-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PWCEm56d381otd+Yn8k744E9RCCLCeHaidJrKz5fsTGkywfaBIwdxFSsyFbBdruZ k6f6wdbmKz0e1IYN4kQudg== 0000897101-96-000063.txt : 19960216 0000897101-96-000063.hdr.sgml : 19960216 ACCESSION NUMBER: 0000897101-96-000063 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951130 FILED AS OF DATE: 19960214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL DAIRY QUEEN INC CENTRAL INDEX KEY: 0000051207 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 410852869 STATE OF INCORPORATION: DE FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-06116 FILM NUMBER: 96520240 BUSINESS ADDRESS: STREET 1: 7505 METRO BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55439 BUSINESS PHONE: 6128300200 MAIL ADDRESS: STREET 1: 7505 METRO BLVD CITY: MINNEAPOLIS STATE: MN ZIP: 55439 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended November 30, 1995 Commission File Number 0-6116 INTERNATIONAL DAIRY QUEEN, INC. ------------------------------- (Exact name of Registrant as specified in its charter) Delaware 41-0852869 State of Incorporation I.R.S. Employer I.D. No. 7505 Metro Boulevard, Minneapolis, Minnesota 55439 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (612) 830-0200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, par value $.01 per share Class B Common Stock, par value $.01 per share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] Number of shares of Common Stock outstanding as of February 2, 1996: Class A Common Stock - 14,383,815 Class B Common Stock - 8,414,448 Approximate aggregate market value of voting stock held by non-affiliates as of February 2, 1996: Class A Common Stock - $256,019,750 Class B Common Stock - $ 84,371,741 ------------ Total $340,391,491 ============ Documents incorporated by reference: 1. Portions of the Annual Report to Stockholders for the year ended November 30, 1995 are incorporated by reference into Parts I and II. 2. Portions of the definitive proxy statement for the annual meeting of stockholders to be held on March 19, 1996 are incorporated by reference into Part III. PART I ITEM 1.BUSINESS GENERAL The Company develops and services a system of more than 5,600 Dairy Queen stores in the United States, Canada and other foreign countries featuring hamburgers, hot dogs, various dairy desserts and beverages; more than 430 Orange Julius stores in the United States, Canada and other foreign countries featuring blended drinks made from orange juice, fruits and fruit flavors, along with various snack items; and more than 60 Karmelkorn stores featuring popcorn and other treat items. The Company also owns 60% of Firstaff, Inc., specialists in the placement and training of permanent and temporary office support personnel. To support and promote the businesses of its franchisees, the Company undertakes product development and market testing, creates and coordinates advertising programs, provides training and advisory services for store operators and enforces quality control standards. A major portion of the Company's operating income is derived from franchise fees paid by franchised stores and stores licensed by territorial operators. The Company does not itself operate stores. The Company also sells equipment to stores and sells other products used in store operations to a system of independently-owned warehouses, which also purchase approved products from other suppliers. These warehouses in turn sell products to retail stores in their geographical areas. Except for providing financing for the sale of specialized equipment to its franchisees, offering limited financing services for the remodeling of existing franchised stores and for providing certain leasing services for stores located in shopping malls, the Company has not generally provided financial assistance or guarantees for the construction or operation of franchised stores. FRANCHISING SYSTEM DAIRY QUEEN. Stores are located in all states, except Rhode Island, as well as Canada, Japan and several other countries. Most stores are located in smaller towns and suburbs of larger cities. Some franchised stores offer only soft serve dairy products, while others also offer some or all of the food items in the Brazier line. The Company endeavors to have its Dairy Queen franchisees offer a more complete line of authorized products. The first Dairy Queen store was opened in Illinois in 1940. In 1945, two predecessor companies began to develop the Dairy Queen system on a national basis by granting territorial franchise rights for specific geographical areas. In 1962, certain territorial operators formed International Dairy Queen, Inc., by contributing their territorial franchise rights and acquiring ownership of the Dairy Queen trademarks and other franchise rights. Dairy Queen/Brazier stores offer a menu of fast food items, including hamburgers, various dairy desserts (including soft serve and frozen yogurt) and beverages which are marketed under the Dairy Queen and Brazier trademarks. Retail prices are determined by the store operators. The Dairy Queen dairy dessert product line includes cones of various sizes, Blizzard Flavor Treats, as well as shakes, malts and sundaes, hardpacked products for home consumption and specialty frozen confections. These products are prepared in the store from the Company's specially formulated mixes by means of distinctive freezing and dispensing units. The Brazier product line, adopted nationally in 1968, consists of a food menu featuring hamburgers, hot dogs, chicken strips, barbecue and chicken sandwiches, french fried potatoes and onion rings. The Company franchises Dairy Queen stores either directly through agreements with individual retail store operators or indirectly through agreements with territorial operators who are authorized to grant franchise rights to store operators within a specified territory. The terms of direct store franchise agreements used by the Company have been modified from time to time as experience and changing circumstances have required. The present Dairy Queen/Brazier franchise agreement provides that the store franchisee shall pay to the Company an initial service and set-up fee of $30,000 ($15,000 for a Limited Brazier), and a continuing franchise service fee of 4% of gross retail sales. The Company may permit certain qualified existing franchisees to open additional stores by paying a reduced service and set-up fee. Other forms of store agreements currently in force, most of which were entered into prior to 1968, provide for varying levels of service fees computed on different bases, such as the amount of total Dairy Queen mix or products dispensed. All direct franchisees pay some fees to the Company, and at November 30, 1995, 2,744 of the 3,875 stores franchised by the Company in the United States and Canada were paying a continuing franchise service fee of 4% or more. At November 30, 1995, there were 140 Dairy Queen territorial operators in the United States who are licensed by the Company to grant franchise rights in specific geographical areas. Most of the existing territorial operator agreements were granted prior to 1950 during the early stages of development of the predecessor companies. Since 1973, the Company has acquired the rights of a number of territorial operators and has sought to convert subfranchisees to a direct franchise basis. The Company expects to continue to acquire the rights of territorial operators when it has the opportunity to do so on terms acceptable to the Company. While the business terms of individual territorial operator agreements may differ in certain respects, they generally provide for substantial uniformity in terms of operation and product quality. The territory covered by territorial operator agreements vary, although most are for limited geographical areas as is evidenced by the fact that most have five or fewer stores. Many of the Company's territorial franchises provide for continuing payments to the Company generally computed on the basis of a percentage of the franchise service fees collected by the territorial operator. However, at November 30, 1995, 138 stores were subfranchised or operated by territorial operators who do not have any obligation to pay the Company any franchise service fees. As to most of these stores, the Company's right to control and supervise quality standards and methods of operation is limited to that activity normally required of the holder of a trademark or service mark under the laws related to trademark protection to control the nature and quality of goods sold under its trademark or service mark. TREAT CENTER. With the acquisition of Karmelkorn in 1986 and Orange Julius in 1987, the Treat Center concept has emerged. This franchising concept combines Dairy Queen treat items together with either or both Orange Julius and Karmelkorn menu items under one storefront within a shopping mall. By combining the products of these franchising systems, the Company seeks to substantially increase store sales volumes in order to support the signing of leases that would be too expensive for a one product-line store. The present Treat Center franchise agreement provides that the store franchisee shall pay to the Company an initial service and set-up fee of $15,000, and a continuing franchise service fee of 6% of gross retail sales. The Company permits certain existing franchisees to open additional stores without paying an initial service and set-up fee. At November 30, 1995, there were 145 Treat Center units, of which 124 were in the United States and 21 in Canada, all of which were franchised by the Company. ORANGE JULIUS. In August 1987, the Company acquired Orange Julius of America and Orange Julius Canada Limited, franchisors of retail stores which feature blended drinks made from orange juice, fruits and fruit flavors. Most of the stores are located in shopping malls. At November 30, 1995, there were 433 Orange Julius stores, of which 305 were in the United States, 103 were in Canada, and 25 in other foreign countries, all of which were franchised by the Company. The present Orange Julius franchise agreement provides that the store franchisee shall pay to the Company an initial service and set-up fee of $15,000 ($5,000 for certain existing franchises), and a continuing franchise service fee of 6% of gross retail sales. KARMELKORN. In March 1986, the Company acquired Karmelkorn Shoppes, Inc., a franchisor of retail stores which sells popcorn, candy and other treat items. Most of the stores are located in shopping malls. At November 30, 1995, there were 69 Karmelkorn stores, of which 64 were in the United States and 5 were in foreign countries, all of which were franchised by the