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 February 28, 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
April 1, 1997: 13,875,774
Number of registrant's Class B Common Shares outstanding at
April 1, 1997: 8,140,014
INTERNATIONAL DAIRY QUEEN, INC.
Securities and Exchange Commission Form 10-Q
for the First Quarter Ended February 28, 1997
I N D E X
Page
Number
PART I: FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet
February 28, 1997 and November 30, 1996 3
Condensed Consolidated Statement of Income
Three months ended February 28, 1997 and
March 1, 1996 4
Condensed Consolidated Statement of Cash Flows
Three months ended February 28, 1997 and
March 1, 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 6 (except Item 4) have been omitted since such 10
items are inapplicable or the answers are negative.
SIGNATURES 10
PART I
<TABLE>
<CAPTION>
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED BALANCE SHEET
(Condensed and in Thousands)
(Unaudited)
ASSETS February 28, November 30,
1997 1996
------------ --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents and
marketable securities $ 35,332 $ 41,483
Receivables--net 49,802 36,512
Inventories 5,750 6,511
Other current assets 4,314 4,430
-------- --------
Total current assets 95,198 88,936
Notes receivable and other--net 29,034 23,340
Other revenue-producing assets--net:
Franchise rights and goodwill 98,596 98,762
Rental properties 3,961 4,471
Miscellaneous 10 12
-------- --------
Total other revenue-producing assets 102,567 103,245
Property, plant and equipment--net 13,682 13,913
-------- --------
$240,481 $229,434
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,234 $ 16,000
Accrued liabilities 11,885 11,086
Committed advertising 1,455 1,963
Current maturities of long-term debt 10,819 10,849
-------- --------
Total current liabilities 46,393 39,898
Deferred income taxes 14,920 14,920
Long-term debt 3,240 3,543
Other non-current liabilities 2,371 2,241
Minority interest in subsidiaries 651 722
Common stock and other stockholders' equity 172,906 168,110
-------- --------
$240,481 $229,434
======== ========
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED STATEMENT OF INCOME
(Condensed and in Thousands, Except Per Share Amounts)
(Unaudited)
First Quarter Ended
-------------------------
February 28, March 1,
1997 1996
------------ --------
<S> <C> <C>
Operating Revenues:
Net Sales $ 65,804 $ 58,859
Sales by company-operated restaurants 7,239 2,168(*)
Service Fees 10,722 10,686
Franchise sales and other fees 1,487 1,585
Real estate finance and rental income 2,102 2,004
Other 206 232
-------- --------
87,560 75,534
Operating Expenses:
Cost of Sales 59,049 53,201
Cost of Sales: company-operated restaurants 6,966 1,967(*)
Expenses applicable to real estate finance
and rental income 1,974 1,890
Selling, general and administrative 11,718 10,696
-------- --------
79,707 67,754
-------- --------
Operating Income 7,853 7,780
Net Interest Income 912 726
Minority interest in earnings of consolidated
subsidiaries and joint ventures (182) (117)
-------- --------
Income before income taxes 8,583 8,389
Provision for income taxes 3,370 3,300
-------- --------
Net income $ 5,213 $ 5,089
======== ========
Earnings per common and common equivalent
shares $ .23 $ .22
======== ========
Average common and common equivalent
shares outstanding 22,273 23,084
======== ========
</TABLE>
(*) INCLUDES ONLY SALES AND COST OF SALES BY COMPANY-OPERATED RESTAURANTS FOR 24
DAYS FROM FEBRUARY 7, 1996.
