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, 1996
Commission File Number 0-6116
INTERNATIONAL DAIRY QUEEN, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 41-0852869
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State of Incorporation I.R.S. Employer I.D. No.
7505 Metro Boulevard, Minneapolis, Minnesota 55439
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(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 informa tion 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
January 31, 1997:
Class A Common Stock - 13,925,670
Class B Common Stock - 8,208,575
Approximate aggregate market value of voting stock held by non-affiliates as of
January 31, 1997:
Class A Common Stock - $226,135,841
Class B Common Stock - $ 79,612,408
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Total $305,748,249
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Documents incorporated by reference:
1. Portions of the Annual Report to Stockholders for the year ended November 30,
1996 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 18, 1997 are incorporated by reference into
Part III.
PART I
ITEM 1.BUSINESS
GENERAL
The Company develops and services a system of more than 5,710 DAIRY QUEEN stores
in the United States, Canada and other foreign countries featuring hamburgers,
hot dogs, various dairy desserts and beverages, 34 of which are wholly or
jointly owned and operated by the Company; more than 420 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 develop ment and market testing, creates and coordinates
adver tising 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 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
fran chised 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, 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, 1996, 2,861 of the 3,903 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, 1996, there were 137 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, 1996, 124 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, 1996, there were 171 TREAT CENTER units, of which
150 were in the United States and 21 in Canada, all of which were franchised by
the Company.
COMPANY-OPERATED RESTAURANTS. 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. Three
additional stores have subsequently been acquired.
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, 1996, there were 421
ORANGE JULIUS stores, of which 289 were in the United States, 104 were in
Canada, and 28 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, 1996, there
were 61 KARMELKORN stores, of which 56 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, 1996, 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, 1996. The Company's
operations in Canada are substantially similar to its U.S. operations. Of the
839 foreign stores, at November 30, 1996, 583 were located in Canada, 86 in
Japan and 170 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 pro vided by franchisees who contribute to advertising funds.
<TABLE>
<CAPTION>
THE FOLLOWING TABLE SETS FORTH CERTAIN INFORMATION AS
TO THE NUMBER OF STORES IN THE DAIRY QUEEN, ORANGE JULIUS,
KARMELKORN AND GOLDEN SKILLET SYSTEMS.
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Converted
Total to Treat Ownership Total
11/30/95 Opened Closed Centers Changes 11/30/96
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<S> <C> <C> <C> <C> <C>
DAIRY QUEEN system
United States
Franchised by the Company:
DAIRY QUEEN stores 3,283 52 (90) -- 29 3,274
TREAT CENTER units 124 23 (2) 5 -- 150
Franchised by territorial operators 1,593 75 (29) -- (62) 1,577
Company operated stores -- 1 -- -- 33 34
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5,000 151 (121) 5 -- 5,035
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Canada
Franchised by the Company:
DAIRY QUEEN stores 447 16 (5) -- -- 458
TREAT CENTER units 21 1 (1) -- -- 21
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468 17 (6) -- -- 479
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Other foreign 162 47 (7) -- -- 202
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Total DAIRY QUEEN stores 5,630 215 (134) 5 -- 5,716
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ORANGE JULIUS stores 433 29 (36) (5) -- 421
KARMELKORN shoppes 69 1 (9) -- -- 61
GOLDEN SKILLET restaurants 21 -- -- -- -- 21
Total 6,153 245 (179) -- -- 6,219
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</TABLE>
(a) The ORANGE JULIUS stores which closed in 1996 reflect the continued high
concentration of lease expirations during the 1988 through the 1996 period. The
Company's policy is not to renew its lease obligations with respect to stores
which have not achieved satisfactory operating results.
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 1996, 1995 and 1994 aggregated approximately
$57,500,000, $57,100,000 and $51,000,000, respectively.
In addition to the funds administered by the Company, many stores expend
funds for local and regional advertising. Unexpended advertising funds were
$1,963,141 and $844,714 at November 30, 1996 and 1995, respectively.
MANUFACTURING AND DISTRIBUTION. The Company is one of over 70 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 70 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 attend an
intensive training course at the Company's training center in Minneapolis,
Minnesota. The at ten dees 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
126 field consultants and 15 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.
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, 1996, the Company employed 643 persons (including 96 persons
employed by Firstaff, Inc.) primarily in sales, supervisory, clerical and
managerial activities and employed 1,337 persons in its Company-operated
restaurants. 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 84,000 square feet is utilized by the Company for its principal
administrative offices and training center. Of the remaining 30,000 square feet,
approximately 27,000 is leased to third parties under leases expiring from 1998
to 2001.
