UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended May 30, 1997.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period From ___________ to ____________
Commission file number 0-6116
INTERNATIONAL DAIRY QUEEN INC.
(Exact name of registrant as specified in its charter)
Delaware 41-0852869
(State of Incorporation) (I.R.S. Employer Identification Number)
7505 Metro Boulevard, Minneapolis, Minnesota 55439
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number 612/830-0200
Neither name, address nor fiscal year has been changed since the last report.
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Number of registrant's Class A Common Shares outstanding at
June 30, 1997: 13,902,949
Number of registrant's Class B Common Shares outstanding at
June 30, 1997: 8,041,667
INTERNATIONAL DAIRY QUEEN, INC.
Securities and Exchange Commission Form 10-Q
for the Second Quarter Ended May 30, 1997
I N D E X
Page
Number
PART I: FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet
May 30, 1997 and November 30, 1996 3
Condensed Consolidated Statement of Income
Three months and six months ended May 30, 1997 and 4
May 31, 1996
Condensed Consolidated Statement of Cash Flows
Six months ended May 30, 1997 and May 31, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 7-9
PART II. OTHER INFORMATION:
Items 1 through 5 have been omitted since such items are
inapplicable or the answers are negative. 10
SIGNATURES 10
PART I
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED BALANCE SHEET
(Condensed and in Thousands)
(Unaudited)
ASSETS May 30, November 30,
1997 1996
--------- ---------
Current Assets:
Cash and cash equivalents and
marketable securities $ 40,817 $ 41,483
Receivables--net 49,717 36,512
Inventories 5,238 6,511
Other current assets 4,068 4,430
--------- ---------
Total current assets 99,840 88,936
Notes receivable and other--net 29,946 23,340
Other revenue-producing assets--net:
Franchise rights and goodwill 97,580 98,762
Rental properties 4,965 4,471
Miscellaneous 9 12
--------- ---------
Total other revenue-producing assets 102,554 103,245
Property, plant and equipment--net 13,037 13,913
--------- ---------
$ 245,377 $ 229,434
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,749 $ 16,000
Accrued liabilities 13,575 11,086
Committed advertising (1,324) 1,963
Current maturities of long-term debt 10,837 10,849
--------- ---------
Total current liabilities 42,837 39,898
Deferred income taxes 14,920 14,920
Long-term debt 3,506 3,543
Other non-current liabilities 2,074 2,241
Minority interest in subsidiaries 713 722
Common stock and other stockholders' equity 181,327 168,110
--------- ---------
$ 245,377 $ 229,434
========= =========
See accompanying notes.
<TABLE>
<CAPTION>
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED STATEMENT OF INCOME
(Condensed and in Thousands, Except Per Share Amounts)
(Unaudited)
Six Months Ended Second Quarter Ended
---------------------- ----------------------
May 30, May 31, May 30, May 31,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating Revenues:
Net Sales $ 149,301 $ 149,720 $ 83,497 $ 90,861
Sales by company-operated restaurants 16,535 10,447 9,296 8,279
Service Fees 26,686 25,977 15,964 15,291
Franchise sales and other fees 3,992 4,081 2,505 2,496
Real estate finance and rental income 4,165 3,949 2,063 1,945
Other 4,094 624 3,888 392
--------- --------- --------- ---------
204,773 194,798 117,213 119,264
Operating Expenses:
Cost of Sales 133,742 135,000 74,693 81,799
Cost of Sales: company-operated restaurants 15,009 9,236 8,043 7,269
Expenses applicable to real estate finance
and rental income 3,893 3,705 1,919 1,815
Selling, general and administrative 23,838 22,375 12,120 11,679
--------- --------- --------- ---------
176,482 170,316 96,775 102,562
--------- --------- --------- ---------
Operating Income 28,291 24,482 20,438 16,702
Net Interest Income 1,875 1,154 963 428
Minority interest in earnings of consolidated
subsidiaries and joint ventures (468) (431) (286) (314)
--------- --------- --------- ---------
Income before income taxes 29,698 25,205 21,115 16,816
Provision for income taxes 11,670 9,910 8,300 6,610
--------- --------- --------- ---------
Net income $ 18,028 $ 15,295 $ 12,815 $ 10,206
========= ========= ========= =========
Earnings per common and common equivalent
shares $ .81 $ .67 $ .58 $ .45
========= ========= ========= =========
Average common and common equivalent
shares outstanding 22,264 22,967 22,255 22,838
========= ========= ========= =========
See accompanying notes.