<TABLE>
<CAPTION>
INTERNATIONAL DAIRY QUEEN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Condensed and in Thousands)
(Unaudited)
First Quarter Ended
-------------------------
February 28, March 1,
1997 1996
------------ --------
<S> <C> <C>
Net cash (used in) provided by operating activities $ (5,664) $ 2,442
Investing Activities:
Net (investments in) maturities of marketable
securities (260) 561
Cost of acquisitions, net of cash acquired -- (4,713)
Net advances to operators for store renovations
and equipment (1,001) (1,322)
Net capital expenditures (1,011) (943)
Purchase of franchise rights and goodwill (697) (131)
Other 41 7
-------- --------
Cash flows used in investing activities (2,928) (6,541)
Financing Activities:
Purchase and retirement of common shares (1,701) (1,130)
Principal payments on long-term debt (332) (344)
Other 1,480 356
-------- --------
Cash flows used in financing activities (553) (1,118)
Effect of exchange rate changes on cash (16) (18)
-------- --------
Net decrease in cash and cash equivalents (9,161) (5,235)
Cash and cash equivalents at beginning of year 38,385 34,699
-------- --------
Cash and cash equivalents at end of period $ 29,224 $ 29,464
======== ========
</TABLE>
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 February 28, 1997
and March 1, 1996, and the related condensed consolidated statements of income
for the three-month periods ended February 28, 1997 and March 1, 1996 and the
condensed consolidated statements of cash flows for the three-month periods
ended February 28, 1997 and March 1, 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 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. Net sales by Company-operated restaurants for these 31
stores from the date of acquisition to March 1, 1996 (24 days) were $2,167,564
and related cost of sales was $1,966,916.
The Company calculates its income tax provision for interim periods by
estimating its annual effective tax rate and applying this rate to the income of
the interim period. The effective tax rate applied was 39.3 percent for the
three-month periods ended February 28, 1997 and March 1, 1996.
Earnings per common share amounts are based on the weighted average number of
common and common equivalent shares outstanding during each period.
The Company's business is seasonal in nature, and the results of operations for
the period ended February 28, 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 2/28/97
-------- ------ ------ --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
DAIRY QUEEN(R) SYSTEM
United States
Franchised by the Company:
DAIRY QUEEN(R) stores 3,274 17 (23) 0 0 3,268
TREAT CENTER(R) units 150 5 0 0 0 155
Franchised by territorial
operators 1,577 8 (4) 0 0 1,581
Company-operated stores 34 0 0 0 34
------ ----- ----- ----- ----- -----
5,035 30 (27) 0 0 5,038
------ ----- ----- ----- ----- -----
Canada
Franchised by the Company:
DAIRY QUEEN(R) stores 458 4 0 0 0 462
TREAT CENTER(R) units 21 0 0 0 0 21
------ ----- ----- ----- ----- -----
479 4 0 0 0 483
------ ----- ----- ----- ----- -----
Other Foreign 202 10 (1) 0 0 211
------ ----- ----- ----- ----- -----
Total DAIRY QUEEN(R)stores 5,716 44 (28) 0 0 5,732
ORANGE JULIUS(R) Stores 421 5 (7) 0 0 419
KARMELKORN(R) Shoppes 61 0 (6) 0 0 55
GOLDEN SKILLET(R) Restaurants 21 1 0 0 0 22
------ ----- ----- ----- ----- -----
TOTAL 6,219 50 (41) 0 0 6,228
====== ===== ===== ===== ===== =====
</TABLE>
Results of Operations:
The improvement in the Company's results of operations for the first quarter of
1997 compared to the first quarter of 1996, reflects an increase in net sales
and an increase in net interest income. These increases were partially offset by
an increase in selling, general and administrative expenses.
The 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 three months of 1997 with the first three months of 1996.
<TABLE>
<CAPTION>
Percentage of Revenue
Three Months Ended
------------------------- Percentage
February 28, March 1, Increase
1997 1996 (Decrease)
------------ -------- ----------
<S> <C> <C> <C>
Operating Revenues:
Net Sales 75.2 77.9 11.8
Sales by company-operated restaurants 8.3 2.9 *
Service Fees 12.2 14.1 .3
Franchise Sales & other fees 1.7 2.1 (6.2)
Real estate finance & rental income 2.4 2.7 4.9
Other .2 .3 (11.4)
----- -----
Total Revenues 100.0 100.0 15.9
----- -----
Operating Expenses:
Cost of Sales 67.4 70.4 11.0
Cost of Sales: company-operated restaurants 8.0 2.6 *
Expense applicable to real estate finance
& rental income 2.2 2.5 4.4
Selling, general & administrative 13.4 14.2 9.6
----- -----
Total Operating Expenses 91.0 89.7 17.6
Operating Income 9.0 10.3 .9
Net interest income 1.0 1.0 25.6
Minority interest (.2) (.2) *
----- -----
Income before income taxes 9.8 11.1 2.3
Provision for income taxes 3.8 4.4 2.1
----- -----
Net income 6.0 6.7 2.4
===== =====
</TABLE>
* Not meaningful since the prior year includes
only 24 days of sales and cost of sales by
Company-operated restaurants
The increase during the first three months of 1997 when compared to the first
three months of 1996 of $6,944,783 in net sales resulted primarily from an
increase of $3,380,757 in unit sales of frozen, non-frozen foods, paper,
plastics and manufactured novelties to authorized warehouses (who in turn sell
to franchisees), an increase of $983,844 in sales of promotional items sold to
DAIRY QUEEN stores, and an increase of $2,643,061 in equipment sales to
franchisees.