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 eleven regional offices comprising 15,918 square feet are under leases
expiring from 1997 to 2005. Firstaff, Inc. has six offices in Minnesota,
aggregating 20,512 square feet, which are under leases expiring from 1997 to
2001. The aggregate rental charges for the Company's administrative, FIRSTAFF
and operating facilities, excluding stores, were approximately $775,000 and
$750,000 for fiscal 1996 and fiscal 1995, respectively.
At November 30, 1996, the Company owned real property relating to eight
stores, all of which were leased to franchisees, with an aggregate net book
value of approximately $1,690,000. The Company leases all of the real property
relating to the 34 DAIRY QUEEN/BRAZIER stores operated by it, under leases
expiring from 1997 to 2016. 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, is an action by six franchisees in the State of
Georgia for declaratory judgement, injunctive relief, actual damages in an
unspecified amount, treble damages under the federal antitrust law, costs, and
attorneys' fees. Plaintiffs' claims are that (1) ADQ and the Company have tied
the purchase of the franchise to purchase of products sold in the DAIRY QUEEN
system and in violation of Section I of the Sherman Antitrust Act (15 U.S.C. ss.
1), and (2) ADQ and the Company have monopolized and attempted to monopolize a
"market" supposedly consisting of products sold in the DAIRY QUEEN system in
violation of Section 2 of the Sherman Antitrust Act (15 U.S.C. ss. 2).
Plaintiffs also allege that ADQ and the Company have breached contractual
obligations to them related to the approval of alternative manufacturers and
allege contract claims and claims for breach of fiduciary duty related to
advertising funds. On August 30, 1996, the Court granted plaintiffs' motion to
certify the case as a class action and established two classes and three
subclasses. On the basis of motions filed by the Company and ADQ, the Court
later modified the classes to exclude certain franchises with arbitration
clauses. The Court currently is considering the Company's and ADQ's summary
judgment motions on the cup and lid claims and the monopolization and attempted
monopolization claims. The Company and ADQ are vigorously defending against
plaintiffs' claims. No trial date has been set. See Note 8 of Notes to
Consolidated Financial Statements.
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.
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Class A Class B
Common Stock Common Stock
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Low High Low High
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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
Fiscal Year Ended
NOVEMBER 30, 1996
First Quarter $20.25 $24.75 $20.00 $25.50
Second Quarter $20.00 $22.75 $19.75 $22.75
Third Quarter $19.00 $22.25 $19.00 $21.50
Fourth Quarter $18.75 $21.00 $18.75 $20.50
As of January 31, 1997, the approximate number of record holders of the
Company's Class A common stock was 888 and the approximate number of record
holders of the Company's Class B common stock was 432.
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 9
of the Registrant's 1996 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)
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Years Ended November 30, Fiscal 1996 Fiscal 1995
1996 1995 1994 over 1995 over 1994
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<S> <C> <C> <C> <C> <C>
Revenues:
Net sales 74.9 80.0 78.9 3.5 10.8
Sales of Company-operated restaurants 6.8 -- -- * --
Service fees 13.8 15.4 15.9 (.5) 5.4
Franchise sales and other fees 2.2 2.3 2.5 7.3 (.2)
Real estate finance and rental income 1.9 2.0 2.4 5.0 (6.7)
Other .4 .3 .3 49.7 (14.0)
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Total revenues 100.0 100.0 100.0 10.6 9.1
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Costs and expenses:
Cost of sales 67.6 72.0 71.1 3.9 10.5
Costs of Company-operated restaurants 6.1 -- -- * --
Expenses applicable to real estate finance
and rental income 1.8 1.9 2.3 5.1 (7.2)
Selling, general and administrative 11.0 12.0 11.9 2.2 9.8
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Total costs and expenses 86.5 85.9 85.3 11.5 9.9
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Interest income, net .6 .6 .5 12.1 45.8
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Minority interest (.3) -- -- * --
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Income before income taxes 13.8 14.7 15.2 3.4 5.7
Income taxes 5.4 5.8 6.0 2.9 5.7
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Net income 8.4 8.9 9.2 3.7 5.7
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* Not meaningful
</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.
1996 COMPARED TO 1995. The increase of $10,418,314 in net sales resulted
primarily from an increase of $10,275,987 in unit sales of frozen and non-frozen
foods, paper, plastics and manufactured novelties to authorized warehouses (who
in turn sell to franchisees) and an increase of $1,188,198 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 $1,467,518.
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. Three additional stores have subsequently been acquired.