</TABLE>
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed and in Thousands)
(Unaudited)
Six Months Ended
--------------------
May 30, May 31,
1997 1996
-------- --------
Net cash provided by operating activities $ 8,285 $ 6,253
Investing Activities:
Net investments in marketable securities (12,128) (339)
Net proceeds from sale of business 5,945 ---
Cost of acquisitions, net of cash acquired ---- (5,483)
Net advances to operators for store renovations
and equipment (8,681) (625)
Net capital expenditures (2,659) (2,549)
Purchase of franchise rights and goodwill (846) (223)
Other 340 61
-------- --------
Cash flows used in investing activities (18,029) (9,158)
Financing Activities:
Purchase and retirement of common shares (6,943) (7,454)
Principal payments on long-term debt (415) (510)
Other 2,441 644
-------- --------
Cash flows used in financing activities (4,917) (7,320)
Effect of exchange rate changes on cash (35) (11)
-------- --------
Net decrease in cash and cash equivalents (14,696) (10,236)
Cash and cash equivalents at beginning of year 38,385 34,699
-------- --------
Cash and cash equivalents at end of period $ 23,689 $ 24,463
======== ========
See accompanying notes.
INTERNATIONAL DAIRY QUEEN, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The interim financial statements included herein have been prepared by the
Company without audit, but include all adjustments which are of a normal
recurring nature and which the Company believes are necessary for a fair
presentation of its condensed consolidated balance sheet as of May 30, 1997 and
the condensed consolidated statements of income for the three-month and
six-month periods ended May 30, 1997 and May 31, 1996 and the condensed
consolidated statements of cash flows for the six-month periods ended May 30,
1997 and May 31, 1996. The condensed financial statements do not include all
disclosures required under generally accepted accounting principles since
certain footnote information has been omitted. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report and Form 10-K for the year ended November 30, 1996.
On March 31, 1997, the Company sold its 60% interest in Firstaff, Inc.
Approximately 9(cent), after tax, of earnings per common share for the second
quarter and six-month period ended May 31, 1997, resulted from this transaction.
Earnings per common share amounts are based on the weighted average number of
common and common equivalent shares outstanding during each period. In February
1997, the Financial Accounting Standards Board issued Statement No. 128,
EARNINGS PER SHARE. Effective for its quarter ending February 28, 1998, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements, the
dilutive effect of stock options will be excluded from the calculation of
primary earnings per share. The effect of Statement 128 on the calculation of
primary and fully diluted earnings per share for the quarters and six-month
periods ended May 30, 1997 and May 31, 1996, is not expected to be significant.
The Company's business is seasonal in nature, and the results of operations for
the period ended May 30, 1997, may not be indicative of the results for the full
year.
INTERNATIONAL DAIRY QUEEN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General:
The Company's revenues are derived primarily from service and franchise fees
received from franchisees and the sale of perishable and nonperishable supplies
and equipment for use by franchised stores. Although the Company does not
allocate interest or selling, general and administrative expenses by products
sold or services rendered, it believes that a major portion of its operating
income results from franchise service fees.
The following table sets forth certain information as to the number of stores in
the DAIRY QUEEN(R), ORANGE JULIUS(R), KARMELKORN(R), and GOLDEN SKILLET(R)
systems.
<TABLE>
<CAPTION>
Total Ownership Total
11/30/96 Opened Closed Converted Changes 5/30/97
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
DAIRY QUEEN(R) SYSTEM
United States
Franchised by the Company:
DAIRY QUEEN(R)stores 3,274 38 (46) 0 0 3,266
TREAT CENTER(R)units 150 8 (2) 0 0 156
Franchised by territorial
operators 1,577 20 (16) 0 0 1,581
Company-operated stores 34 0 0 0 34
----- ----- ----- ----- ----- -----
5,035 66 (64) 0 0 5,037
----- ----- ----- ----- ----- -----
Canada
Franchised by the Company:
DAIRY QUEEN(R)stores 458 7 0 0 0 465
TREAT CENTER(R)units 21 1 0 0 0 22
----- ----- ----- ----- ----- -----
479 8 0 0 0 487
----- ----- ----- ----- ----- -----
Other Foreign 202 25 (8) 0 0 219
----- ----- ----- ----- ----- -----
Total DAIRY QUEEN(R)stores 5,716 99 (72) 0 0 5,743
ORANGE JULIUS(R)Stores 421 8 (18) 0 0 411
KARMELKORN(R)Shoppes 61 0 (10) 0 0 51
GOLDEN SKILLET(R)Restaurants 21 1 0 0 0 22
----- ----- ----- ----- ----- -----
TOTAL 6,219 108 (100) 0 0 6,227
===== ===== ===== ===== ===== =====
</TABLE>
Results of Operations:
The improvement in the Company's net income for the second quarter and first six
months of 1997 compared to the second quarter and first six months of 1996,
reflects an increase in gross margin dollars on net sales, an increase in
service fees, an increase in other income, which includes the gain from the sale
of the Company's 60% interest in Firstaff, Inc., on March 31, 1997, and an
increase in net interest income. These increases were partially offset by a
decrease in net sales and an increase in selling, general and administrative
expenses.
The following table indicates as a percentage of revenue, line items from the
income statement, and the percentage increase/decrease of such items when
comparing the first six months of 1997 with the first six months of 1996.