Permanent and temporary placement and training fees by Firstaff, Inc., increased
by $149,988 during the first three months of 1997 when compared to the first
three months of 1996. On March 31, 1997 (subsequent to the end of first
quarter), the Company sold all of its interest in Firstaff, Inc. The impact of
this transaction will not have a material effect on the Company's financial
statements.
Sales by company-operated restaurants increased by $5,071,144 when comparing the
first three months of 1997 with the first three months of 1996 (December 1, 1995
to March 1, 1996) primarily due to the absence of company-operated restaurants'
operations prior to February 7, 1996.
Service fee income was flat primarily due to the elimination in 1997 of
intercompany service fees of $202,845 in the first three months of 1997 due from
company-operated restaurants acquired in February 1996.
The increase of $1,022,941 in the first three months of 1997 in selling, general
and administrative expenses was primarily from additional personnel and other
costs required to support and develop a higher overall level of operations.
The increase in net interest income of $186,156 in the first three 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 increase in net income per share when comparing the 1997 period with the
1996 period was due to an increase in the Company's net income and to a decrease
in the average number of common and common equivalent shares outstanding.
Liquidity and Capital Resources:
Available liquid resources at February 28, 1997, include $35.3 million in cash,
cash equivalents and marketable securities. The Company believes it has
sufficient capital to meet existing and presently anticipated needs.
PART II
Item 4. -- Submission of Matters to a Vote of Security Holders:
The Company's Annual Meeting of Stockholders was held on Tuesday, March 18,
1997, and the following resolutions were approved.
The following were elected to serve as directors of the Company until the next
Annual Meeting of Stockholders:
<TABLE>
<CAPTION>
VOTES VOTES
----------------------- ------------------------
CLASS A STOCKHOLDERS FOR WITHHELD CLASS B. STOCKHOLDERS FOR WITHHELD
- ---------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C>
Michael P. Sullivan 12,473,222 128,896 John Mooty 7,712,650 3,050
Frank Heit 12,472,838 129,280 Ernest Dorn, Jr. 7,713,250 2,450
Richard Giertsen 7,713,250 2,450
C. David Luther 7,713,650 3,050
Jane Mooty 7,712,650 3,050
Thomas R. Stuart 7,713,250 2,450
</TABLE>
The appointment of Ernst & Young LLP as the independent auditors of the Company
for the fiscal year ending November 30, 1997, was approved. 7,715,700 shares
voted for, none against, and none abstained.
No additional items requiring a vote were presented.
All other items required under Part II have been omitted since they are
inapplicable or the answers are negative.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
International Dairy Queen, Inc.
---------------------------------------------
(Registrant)
April 11, 1997 /s/ CHARLES W. MOOTY
- -------------------------- ---------------------------------------------
Date Charles W. Mooty
Chief Financial Officer,
Vice President and Treasurer
April 11, 1997 /s/ DAVID M. BOND
- -------------------------- ---------------------------------------------
Date David M. Bond
Secretary/Assistant Treasurer
and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 29,224
<SECURITIES> 6,109
<RECEIVABLES> 50,322
<ALLOWANCES> 521
<INVENTORY> 5,750
<CURRENT-ASSETS> 95,198
<PP&E> 25,776
<DEPRECIATION> 12,094
<TOTAL-ASSETS> 240,481
<CURRENT-LIABILITIES> 46,393
<BONDS> 3,241
0
0
<COMMON> 222
<OTHER-SE> 172,684
<TOTAL-LIABILITY-AND-EQUITY> 240,481
<SALES> 73,043
<TOTAL-REVENUES> 87,560
<CGS> 66,015
<TOTAL-COSTS> 67,989
<OTHER-EXPENSES> 11,718
<LOSS-PROVISION> 101
<INTEREST-EXPENSE> 290
<INCOME-PRETAX> 8,583
<INCOME-TAX> 3,370
<INCOME-CONTINUING> 5,213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,213
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