Net sales for these 34 stores through November 30, 1996 were $27,883,069 and
related cost of sales was $25,035,301. Net sales for the fourth quarter were
$7,998,602 and related cost of sales was $7,605,192.
Service fee income was flat primarily due to the elimination of $1,115,323 in
1996 of service fees due from Company-operated restaurants acquired in 1996.
The increase of $985,946 in 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 $278,974 in 1996 is primarily the
result of an increase in 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 of 9(cent) when comparing the 1996
period with the 1995 period was due to an increase in the Company's net income
and to a decrease in the average number of common and common equivalent shares
outstanding.
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, 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 income 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.
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)
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
1996 5,089 10,206 12,387 6,763 34,445
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, 1996
included $38,384,589 in cash and cash equivalents. The Company does not have any
material commitments for capital expenditures during fiscal year 1996 and be
lieves 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.
PROSPECTIVE INFORMATION
The statements which are not historical facts contained in this report are
forward-looking statements that involve certain risk and uncertainties
including, but not limited to, risk associated with the uncertainty of future
financial results, the impact of competitive products or pricing, the effect of
economic conditions and other uncertainties detailed in the Company's filings
with the Securities and Exchange Commission.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
An index to the consolidated financial statements and financial statement
schedules is found on page 35 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 18, 1997, 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 74 26
Michael P. Sullivan President and Chief Executive Officer and Director 62 22
Edward A. Watson Executive Vice President and Chief Operating Officer 52 25
Charles W. Mooty Executive Vice President, Chief Financial and
Administrative Officer and Treasurer 36 9
David M. Bond Secretary, Assistant Treasurer and Controller 60 27
Mark S. Broin Vice President - Information Services 51 25
George H. Fougeron Vice President - Franchise Operations 51 24
Stephen M. Frances Vice President - Franchise Development and
Lease Management Services 47 11
John F. Hockert Vice President - Financial Services 54 29
Michael J. Leary Vice President - Purchasing and Distribution 57 25
Glenn S. Lindsey Vice President - Research and Development 56 15
Srinivasa B. Murthy Vice President - Administrative Services 53 25
Signe M. Pagel Vice President - Human Resources, Meeting and Travel Services 47 26
Gary H. See Vice President - Marketing and Consumer Research 50 22
William C. Zucco Vice President - Law and General Counsel 51 8
</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.
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 18,
1997, 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 Stockholders to be held on March 18,
1997, 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 18, 1997, is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Index to exhibits, financial statements and financial statement schedules.
- ------------------------------------------------------------------------------------------------------------
Financial Statements:
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Consolidated balance sheet at November 30, 1996 and 1995
Consolidated statement of income for each of the three years in the period
ended November 30, 1996
Consolidated statement of stockholders' equity for each of the three years in
the period ended November 30, 1996
Consolidated statement of cash flows for each of the three years in the period
ended November 30, 1996
Notes to consolidated financial statements
Report of Independent Auditors
- ------------------------------------------------------------------------------------------------------------
Financial statement schedules:
- ------------------------------------------------------------------------------------------------------------
Consolidated schedules for each of the three years in the period ended
November 30, 1996
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 1996 Annual Report to Stockholders. Those portions of the 1996 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>
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, INC.
By /s/ Michael P. Sullivan
-------------------------------------
Michael P. Sullivan
President and Chief Executive Officer
Date: February 21, 1997
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>
<CAPTION>
<S> <C> <C>
/s/ Michael P. Sullivan President and Chief Executive February 20, 1997
- ------------------------------ Officer (principal executive
Michael P. Sullivan officer) and Director
/s/ Charles W. Mooty Executive Vice President and February 20, 1997
- ------------------------------ Treasurer (principal financial
Charles W. Mooty officer)
/s/ David M. Bond Controller (principal accounting February 20, 1997
- ------------------------------ officer)
David M. Bond
/s/ Ernest F. Dorn, Jr. Director February 20, 1997
- ------------------------------
Ernest F. Dorn, Jr.
/s/ Richard I. Giertsen Director February 20, 1997
- ------------------------------
Richard I. Giertsen
/s/ Frank L. Heit Director February 20, 1997
- ------------------------------
Frank L. Heit
/s/ C. David Luther Director February 20, 1997
- ------------------------------
C. David Luther
/s/ Jane N. Mooty Director February 20, 1997
- ------------------------------
Jane N. Mooty
/s/ John W. Mooty Director February 20, 1997
- ------------------------------
John W. Mooty
/s/ Thomas R. Stuart Director February 20, 1997
- ------------------------------
Thomas R. Stuart
</TABLE>
SCHEDULE II-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
1996 $572,000 $177,636 $274,909(1) $474,727
1995 610,738 257,047 295,785(1) 572,000
1994 845,071 347,771 582,104(1) 610,738
(1) Write-offs of oncollectible accounts and notes, net of recoveries.
