6
Expenses applicable to real estate finance
and rental income 1.9 2.3 2.7 (7.2) (10.3)
Selling, general and administrative 12.0 11.9 12.1 9.8 7.9
- --------------------------------------------------------------------------------
Total costs and expenses 85.9 85.3 84.6 9.9 10.4
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Interest income, net .6 .5 .5 45.8 10.6
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Income before income taxes 14.7 15.2 15.9 5.7 5.1
Income taxes 5.8 6.0 6.3 5.7 5.1
- --------------------------------------------------------------------------------
Net income 8.9 9.2 9.6 5.7 5.1
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</TABLE>
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 service fees.
1995 COMPARED TO 1994. The increase of $28,918,848 in net sales resulted
primarily from an increase of $22,921,941 in unit sales of frozen and non-frozen
foods, meat products (primarily chicken) and paper and plastics to authorized
warehouses (who in turn sell to franchisees), an increase of $2,324,517 in sales
of promotional items sold to Dairy Queen stores, and an increase of $3,202,205
in training and temporary placement fees by Firstaff, Inc.
These increases were partially offset by a reduction in equipment sales to
franchisees of $1,671,845 when comparing 1995 with 1994. This decrease resulted
from the introduction of newly-designed menu boards which were offered to stores
at discounted prices during the 1994 introductory period and which resulted in
net sales of $7,303,574 in 1994.
The decreases in real estate, finance and rental in come and related expenses
in fiscal 1995 reflect a continued number of lease expirations. It is the
Company's policy not to renew the Company's obligations with respect to store
leases, except in certain limited situations.
Selling, general and administrative expenses increased $3,987,301 due to
additional personnel and support costs, increased marketing and research cost,
legal costs, and other costs relating to the Company's higher overall level of
operations in 1995.
The increase in net interest income in fiscal 1995 is the result of an
increase in the funds available for short-term investments and increased
interest rates.
The 13 cent 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.
1994 COMPARED TO 1993. The increase of $27,192,317 in net sales resulted
primarily from an increase of $11,081,037 in unit sales of perishable (frozen
and non-frozen foods) supplies to authorized warehouses (who in turn sell to
franchisees), an increase in sales of equipment (primarily menu boards) of
$9,313,887, an increase of $3,444,978 in consumable and promotional supply items
sold to Dairy Queen stores, and an increase of $2,489,886 in temporary placement
and training fees by Firstaff, Inc.
The Company introduced its newly-designed menu boards to the Dairy Queen
system during the second quarter of fiscal 1994, which were offered to stores at
discounted prices during the introductory period to encourage system-wide
utilization of the product and resulted in net sales of $7,303,574 in 1994.
The decreases in real estate, finance and rental income and related expenses
in fiscal 1994 reflect a continued number of lease expirations.
Selling, general and administrative expenses increased $2,978,529 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 interest income was primarily the result of reduced
borrowings ($12 million in long-term debt was retired in 1994) and increased
yields on short-term investments and marketable securities.
The 11 cent increase in net income per share when comparing the 1994 period
with the 1993 period was due to an increase in the Company's net income and to a
3.4% decrease in the average number of common and common equivalent shares
outstanding.
SEASONALITY OF BUSINESS
The Company's business is highly seasonal. Dairy Queen sales generally have been
higher during the spring and summer months, while Orange Julius and Karmelkorn
sales tend to be higher during the September to December back-to-school and
holiday shopping periods. Historically, the Company has earned a substantial
portion of its operating profit during the second and third quarters (spring and
summer months). The following table shows the Company's net income by quarter
for each of the past five fiscal years:
- -------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter TOTAL
- -------------------------------------------------------------------------------
Net income
(in thousands)
1991 $4,374 $8,227 $10,185 $5,135 $27,921
1992 4,406 8,674 10,536 5,479 29,095
1993 4,548 8,727 10,677 5,936 29,888
1994 4,614 9,260 11,164 6,383 31,421
1995 4,910 9,848 11,747 6,712 33,217
LIQUIDITY AND CAPITAL RESOURCES
Funds for working capital, acquisitions of territorial rights, acquisitions of
the Company's common stock and capital expenditures during the last three years
have been provided by internally-generated funds (net income plus amortization
and depreciation). Available liquid resources at November 30, 1995, included
$34,699,296 in cash and cash equivalents. The Company does not have any material
commitments for capital expenditures during fiscal year 1996 and believes that
its existing credit arrangements, along with working capital generated by
operations, will be sufficient to meet existing and presently anticipated needs.
IMPACT OF INFLATION
The Company does not believe its business is affected by inflation to a greater
extent than the general economy. Generally, the Company has been able to offset
the inflationary impact of costs and wages through a combination of productivity
gains and price increases.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
An index to the consolidated financial statements and financial statement
schedules is found on page 33 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors, appearing under "Election of Directors"
in the Company's Definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on March 19, 1996, is incorporated herein by reference.
The names, ages, and positions of all of the officers of the Company are listed
below along with their business experience during the past five years. Officers
are normally elected annually by the Board of Directors at its annual meeting.