Company. GOLDEN SKILLET. In December 1981, the Company acquired the United States and international (exclusive of Canada) franchise rights and other selected assets of the Golden Skillet system. Golden Skillet stores feature fried chicken and side dishes. In October 1992, the Company assigned the franchises, trademarks and related assets for Golden Skillet in the contiguous 48 United States and the District of Columbia to a non-affiliated company. The Company continues to hold the Golden Skillet franchises and rights for the rest of the world. At November 30, 1995, there were 21 Golden Skillet stores in foreign countries, all of which were franchised by the Company. NEW STORES The Company is continuously seeking to open new stores. The ability of the Company to open new stores is most dependent upon recruiting qualified operators with suitable sites. New stores franchised by the Company are constructed in accordance with the Company's specifications and standards. Substantially all stores have a standardized appearance as well as uniform product lines and operating methods. The Company also has a program whereby existing franchisees in good standing with the Company may be awarded an additional store franchise at reduced cost. FOREIGN OPERATIONS Foreign operations, excluding Canada, did not have a significant effect on consolidated operations for the year ended November 30, 1995. The Company's operations in Canada are substantially similar to its U.S. operations. Of the 763 foreign stores, at November 30, 1995, 571 were located in Canada, 84 in Japan and 108 in 23 other foreign countries. COMPANY SERVICES PRODUCT DEVELOPMENT AND TEST MARKETING. The Company continually attempts to develop new products. New product concepts are obtained from vendors, franchisees and Company personnel who work with the Company's Research and Development personnel to develop a product concept into a finished product suitable for the system. ADVERTISING AND SALES PROMOTION. The Company develops and conducts national and area sales promotion and advertising programs principally through television, radio and newspapers. For each of the four food systems, the Company is assisted by an advisory council, the majority of whose members are elected by members of the system. Substantially all amounts expended for advertising and promotion are provided by franchisees who contribute to advertising funds. The present franchise agreements provide that franchisees shall pay an amount equal to 3% to 6% of gross sales to the advertising and sales promotion funds administered by the Company. Funds administered by the Company for advertising and sales promotion during 1995, 1994 and 1993 aggregated approximately $57,100,000, $51,000,000 and $47,800,000, respectively. In addition to the funds administered by the Company, many stores expend funds for local and regional advertising. Unexpended advertising funds were $844,714 and $2,498,816 at November 30, 1995 and 1994, respectively. MANUFACTURING AND DISTRIBUTION. The Company is one of over 80 approved manufacturers of Dairy Queen mix. In addition to Dairy Queen mix and concentrates, the Company sells equipment which is manufactured by independent manufacturers. The Company also purchases approved perishable and nonperishable supplies and resells them to independently-owned authorized warehouses described below. Substantially all of the Company's sales of products consist of products purchased for resale from manufacturers and suppliers unrelated to the Company. Neither the retail stores nor the authorized warehouses are required to purchase any products from the Company. In order to provide stores with a convenient source of approved merchandise, the Company has arranged for a system of over 80 authorized warehouses which purchase, inventory and sell approved food and miscellaneous supplies to stores. In addition to the authorized warehouses, there are a number of warehouses which are not under contract with the Company which purchase products directly from approved manufacturers for resale to stores. TRAINING AND ADVISORY SERVICES. The Company provides a wide range of training and advisory services to its franchisees. New store operators franchised by the Company are to attend a two-week course of intensive training at the Company's training center in Minneapolis, Minnesota. The attendees are given classroom and practical instruction in procedures for product preparation, business and financial management, marketing and promotion and related operational matters. Periodic refresher training and instruction are available to all franchisees at the Company's training center and at state, regional and national conferences and seminars. The Company also makes available training aids and materials for the franchisees' use in instructing store employees. QUALITY CONTROL. The Company conducts a periodic evaluation program designed to insure a high standard of operation, quality and product uniformity. Through 114 field consultants and 14 regional managers, the Company furnishes franchisees with information, advice and recommendations relating to facility image, menu/product preparation, financial management, personnel management and marketing. In order to maintain quality control, stores are generally required to use approved products. The Company maintains a system of approved manufacturers which are authorized to manufacture and sell products such as mix, meat, containers, paper goods, equipment and sales promotion materials. THE FOLLOWING TABLE SETS FORTH CERTAIN INFORMATION AS TO THE NUMBER OF STORES IN THE DAIRY QUEEN, ORANGE JULIUS, KARMELKORN AND GOLDEN SKILLET SYSTEMS
- ------------------------------------------------------------------------------------------------------------------------------ Converted Total to Treat Ownership Total 11/30/94 Opened Closed Centers Changes 11/30/95 - ------------------------------------------------------------------------------------------------------------------------------- Dairy Queen system United States Franchised by the Company: Dairy Queen stores 3,195 78 (56) 66 3,283 Treat Center units 104 16 4 124 Franchised by territorial operators 1,614 75 (30) (66) 1,593 Company operated stores 1 (1) 0 - ------------------------------------------------------------------------------------------------------------------------------- 4,914 169 (87) 4 0 5,000 - ------------------------------------------------------------------------------------------------------------------------------- Canada Franchised by the Company: Dairy Queen stores 432 20 (5) 447 Treat Center units 20 1 21 - ------------------------------------------------------------------------------------------------------------------------------- 452 21 (5) 0 0 468 - ------------------------------------------------------------------------------------------------------------------------------- Other foreign 176 21 (35) 162 - ------------------------------------------------------------------------------------------------------------------------------- Total Dairy Queen stores 5,542 211 (127) 4 0 5,630 - ------------------------------------------------------------------------------------------------------------------------------- Orange Julius stores 454 19 (37)(a) (3) 433 Karmelkorn shoppes 82 2 (14) (1) 69 Golden Skillet restaurants 21 21 - ------------------------------------------------------------------------------------------------------------------------------- Total 6,099 232 (178) 0 0 6,153 ===============================================================================================================================
(a) The Orange Julius stores which closed in 1995 reflect the continued high concentration of lease expirations during the 1988 through the 1995 period. The Company's policy is not to renew its lease obligations with respect to stores which have not achieved satisfactory operating results. REGULATION OF FRANCHISE BUSINESS The Company and its franchisees are subject to various federal, state and local laws affecting their businesses. The Company and its franchisees are subject to a variety of regulatory provisions relating to wholesomeness of food, sanitation, health and safety. The Company is also subject to a substantial number of state laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises and may also regulate termination, renewal fees and other substantive aspects of the relationship between franchisor and franchisee. The Company is also subject to Federal Trade Commission regulations governing disclosure requirements in the sale of franchises. The Company believes it is in compliance with applicable laws and regulations governing its operations. COMPETITION All areas of the fast food service business are highly competitive, and the Company has many competitors, some of whom are large companies selling a more diversified line of products and having greater financial resources than the Company. The Dairy Queen/Brazier, Orange Julius, Karmelkorn and Golden Skillet stores compete with a large number of national chains as well as locally-owned restaurants, drive-ins, take-home outlets and similar establishments, offering food at low and medium prices. Extensive and active competition also exists in the acquisition of commercial locations suitable for stores. A key competitive factor is the reputation and image of the system. The Company believes that public recognition of Dairy Queen/Brazier, Orange Julius and Karmelkorn names contributes significantly to sales by stores. The Company owns the Dairy Queen and Brazier trademarks registered in the United States Patent Office and in each of the fifty states and in the Canadian Trademarks Office. The Company also owns a number of United States and foreign registrations of other trademarks, including Orange Julius, Karmelkorn and Golden Skillet, and service marks used in the conduct of its business. The Company believes that the success of its business depends to a large extent on its trademark and service mark protection and, where and when necessary, intends to continue to protect its trademarks by appropriate legal action. EMPLOYEES At November 30, 1995, the Company employed 595 persons (including 86 persons employed by Firstaff, Inc.) primarily in sales, supervisory, clerical and managerial activities. The Company maintains a 401(k) Retirement Savings Plan which is available to all full-time employees with one year or more of service. The Company also maintains a Section 125 Plan which is available to full-time employees after 30 days of service. The Company has never experienced a work stoppage due to labor difficulty and considers its employee relations to be satisfactory. ITEM 