<TABLE>
<CAPTION>
EXHIBIT 11:
Year Ended November 30,
1992 1993 1994 1995 1996
---------------------------------------------------------------------------
Net Income for year $29,094,668 $29,887,693 $31,420,899 $33,216,662 $34,445,147
===========================================================================
<S> <C> <C> <C> <C> <C>
Weighted average common shares outstanding 25,988,362 25,081,056 24,218,145 23,070,525 22,428,293
Dilutive common stock equivalents:
Stock options, based on treasury stock
method using average market price 47,959 22,862 43,020 147,143 219,313
---------------------------------------------------------------------------
Total common and common equivalent shares
included in computation of primary and fully-diluted
earnings per share: 26,036,321 25,103,918 24,261,165 23,217,668 22,647,606
===========================================================================
Earnings per share $1.12 $1.19 $1.30 $1.43 $1.52
---------------------------------------------------------------------------
(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 of
Directors on March 12, 1991.
</TABLE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(000's omitted, except per share amounts)
Years ended November 30: 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Revenues:
Net sales $308,141 $297,723 $268,804 $241,612 $228,051 $221,726 $216,080 $192,063 $181,856 $165,377
Sales by Company-
operated restaurants 27,883 -- -- -- -- -- -- -- -- --
Service fees 56,846 57,110 54,170 51,601 50,627 46,933 45,065 42,387 40,603 33,389
Real estate finance
and rental income 7,918 7,543 8,081 8,988 9,984 11,308 12,480 12,810 12,854 5,151
Other 10,719 9,599 9,777 8,893 8,448 8,856 9,480 7,769 7,916 6,985
- ----------------------------------------------------------------------------------------------------------------------------
Total revenues 411,507 371,975 340,832 311,094 297,110 288,823 283,105 255,029 243,229 210,902
- ----------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 278,317 267,867 242,413 217,155 204,650 197,714 191,665 170,533 161,954 148,409
Costs of Company-
operated restaurants 25,035 -- -- -- -- -- -- -- -- --
Expenses applicable to
real estate finance
and rental income 7,386 7,030 7,572 8,441 9,357 10,677 11,816 11,975 12,030 4,537
Selling, general and
administrative 45,468 44,481 40,494 37,516 35,472 35,211 36,033 33,075 33,964 29,241
- ----------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 356,206 319,378 290,479 263,112 249,479 243,602 239,514 215,583 207,948 182,187
- ----------------------------------------------------------------------------------------------------------------------------
55,301 52,597 50,353 47,982 47,631 45,221 43,591 39,446 35,281 28,715
Interest income (expense),
net 2,579 2,300 1,578 1,426 (316) 180 232 (615) (1,755) (1,957)
Minority interest in
subsidiaries (1,135) -- -- -- -- -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 56,745 54,897 51,931 49,408 47,315 45,401 43,823 38,831 33,526 26,758
Income taxes 22,300 21,680 20,510 19,520 18,220 17,480 17,310 15,540 13,410 11,850
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 34,445 $33,217 $31,421 $29,888 $ 29,095 $ 27,921 $ 26,513 $ 23,291 $ 20,116 $ 14,908
- ----------------------------------------------------------------------------------------------------------------------------
Earnings per common and
common equivalent share $1.52 $1.43 $1.30 $1.19 $1.12 $1.05 $.97 $.83 $.70 $.51
- ----------------------------------------------------------------------------------------------------------------------------
Average common and common
equivalent shares
outstanding 22,648 23,218 24,261 25,103 26,036 26,588 27,427 28,213 28,841 29,060
BALANCE SHEET DATA
(AT PERIOD END):
Total assets $229,434 $211,489 $197,887 $184,398 $179,480 $174,951 $161,400 $129,136 $115,047 $118,944
Long-term debt 3,543 24,760 23,344 23,902 25,820 46,011 41,813 21,699 26,953 36,842
Working capital 49,037 63,744 55,278 36,382 35,570 36,682 29,142 19,806 7,703 3,746
Total stockholders'
equity(1) 168,110 147,700 131,361 116,685 102,599 96,773 83,225 75,704 57,738 43,497
</TABLE>
(1) During the above periods the Company purchased shares of its common stock as
follows: 1996 - 751,420 shares; 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; and 1987 -
86,100 shares. The aggregate cost of these repurchases was $123,962,906 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 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 38,384,589 $ 34,699,296
Marketable securities 3,098,043 7,751,246
Notes receivable 5,194,928 5,740,227
Accounts receivable, less allowance for doubtful accounts of
$474,727 and $572,000 in 1996 and 1995, respectively 31,316,989 27,393,504
Inventories 6,511,170 5,376,178
Prepaid expenses 2,434,611 2,710,837
Miscellaneous 1,995,461 2,050,955
- ---------------------------------------------------------------------------------------------------------
Total current assets 88,935,791 85,722,243