Charles W. Mooty is the son of John W. Mooty. There are no other family
relationships among these officers, nor any arrangement between any officer and
any person pursuant to which the officer was selected.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Years with
Name Position with Company (1) Age Company
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John W. Mooty Chairman of the Board and Chairman of the
Executive Committee and Director 73 25
Michael P. Sullivan President and Chief Executive Officer and Director 61 21
Edward A. Watson Executive Vice President and Chief Operating Officer 51 24
Charles W. Mooty Executive Vice President, Chief Financial and
Administrative Officer and Treasurer 35 8
David M. Bond Secretary, Assistant Treasurer and Controller 59 26
Mark S. Broin Vice President - Information Services 50 24
George H. Fougeron Vice President - Franchise Operations 50 23
Stephen M. Frances Vice President - Franchise Development and
Lease Management Services 46 10
John F. Hockert Vice President - Financial Services 53 28
Michael J. Leary Vice President - Purchasing and Distribution 56 24
Glenn S. Lindsey Vice President - Research and Development 55 14
Srinivasa B. Murthy Vice President - Administrative Services 52 24
Signe M. Pagel Vice President - Human Resources, Meeting and
Travel Services 46 25
Gary H. See Vice President - Marketing and Consumer Research 49 21
William R. von Hassel Vice President - Equipment Development 67 26
William C. Zucco Vice President - Law and General Counsel 50 7
</TABLE>
(1) Unless indicated to the contrary, each of such person's primary occupation
for at least the past five years has been as an officer of the Company or a
subsidiary of the Company. John W. Mooty is a member of the Minneapolis law firm
of Gray, Plant, Mooty, Mooty & Bennett, P.A., with which firm he has been
associated for more than five years. Charles W. Mooty has been employed by the
Company since May 1987 in various positions and has been a Vice President since
April 1992.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to directors and officers, appearing under "Information
Concerning Directors and Officers" in the Company's Definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on March 19, 1996, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners and
management, appearing under "Outstanding Stock" in the Company's Definitive
Proxy Statement for the Annual Meeting of Stock holders to be held on March 19,
1996, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions,
appearing under "Information Concerning Directors and Officers" in the Company's
Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
March 19, 1996, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Index to exhibits, financial statements and financial statement schedules. Page
- -----------------------------------------------------------------------------------------------------------
Financial Statements:
------------------------------------------------------------------------------------------------------
<S> <C>
Consolidated balance sheet at November 30, 1995 and 1994 8-9
Consolidated statement of income for each of the three years in the period
ended November 30, 1995 10
Consolidated statement of stockholders' equity for each of the three years in
the period ended November 30, 1995 11
Consolidated statement of cash flows for each of the three years in the period
ended November 30, 1995 12
Notes to consolidated financial statements 13-18
Report of Independent Auditors 19
------------------------------------------------------------------------------------------------------
Financial statements schedules:
------------------------------------------------------------------------------------------------------
Consolidated schedules for each of the three years in the period ended November 30, 1995
II - Valuation and qualifying accounts
All other schedules are omitted since the required information is not present in amounts sufficient
to require submission of the schedule or because the information required is included in the
financial statements and notes thereto.
------------------------------------------------------------------------------------------------------
Exhibits:
------------------------------------------------------------------------------------------------------
No. 3(a) Restated Certificate of Incorporation, as amended (incorporated herein by reference to
Registrant's Annual Report, Form 10-K, for the fiscal year ended November 30, 1991).
No. 3(b) Restated By-Laws (incorporated herein by reference to Registrant's Annual Report,
Form 10-K, for the fiscal year ended November 30, 1986).
No. 11 Computation of Earnings per Share.
No. 13 Registrant's 1995 Annual Report to Stockholders. Those portions of the 1995 Annual
Report to Stockholders expressly incorporated by reference herein, shall be deemed
filed with the commission.
No. 21 Subsidiaries of Registrant.
No. 23 Consent of Independent Auditors.
No. 27 Financial Data Schedule.
(b) Reports on Form 8-K.
- -----------------------------------------------------------------------------------------------------------
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Michael P. Sullivan
Michael P. Sullivan
President and Chief Executive Officer
Date: Feburary 14, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/s/ Michael P. Sullivan President and Chief Executive February 14, 1996
Michael P. Sullivan Officer (principal executive officer)
and Director
/s/ Charles W. Mooty Executive Vice President and February 14, 1996
Charles W. Mooty Treasurer (principal financial officer)
/s/ David M. Bond Controller (principal accounting February 14, 1996
David M. Bond officer)
/s/ Ernest F. Dorn, Jr. Director February 14, 1996
Ernest F. Dorn, Jr.
/s/ Richard I. Giertsen Director February 14, 1996
Richard I. Giertsen
/s/ Frank L. Heit Director February 14, 1996
Frank L. Heit
/s/ C. David Luther Director February 14, 1996
C. David Luther
/s/ Jane N. Mooty Director February 14, 1996
Jane N. Mooty
/s/ John W. Mooty Director February 14, 1996
John W. Mooty
</TABLE>
SCHEDULE 11 - VALUATION AND QUALIFYING ACCOUNTS
INTERNATIONAL DAIRY QUEEN, INC.