2. PROPERTIES The Company owns an office building aggregating approximately 114,000 square feet, of which 75,500 square feet is utilized by the Company for its principal administrative offices and training center. Of the remaining 38,500 square feet, approximately 18,900 is leased to a third party under a lease expiring August 31, 1996. The Company also owns a mix manufacturing plant in Decatur, Georgia, a Canadian office building/warehouse and the store facilities described below. Warehouse space aggregating 35,023 square feet is under lease expiring in 2001 and twelve regional offices comprising 13,868 square feet are under leases expiring from 1996 to 1999. Firstaff, Inc. has six offices in Minnesota, aggregating 20,640 square feet, which are under leases expiring from 1996 to 2001. The aggregate rental charges for the Company's administrative, Firstaff and operating facilities, excluding stores, were approximately $750,000 and $670,000 for fiscal 1995 and fiscal 1994, respectively. At November 30, 1995, the Company owned real property relating to nine stores with an aggregate net book value of approximately $1,830,000, all of which were leased to franchisees. See Notes 4 and 5 of Notes to Consolidated Financial Statements for additional information regarding the Company's properties. ITEM 3. LEGAL PROCEEDINGS From time to time, and at present, the Company is subject to various claims and lawsuits in the ordinary course of business, some of which include allegations by franchisees and subfranchisees that the Company has violated antitrust and other laws. Such claims sometimes arise in connection with actions by the Company to collect amounts owed by franchisees or to enforce or terminate franchise agreements. Hugh Collins, et al. v. International Dairy Queen, Inc. and American Dairy Queen Corporation ("ADQ"), (United States District Court, Middle District of Georgia, Macon Division, No. 94-95-4-MAC (WDO), commenced April 5, 1994). This matter, previously reported in the Company's Annual Report (Form 10-K) for fiscal 1994, is an action by five franchisees in the State of Georgia for declaratory judgment, injunctive relief, actual damages in an unspecified amount, treble damages under federal antitrust law, costs, and attorneys' fees. Plaintiffs' claims are that ADQ's approved supplier program and procedures constitute a tying arrangement prohibited under Section I of the Sherman Antitrust Act (15 U.S.C. ss. 1), a breach of contract, a breach of an implied covenant of good faith and fair dealing between the parties, and breach of a prior settlement agreement. The Company and ADQ have filed an answer to plaintiffs' complaint and intend to vigorously defend against plaintiffs' claims. In December 1994, the parties filed cross-motions for summary judgement on all issues relating to the supply of cups and lids to the "Dairy Queen" system. The Court held an evidentiary hearing on these motions in February 1995. Plaintiffs later filed motions to amend the complaint to add new claims under federal antitrust law and state law, and to have the case certified as a class action. The Company subsequently filed a motion for summary judgment dismissing the antitrust tying claims. The Court granted plaintiffs' motion to amend their complaint. The plaintiffs withdrew their claims for breach of the implied covenant of good faith and fair dealing. The Company and ADQ filed an answer to the amended complaint and are vigorously defending against plaintiffs' claims. No ruling has been made on the cup and lid, class certification, and antitrust tying motions. No trial date has been set. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Both Class A common stock and Class B common stock are listed on the Nasdaq National Market and trade under the symbols INDQA and INDQB, respectively. The following table sets forth for the periods indicated the high and low prices for the Class A common stock and Class B common stock as reported by Nasdaq. The prices shown below do not include retail markups, markdowns or commissions. Class A Class B Common Stock Common Stock Low High Low High Fiscal Year Ended November 30, 1994 First Quarter $15.75 $18.50 $16.00 $19.50 Second Quarter $17.00 $18.50 $17.00 $19.50 Third Quarter $15.75 $18.50 $16.00 $19.00 Fourth Quarter $16.25 $17.75 $16.25 $18.25 Fiscal Year Ended November 30, 1995 First Quarter $15.75 $18.00 $16.00 $19.00 Second Quarter $17.25 $19.75 $17.50 $20.00 Third Quarter $18.25 $22.00 $18.50 $22.37 Fourth Quarter $20.75 $23.25 $20.50 $22.00 As of February 2, 1996, the approximate number of record holders of the Company's Class A common stock was 946 and the approximate number of record holders of the Company's Class B common stock was 441. The Company has not paid cash dividends on its common stock. Future dividends will be determined by the Company's Board of Directors whose decision will be made in light of the earnings, financial position and cash requirements of the Company and other relevant factors existing at the time. The Company's credit agreements contain provisions limiting the payment of dividends. See Notes 3 and 7 of Notes to Consolidated Financial Statements. ITEM 6. SELECTED FINANCIAL DATA The information set forth under the caption "Selected Financial Data" on page 7 of the Registrant's 1995 Annual Report to Stockholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, items from the Company's statement of income expressed as percentages of revenues, and the percentage changes in the dollar amounts of such items from the prior period.
- ------------------------------------------------------------------------------------------------------------ Percentages of Percentage Increase Revenues (Decrease) - ------------------------------------------------------------------------------------------------------------ Years Ended November 30, Fiscal 1995 Fiscal 1994 1995 1994 1993 over 1994 over 1993 - ------------------------------------------------------------------------------------------------------------ Revenues: Net sales 80.0 78.9 77.7 10.8 11.3 Service fees 15.4 15.9 16.6 5.4 5.0 Franchise sales and other fees 2.3 2.5 2.4 (.2) 13.1 Real estate finance and rental income 2.0 2.4 2.9 (6.7) (10.1) Other .3 .3 .4 (14.0) (9.3) - -------------------------------------------------------------------------------- Total revenues 100.0 100.0 100.0 9.1 9.6 - -------------------------------------------------------------------------------- Costs and expenses: Cost of sale 72.0 71.1 69.8 10.5 11.6 Expenses applicable to real estate finance and rental income 1.9 2.3 2.7 (7.2) (10.3) Selling, general and administrative 12.0 11.9 12.1 9.8 7.9 - -------------------------------------------------------------------------------- Total costs and expenses 85.9 85.3 84.6 9.9 10.4 - -------------------------------------------------------------------------------- Interest income, net .6 .5 .5 45.8 10.6 - -------------------------------------------------------------------------------- Income before income taxes 14.7 15.2 15.9 5.7 5.1 Income taxes 5.8 6.0 6.3 5.7 5.1 - -------------------------------------------------------------------------------- Net income 8.9 9.2 9.6 5.7 5.1 - --------------------------------------------------------------------------------
RESULTS OF OPERATIONS GENERAL. The Company's revenues are derived primarily from service and franchise fees received from franchisees and the sale of perishable and nonperishable supplies and equipment for use by franchised stores. Although the Company does not allocate interest or selling, general and administrative expenses by products sold or services rendered, it believes that a major portion of its operating income results from service fees. 1995 COMPARED TO 1994. The increase of $28,918,848 in net sales resulted primarily from an increase of $22,921,941 in unit sales of frozen and non-frozen foods, meat products (primarily chicken) and paper and plastics to authorized warehouses (who in turn sell to franchisees), an increase of $2,324,517 in sales of promotional items sold to Dairy Queen stores, and an increase of $3,202,205 in training and temporary placement fees by Firstaff, Inc. These increases were partially offset by a reduction in equipment sales to franchisees of $1,671,845 when comparing 1995 with 1994. This decrease resulted from the introduction of newly-designed menu boards which were offered to stores at discounted prices during the 1994 introductory period and which resulted in net sales of $7,303,574 in 1994. The decreases in real estate, finance and rental in come and related expenses in fiscal 1995 reflect a continued number of lease expirations. It is the Company's policy not to renew the Company's obligations with respect to store leases, except in certain limited situations. Selling, general and administrative expenses increased $3,987,301 due to additional personnel and support costs, increased marketing and research cost, legal costs, and other costs relating to the Company's higher overall level of operations in 1995. The increase in net interest income in fiscal 1995 is the result of an increase in the funds available for short-term investments and increased interest rates. The 13 cent increase in net income per share when comparing the 1995 period with the 1994 period was due to an increase in the Company's net income and to a decrease in the average number of common and common equivalent shares outstanding. 