- ---------------------------------------------------------------------------------------------------------
Other assets:
Notes receivable 17,439,493 19,839,041
Miscellaneous 5,900,418 3,776,488
- ---------------------------------------------------------------------------------------------------------
Total other assets 23,339,911 23,615,529
- ---------------------------------------------------------------------------------------------------------
Other revenue producing assets:
Franchise rights and service contracts, at cost less
accumulated amortization of $25,491,920 and
$22,563,537 in 1996 and 1995, respectively (Note 3) 98,761,713 88,181,850
Rental properties, net (Note 5) 4,471,475 3,305,341
Miscellaneous 11,583 17,045
- ---------------------------------------------------------------------------------------------------------
Total other revenue producing assets 103,244,771 91,504,236
- ---------------------------------------------------------------------------------------------------------
Property, plant and equipment, net (Note 5) 13,913,268 10,646,964
- ---------------------------------------------------------------------------------------------------------
Total assets $229,433,741 $211,488,972
- ---------------------------------------------------------------------------------------------------------
November 30
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ---------------------------------------------------------------------------------------------------------
Current liabilities:
Drafts and accounts payable $ 16,000,182 $ 11,309,771
Committed advertising 1,963,141 844,714
Other liabilities 10,050,533 7,762,106
Income taxes payable 1,035,860 1,731,190
Current maturities of long-term debt (Note 3) 10,848,766 330,244
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 39,898,482 21,978,025
- ---------------------------------------------------------------------------------------------------------
Deferred franchise income 405,756 395,852
Deferred income taxes (Note 2) 14,920,000 15,070,000
Long-term debt (Note 3) 3,542,646 24,760,321
Other long-term liabilities 1,835,723 1,584,340
Contingencies and commitments (Notes 4 and 8)
Minority interest in subsidiaries 721,484 --
Stockholders' equity (Note 7):
Class A common stock, $.01 par value:
Authorized shares - 32,000,000
Issued and outstanding shares - 13,893,814
(14,369,440 in 1995) 138,938 143,694
Class B common stock, $.01 par value:
Authorized shares - 10,000,000
Issued and outstanding shares - 8,228,426
(8,418,248 in 1995) 82,284 84,183
Paid-in capital 6,095,957 4,874,823
Retained earnings (Note 3) 163,677,527 144,622,945
Equity adjustment from foreign currency translation (1,885,056) (2,025,211)
Total stockholders' equity 168,109,650 147,700,434
- ---------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $229,433,741 $211,488,972
- ---------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
Year ended November 30
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Net sales $308,141,341 $297,723,027 $268,804,179
Sales by Company-operated restaurants 27,883,069 -- --
Service fees 56,846,253 57,110,333 54,170,022
Franchise sales and other fees 9,237,764 8,609,606 8,627,218
Real estate finance and rental income 7,918,359 7,543,330 8,081,030
Other 1,479,957 988,795 1,150,051
- ---------------------------------------------------------------------------------------------------------
Total revenues 411,506,743 371,975,091 340,832,500
- ---------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 278,316,872 267,867,004 242,412,898
Costs of Company-operated restaurants 25,035,301 -- --
Expenses applicable to real estate finance
and rental income 7,386,367 7,030,137 7,571,984
Selling, general and administrative 45,467,477 44,481,531 40,494,230
- ---------------------------------------------------------------------------------------------------------
Total costs and expenses 356,206,017 319,378,672 290,479,112
- ---------------------------------------------------------------------------------------------------------
55,300,726 52,596,419 50,353,388
Interest income, net (Note 3) 2,579,217 2,300,243 1,577,511
Minority interest in subsidiaries (1,134,796) -- --
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 56,745,147 54,896,662 51,930,899
Income taxes (Note 2) 22,300,000 21,680,000 20,510,000
- ---------------------------------------------------------------------------------------------------------
Net income $ 34,445,147 $ 33,216,662 $ 31,420,899
- ---------------------------------------------------------------------------------------------------------
Earnings per common and common
equivalent share (Notes 1 and 7) $1.52 $1.43 $1.30
- ---------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------
Cumulative
Common Stock Paid-in Retained Translation
- ------------------------------------------------------------------------------------------------------------
Class A Class B Capital Earnings Adjustment