Additions
Balance At Charged To Balance At
Beginning Costs And End Of
DESCRIPTION Of Year Expenses Deductions Year
Reserves deducted from
related assets:
Doubtful accounts and notes:
Years ended November 30
1995 $610,738 $257,047 $295,785(1) $572,000
1994 845,071 347,771 582,104(1) 610,738
1993 787,995 257,112 200,036(1) 845,071
(1) Write-offs of uncollectible accounts and notes, net of recoveries
EXHIBIT 11
<TABLE>
<CAPTION>
Year Ended November 30,
1991 1991 1993 1994 1995
<S> <C> <C> <C> <C> <C>
Net income for year $27,921,275 $29,094,668 $29,887,693 $31,420,899 $33,216,662
=========== =========== =========== =========== ===========
Weighted average common
shares outstanding 26,528,137 25,988,362 25,081,056 24,218,145 23,070,525
Dilutive common stock
equivalents:
Stock options, based on
treasury stock method using
average market price 59,431 47,959 22,862 43,020 147,143
----------- ----------- ----------- ----------- -----------
Total common and common
equivalent shares included
in computation of primary
and fully-diluted earnings
per share: 26,587,568 26,036,321 25,103,918 24,261,165 23,217,668
=========== =========== =========== =========== ===========
Earnings per share $ 1.05 $ 1.12 $ 1.19 $ 1.30 $ 1.43
=========== =========== =========== =========== ===========
</TABLE>
(A) Fully-diluted earnings per share is not presented on face of statement of
income since incremental dilution is less than 3%.
Prior year amounts have been restated to reflect the three-for-one stock split
approved by the Board Directors on March 12, 1991.
International Dairy Queen, Inc.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(000's omitted, except per share amounts)
- -------------------------------------------------------------------------------------------------------------
Years ended November 30: 1995 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales $ 297,723 $ 268,804 $ 241,612 $ 228,051 $ 221,726 $ 216,080
Service fees 57,110 54,170 51,601 50,627 46,933 45,065
Real estate finance
and rental income 7,543 8,081 8,988 9,984 11,308 12,480
Other 9,599 9,777 8,893 8,448 8,856 9,480
- -------------------------------------------------------------------------------------------------------------
Total revenues 371,975 340,832 311,094 297,110 288,823 283,105
- -------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 267,867 242,413 217,155 204,650 197,714 191,665
Expenses applicable to
real estate finance and
rental income 7,030 7,572 8,441 9,357 10,677 11,816
Selling, general and
administrative 44,481 40,494 37,516 35,472 35,211 36,033
- -------------------------------------------------------------------------------------------------------------
Total costs and expenses 319,378 290,479 263,112 249,479 243,602 239,514
- -------------------------------------------------------------------------------------------------------------
52,597 50,353 47,982 47,631 45,221 43,591
Interest income (expense), net 2,300 1,578 1,426 (316) 180 232
- -------------------------------------------------------------------------------------------------------------
Income before income taxes 54,897 51,931 49,408 47,315 45,401 43,823
Income taxes 21,680 20,510 19,520 18,220 17,480 17,310
- -------------------------------------------------------------------------------------------------------------
Net income $ 33,217 $ 31,421 $ 29,888 $ 29,095 $ 27,921 $ 26,513
- -------------------------------------------------------------------------------------------------------------
Earnings per common and
common equivalent share $ 1.43 $ 1.30 $ 1.19 $ 1.12 $ 1.05 $ .97
- -------------------------------------------------------------------------------------------------------------
Average common and common
equivalent shares outstanding 23,218 24,261 25,103 26,036 26,588 27,427
BALANCE SHEET DATA (at period end):
Total assets $ 211,489 $ 197,887 $ 184,398 $ 179,480 $ 174,951 $ 161,400
Long-term debt 24,760 23,344 23,902 25,820 46,011 41,813
Working capital 63,744 55,278 36,382 35,570 36,682 29,142
Total stockholders' equity (1) 147,700 131,361 116,685 102,599 96,773 83,225
</TABLE>
(Table Continued From Above)
<TABLE>
<CAPTION>
International Dairy Queen, Inc.
SELECTED FINANCIAL DATA
(000's omitted, except per share amounts)
- ---------------------------------------------------------------------------------------
Years ended November 30: 1989 1988 1987 1986
- ---------------------------------------------------------------------------------------
OPERATIONS
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 192,063 $ 181,856 $ 165,377 $ 146,085
Service fees 42,387 40,603 33,389 28,242
Real estate finance
and rental income 12,810 12,854 5,151 2,553
Other 7,769 7,916 6,985 6,406
- ----------------------------------------------------------------------------------------
Total revenues 255,029 243,229 210,902 183,286
- ----------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 170,533 161,954 148,409 131,216
Expenses applicable to
real estate finance and
rental income 11,975 12,030 4,537 2,006
Selling, general and
administrative 33,075 33,964 29,241 24,617
- ----------------------------------------------------------------------------------------
Total costs and expenses 215,583 207,948 182,187 157,839
- ----------------------------------------------------------------------------------------
39,446 35,281 28,715 25,447
Interest income (expense), net (615) (1,755) (1,957) (2,223)
- ----------------------------------------------------------------------------------------
Income before income taxes 38,831 33,526 26,758 23,224
Income taxes 15,540 13,410 11,850 11,170
- ----------------------------------------------------------------------------------------
Net income $ 23,291 $ 20,116 $ 14,908 $ 12,054
- ----------------------------------------------------------------------------------------
Earnings per common and
common equivalent share $ .83 $ .70 $ .51 $ .42
========================================================================================
Average common and common
equivalent shares outstanding 28,213 28,841 29,060 28,993
BALANCE SHEET DATA (at period end):
Total assets $ 129,136 $ 115,047 $ 118,944 $ 82,208
Long-term debt 21,699 26,953 36,842 27,879
Working capital 19,806 7,703 3,746 8,363
Total stockholders' equity (1) 75,704 57,738 43,497 28,979
</TABLE>
(1) During the above periods the Company purchased shares of its common stock as
follows: 1995 - 1,005,926 shares; 1994 - 975,254 shares; 1993 - 887,718 shares;
1992 - 675,971 shares; 1991 - 695,257 shares; 1990 - 1,057,761 shares; 1989 -
434,346 shares; 1988 - 600,834 shares; 1987 - 86,100 shares; and 1986 - none.
