-----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, Gy970R0eb2CYtVPB3pGr9fgF2656l6scozgkCyL+7+UKbF1zWZ5thV68mZyNwatG KJyAtQmtIX3sVquLsqIoPw== 0000897101-97-000198.txt : 19970223 0000897101-97-000198.hdr.sgml : 19970223 ACCESSION NUMBER: 0000897101-97-000198 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970221 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: 97540817 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, 1996 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 informa tion statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] Number of shares of Common Stock outstanding as of January 31, 1997: Class A Common Stock - 13,925,670 Class B Common Stock - 8,208,575 Approximate aggregate market value of voting stock held by non-affiliates as of January 31, 1997: Class A Common Stock - $226,135,841 Class B Common Stock - $ 79,612,408 ----------------------------------- Total $305,748,249 =================================== Documents incorporated by reference: 1. Portions of the Annual Report to Stockholders for the year ended November 30, 1996 are incorporated by reference into Parts I and II. 2. Portions of the definitive proxy statement for the annual meeting of stockholders to be held on March 18, 1997 are incorporated by reference into Part III. PART I ITEM 1.BUSINESS GENERAL The Company develops and services a system of more than 5,710 DAIRY QUEEN stores in the United States, Canada and other foreign countries featuring hamburgers, hot dogs, various dairy desserts and beverages, 34 of which are wholly or jointly owned and operated by the Company; more than 420 ORANGE JULIUS stores in the United States, Canada and other foreign countries featuring blended drinks made from orange juice, fruits and fruit flavors, along with various snack items; and more than 60 KARMELKORN stores featuring popcorn and other treat items. The Company also owns 60% of Firstaff, Inc., specialists in the placement and training of permanent and temporary office support personnel. To support and promote the businesses of its franchisees, the Company undertakes product develop ment and market testing, creates and coordinates adver tising programs, provides training and advisory services for store operators and enforces quality control standards. A major portion of the Company's operating income is derived from franchise fees paid by franchised stores and stores licensed by territorial operators. The Company also sells equipment to stores and sells other products used in store operations to a system of independently-owned warehouses, which also purchase approved products from other suppliers. These warehouses in turn sell products to retail stores in their geographical areas. Except for providing financing for the sale of specialized equipment to its franchisees, offering limited financing services for the remodeling of existing fran chised stores and for providing certain leasing services for stores located in shopping malls, the Company has not generally provided financial assistance or guarantees for the construction or operation of franchised stores. FRANCHISING SYSTEM DAIRY QUEEN. Stores are located in all states, except Rhode Island, as well as Canada, Japan and several other countries. Most stores are located in smaller towns and suburbs of larger cities. Some franchised stores offer only soft serve dairy products, while others also offer some or all of the food items in the BRAZIER line. The Company endeavors to have its DAIRY QUEEN franchisees offer a more complete line of authorized products. The first DAIRY QUEEN store was opened in Illinois in 1940. In 1945, two predecessor companies began to develop the DAIRY QUEEN system on a national basis by granting territorial franchise rights for specific geographical areas. In 1962, certain territorial operators formed International Dairy Queen, Inc., by contributing their territorial franchise rights and acquiring ownership of the DAIRY QUEEN trademarks and other franchise rights. DAIRY QUEEN/BRAZIER stores offer a menu of fast food items, including hamburgers, various dairy desserts (including soft serve and frozen yogurt) and beverages which are marketed under the DAIRY QUEEN and BRAZIER trademarks. Retail prices are determined by the store operators. The DAIRY QUEEN dairy dessert product line includes cones of various sizes, BLIZZARD Flavor Treats, as well as shakes, malts and sundaes, and specialty frozen confections. These products are prepared in the store from the Company's specially formulated mixes by means of distinctive freezing and dispensing units. The BRAZIER product line, adopted nationally in 1968, consists of a food menu featuring hamburgers, hot dogs, chicken strips, barbecue and chicken sandwiches, french fried potatoes and onion rings. The Company franchises DAIRY QUEEN stores either directly through agreements with individual retail store operators or indirectly through agreements