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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)
Purchase and constructive retirement of
631,670 shares of Class A common stock (6,317) -- (174,061) (12,908,245) --
Purchase and constructive retirement of
119,750 shares of Class B common stock -- (1,198) (32,997) (2,482,320) --
Exercise of incentive stock options--issued
86,058 shares of Class A common stock 860 -- 1,428,192 -- --
Conversion of 70,072 shares of Class B
common stock to 70,072 shares of
Class A common stock 701 (701) -- -- --
Net income -- -- -- 34,445,147 --
Translation adjustment for 1996 -- -- -- -- 140,155
- ------------------------------------------------------------------------------------------------------------
Balance at November 30, 1996 $138,938 $82,284 $6,095,957 $163,677,527 $(1,885,056)
- ------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended November 30
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $34,445,147 $33,216,662 $31,420,899
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,414,525 4,810,872 4,293,917
Sales of (investments in) trading securities 5,123,507 (5,110,054) --
Provision for losses on accounts and notes receivable 177,636 257,047 347,771
Other (47,416) (10,652) 2,902
Changes in operating assets and liabilities (Note 6) 1,344,379 (11,258,838) (2,532,974)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 47,457,778 21,905,037 33,532,515
- ------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Cost of acquisitions, net of cash acquired (5,483,496) -- --
Purchase of franchise rights and service contracts (3,709,667) (1,171,189) (3,662,463)
Net payments advanced to operators, under secured
loans, for store renovations and equipment (1,111,016) (1,593,383) (2,046,425)
Capital expenditures (5,486,254) (3,198,527) (1,902,968)
Maturities of marketable securities 4,835,741 5,515,000 9,789,490
Investments in marketable securities (6,778,417) (1,200,000) (6,756,192)
Proceeds from disposal of capital assets 138,502 96,627 12,382
Other 13,900 5,954 16,039
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (17,580,707) (1,545,518) (4,550,137)
- ------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Principal payments on long-term debt (12,347,456) (664,899) (2,103,785)
Purchase and retirement of common shares (15,605,138) (18,051,220) (16,738,130)
Other 1,678,946 1,179,183 542,135
- ------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (26,273,648) (17,536,936) (18,299,780)
- ------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 81,870 110,493 (104,440)
- ------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,685,293 2,933,076 10,578,158
Cash and cash equivalents at beginning of year 34,699,296 31,766,220 21,188,062
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $38,384,589 $34,699,296 $31,766,220
- ------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES.
</TABLE>
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 majority-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation. The Company's fiscal year ends on
November 30th.
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. In 1996
the Company acquired and is operating 34 DAIRY QUEEN/BRAZIER restaurants, 21 of
which are joint venture partnerships.
CASH EQUIVALENTS
Cash equivalents include all short-term investments with a remaining maturity of
ninety days or less at date of purchase. The fair value of cash and cash
equivalents approximates their carrying amount.
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 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,
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 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.
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," requires impairment losses to be recorded on long-lived assets, including
franchise rights, when indicators of impairment are present and the undiscounted
cash flow estimated to be generated by the assets are less than the carrying
amount of such assets. The Company adopted SFAS No. 121 in 1996. Such adoption
did not have a material effect on the Company's financial statements.
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 $10,800,000 at November 30, 1996).
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
22,647,606, 23,217,668 and 24,261,165 in 1996, 1995 and 1994, respectively.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash investments and accounts and notes
receivable.
The Company places its 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.
PRESENTATION
Certain financial statement items have been reclassified to conform to the
current year's format.
2 INCOME TAXES
United States income before income taxes, which includes charges for foreign
exchange losses, was: $51,964,338, $49,560,586 and $48,062,230 in 1996, 1995 and
1994, respectively. Foreign income before income taxes, which includes certain
nontax-deductible charges was: $4,780,809, $5,336,076 and $3,868,669 in 1996,
1995 and 1994, respectively.