The aggregate cost of these repurchases was $108,357,768 which has been charged
to stockholders' equity.
On December 1, 1993, the Company adopted FASB Statement No. 109, "Accounting for
Income Taxes", which resulted in the restatement of the Company's previously
issued consolidated financial statements. The principal effect of the
restatement was to record a net increase in deferred taxes and a reduction of
$9,860,000 in retained earnings as of December 1, 1991.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
November 30
- --------------------------------------------------------------------------------------------------------
ASSETS 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 34,699,296 $ 31,766,220
Marketable securities 7,751,246 6,956,192
Notes receivable, less allowance for doubtful notes
of $47,843 in 1994 5,740,227 7,318,076
Accounts receivable, less allowance for doubtful accounts of
$572,000 and $562,895 in 1995 and 1994, respectively 27,393,504 25,089,704
Inventories 5,376,178 5,403,560
Prepaid expenses 2,710,837 3,762,645
Miscellaneous 2,050,955 1,346,037
- --------------------------------------------------------------------------------------------------------
Total current assets 85,722,243 81,642,434
- --------------------------------------------------------------------------------------------------------
Other assets:
Notes receivable 19,839,041 14,484,091
Miscellaneous 3,776,488 1,305,087
- --------------------------------------------------------------------------------------------------------
Total other assets 23,615,529 15,789,178
- --------------------------------------------------------------------------------------------------------
Other revenue producing assets:
Franchise rights and service contracts, at cost less
accumulated amortization of $22,563,537 and
$19,939,686 in 1995 and 1994, respectively (Note 3) 88,181,850 87,754,481
Rental properties, net (Note 5) 3,305,341 2,894,628
Miscellaneous 17,045 22,999
- --------------------------------------------------------------------------------------------------------
Total other revenue producing assets 91,504,236 90,672,108
- --------------------------------------------------------------------------------------------------------
Property, plant and equipment, net (Note 5) 10,646,964 9,783,053
- --------------------------------------------------------------------------------------------------------
Total assets $211,488,972 $197,886,773
========================================================================================================
November 30
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Current liabilities:
Drafts and accounts payable $ 11,309,771 $ 17,127,108
Committed advertising 844,714 2,498,816
Other liabilities 7,762,106 5,932,161
Income taxes payable 1,731,190 438,753
Current maturities of long-term debt (Note 3) 330,244 367,462
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 21,978,025 26,364,300
- -------------------------------------------------------------------------------------------------------------------
Deferred franchise income 395,852 435,983
Deferred income taxes (Note 2) 15,070,000 14,995,000
Long-term debt (Note 3) 24,760,321 23,343,752
Other long-term liabilities 1,584,340 1,386,666
Contingencies and commitments (Note 4)
Stockholders' equity (Note 7):
Class A common stock, $.01 par value:
Authorized shares - 32,000,000
Issued and outstanding shares - 14,369,440
(14,917,219 in 1994) 143,694 149,172
Class B common stock, $.01 par value:
Authorized shares - 10,000,000
Issued and outstanding shares - 8,418,248
(8,815,980 in 1994) 84,183 88,160
Paid-in capital 4,874,823 4,109,104
Retained earnings (Note 3) 144,622,945 129,232,252
Equity adjustment from foreign currency translation (2,025,211) (2,217,616)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 147,700,434 131,361,072
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $211,488,972 $197,886,773
===================================================================================================================
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
Year ended November 30
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales $297,723,027 $268,804,179 $241,611,862
Service fees 57,110,333 54,170,022 51,601,113
Franchise sales and other fees 8,609,606 8,627,218 7,625,539
Real estate finance and rental income 7,543,330 8,081,030 8,988,027
Other 988,795 1,150,051 1,267,434
- -------------------------------------------------------------------------------------------------------------------
Total revenues 371,975,091 340,832,500 311,093,975
- -------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 267,867,004 242,412,898 217,154,994
Expenses applicable to real estate finance
and rental income 7,030,137 7,571,984 8,441,375
Selling, general and administrative 44,481,531 40,494,230 37,515,701
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 319,378,672 290,479,112 263,112,070
- -------------------------------------------------------------------------------------------------------------------
52,596,419 50,353,388 47,981,905
Interest income, net (Note 3) 2,300,243 1,577,511 1,425,788
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 54,896,662 51,930,899 49,407,693
Income taxes (Note 2) 21,680,000 20,510,000 19,520,000
- -------------------------------------------------------------------------------------------------------------------
Net income $ 33,216,662 $ 31,420,899 $ 29,887,693
===================================================================================================================
Earnings per common and common
equivalent share (Notes 1 and 7) $1.43 $1.30 $1.19
===================================================================================================================
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------
Common Stock Cumulative
------------------ Paid-in Retained Translation
Class A Class B Capital Earnings Adjustment
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at November 30, 1992 $164,011 $91,751 $4,099,358 $ 99,570,867 $(1,327,178)
Purchase and constructive retirement of
798,104 shares of Class A
common stock (7,981) - (127,920) (13,500,503) -
Purchase and constructive retirement of