1994 COMPARED TO 1993. The increase of $27,192,317 in net sales resulted primarily from an increase of $11,081,037 in unit sales of perishable (frozen and non-frozen foods) supplies to authorized warehouses (who in turn sell to franchisees), an increase in sales of equipment (primarily menu boards) of $9,313,887, an increase of $3,444,978 in consumable and promotional supply items sold to Dairy Queen stores, and an increase of $2,489,886 in temporary placement and training fees by Firstaff, Inc. The Company introduced its newly-designed menu boards to the Dairy Queen system during the second quarter of fiscal 1994, which were offered to stores at discounted prices during the introductory period to encourage system-wide utilization of the product and resulted in net sales of $7,303,574 in 1994. The decreases in real estate, finance and rental income and related expenses in fiscal 1994 reflect a continued number of lease expirations. Selling, general and administrative expenses increased $2,978,529 due to additional personnel and support costs, increased marketing and research costs, legal costs, and other costs required to support and develop a higher overall level of operations. The increase in net interest income was primarily the result of reduced borrowings ($12 million in long-term debt was retired in 1994) and increased yields on short-term investments and marketable securities. The 11 cent increase in net income per share when comparing the 1994 period with the 1993 period was due to an increase in the Company's net income and to a 3.4% decrease in the average number of common and common equivalent shares outstanding. SEASONALITY OF BUSINESS The Company's business is highly seasonal. Dairy Queen sales generally have been higher during the spring and summer months, while Orange Julius and Karmelkorn sales tend to be higher during the September to December back-to-school and holiday shopping periods. Historically, the Company has earned a substantial portion of its operating profit during the second and third quarters (spring and summer months). The following table shows the Company's net income by quarter for each of the past five fiscal years: - ------------------------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter TOTAL - ------------------------------------------------------------------------------- Net income (in thousands) 1991 $4,374 $8,227 $10,185 $5,135 $27,921 1992 4,406 8,674 10,536 5,479 29,095 1993 4,548 8,727 10,677 5,936 29,888 1994 4,614 9,260 11,164 6,383 31,421 1995 4,910 9,848 11,747 6,712 33,217 LIQUIDITY AND CAPITAL RESOURCES Funds for working capital, acquisitions of territorial rights, acquisitions of the Company's common stock and capital expenditures during the last three years have been provided by internally-generated funds (net income plus amortization and depreciation). Available liquid resources at November 30, 1995, included $34,699,296 in cash and cash equivalents. The Company does not have any material commitments for capital expenditures during fiscal year 1996 and believes that its existing credit arrangements, along with working capital generated by operations, will be sufficient to meet existing and presently anticipated needs. IMPACT OF INFLATION The Company does not believe its business is affected by inflation to a greater extent than the general economy. Generally, the Company has been able to offset the inflationary impact of costs and wages through a combination of productivity gains and price increases. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA An index to the consolidated financial statements and financial statement schedules is found on page 33 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to Directors, appearing under "Election of Directors" in the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 19, 1996, is incorporated herein by reference. The names, ages, and positions of all of the officers of the Company are listed below along with their business experience during the past five years. Officers are normally elected annually by the Board of Directors at its annual meeting. Charles W. Mooty is the son of John W. Mooty. There are no other family relationships among these officers, nor any arrangement between any officer and any person pursuant to which the officer was selected.
- ------------------------------------------------------------------------------------------------------------------- Years with Name Position with Company (1) Age Company - ------------------------------------------------------------------------------------------------------------------- John W. Mooty Chairman of the Board and Chairman of the Executive Committee and Director 73 25 Michael P. Sullivan President and Chief Executive Officer and Director 61 21 Edward A. Watson Executive Vice President and Chief Operating Officer 51 24 Charles W. Mooty Executive Vice President, Chief Financial and Administrative Officer and Treasurer 35 8 David M. Bond Secretary, Assistant Treasurer and Controller 59 26 Mark S. Broin Vice President - Information Services 50 24 George H. Fougeron Vice President - Franchise Operations 50 23 Stephen M. Frances Vice President - Franchise Development and Lease Management Services 46 10 John F. Hockert Vice President - Financial Services 53 28 Michael J. Leary Vice President - Purchasing and Distribution 56 24 Glenn S. Lindsey Vice President - Research and Development 55 14 Srinivasa B. Murthy Vice President - Administrative Services 52 24 Signe M. Pagel Vice President - Human Resources, Meeting and Travel Services 46 25 Gary H. See Vice President - Marketing and Consumer Research 49 21 William R. von Hassel Vice President - Equipment Development 67 26 William C. Zucco Vice President - Law and General Counsel 50 7
(1) Unless indicated to the contrary, each of such person's primary occupation for at least the past five years has been as an officer of the Company or a subsidiary of the Company. John W. Mooty is a member of the Minneapolis law firm of Gray, Plant, Mooty, Mooty & Bennett, P.A., with which firm he has been associated for more than five years. Charles W. Mooty has been employed by the Company since May 1987 in various positions and has been a Vice President since April 1992. ITEM 11. EXECUTIVE COMPENSATION Information with respect to directors and officers, appearing under "Information Concerning Directors and Officers" in the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 19, 1996, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to security ownership of certain beneficial owners and management, appearing under "Outstanding Stock" in the Company's Definitive Proxy Statement for the Annual Meeting of Stock holders to be held on March 19, 1996, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information with respect to certain relationships and related transactions, appearing under "Information Concerning Directors and Officers" in the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 19, 1996, is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to exhibits, financial statements and financial statement schedules. Page - ----------------------------------------------------------------------------------------------------------- Financial Statements: ------------------------------------------------------------------------------------------------------ Consolidated balance sheet at November 30, 1995 and 1994 8-9 Consolidated statement of income for each of the three years in the period ended November 30, 1995 10 Consolidated statement of stockholders' equity for each of the three years in the period ended November 30, 1995 11 Consolidated statement of cash flows for each of the three years in the period ended November 30, 1995 12 Notes to consolidated financial statements 13-18 Report of Independent Auditors 19 ------------------------------------------------------------------------------------------------------ Financial statements schedules: ------------------------------------------------------------------------------------------------------ Consolidated schedules for each of the three years in the period ended November 30, 1995 II - Valuation and qualifying accounts All other schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto. ------------------------------------------------------------------------------------------------------ Exhibits: ------------------------------------------------------------------------------------------------------ No. 3(a) Restated Certificate of Incorporation, as amended (incorporated herein by reference to Registrant's Annual Report, Form 10-K, for the fiscal year ended November 30, 1991). No. 3(b) Restated By-Laws (incorporated herein by reference to Registrant's Annual Report, Form 10-K, for the fiscal year ended November 30, 1986). No. 11 Computation of Earnings per Share. No. 13 Registrant's 1995 Annual Report to Stockholders. Those portions of the 1995 Annual Report to Stockholders expressly incorporated by reference herein, shall be deemed filed with the commission. No. 21 Subsidiaries of Registrant. No. 23 Consent of Independent Auditors. No. 27 Financial Data Schedule. (b) Reports on Form 8-K. - ----------------------------------------------------------------------------------------------------------- No reports on Form 8-K were filed during the last quarter of the period covered by this report.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL DAIRY QUEEN By /s/ Michael P. Sullivan Michael P. Sullivan President and Chief Executive Officer Date: Feburary 14, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: /s/ Michael P. Sullivan President and Chief Executive February 14, 1996 Michael P. Sullivan Officer (principal executive officer) and Director /s/ Charles W. Mooty Executive Vice President and February 14, 1996 Charles W. Mooty Treasurer (principal financial officer) /s/ David M. Bond Controller (principal accounting February 14, 1996 David M. Bond officer) /s/ Ernest F. Dorn, Jr. Director February 14, 1996 Ernest F. Dorn, Jr. /s/ Richard I. Giertsen Director February 14, 1996 Richard I. Giertsen /s/ Frank L. Heit Director February 14, 1996 Frank L. Heit /s/ C. David Luther Director February 14, 1996 C. David Luther /s/ Jane N. Mooty Director February 14, 1996 Jane N. Mooty /s/ John W. Mooty Director February 14, 1996 John W. Mooty
SCHEDULE 11 - VALUATION AND QUALIFYING ACCOUNTS INTERNATIONAL DAIRY QUEEN, INC. Additions Balance At Charged To Balance At Beginning Costs And End Of DESCRIPTION Of Year Expenses Deductions Year Reserves deducted from related assets: Doubtful accounts and notes: Years ended November 30 1995 $610,738 $257,047 $295,785(1) $572,000 1994 845,071 347,771 582,104(1) 610,738 1993 787,995 257,112 200,036(1) 845,071 (1) Write-offs of uncollectible accounts and notes, net of recoveries EX-11 2 EXHIBIT 11
Year Ended November 30, 1991 1991 1993 1994 1995 Net income for year $27,921,275 $29,094,668 $29,887,693 $31,420,899 $33,216,662 =========== =========== =========== =========== =========== Weighted average common shares outstanding 26,528,137 25,988,362 25,081,056 24,218,145 23,070,525 Dilutive common stock equivalents: Stock options, based on treasury stock method using average market price 59,431 47,959 22,862 43,020 147,143 ----------- ----------- ----------- ----------- ----------- Total common and common equivalent shares included in computation of primary and fully-diluted earnings per share: 26,587,568 26,036,321 25,103,918 24,261,165 23,217,668 =========== =========== =========== =========== =========== Earnings per share $ 1.05 $ 1.12 $ 1.19 $ 1.30 $ 1.43 =========== =========== =========== =========== ===========
(A) Fully-diluted earnings per share is not presented on face of statement of income since incremental dilution is less than 3%. Prior year amounts have been restated to reflect the three-for-one stock split approved by the Board Directors on March 12, 1991. EX-13 3 International Dairy Queen, Inc.