Income taxes consist of the following (000's omitted):
1996 1995 1994
- --------------------------------------------------
CURRENT:
U.S. federal $16,567 $16,062 $15,126
State 2,783 2,765 2,574
Foreign 3,067 3,656 2,703
- --------------------------------------------------
22,417 22,483 20,403
- --------------------------------------------------
DEFERRED:
U.S. federal (140) (471) 144
State 10 (49) 20
Foreign 13 (283) (57)
(117) (803) 107
- --------------------------------------------------
$22,300 $21,680 $20,510
- --------------------------------------------------
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
pur poses.The following is a reconciliation of differences between the U.S.
federal statutory income tax rate and the consolidated effective tax rate:
1996 1995 1994
- --------------------------------------------------
U.S. federal
statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of federal effect 3.2 3.3 3.3
Foreign income taxes 1.3 1.2 1.0
Other, net (.2) -- .2
- --------------------------------------------------
Consolidated
effective tax rate 39.3% 39.5% 39.5%
- --------------------------------------------------
The Internal Revenue Service's examination of the Company's consolidated federal
income tax returns for the years ended November 30, 1991 through 1993 was
concluded in 1996 without significant adjustments.
3 LONG-TERM DEBT
Long-term debt is summarized as follows (000's omitted):
1996 1995
- --------------------------------------------------------
8.25% subordinated capital notes,
redeemed in 1996 $ -- $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--
$660 and $194 at 1996 and
1995, respectively) 3,873 3,020
Other long-term debt (current
maturities--$184 and $130 at
1996 and 1995, respectively) 502 539
Obligations under capital leases
(current maturities--$5 and $6
at 1996 and 1995, respectively) 17 22
- --------------------------------------------------------
14,392 25,090
Less current maturities 10,849 330
- --------------------------------------------------------
$ 3,543 $24,760
- --------------------------------------------------------
The Company's senior notes 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, 1996 are: $10,848,766, $693,154, $544,464, $254,790, $245,141 and $1,805,097
in 1997, 1998, 1999, 2000, 2001 and thereafter, respectively.
Interest income, net consists of interest income of $4,599,428, $4,237,866
and $3,463,755 in 1996, 1995 and 1994, respectively, and interest expense of
$2,020,211, $1,937,623 and $1,886,244 in 1996, 1995 and 1994, respectively.
4 LEASES
The Company and its subsidiaries have leases for retail stores, administrative
facilities and equip ment. Certain of the leased properties are subleased to
franchise operators under noncancelable 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):
1996 1995 1994
- --------------------------------------------------------
Minimum rentals $6,617 $7,142 $7,710
Contingent rentals 288 347 413
Less sublease income:
Minimum rentals (4,871) (5,573) (6,114)
Contingent rentals (343) (420) (463)
$1,691 $1,496 $1,546
- --------------------------------------------------------
Minimum future rental obligations, excluding executory costs included in
rentals, under operating leases at November 30, 1996 are $5,656,535, $5,033,366,
$4,307,342, $3,841,778, $3,117,500 and $14,234,750 in 1997, 1998, 1999, 2000,
2001 and thereafter, respectively.
Minimum future rental receivables under operating leases at November 30, 1996
are $4,410,470, $3,886,603, $3,116,011, $2,777,583, $2,224,691 and $7,644,887 in
1997, 1998, 1999, 2000, 2001 and thereafter, respectively.
5 RENTAL PROPERTIES AND PROPERTY,
PLANT AND EQUIPMENT
Rental properties and property, plant and equipment consist of (000's omitted):
1996 1995
- ----------------------------------------------------
Rental properties, at cost:
Land $ 476 $ 448
Buildings 1,519 1,804
Equipment 706 715
Leasehold improvements 3,430 1,788
- ----------------------------------------------------
6,131 4,755
Less accumulated depreciation 1,660 1,450
- ----------------------------------------------------
$ 4,471 $ 3,305
- ----------------------------------------------------
1996 1995
- ----------------------------------------------------
Property, plant and equipment,
at cost:
Land $ 800 $ 800
Buildings 5,074 5,346
Equipment 17,831 14,428
Leasehold improvements 1,648 206
- ----------------------------------------------------
25,353 20,780
Less accumulated depreciation 11,440 10,133
- ----------------------------------------------------
$ 13,913 $ 10,647
- ----------------------------------------------------
6 STATEMENT OF CASH FLOWS
Changes in operating assets and liabilities included in net cash provided by
operating activities (000's omitted):
1996 1995 1994
- -----------------------------------------------------------
Accounts and notes
receivable $ (5,311) $ (5,203) $ 1,528
Inventories and prepaid
expenses (545) (1,281) (2,817)
Drafts and accounts
payable 4,743 (5,934) 375
Committed advertising 1,094 (1,629) (700)
Other liabilities 2,194 1,470 (668)
Income taxes payable (690) 1,283 (515)
Deferred franchise income 9 (40) 157
Deferred income taxes (150) 75 107
- -----------------------------------------------------------
$ 1,344 $(11,259) $ (2,533)
- -----------------------------------------------------------
Supplementary disclosures to consolidated statement of cash flows:
Cash payments for income taxes, net of refunds, were $23,047,544, $20,542,135
and $21,062,976 in 1996, 1995 and 1994, respectively; in these periods interest
payments were $1,970,645, $1,764,736 and $1,929,624 respectively.