89,614 shares of Class B
common stock - (896) (14,363) (1,580,130) -
Conversion of 56,381 shares of Class B
common stock to 56,381 shares of
Class A common stock 564 (564) - - -
Net income - - - 29,887,693 -
Translation adjustment for 1993 - - - - (570,021)
- -------------------------------------------------------------------------------------------------------------------
Balance at November 30, 1993 156,594 90,291 3,957,075 114,377,927 (1,897,199)
Purchase and constructive retirement of
805,481 shares of Class A
common stock (8,055) - (133,637) (13,678,764) -
Purchase and constructive retirement of
169,773 shares of Class B
common stock - (1,697) (28,167) (2,887,810) -
Exercise of incentive stock options--
issued 19,916 shares of Class A
common stock 199 - 313,833 - -
Conversion of 43,384 shares of Class B
common stock to 43,384 shares of
Class A common stock 434 (434) - - -
Net income - - - 31,420,899 -
Translation adjustment for 1994 - - - - (320,417)
- -------------------------------------------------------------------------------------------------------------------
Balance at November 30, 1994 149,172 88,160 4,109,104 129,232,252 (2,217,616)
Purchase and constructive retirement of
652,308 shares of Class A
common stock (6,523) - (139,544) (11,256,341) -
Purchase and constructive retirement of
353,618 shares of Class B common stock - (3,536) (75,648) (6,569,628) -
Exercise of incentive stock options--issued
60,415 shares of Class A
common stock 604 - 980,911 - -
Conversion of 44,114 shares of Class B
common stock to 44,114 shares of
Class A common stock 441 (441) - - -
Net income - - - 33,216,662 -
Translation adjustment for 1995 - - - - 192,405
- -------------------------------------------------------------------------------------------------------------------
Balance at November 30, 1995 $143,694 $84,183 $4,874,823 $144,622,945 $(2,025,211)
===================================================================================================================
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Notes to Consolidated Financial Statements
Year ended November 30
- -------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $33,216,662 $31,420,899 $29,887,693
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,810,872 4,293,917 4,086,739
Provision for losses on accounts and
notes receivable 257,047 347,771 257,112
Other (10,652) 2,902 (99,985)
Changes in operating assets and
liabilities (Note 6) (11,258,838) (2,532,974) 742,860
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 27,015,091 33,532,515 34,874,419
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of franchise rights and service contracts (1,171,189) (3,662,463) (1,245,588)
Net payments advanced to operators, under secured loans,
for store renovations and equipment (1,593,383) (2,046,425) (5,015,073)
Capital expenditures (3,198,527) (1,902,968) (8,505,523)
Maturities of marketable securities 5,515,000 9,789,490 2,184,557
Investments in marketable securities (6,310,054) (6,756,192) (5,101,261)
Proceeds from disposal of capital assets 96,627 12,382 444,984
Other 5,954 16,039 31,197
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,655,572) (4,550,137) (17,206,707)
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Principal payments on long-term debt (664,899) (2,103,785) (12,311,900)
Purchase and retirement of common shares (18,051,220) (16,738,130) (15,231,793)
Other 1,179,183 542,135 122,865
- -------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (17,536,936) (18,299,780) (27,420,828)
- -------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 110,493 (104,440) (302,216)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,933,076 10,578,158 (10,055,332)
Cash and cash equivalents at beginning of year 31,766,220 21,188,062 31,243,394
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $34,699,296 $31,766,220 $21,188,062
===================================================================================================================
</TABLE>
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of the Company and
its subsidiaries which, with the exception of Firstaff, Inc., are wholly-owned.
BUSINESS SEGMENT INFORMATION
The Company is engaged in principally one business segment-developing,
licensing, franchising and servicing a system of retail stores featuring
over-the-counter sales of dairy desserts, food and blended fruit drinks.
CASH EQUIVALENTS
Short-term investments with a remaining maturity of ninety days or less at date
of purchase are considered cash equivalents.
MARKETABLE SECURITIES
Investments with a remaining maturity of more than ninety days at the date of
purchase are classified as marketable securities. Management determines the
appropriate classification of debt securities at the time of purchase. Trading
account debt securities (aggregating approximately $5,000,000 at November 30,
1995) are held for resale in anticipation of short-term market movements and are
stated at fair value. Net gains, both realized and unrealized, are included in
interest income. Debt securities classified as held-to-maturity, because the
Company has the positive intent and ability to hold such securities to maturity,
are stated at amortized cost, which approximates market value. Interest on
held-to-maturity securities is included in interest income.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of rental properties and property, plant and
equipment are provided principally on the straight-line method over estimated
useful lives of the asset or the remaining term of the 12 lease for leasehold
improvements.
The Company follows a policy of amortizing the cost of franchise rights and
service contracts acquired subsequent to 1970 over forty years. The cost of
acquisitions prior to 1971 (approximately $12,800,000) is not being amortized.
The Company periodically evaluates the existence of potential impairment of
franchise rights by assessing whether the carrying value of franchise rights is
fully recoverable from projected, undiscounted net cash flows from the
underlying service fees.
INVENTORIES
Inventories consist primarily of store equipment and merchandise and are carried
at the lower of cost (first-in, first-out) or market.