with territorial operators who are authorized to grant franchise rights to store operators within a specified territory. The terms of direct store franchise agreements used by the Company have been modified from time to time as experience and changing circumstances have required. The present DAIRY QUEEN/BRAZIER franchise agreement provides that the store franchisee shall pay to the Company an initial service and set-up fee of $30,000 ($15,000 for a Limited BRAZIER), and a continuing franchise service fee of 4% of gross retail sales. The Company may permit certain qualified existing franchisees to open additional stores by paying a reduced service and set-up fee. Other forms of store agreements currently in force, most of which were entered into prior to 1968, provide for varying levels of service fees computed on different bases, such as the amount of total DAIRY QUEEN mix or products dispensed. All direct franchisees pay some fees to the Company, and at November 30, 1996, 2,861 of the 3,903 stores franchised by the Company in the United States and Canada were paying a continuing franchise service fee of 4% or more. At November 30, 1996, there were 137 DAIRY QUEEN territorial operators in the United States who are licensed by the Company to grant franchise rights in specific geographical areas. Most of the existing territorial operator agreements were granted prior to 1950 during the early stages of development of the predecessor companies. Since 1973, the Company has acquired the rights of a number of territorial operators and has sought to convert subfranchisees to a direct franchise basis. The Company expects to continue to acquire the rights of territorial operators when it has the opportunity to do so on terms acceptable to the Company. While the business terms of individual territorial operator agreements may differ in certain respects, they generally provide for substantial uniformity in terms of operation and product quality. The territory covered by territorial operator agreements vary, although most are for limited geographical areas as is evidenced by the fact that most have five or fewer stores. Many of the Company's territorial franchises provide for continuing payments to the Company generally computed on the basis of a percentage of the franchise service fees collected by the territorial operator. However, at November 30, 1996, 124 stores were subfranchised or operated by territorial operators who do not have any obligation to pay the Company any franchise service fees. As to most of these stores, the Company's right to control and supervise quality standards and methods of operation is limited to that activity normally required of the holder of a trademark or service mark under the laws related to trademark protection to control the nature and quality of goods sold under its trademark or service mark. TREAT CENTER. With the acquisition of KARMELKORN in 1986 and ORANGE JULIUS in 1987, the TREAT CENTER concept has emerged. This franchising concept combines DAIRY QUEEN treat items together with either or both ORANGE JULIUS and KARMELKORN menu items under one storefront within a shopping mall. By combining the products of these franchising systems, the Company seeks to substantially increase store sales volumes in order to support the signing of leases that would be too expensive for a one product-line store. The present TREAT CENTER franchise agreement provides that the store franchisee shall pay to the Company an initial service and set-up fee of $15,000, and a continuing franchise service fee of 6% of gross retail sales. The Company permits certain existing franchisees to open additional stores without paying an initial service and set-up fee. At November 30, 1996, there were 171 TREAT CENTER units, of which 150 were in the United States and 21 in Canada, all of which were franchised by the Company. COMPANY-OPERATED RESTAURANTS. On February 7, 1996 the Company acquired 10 DAIRY QUEEN/BRAZIER stores and a majority interest in 21 other DAIRY QUEEN/BRAZIER stores located in Kentucky, Tennessee and Indiana. Three additional stores have subsequently been acquired. ORANGE JULIUS. In August 1987, the Company acquired ORANGE JULIUS of America and ORANGE JULIUS Canada Limited, franchisors of retail stores which feature blended drinks made from orange juice, fruits and fruit flavors. Most of the stores are located in shopping malls. At November 30, 1996, there were 421 ORANGE JULIUS stores, of which 289 were in the United States, 104 were in Canada, and 28 in other foreign countries, all of which were franchised by the Company. The present ORANGE JULIUS franchise agreement provides that the store franchisee shall pay to the Company an initial service and set-up fee of $15,000 ($5,000 for certain existing franchises), and a continuing franchise service fee of 6% of gross retail sales. KARMELKORN. In March 1986, the Company acquired Karmelkorn Shoppes, Inc., a