<TABLE>
<CAPTION>
Percentage of Revenue
Six Months Ended
------------------ Percentage
May 30, May 31, Increase
1997 1996 (Decrease)
------- ------- -------
<S> <C> <C> <C>
Operating Revenues:
Net Sales 72.9 76.9 (.3)
Sales by company-operated restaurants 8.1 5.4 58.3
Service Fees 13.0 13.3 2.7
Franchise Sales & other fees 1.9 2.1 (2.2)
Real estate finance & rental income 2.0 2.0 5.5
Other 2.0 .3 *
------- -------
Total Revenues 100.0 100.0 5.1
------- -------
Operating Expenses:
Cost of Sales 65.3 69.3 (.9)
Cost of Sales: company-operated restaurants 7.3 4.7 62.5
Expense applicable to real estate finance
& rental income 1.9 1.9 5.1
Selling, general & administrative 11.6 11.5 6.5
------- -------
Total Operating Expenses 86.2 87.4 3.6
Operating Income 13.8 12.6 15.6
Net interest income .9 .6 62.5
Minority interest (.2) (.2) --
------- -------
Income before income taxes 14.5 13.0 17.8
Provision for income taxes 5.7 5.1 17.8
------- -------
Net income 8.8 7.8 17.9
======= =======
* Not meaningful since it includes the gain from the sale of the company's 60%
interest in Firstaff, Inc. on March 31, 1997.
</TABLE>
The decrease of $419,003 in net sales during the first six months of 1997, when
compared to the first six months of 1996, resulted primarily from a decrease of
$1,919,911 in permanent and temporary placement and training fees due to the
sale by the company of its 60% interest in Firstaff, Inc., on March 31, 1997,
and to a decrease of $1,547,946 in unit sales of frozen, non-frozen food, paper,
plastics and manufactured novelties to authorized warehouses (who in turn sell
to franchisees). These decreases were partially offset by an increase of
$1,249,429 in sales of promotional items sold to DAIRY QUEEN stores, and an
increase of $2,048,688 in equipment sales to franchisees.
Sales by company-operated restaurants increased by $6,088,099 when comparing the
first six months of 1997 with the first six months of 1996 (December 1, 1995 to
May 31, 1996) primarily due to the absence of company-operated restaurants'
operations prior to February 7, 1996.
The increase in other income for the second quarter and six month periods ended
May 30, 1997, when compared to the similar periods of 1996, primarily reflects
the gain resulting from the Firstaff transaction.
The increase in net interest income of $721,708 in the first six months of 1997
is primarily the result of an increase in the funds available for investing in
interest-generating activities.
Minority interest represents the income from operations allocated to the
minority ownership in 21 DAIRY QUEEN/BRAZIER stores and Firstaff, Inc.
The increases in net income per share, when comparing the 1997 periods with the
1996 periods, were due to an increase in the Company's net income, the gain
resulting from the sale of the Company's interest in Firstaff, Inc.
(approximately 9(cent) of the increases for the six months and second quarter
periods respectively) and to a decrease in the average number of common and
common equivalent shares outstanding.
Liquidity and Capital Resources:
Available liquid resources at May 30, 1997, include $40.8 million in cash, cash
equivalents and marketable securities. The Company believes it has sufficient
capital to meet existing and presently anticipated needs.
PART II
Item 6. -- Exhibits and Reports on Form 8-K:
(a) Exhibits - Exhibit 27, Financial Data Schedule.
(b) The Company was not required to file a report on Form 8-K during the
quarter ended May 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
International Dairy Queen, Inc.
(Registrant)
July 11, 1997 /s/ CHARLES W. MOOTY
Date Charles W. Mooty
Chief Financial Officer,
Vice President and Treasurer
July 11, 1997 /s/ DAVID M. BOND
Date David M. Bond
Secretary/Assistant Treasurer
F450 and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAY-30-1997
<CASH> 23,689
<SECURITIES> 17,127
<RECEIVABLES> 50,216
<ALLOWANCES> 499
<INVENTORY> 5,238
<CURRENT-ASSETS> 99,840
<PP&E> 24,463
<DEPRECIATION> 11,426
<TOTAL-ASSETS> 245,377
<CURRENT-LIABILITIES> 42,837
<BONDS> 3,506
0
0
<COMMON> 223
<OTHER-SE> 181,104
<TOTAL-LIABILITY-AND-EQUITY> 245,377
<SALES> 165,836
<TOTAL-REVENUES> 204,773
<CGS> 148,751
<TOTAL-COSTS> 152,644
<OTHER-EXPENSES> 23,838
<LOSS-PROVISION> 146
<INTEREST-EXPENSE> 593
<INCOME-PRETAX> 29,698
<INCOME-TAX> 11,670
<INCOME-CONTINUING> 18,028
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,028
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
</TABLE>