FRANCHISE SALES
The Company recognizes revenues from initial store franchise fees when the store
is opened, and from the sale of area franchise rights over the period when
services are expected to be performed. Direct costs incurred prior to store
openings are deferred until the revenue is recognized.
COMMITTED ADVERTISING
Committed advertising represents unexpended amounts received from franchisees to
finance national and regional advertising programs.
INCOME TAXES
The Company recognizes 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 Company has not provided for income taxes on the undistributed
earnings of its Canadian subsidiaries (approximately $9,500,000 at November 30,
1995). To the extent these earnings may be repatriated, foreign tax credits will
be available to substantially eliminate any additional U.S. income taxes which
might otherwise result from such repatriation.
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common share amounts are based on the adjusted weighted average
number of common and common equivalent shares outstanding during each year of
23,217,668, 24,261,165 and 25,103,918 in 1995, 1994 and 1993, respectively.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and accounts and
notes receivable.
The Company places its temporary cash investments with high credit quality
financial institutions generally with maturities of one year or less and, by
policy, limits the amount of credit exposure of any one financial institution.
Accounts receivable are generally unsecured; however, concentrations of credit
risk with respect to these receivables are limited due to the large number of
customers and their dispersion across many different geographic areas. Notes
receivable are generally secured by the equipment purchased or the existing
franchise agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NEW PRONOUNCEMENTS
The Company will adopt Financial Accounting Standards Board Statement No. 114,
Accounting by Creditors for Impairment of a Loan, and Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, effective December 1, 1995. The Company does not expect the
adoption of these standards to have a material impact on the Company's financial
position or results of operations.
PRESENTATION
Certain prior year amounts have been reclassified to conform to the 1995
presentation.
2 INCOME TAXES
United States income before income taxes, which includes charges for foreign
exchange losses, was: $49,560,586, $48,062,230 and $44,730,521 in 1995, 1994 and
1993, respectively. Foreign income before income taxes, which includes certain
nontax-deductible charges was: $5,336,076, $3,868,669 and $4,677,172 in 1995,
1994 and 1993, respectively.
Income taxes consist of the following (000's omitted):
- --------------------------------------------------
1995 1994 1993
- --------------------------------------------------
CURRENT:
U.S. federal $16,062 $15,126 $13,913
State 2,765 2,574 2,489
Foreign 3,656 2,703 2,807
- --------------------------------------------------
22,483 20,403 19,209
- --------------------------------------------------
DEFERRED:
U.S. federal (471) 144 102
State (49) 20 13
Foreign (283) (57) 196
- --------------------------------------------------
(803) 107 311
- --------------------------------------------------
$21,680 $20,510 $19,520
==================================================
Included in foreign taxes are taxes withheld by foreign countries on dividends
and service fees received by U.S. entities.
Deferred income taxes relate principally to differences in amortization of
franchise rights and service contracts for financial statement and income tax
purposes.
The following is a reconciliation of differences between the U.S. federal
statutory income tax rate and the consolidated effective tax rate:
- -------------------------------------------------
1995 1994 1993
- -------------------------------------------------
U.S. federal
statutory rate 35.0% 35.0% 34.9%
State income taxes,
net of federal effect 3.3 3.3 3.3
Foreign income taxes 1.2 1.0 .9
Other, net - .2 .4
- -------------------------------------------------
Consolidated
effective tax rate 39.5% 39.5% 39.5%
=================================================
The Internal Revenue Service is currently examining the Company's U.S.
consolidated federal income tax returns for the years ended November 30, 1991
through 1993. In the opinion of management, adjustments, if any, resulting from
the examinations will not have a materially adverse effect on the Company's
financial position or results of operations.
3 LONG-TERM DEBT
Long-term debt is summarized as follows (000's omitted):
- ------------------------------------------------------------
1995 1994
- ------------------------------------------------------------
8.25% subordinated capital notes,
maturing in December of 1996 $11,509 $11,509
8.45% senior notes, maturing in
October of 1997 10,000 10,000
6% to 12% notes payable, secured
by certain franchise rights and service
contracts, maturing at various dates
through January of 2015 (current
maturities-- $194 and $302 at 1995 and
1994, respectively) 3,020 1,818
Other long-term debt (current
maturities--$130 and $50 at
1995 and 1994, respectively) 539 346
Obligations under capital leases
(current maturities--$6 and $15
at 1995 and 1994, respectively) 22 38
- ------------------------------------------------------------
25,090 23,711
Less current maturities 330 367
- ------------------------------------------------------------
$24,760 $23,344
============================================================
The capital notes are subordinated to the senior notes, which are guaranteed by
certain of the Company's subsidiaries.
The Company's senior notes and the capital note indentures contain provisions
which, among other things, limit additional indebtedness and commitments under
lease agreements and limit the amount available for dividends or purchase of the
Company's capital stock, the most restrictive of which is that dividends are
limited to 100% of net income for the fiscal year immediately preceding the year
in which any such dividend is paid.
Aggregate maturities of long-term debt for the years subsequent to November
30, 1995 are: $330,244, $21,772,073, $227,976, $170,831, $180,931 and $2,408,510
in 1996, 1997, 1998, 1999, 2000 and thereafter, respectively.
Interest income, net consists of interest income of $4,237,866, $3,463,755
and $3,623,159 in 1995, 1994 and 1993, respectively, and interest expense of
$1,937,623, $1,886,244 and $2,197,371 in 1995, 1994 and 1993, respectively.