The Company incurred liabilities for the acquisition of franchise rights of
$2,716,364, $1,770,307 and $2,862,504 in 1996,1995, and 1994, respectively.
7 STOCKHOLDER'S 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 Com pany 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 enti tled 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.
In 1996, the Company purchased and constructively retired 631,670 shares of
Class A common stock at an average price of $20.72 per share and 119,750 shares
of Class B common stock at an average price of $21.01 per share. 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. 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.
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. Pro forma information
regarding net income and earnings per share as calculated under the provisions
of State ment of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," will be disclosed beginning in fiscal year 1997.
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, 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
Granted 271,796 $21.75
Canceled (5,708) $16.00-$21.75
Exercised (86,058) $15.33-$20.25
- --------------------------------------------------
Outstanding at
November 30, 1996 1,389,395 $15.33-$21.75
- --------------------------------------------------
Exercisable at
November 30, 1996 729,184
- --------------------------------------------------
Shares of authorized but unissued Class A common stock were reserved as follows
at November 30, 1996:
Conversion of Class B common
stock into Class A common stock 8,228,426
Exercise of Incentive Stock
Option Plan options 1,534,121
- --------------------------------------------------
9,762,547
- --------------------------------------------------
8 CONTINGENCIES
The Company and its wholly-owned subsidiary, American DAIRY QUEEN Corporation
(ADQ), are defendants in a class action by franchisees and subfranchisees for
declaratory judgement, injunctive relief, actual damages in an unspecified
amount, treble damages, costs and attorneys' fees. Plaintiffs allege that ADQ
and the Company have breached certain contractual obligations and violated
certain provisions of the federal antitrust laws in connection with the approval
of alternative manufacturers. Plaintiffs also allege breach of contract claims
and claims for breach of fiduciary duty related to the administration of
advertising funds. No trial date has been set.
While the Company and counsel believe meritorious defenses exist against the
aforementioned claims, the eventual outcome of these matters cannot be predicted
at this time. The Company is unable to measure the amount of probable loss, if
any, or a realistic range of reasonably possible loss at this stage of the
litigation. Accordingly, no accrual for potential loss related to these actions
has been reflected in the financial statements.
9 QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly operating data for 1996 and 1995 are as follows
(000's omitted, except per share amounts):
1996
- ---------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------
Net sales $58,859 $90,861 $94,730 $63,691
Sales by Company-
operated restaurants 2,168 8,279 9,438 7,998
Cost of sales 53,201 81,799 85,529 57,788
Cost of sales of
Company-operated
restaurants 1,967 7,269 8,194 7,605
- ---------------------------------------------------------------
5,859 10,072 10,445 6,296
Service fees and
other revenues 14,507 20,124 23,763 17,089
- ---------------------------------------------------------------
20,366 30,196 34,208 23,385
Other costs and
expenses 12,586 13,494 13,880 12,894
Net interest income 726 428 531 894
Minority interest in
subsidiaries (117) (314) (462) (242)
- ---------------------------------------------------------------
Income before taxes 8,389 16,816 20,397 11,143
Income taxes 3,300 6,610 8,010 4,380
- ---------------------------------------------------------------
Net income $ 5,089 $10,206 $12,387 $ 6,763
- ---------------------------------------------------------------
Earnings per share $.22 $.45 $.55 $.30
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
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, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended November 30, 1996. 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, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended November 30, 1996, in conformity with generally accepted accounting
principles.
Minneapolis, Minnesota
January 10, 1997
/S/ Ernst & Young LLP
Ernst & Young LLP
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)
Dairy Queen Corporate Stores, Inc. (4)(5)(6) Kentucky
(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.
(4) DQ Wholly-Owned Stores, Inc. (Kentucky) is a wholly-owned subsidiary of
Dairy Queen Corporate Stores, Inc.
(5) DQ Joint Venture Stores, Inc. (Kentucky) is a wholly-owned subsidiary of
Dairy Queen Corporate Stores, Inc.
(6) DQ Managed Stores, Inc. (Kentucky) is a wholly-owned subsidiary of Dairy
Queen Corporate Stores, 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 Dairy Queen, Inc. of our report dated January 10, 1997,
included in the 1996 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
10, 1997, 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.
Minneapolis, Minnesota
February 19, 1997
/S/ Ernst & Young LLP
Ernst & Young LLP
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<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
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<COMMON> 221
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