SELECTED FINANCIAL DATA (000's omitted, except per share amounts) - ------------------------------------------------------------------------------------------------------------- Years ended November 30: 1995 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------- OPERATIONS Revenues: Net sales $ 297,723 $ 268,804 $ 241,612 $ 228,051 $ 221,726 $ 216,080 Service fees 57,110 54,170 51,601 50,627 46,933 45,065 Real estate finance and rental income 7,543 8,081 8,988 9,984 11,308 12,480 Other 9,599 9,777 8,893 8,448 8,856 9,480 - ------------------------------------------------------------------------------------------------------------- Total revenues 371,975 340,832 311,094 297,110 288,823 283,105 - ------------------------------------------------------------------------------------------------------------- Costs and expenses: Cost of sales 267,867 242,413 217,155 204,650 197,714 191,665 Expenses applicable to real estate finance and rental income 7,030 7,572 8,441 9,357 10,677 11,816 Selling, general and administrative 44,481 40,494 37,516 35,472 35,211 36,033 - ------------------------------------------------------------------------------------------------------------- Total costs and expenses 319,378 290,479 263,112 249,479 243,602 239,514 - ------------------------------------------------------------------------------------------------------------- 52,597 50,353 47,982 47,631 45,221 43,591 Interest income (expense), net 2,300 1,578 1,426 (316) 180 232 - ------------------------------------------------------------------------------------------------------------- Income before income taxes 54,897 51,931 49,408 47,315 45,401 43,823 Income taxes 21,680 20,510 19,520 18,220 17,480 17,310 - ------------------------------------------------------------------------------------------------------------- Net income $ 33,217 $ 31,421 $ 29,888 $ 29,095 $ 27,921 $ 26,513 - ------------------------------------------------------------------------------------------------------------- Earnings per common and common equivalent share $ 1.43 $ 1.30 $ 1.19 $ 1.12 $ 1.05 $ .97 - ------------------------------------------------------------------------------------------------------------- Average common and common equivalent shares outstanding 23,218 24,261 25,103 26,036 26,588 27,427 BALANCE SHEET DATA (at period end): Total assets $ 211,489 $ 197,887 $ 184,398 $ 179,480 $ 174,951 $ 161,400 Long-term debt 24,760 23,344 23,902 25,820 46,011 41,813 Working capital 63,744 55,278 36,382 35,570 36,682 29,142 Total stockholders' equity (1) 147,700 131,361 116,685 102,599 96,773 83,225
(Table Continued From Above)
International Dairy Queen, Inc. SELECTED FINANCIAL DATA (000's omitted, except per share amounts) - --------------------------------------------------------------------------------------- Years ended November 30: 1989 1988 1987 1986 - --------------------------------------------------------------------------------------- OPERATIONS Revenues: Net sales $ 192,063 $ 181,856 $ 165,377 $ 146,085 Service fees 42,387 40,603 33,389 28,242 Real estate finance and rental income 12,810 12,854 5,151 2,553 Other 7,769 7,916 6,985 6,406 - ---------------------------------------------------------------------------------------- Total revenues 255,029 243,229 210,902 183,286 - ---------------------------------------------------------------------------------------- Costs and expenses: Cost of sales 170,533 161,954 148,409 131,216 Expenses applicable to real estate finance and rental income 11,975 12,030 4,537 2,006 Selling, general and administrative 33,075 33,964 29,241 24,617 - ---------------------------------------------------------------------------------------- Total costs and expenses 215,583 207,948 182,187 157,839 - ---------------------------------------------------------------------------------------- 39,446 35,281 28,715 25,447 Interest income (expense), net (615) (1,755) (1,957) (2,223) - ---------------------------------------------------------------------------------------- Income before income taxes 38,831 33,526 26,758 23,224 Income taxes 15,540 13,410 11,850 11,170 - ---------------------------------------------------------------------------------------- Net income $ 23,291 $ 20,116 $ 14,908 $ 12,054 - ---------------------------------------------------------------------------------------- Earnings per common and common equivalent share $ .83 $ .70 $ .51 $ .42 ======================================================================================== Average common and common equivalent shares outstanding 28,213 28,841 29,060 28,993 BALANCE SHEET DATA (at period end): Total assets $ 129,136 $ 115,047 $ 118,944 $ 82,208 Long-term debt 21,699 26,953 36,842 27,879 Working capital 19,806 7,703 3,746 8,363 Total stockholders' equity (1) 75,704 57,738 43,497 28,979
(1) During the above periods the Company purchased shares of its common stock as follows: 1995 - 1,005,926 shares; 1994 - 975,254 shares; 1993 - 887,718 shares; 1992 - 675,971 shares; 1991 - 695,257 shares; 1990 - 1,057,761 shares; 1989 - 434,346 shares; 1988 - 600,834 shares; 1987 - 86,100 shares; and 1986 - none. The aggregate cost of these repurchases was $108,357,768 which has been charged to stockholders' equity. On December 1, 1993, the Company adopted FASB Statement No. 109, "Accounting for Income Taxes", which resulted in the restatement of the Company's previously issued consolidated financial statements. The principal effect of the restatement was to record a net increase in deferred taxes and a reduction of $9,860,000 in retained earnings as of December 1, 1991.