4 LEASES
The Company and its subsidiaries have leases for retail stores,
administrative facilities and equipment. Certain of the leased properties are
subleased to franchise operators under noncancellable operating subleases, with
rentals generally equal to or greater than rentals payable on the prime leases.
Most of the leases and subleases require the lessee to pay executory costs
(property taxes, maintenance, and insurance); and many of the leases provide for
one or more renewal options. In addition, Company-owned real estate has been
leased to franchise operators under long-term leases.
Total operating lease rental expense in the statement of income, including
rentals on leases with terms of one year or less and including executory costs
when included in rent, is summarized as follows (000's omitted):
- ----------------------------------------------------
1995 1994 1993
- ----------------------------------------------------
Minimum rentals $7,142 $7,710 $8,926
Contingent rentals 347 413 483
Less sublease income:
Minimum rentals (5,573) (6,114) (6,771)
Contingent rentals (420) (463) (576)
- ----------------------------------------------------
$1,496 $1,546 $2,062
====================================================
Minimum future rental obligations, excluding executory costs included in
rentals, under operating leases at November 30, 1995 are $4,009,246, $3,416,947,
$2,869,650, $2,252,713, $1,852,035 and $5,604,846 in 1996, 1997, 1998, 1999,
2000 and thereafter, respectively.
Minimum future rental receivables under operating leases at November 30, 1995
are $3,830,182, $3,313,931, $2,789,745, $2,019,763, $1,669,301 and $5,691,503 in
1996, 1997, 1998, 1999, 2000 and thereafter, respectively.
5 RENTAL PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT
Rental properties and property, plant and equipment consist of (000's omitted):
- --------------------------------------------------
1995 1994
- --------------------------------------------------
Rental properties, at cost:
Land $ 448 $ 446
Buildings 1,804 1,802
Equipment 715 789
Leasehold improvements 1,788 1,215
- --------------------------------------------------
4,755 4,252
Less accumulated depreciation 1,450 1,357
- --------------------------------------------------
$ 3,305 $2,895
- --------------------------------------------------
- --------------------------------------------------
1995 1994
==================================================
Property, plant and equipment,
at cost:
Land $ 800 $ 800
Buildings 5,346 5,304
Equipment 14,428 12,542
Leasehold improvements 206 385
- --------------------------------------------------
20,780 19,031
Less accumulated depreciation 10,133 9,248
- --------------------------------------------------
$10,647 $ 9,783
==================================================
6 STATEMENT OF CASH FLOWS
Changes in operating assets and liabilities included in net cash provided by
operating activities (000's omitted):
- ----------------------------------------------------
1995 1994 1993
- ----------------------------------------------------
Accounts and notes
receivable $ (5,203) $ 1,528 $(1,991)
Inventories and prepaid
expenses (1,281) (2,817) 457
Drafts and accounts
payable (5,934) 375 5
Committed advertising (1,629) (700) 142
Other liabilities 1,470 (668) 669
Income taxes payable 1,283 (515) 896
Deferred franchise income (40) 157 (116)
Deferred income taxes 75 107 681
- ----------------------------------------------------
$(11,259) $(2,533) $ 743
====================================================
Supplementary disclosures to consolidated statement of cash flows:
Cash payments for income taxes, net of refunds, were $20,542,135, $21,062,976
and $18,797,712 in 1995, 1994 and 1993, respectively; in these periods interest
payments were $1,764,736, $1,929,624 and $2,545,033, respectively.
The Company incurred liabilities for the acquisition of franchise rights of
$1,770,307 and $2,862,504 in 1995 and 1994, respectively, and $267,693 for the
acquisition of fixed assets in 1993.
7 STOCKHOLDERS' EQUITY
Class A common stock is entitled to dividends of 110% of dividends paid on Class
B common stock, other than dividends payable solely in Company stock. Class A
common stock has more limited voting rights than Class B common stock.
Generally, the holders of Class A common stock are entitled to elect 25% of the
Company's Board of Directors, but, except as otherwise required by law, shall
not be entitled to vote on any other matter. Class A common stock also has
certain liquidation preferences which, among other things, provide for a minimum
distribution to holders of Class A common stock before any distributions are
made to holders of Class B common stock. Class B common stock may be converted
into Class A common stock at the option of the holder.
The Company follows Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25) and related interpretations in accounting
for its employee stock options. Under APB 25, when the exercise price of
employee stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.
In 1995, the Company purchased and constructively retired 652,308 shares of
Class A common stock at an average price of $17.48 per share and 353,618 shares
of Class B common stock at an average price of $18.80 per share. In 1994, the
Company purchased and constructively retired 805,481 shares of Class A common
stock at an average price of $17.16 per share and 169,773 shares of Class B
common stock at an average price of $17.19 per share. The number of retired
shares has been eliminated from common stock and the cost allocated between
common stock, additional paid-in capital and retained earnings.
In 1993, the Company adopted its Incentive Stock Option Plan of 1993 which
provides for the granting of options to key employees of the Company and its
subsidiaries to purchase common shares. The plan also reserves 1,200,000 shares
of Class A common stock for issuance thereunder. Under this plan, the option
price per share may not be less than the fair market value of a share on the
date of grant. One year after the grant, 25% of granted options become
exercisable with an additional 25% becoming exercisable each year thereafter.