franchisor of retail stores which sells popcorn, candy and other treat items. Most of the stores are located in shopping malls. At November 30, 1996, there were 61 KARMELKORN stores, of which 56 were in the United States and 5 were in foreign countries, all of which were franchised by the Company. GOLDEN SKILLET. In December 1981, the Company acquired the United States and international (exclusive of Canada) franchise rights and other selected assets of the GOLDEN SKILLET system. GOLDEN SKILLET stores feature fried chicken and side dishes. In October 1992, the Company assigned the franchises, trademarks and related assets for GOLDEN SKILLET in the contiguous 48 United States and the District of Columbia to a non-affiliated company. The Company continues to hold the GOLDEN SKILLET franchises and rights for the rest of the world. At November 30, 1996, there were 21 GOLDEN SKILLET stores in foreign countries, all of which were franchised by the Company. NEW STORES The Company is continuously seeking to open new stores. The ability of the Company to open new stores is most dependent upon recruiting qualified operators with suitable sites. New stores franchised by the Company are constructed in accordance with the Company's specifications and standards. Substantially all stores have a standardized appearance as well as uniform product lines and operating methods. The Company also has a program whereby existing franchisees in good standing with the Company may be awarded an additional store franchise at reduced cost. FOREIGN OPERATIONS Foreign operations, excluding Canada, did not have a significant effect on consolidated operations for the year ended November 30, 1996. The Company's operations in Canada are substantially similar to its U.S. operations. Of the 839 foreign stores, at November 30, 1996, 583 were located in Canada, 86 in Japan and 170 in 23 other foreign countries. COMPANY SERVICES PRODUCT DEVELOPMENT AND TEST MARKETING. The Company continually attempts to develop new products. New product concepts are obtained from vendors, franchisees and Company personnel who work with the Company's Research and Development personnel to develop a product concept into a finished product suitable for the system. ADVERTISING AND SALES PROMOTION. The Company develops and conducts national and area sales promotion and advertising programs principally through television, radio and newspapers. For each of the four food systems, the Company is assisted by an advisory council, the majority of whose members are elected by members of the system. Substantially all amounts expended for advertising and promotion are pro vided by franchisees who contribute to advertising funds.
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 11/30/95 Opened Closed Centers Changes 11/30/96 - --------------------------------------------------------------------------------------------------------- DAIRY QUEEN system United States Franchised by the Company: DAIRY QUEEN stores 3,283 52 (90) -- 29 3,274 TREAT CENTER units 124 23 (2) 5 -- 150 Franchised by territorial operators 1,593 75 (29) -- (62) 1,577 Company operated stores -- 1 -- -- 33 34 - --------------------------------------------------------------------------------------------------------- 5,000 151 (121) 5 -- 5,035 - --------------------------------------------------------------------------------------------------------- Canada Franchised by the Company: DAIRY QUEEN stores 447 16 (5) -- -- 458 TREAT CENTER units 21 1 (1) -- -- 21 - --------------------------------------------------------------------------------------------------------- 468 17 (6) -- -- 479 - --------------------------------------------------------------------------------------------------------- Other foreign 162 47 (7) -- -- 202 - --------------------------------------------------------------------------------------------------------- Total DAIRY QUEEN stores 5,630 215 (134) 5 -- 5,716 - --------------------------------------------------------------------------------------------------------- ORANGE JULIUS stores 433 29 (36) (5) -- 421 KARMELKORN shoppes 69 1 (9) -- -- 61 GOLDEN SKILLET restaurants 21 -- -- -- -- 21 Total 6,153 245 (179) -- -- 6,219 - ---------------------------------------------------------------------------------------------------------