CONSOLIDATED BALANCE SHEET November 30 - -------------------------------------------------------------------------------------------------------- ASSETS 1995 1994 - -------------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 34,699,296 $ 31,766,220 Marketable securities 7,751,246 6,956,192 Notes receivable, less allowance for doubtful notes of $47,843 in 1994 5,740,227 7,318,076 Accounts receivable, less allowance for doubtful accounts of $572,000 and $562,895 in 1995 and 1994, respectively 27,393,504 25,089,704 Inventories 5,376,178 5,403,560 Prepaid expenses 2,710,837 3,762,645 Miscellaneous 2,050,955 1,346,037 - -------------------------------------------------------------------------------------------------------- Total current assets 85,722,243 81,642,434 - -------------------------------------------------------------------------------------------------------- Other assets: Notes receivable 19,839,041 14,484,091 Miscellaneous 3,776,488 1,305,087 - -------------------------------------------------------------------------------------------------------- Total other assets 23,615,529 15,789,178 - -------------------------------------------------------------------------------------------------------- Other revenue producing assets: Franchise rights and service contracts, at cost less accumulated amortization of $22,563,537 and $19,939,686 in 1995 and 1994, respectively (Note 3) 88,181,850 87,754,481 Rental properties, net (Note 5) 3,305,341 2,894,628 Miscellaneous 17,045 22,999 - -------------------------------------------------------------------------------------------------------- Total other revenue producing assets 91,504,236 90,672,108 - -------------------------------------------------------------------------------------------------------- Property, plant and equipment, net (Note 5) 10,646,964 9,783,053 - -------------------------------------------------------------------------------------------------------- Total assets $211,488,972 $197,886,773 ======================================================================================================== November 30 - ------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 - ------------------------------------------------------------------------------------------------------------------- Current liabilities: Drafts and accounts payable $ 11,309,771 $ 17,127,108 Committed advertising 844,714 2,498,816 Other liabilities 7,762,106 5,932,161 Income taxes payable 1,731,190 438,753 Current maturities of long-term debt (Note 3) 330,244 367,462 - ------------------------------------------------------------------------------------------------------------------- Total current liabilities 21,978,025 26,364,300 - ------------------------------------------------------------------------------------------------------------------- Deferred franchise income 395,852 435,983 Deferred income taxes (Note 2) 15,070,000 14,995,000 Long-term debt (Note 3) 24,760,321 23,343,752 Other long-term liabilities 1,584,340 1,386,666 Contingencies and commitments (Note 4) Stockholders' equity (Note 7): Class A common stock, $.01 par value: Authorized shares - 32,000,000 Issued and outstanding shares - 14,369,440 (14,917,219 in 1994) 143,694 149,172 Class B common stock, $.01 par value: Authorized shares - 10,000,000 Issued and outstanding shares - 8,418,248 (8,815,980 in 1994) 84,183 88,160 Paid-in capital 4,874,823 4,109,104 Retained earnings (Note 3) 144,622,945 129,232,252 Equity adjustment from foreign currency translation (2,025,211) (2,217,616) - ------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 147,700,434 131,361,072 - ------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $211,488,972 $197,886,773 ===================================================================================================================
See accompanying notes.
CONSOLIDATED STATEMENT OF INCOME Year ended November 30 - ------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------- Revenues: Net sales $297,723,027 $268,804,179 $241,611,862 Service fees 57,110,333 54,170,022 51,601,113 Franchise sales and other fees 8,609,606 8,627,218 7,625,539 Real estate finance and rental income 7,543,330 8,081,030 8,988,027 Other 988,795 1,150,051 1,267,434 - ------------------------------------------------------------------------------------------------------------------- Total revenues 371,975,091 340,832,500 311,093,975 - ------------------------------------------------------------------------------------------------------------------- Costs and expenses: Cost of sales 267,867,004 242,412,898 217,154,994 Expenses applicable to real estate finance and rental income 7,030,137 7,571,984 8,441,375 Selling, general and administrative 44,481,531 40,494,230 37,515,701 - ------------------------------------------------------------------------------------------------------------------- Total costs and expenses 319,378,672 290,479,112 263,112,070 - ------------------------------------------------------------------------------------------------------------------- 52,596,419 50,353,388 47,981,905 Interest income, net (Note 3) 2,300,243 1,577,511 1,425,788 - ------------------------------------------------------------------------------------------------------------------- Income before income taxes 54,896,662 51,930,899 49,407,693 Income taxes (Note 2) 21,680,000 20,510,000 19,520,000 - ------------------------------------------------------------------------------------------------------------------- Net income $ 33,216,662 $ 31,420,899 $ 29,887,693 =================================================================================================================== Earnings per common and common equivalent share (Notes 1 and 7) $1.43 $1.30 $1.19 ===================================================================================================================
See accompanying notes.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------- Common Stock Cumulative ------------------ Paid-in Retained Translation Class A Class B Capital Earnings Adjustment - ------------------------------------------------------------------------------------------------------------------- Balance at November 30, 1992 $164,011 $91,751 $4,099,358 $ 99,570,867 $(1,327,178) Purchase and constructive retirement of 798,104 shares of Class A common stock (7,981) - (127,920) (13,500,503) - Purchase and constructive retirement of 89,614 shares of Class B common stock - (896) (14,363) (1,580,130) - Conversion of 56,381 shares of Class B common stock to 56,381 shares of Class A common stock 564 (564) - - - Net income - - - 29,887,693 - Translation adjustment for 1993 - - - - (570,021) - ------------------------------------------------------------------------------------------------------------------- Balance at November 30, 1993 156,594 90,291 3,957,075 114,377,927 (1,897,199) Purchase and constructive retirement of 805,481 shares of Class A common stock (8,055) - (133,637) (13,678,764) - Purchase and constructive retirement of 169,773 shares of Class B common stock - (1,697) (28,167) (2,887,810) - Exercise of incentive stock options-- issued 19,916 shares of Class A common stock 199 - 313,833 - - Conversion of 43,384 shares of Class B common stock to 43,384 shares of Class A common stock 434 (434) - - - Net income - - - 31,420,899 - Translation adjustment for 1994 - - - - (320,417) - ------------------------------------------------------------------------------------------------------------------- Balance at November 30, 1994 149,172 88,160 4,109,104 129,232,252 (2,217,616) Purchase and constructive retirement of 652,308 shares of Class A common stock (6,523) - (139,544) (11,256,341) - Purchase and constructive retirement of 353,618 shares of Class B common stock - (3,536) (75,648) (6,569,628) - Exercise of incentive stock options--issued 60,415 shares of Class A common stock 604 - 980,911 - - Conversion of 44,114 shares of Class B common stock to 44,114 shares of Class A common stock 441 (441) - - - Net income - - - 33,216,662 - Translation adjustment for 1995 - - - - 192,405 - ------------------------------------------------------------------------------------------------------------------- Balance at November 30, 1995 $143,694 $84,183 $4,874,823 $144,622,945 $(2,025,211) ===================================================================================================================
See accompanying notes.