Stock option activity under this plan is summarized as follows:
- ---------------------------------------------------
Number of
Shares Price Range
- ---------------------------------------------------
Outstanding at
November 30, 1993 771,006 $15.33-$20.25
Granted 325,540 $16.00
Canceled (38,023) $15.33-$20.25
Exercised (19,916) $15.33-$16.50
- ---------------------------------------------------
Outstanding at
November 30, 1994 1,038,607
Granted 264,750 $16.75
Canceled (33,577) $15.33-$20.25
Exercised (60,415) $15.33-$16.50
- ---------------------------------------------------
Outstanding at
November 30, 1995 1,209,365 $15.33-$20.25
===================================================
Exercisable at
November 30, 1995 524,310
===================================================
Shares of authorized but unissued Class A common stock were reserved as follows
at November 30, 1995:
Conversion of Class B common
stock into Class A common stock 8,418,248
Exercise of Incentive Stock
Option Plan options 1,620,179
- ---------------------------------------------------
10,038,427
===================================================
8 QUARTERLY FINANCIAL DATA
(UNAUDITED)
Quarterly operating data for 1995 and 1994 are as follows (000's omitted,
except per share amounts):
- -----------------------------------------------------------
1995
- -----------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------
Net sales $52,924 $86,201 $92,477 $66,121
Cost of sales 47,556 77,459 83,010 59,842
- -----------------------------------------------------------
5,368 8,742 9,467 6,279
Service fees and
other revenues 14,607 19,948 22,883 16,814
- -----------------------------------------------------------
19,975 28,690 32,350 23,093
Other costs and
expenses 12,353 12,897 13,418 12,843
Net interest income 498 485 485 832
- -----------------------------------------------------------
Income before taxes 8,120 16,278 19,417 11,082
Income taxes 3,210 6,430 7,670 4,370
- -----------------------------------------------------------
Net income $ 4,910 $ 9,848 $11,747 $ 6,712
===========================================================
Earnings per share $ .21 $ .42 $ .51 $ .29
===========================================================
- -----------------------------------------------------------
1994
- -----------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------
Net sales $47,103 $76,887 $85,715 $59,099
Cost of sales 42,538 69,352 77,139 53,384
- -----------------------------------------------------------
4,565 7,535 8,576 5,715
Service fees and
other revenues 14,074 19,791 21,746 16,417
- -----------------------------------------------------------
18,639 27,326 30,322 22,132
Other costs and
expenses 11,377 12,347 12,256 12,086
Net interest income 362 331 388 497
- -----------------------------------------------------------
Income before taxes 7,624 15,310 18,454 10,543
Income taxes 3,010 6,050 7,290 4,160
- -----------------------------------------------------------
Net income $ 4,614 $ 9,260 $11,164 $ 6,383
===========================================================
Earnings per share $ .19 $ .38 $ .46 $ .27
===========================================================
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
International Dairy Queen, Inc.
We have audited the accompanying consolidated balance sheet of International
Dairy Queen, Inc. as of November 30, 1995 and 1994, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended November 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of International
Dairy Queen, Inc. at November 30, 1995 and 1994, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended November 30, 1995, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
January 11, 1996
EXHIBIT 21
EXHIBIT NO. 21 - SUBSIDIARIES OF THE REGISTRATION
INTERNATIONAL DAIRY QUEEN, INC.
Jurisdiction of
Subsidiary (1) Incorporation
- -------------- -------------
American Dairy Queen Corporation Delaware
Orange Julius of America California
DQF, Inc. Minnesota
Golden Skillet International, Inc. Minnesota
Karmelkorn Shoppes, Inc. Delaware
Dairy Queen of Georgia, Inc. Minnesota
Dairy Queen Canada, Inc. (2)(3) Canada (Federal)
(1) All subsidiaries are 100% owned by Registrant.
(2) IDQ Canada, Inc.{Canada (Federal)} is a wholly-owned subsidiary of
Dairy Queen Canada, Inc.
(3) Orange Julius Canada, Ltd. {Canada (Federal)} is a wholly-owned subsidiary
of Dairy Queen Canada, Inc.
Registrant also owns 60% of the outstanding capital stock of Firstaff, Inc., a
Minnesota corporation.
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of International Diary Queen, Inc. of our report dated January 11, 1996,
included in the 1995 Annual Report to Shareholders of International Dairy
Queen, Inc.
Our audits also included the financial statement schedule of International Dairy
Queen, Inc. listed in Item 14(a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Nos. 33-40784, 33-52781 and 33-58615) on Form S-8 of our report dated January
11, 1996, with respect to the consolidated financial statements incorporated
herein by reference, and our report included in the preceding paragraph with
respect to the financial statement schedule included in this Annual Report (Form
10-K) of International Dairy Queen, Inc.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 14, 1996
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> NOV-30-1995
<CASH> 34,699
<SECURITIES> 7,751
<RECEIVABLES> 33,706
<ALLOWANCES> 572
<INVENTORY> 5,376
<CURRENT-ASSETS> 85,722
<PP&E> 20,780
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<BONDS> 24,760
0
0
<COMMON> 228
<OTHER-SE> 147,472
<TOTAL-LIABILITY-AND-EQUITY> 211,489
<SALES> 217,723
<TOTAL-REVENUES> 371,975
<CGS> 267,867
<TOTAL-COSTS> 274,897
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<LOSS-PROVISION> 257
<INTEREST-EXPENSE> 1,938
<INCOME-PRETAX> 54,897
<INCOME-TAX> 21,680
<INCOME-CONTINUING> 33,217
<DISCONTINUED> 0
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