(a) The ORANGE JULIUS stores which closed in 1996 reflect the continued high concentration of lease expirations during the 1988 through the 1996 period. The Company's policy is not to renew its lease obligations with respect to stores which have not achieved satisfactory operating results. The present franchise agreements provide that franchisees shall pay an amount equal to 3% to 6% of gross sales to the advertising and sales promotion funds administered by the Company. Funds administered by the Company for advertising and sales promotion during 1996, 1995 and 1994 aggregated approximately $57,500,000, $57,100,000 and $51,000,000, respectively. In addition to the funds administered by the Company, many stores expend funds for local and regional advertising. Unexpended advertising funds were $1,963,141 and $844,714 at November 30, 1996 and 1995, respectively. MANUFACTURING AND DISTRIBUTION. The Company is one of over 70 approved manufacturers of DAIRY QUEEN mix. In addition to DAIRY QUEEN mix and concentrates, the Company sells equipment which is manufactured by independent manufacturers. The Company also purchases approved perishable and nonperishable supplies and resells them to independently-owned authorized warehouses described below. Substantially all of the Company's sales of products consist of products purchased for resale from manufacturers and suppliers unrelated to the Company. Neither the retail stores nor the authorized warehouses are required to purchase any products from the Company. In order to provide stores with a convenient source of approved merchandise, the Company has arranged for a system of over 70 authorized warehouses which purchase, inventory and sell approved food and miscellaneous supplies to stores. In addition to the authorized warehouses, there are a number of warehouses which are not under contract with the Company which purchase products directly from approved manufacturers for resale to stores. TRAINING AND ADVISORY SERVICES. The Company provides a wide range of training and advisory services to its franchisees. New store operators attend an intensive training course at the Company's training center in Minneapolis, Minnesota. The at ten dees are given classroom and practical instruction in procedures for product preparation, business and financial management, marketing and promotion and related operational matters. Periodic refresher training and instruction are available to all franchisees at the Company's training center and at state, regional and national conferences and seminars. The Company also makes available training aids and materials for the franchisees' use in instructing store employees. QUALITY CONTROL. The Company conducts a periodic evaluation program designed to insure a high standard of operation, quality and product uniformity. Through 126 field consultants and 15 regional managers, the Company furnishes franchisees with information, advice and recommendations relating to facility image, menu/product preparation, financial management, personnel management and marketing. In order to maintain quality control, stores are generally required to use approved products. The Company maintains a system of approved manufacturers which are authorized to manufacture and sell products such as mix, meat, containers, paper goods, equipment and sales promotion materials. REGULATION OF FRANCHISE BUSINESS The Company and its franchisees are subject to various federal, state and local laws affecting their businesses. The Company and its franchisees are subject to a variety of regulatory provisions relating to wholesomeness of food, sanitation, health and safety. The Company is also subject to a substantial number of state laws regulating the offer and sale of franchises. Such laws impose registration and disclosure requirements on franchisors in the offer and sale of franchises and may also regulate termination, renewal fees and other substantive aspects of the relationship between franchisor and franchisee. The Company is also subject to Federal Trade Commission regulations governing disclosure requirements in the sale of franchises. The Company believes it is in compliance with applicable laws and regulations governing its operations. COMPETITION All areas of the fast food service business are highly competitive, and the Company has many competitors, some of whom are large companies selling a more diversified line of products and having greater financial resources than the Company. The Dairy Queen/BRAZIER, ORANGE JULIUS, KARMELKORN and Golden Skillet stores compete with a large number of national chains as well as locally-owned restaurants, drive-ins, take-home outlets and similar establishments, offering food at low and medium prices. Extensive and active competition also exists in the acquisition of commercial locations suitable for stores. A key competitive factor is the reputation and image of the system. The Company believes that public recognition of DAIRY QUEEN/BRAZIER, ORANGE JULIUS and KARMELKORN names contributes significantly to sales by stores. The Company owns the DAIRY QUEEN and BRAZIER trademarks registered in the United States Patent Office and in each of the fifty states and in the Canadian Trademarks Office. The Company also owns a number of United States and foreign registrations of other trademarks, including ORANGE JULIUS, KARMELKORN and GOLDEN SKILLET, and service marks used in the conduct of its business. The Company believes that the success of its business depends to a large extent on its trademark and service