CONSOLIDATED STATEMENT OF CASH FLOWS Notes to Consolidated Financial Statements Year ended November 30 - ------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $33,216,662 $31,420,899 $29,887,693 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,810,872 4,293,917 4,086,739 Provision for losses on accounts and notes receivable 257,047 347,771 257,112 Other (10,652) 2,902 (99,985) Changes in operating assets and liabilities (Note 6) (11,258,838) (2,532,974) 742,860 - ------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 27,015,091 33,532,515 34,874,419 - ------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of franchise rights and service contracts (1,171,189) (3,662,463) (1,245,588) Net payments advanced to operators, under secured loans, for store renovations and equipment (1,593,383) (2,046,425) (5,015,073) Capital expenditures (3,198,527) (1,902,968) (8,505,523) Maturities of marketable securities 5,515,000 9,789,490 2,184,557 Investments in marketable securities (6,310,054) (6,756,192) (5,101,261) Proceeds from disposal of capital assets 96,627 12,382 444,984 Other 5,954 16,039 31,197 - ------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (6,655,572) (4,550,137) (17,206,707) - ------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Principal payments on long-term debt (664,899) (2,103,785) (12,311,900) Purchase and retirement of common shares (18,051,220) (16,738,130) (15,231,793) Other 1,179,183 542,135 122,865 - ------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (17,536,936) (18,299,780) (27,420,828) - ------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash 110,493 (104,440) (302,216) - ------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 2,933,076 10,578,158 (10,055,332) Cash and cash equivalents at beginning of year 31,766,220 21,188,062 31,243,394 - ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $34,699,296 $31,766,220 $21,188,062 ===================================================================================================================
See accompanying notes. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION POLICY The consolidated financial statements include the accounts of the Company and its subsidiaries which, with the exception of Firstaff, Inc., are wholly-owned. BUSINESS SEGMENT INFORMATION The Company is engaged in principally one business segment-developing, licensing, franchising and servicing a system of retail stores featuring over-the-counter sales of dairy desserts, food and blended fruit drinks. CASH EQUIVALENTS Short-term investments with a remaining maturity of ninety days or less at date of purchase are considered cash equivalents. MARKETABLE SECURITIES Investments with a remaining maturity of more than ninety days at the date of purchase are classified as marketable securities. Management determines the appropriate classification of debt securities at the time of purchase. Trading account debt securities (aggregating approximately $5,000,000 at November 30, 1995) are held for resale in anticipation of short-term market movements and are stated at fair value. Net gains, both realized and unrealized, are included in interest income. Debt securities classified as held-to-maturity, because the Company has the positive intent and ability to hold such securities to maturity, are stated at amortized cost, which approximates market value. Interest on held-to-maturity securities is included in interest income. DEPRECIATION AND AMORTIZATION Depreciation and amortization of rental properties and property, plant and equipment are provided principally on the straight-line method over estimated useful lives of the asset or the remaining term of the 12 lease for leasehold improvements. The Company follows a policy of amortizing the cost of franchise rights and service contracts acquired subsequent to 1970 over forty years. The cost of acquisitions prior to 1971 (approximately $12,800,000) is not being amortized. The Company periodically evaluates the existence of potential impairment of franchise rights by assessing whether the carrying value of franchise rights is fully recoverable from projected, undiscounted net cash flows from the underlying service fees. INVENTORIES Inventories consist primarily of store equipment and merchandise and are carried at the lower of cost (first-in, first-out) or market. FRANCHISE SALES The Company recognizes revenues from initial store franchise fees when the store is opened, and from the sale of area franchise rights over the period when services are expected to be performed. Direct costs incurred prior to store openings are deferred until the revenue is recognized. COMMITTED ADVERTISING Committed advertising represents unexpended amounts received from franchisees to finance national and regional advertising programs. INCOME TAXES The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns. Deferred tax assets and liabilities are calculated based on the difference between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company has not provided for income taxes on the undistributed earnings of its Canadian subsidiaries (approximately $9,500,000 at November 30, 1995). To the extent these earnings may be repatriated, foreign tax credits will be available to substantially eliminate any additional U.S. income taxes which might otherwise result from such repatriation. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Earnings per common share amounts are based on the adjusted weighted average number of common and common equivalent shares outstanding during each year of 23,217,668, 24,261,165 and 25,103,918 in 1995, 1994 and 1993, respectively. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and accounts and notes receivable. The Company places its temporary cash investments with high credit quality financial institutions generally with maturities of one year or less and, by policy, limits the amount of credit exposure of any one financial institution. Accounts receivable are generally unsecured; however, concentrations of credit risk with respect to these receivables are limited due to the large number of customers and their dispersion across many different geographic areas. Notes receivable are generally secured by the equipment purchased or the existing franchise agreement. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NEW PRONOUNCEMENTS The Company will adopt Financial Accounting Standards Board Statement No. 114, Accounting by Creditors for Impairment of a Loan, and Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, effective December 1, 1995. The Company does not expect the adoption of these standards to have a material impact on the Company's financial position or results of operations. PRESENTATION Certain prior year amounts have been reclassified to conform to the 1995 presentation. 2 INCOME TAXES United States income before income taxes, which includes charges for foreign exchange losses, was: $49,560,586, $48,062,230 and $44,730,521 in 1995, 1994 and 1993, respectively. Foreign income before income taxes, which includes certain nontax-deductible charges was: $5,336,076, $3,868,669 and $4,677,172 in 1995, 1994 and 1993, respectively. Income taxes consist of the following (000's omitted): - -------------------------------------------------- 1995 1994 1993 - -------------------------------------------------- CURRENT: U.S. federal $16,062 $15,126 $13,913 State 2,765 2,574 2,489 Foreign 3,656 2,703 2,807 - -------------------------------------------------- 22,483 20,403 19,209 - -------------------------------------------------- DEFERRED: U.S. federal (471) 144 102 State (49) 20 13 Foreign (283) (57) 196 - -------------------------------------------------- (803) 107 311 - -------------------------------------------------- $21,680 $20,510 $19,520 ================================================== Included in foreign taxes are taxes withheld by foreign countries on dividends and service fees received by U.S. entities. Deferred income taxes relate principally to differences in amortization of franchise rights and service contracts for financial statement and income tax purposes. The following is a reconciliation of differences between the U.S. federal statutory income tax rate and the consolidated effective tax rate: - ------------------------------------------------- 1995 1994 1993 - ------------------------------------------------- U.S. federal statutory rate 35.0% 35.0% 34.9% State income taxes, net of federal effect 3.3 3.3 3.3 Foreign income taxes 1.2 1.0 .9 Other, net - .2 .4 - ------------------------------------------------- Consolidated effective tax rate 39.5% 39.5% 39.5% ================================================= The Internal Revenue Service is currently examining the Company's U.S. consolidated federal income tax returns for the years ended November 30, 1991 through 1993. In the opinion of management, adjustments, if any, resulting from the examinations will not have a materially adverse effect on the Company's financial position or results of operations. 3 LONG-TERM DEBT Long-term debt is summarized as follows (000's omitted): - ------------------------------------------------------------ 1995 1994 - ------------------------------------------------------------ 8.25% subordinated capital notes, maturing in December of 1996 $11,509 $11,509 8.45% senior notes, maturing in October of 1997 10,000 10,000 6% to 12% notes payable, secured by certain franchise rights and service contracts, maturing at various dates through January of 2015 (current maturities-- $194 and $302 at 1995 and 1994, respectively) 3,020 1,818 Other long-term debt (current maturities--$130 and $50 at 1995 and 1994, respectively) 539 346 Obligations under capital leases (current maturities--$6 and $15 at 1995 and 1994, respectively) 22 38 - ------------------------------------------------------------ 25,090 23,711 Less current maturities 330 367 - ------------------------------------------------------------ $24,760 $23,344 ============================================================ The capital notes are subordinated to the senior notes, which are guaranteed by certain of the Company's subsidiaries. The Company's senior notes and the capital note indentures contain provisions which, among other things, limit additional indebtedness and commitments under lease agreements and limit the amount available for dividends or purchase of the Company's capital stock, the most restrictive of which is that dividends are limited to 100% of net income for the fiscal year immediately preceding the year in which any such dividend is paid. Aggregate maturities of long-term debt for the years subsequent to November 30, 1995 are: $330,244, $21,772,073, $227,976, $170,831, $180,931 and $2,408,510 in 1996, 1997, 1998, 1999, 2000 and thereafter, respectively. Interest income, net consists of interest income of $4,237,866, $3,463,755 and $3,623,159 in 1995, 1994 and 1993, respectively, and interest expense of $1,937,623, $1,886,244 and $2,197,371 in 1995, 1994 and 1993, respectively. 4 LEASES The Company and its subsidiaries have leases for retail stores, administrative facilities and equipment. Certain of the leased properties are subleased to franchise operators under noncancellable operating subleases, with rentals generally equal to or greater than rentals payable on the prime leases. Most of the leases and subleases require the lessee to pay executory costs (property taxes, maintenance, and insurance); and many of the leases provide for one or more renewal options. In addition, Company-owned real estate has been leased to franchise operators under long-term leases. Total operating lease rental expense in the statement of income, including rentals on leases with terms of one year or less and including executory costs when included in rent, is summarized as follows (000's omitted): - ---------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------- Minimum rentals $7,142 $7,710 $8,926 Contingent rentals 347 413 483 Less sublease income: Minimum rentals (5,573) (6,114) (6,771) Contingent rentals (420) (463) (576) - ---------------------------------------------------- $1,496 $1,546 $2,062 ==================================================== Minimum future rental obligations, excluding executory costs included in rentals, under operating leases at November 30, 1995 are $4,009,246, $3,416,947, $2,869,650, $2,252,713, $1,852,035 and $5,604,846 in 1996, 1997, 1998, 1999, 2000 and thereafter, respectively. Minimum future rental receivables under operating leases at November 30, 1995 are $3,830,182, $3,313,931, $2,789,745, $2,019,763, $1,669,301 and $5,691,503 in 1996, 1997, 1998, 1999, 2000 and thereafter, respectively. 5 RENTAL PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT Rental properties and property, plant and equipment consist of (000's omitted): - -------------------------------------------------- 1995 1994 - -------------------------------------------------- Rental properties, at cost: Land $ 448 $ 446 Buildings 1,804 1,802 Equipment 715 789 Leasehold improvements 1,788 1,215 - -------------------------------------------------- 4,755 4,252 Less accumulated depreciation 1,450 1,357 - -------------------------------------------------- $ 3,305 $2,895 - -------------------------------------------------- - -------------------------------------------------- 1995 1994 ================================================== Property, plant and equipment, at cost: Land $ 800 $ 800 Buildings 5,346 5,304 Equipment 14,428 12,542 Leasehold improvements 206 385 - -------------------------------------------------- 20,780 19,031 Less accumulated depreciation 10,133 9,248 - -------------------------------------------------- $10,647 $ 9,783 ================================================== 6 STATEMENT OF CASH FLOWS Changes in operating assets and liabilities included in net cash provided by operating activities (000's omitted): - ---------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------- Accounts and notes receivable $ (5,203) $ 1,528 $(1,991) Inventories and prepaid expenses (1,281) (2,817) 457 Drafts and accounts payable (5,934) 375 5 Committed advertising (1,629) (700) 142 Other liabilities 1,470 (668) 669 Income taxes payable 1,283 (515) 896 Deferred franchise income (40) 157 (116) Deferred income taxes 75 107 681 - ---------------------------------------------------- $(11,259) $(2,533) $ 743 ==================================================== Supplementary disclosures to consolidated statement of cash flows: Cash payments for income taxes, net of refunds, were $20,542,135, $21,062,976 and $18,797,712 in 1995, 1994 and 1993, respectively; in these periods interest payments were $1,764,736, $1,929,624 and $2,545,033, respectively. The Company incurred liabilities for the acquisition of franchise rights of $1,770,307 and $2,862,504 in 1995 and 1994, respectively, and $267,693 for the acquisition of fixed assets in 1993. 7 STOCKHOLDERS' EQUITY Class A common stock is entitled to dividends of 110% of dividends paid on Class B common stock, other than dividends payable solely in Company stock. Class A common stock has more limited voting rights than Class B common stock. Generally, the holders of Class A common stock are entitled to elect 25% of the Company's Board of Directors, but, except as otherwise required by law, shall not be entitled to vote on any other matter. Class A common stock also has certain liquidation preferences which, among other things, provide for a minimum distribution to holders of Class A common stock before any distributions are made to holders of Class B common stock. Class B common stock may be converted into Class A common stock at the option of the holder. The Company follows Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee stock options. Under APB 25, when the exercise price of employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. In 1995, the Company purchased and constructively retired 652,308 shares of Class A common stock at an average price of $17.48 per share and 353,618 shares of Class B common stock at an average price of $18.80 per share. In 1994, the Company purchased and constructively retired 805,481 shares of Class A common stock at an average price of $17.16 per share and 169,773 shares of Class B common stock at an average price of $17.19 per share. The number of retired shares has been eliminated from common stock and the cost allocated between common stock, additional paid-in capital and retained earnings. In 1993, the Company adopted its Incentive Stock Option Plan of 1993 which provides for the granting of options to key employees of the Company and its subsidiaries to purchase common shares. The plan also reserves 1,200,000 shares of Class A common stock for issuance thereunder. Under this plan, the option price per share may not be less than the fair market value of a share on the date of grant. One year after the grant, 25% of granted options become exercisable with an additional 25% becoming exercisable each year thereafter. Stock option activity under this plan is summarized as follows: - --------------------------------------------------- Number of Shares Price Range - --------------------------------------------------- Outstanding at November 30, 1993 771,006 $15.33-$20.25 Granted 325,540 $16.00 Canceled (38,023) $15.33-$20.25 Exercised (19,916) $15.33-$16.50 - --------------------------------------------------- Outstanding at November 30, 1994 1,038,607 Granted 264,750 $16.75 Canceled (33,577) $15.33-$20.25 Exercised (60,415) $15.33-$16.50 - --------------------------------------------------- Outstanding at November 30, 1995 1,209,365 $15.33-$20.25 =================================================== Exercisable at November 30, 1995 524,310 =================================================== Shares of authorized but unissued Class A common stock were reserved as follows at November 30, 1995: Conversion of Class B common stock into Class A common stock 8,418,248 Exercise of Incentive Stock Option Plan options 1,620,179 - --------------------------------------------------- 10,038,427 =================================================== 8 QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly operating data for 1995 and 1994 are as follows (000's omitted, except per share amounts): - ----------------------------------------------------------- 1995 - ----------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter - ----------------------------------------------------------- Net sales $52,924 $86,201 $92,477 $66,121 Cost of sales 47,556 77,459 83,010 59,842 - ----------------------------------------------------------- 5,368 8,742 9,467 6,279 Service fees and other revenues 14,607 19,948 22,883 16,814 - ----------------------------------------------------------- 19,975 28,690 32,350 23,093 Other costs and expenses 12,353 12,897 13,418 12,843 Net interest income 498 485 485 832 - ----------------------------------------------------------- Income before taxes 8,120 16,278 19,417 11,082 Income taxes 3,210 6,430 7,670 4,370 - ----------------------------------------------------------- Net income $ 4,910 $ 9,848 $11,747 $ 6,712 =========================================================== Earnings per share $ .21 $ .42 $ .51 $ .29 =========================================================== - ----------------------------------------------------------- 1994 - ----------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter - ----------------------------------------------------------- Net sales $47,103 $76,887 $85,715 $59,099 Cost of sales 42,538 69,352 77,139 53,384 - ----------------------------------------------------------- 4,565 7,535 8,576 5,715 Service fees and other revenues 14,074 19,791 21,746 16,417 - ----------------------------------------------------------- 18,639 27,326 30,322 22,132 Other costs and expenses 11,377 12,347 12,256 12,086 Net interest income 362 331 388 497 - ----------------------------------------------------------- Income before taxes 7,624 15,310 18,454 10,543 Income taxes 3,010 6,050 7,290 4,160 - ----------------------------------------------------------- Net income $ 4,614 $ 9,260 $11,164 $ 6,383 =========================================================== Earnings per share $ .19 $ .38 $ .46 $ .27 =========================================================== REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders International Dairy Queen, Inc. We have audited the accompanying consolidated balance sheet of International Dairy Queen, Inc. as of November 30, 1995 and 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended November 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of International Dairy Queen, Inc. at November 30, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended November 30, 1995, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Minneapolis, Minnesota January 11, 1996 EX-21 4 EXHIBIT 21 EXHIBIT NO. 21 - SUBSIDIARIES OF THE REGISTRATION INTERNATIONAL DAIRY QUEEN, INC. Jurisdiction of Subsidiary (1) Incorporation - -------------- ------------- American Dairy Queen Corporation Delaware Orange Julius of America California DQF, Inc. Minnesota Golden Skillet International, Inc. Minnesota Karmelkorn Shoppes, Inc. Delaware Dairy Queen of Georgia, Inc. Minnesota Dairy Queen Canada, Inc. (2)(3) Canada (Federal) (1) All subsidiaries are 100% owned by Registrant. (2) IDQ Canada, Inc.{Canada (Federal)} is a wholly-owned subsidiary of Dairy Queen Canada, Inc. (3) Orange Julius Canada, Ltd. {Canada (Federal)} is a wholly-owned subsidiary of Dairy Queen Canada, Inc. Registrant also owns 60% of the outstanding capital stock of Firstaff, Inc., a Minnesota corporation. EX-23 5 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of International Diary Queen, Inc. of our report dated January 11, 1996, included in the 1995 Annual Report to Shareholders of International Dairy Queen, Inc. Our audits also included the financial statement schedule of International Dairy Queen, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Nos. 33-40784, 33-52781 and 33-58615) on Form S-8 of our report dated January 11, 1996, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of International Dairy Queen, Inc. /s/ Ernst & Young LLP Minneapolis, Minnesota February 14, 1996 EX-27 6
5 1,000 12-MOS NOV-30-1995 NOV-30-1995 34,699 7,751 33,706 572 5,376 85,722 20,780 10,133 211,489 21,978 24,760 0 0 228 147,472 211,489 217,723 371,975 267,867 274,897 44,482 257 1,938 54,897 21,680 33,217 0 0 0 33,217 $1.43 $1.43
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