mark protection and, where and when necessary, intends to continue to protect its trademarks by appropriate legal action. EMPLOYEES At November 30, 1996, the Company employed 643 persons (including 96 persons employed by Firstaff, Inc.) primarily in sales, supervisory, clerical and managerial activities and employed 1,337 persons in its Company-operated restaurants. The Company maintains a 401(k) Retirement Savings Plan which is available to all full-time employees with one year or more of service. The Company also maintains a Section 125 Plan which is available to full-time employees after 30 days of service. The Company has never experienced a work stoppage due to labor difficulty and considers its employee relations to be satisfactory. ITEM 2. PROPERTIES The Company owns an office building aggregating approximately 114,000 square feet, of which 84,000 square feet is utilized by the Company for its principal administrative offices and training center. Of the remaining 30,000 square feet, approximately 27,000 is leased to third parties under leases expiring from 1998 to 2001. The Company also owns a mix manufacturing plant in Decatur, Georgia, a Canadian office building/warehouse and the store facilities described below. Warehouse space aggregating 35,023 square feet is under lease expiring in 2001 and eleven regional offices comprising 15,918 square feet are under leases expiring from 1997 to 2005. Firstaff, Inc. has six offices in Minnesota, aggregating 20,512 square feet, which are under leases expiring from 1997 to 2001. The aggregate rental charges for the Company's administrative, FIRSTAFF and operating facilities, excluding stores, were approximately $775,000 and $750,000 for fiscal 1996 and fiscal 1995, respectively. At November 30, 1996, the Company owned real property relating to eight stores, all of which were leased to franchisees, with an aggregate net book value of approximately $1,690,000. The Company leases all of the real property relating to the 34 DAIRY QUEEN/BRAZIER stores operated by it, under leases expiring from 1997 to 2016. See Notes 4 and 5 of Notes to Consolidated Financial Statements for additional information regarding the Company's properties. ITEM 3. LEGAL PROCEEDINGS From time to time, and at present, the Company is subject to various claims and lawsuits in the ordinary course of business, some of which include allegations by franchisees and subfranchisees that the Company has violated antitrust and other laws. Such claims sometimes arise in connection with actions by the Company to collect amounts owed by franchisees or to enforce or terminate franchise agreements. HUGH COLLINS, ET AL. V. INTERNATIONAL DAIRY QUEEN, INC. AND AMERICAN DAIRY QUEEN CORPORATION ("ADQ"), (United States District Court, Middle District of Georgia, Macon Division, No. 94-95-4-MAC (WDO), commenced April 5, 1994). This matter, previously reported, is an action by six franchisees in the State of Georgia for declaratory judgement, injunctive relief, actual damages in an unspecified amount, treble damages under the federal antitrust law, costs, and attorneys' fees. Plaintiffs' claims are that (1) ADQ and the Company have tied the purchase of the franchise to purchase of products sold in the DAIRY QUEEN system and in violation of Section I of the Sherman Antitrust Act (15 U.S.C. ss. 1), and (2) ADQ and the Company have monopolized and attempted to monopolize a "market" supposedly consisting of products sold in the DAIRY QUEEN system in violation of Section 2 of the Sherman Antitrust Act (15 U.S.C. ss. 2). Plaintiffs also allege that ADQ and the Company have breached contractual obligations to them related to the approval of alternative manufacturers and allege contract claims and claims for breach of fiduciary duty related to advertising funds. On August 30, 1996, the Court granted plaintiffs' motion to certify the case as a class action and established two classes and three subclasses. On the basis of motions filed by the Company and ADQ, the Court later modified the classes to exclude certain franchises with arbitration clauses. The Court currently is considering the Company's and ADQ's summary judgment motions on the cup and lid claims and the monopolization and attempted monopolization claims. The Company and ADQ are vigorously defending against plaintiffs' claims. No trial date has been set. See Note 8 of Notes to Consolidated Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Both Class A common stock and Class B common stock are listed on the Nasdaq National Market and trade under the symbols INDQA and INDQB, respectively. The following table sets forth for the periods indicated the high and low prices for the Class A common stock and Class B common stock as reported by Nasdaq. The prices shown below do not include retail markups, markdowns or commissions. - -------------------------------------------------- Class A Class B Common Stock Common Stock - -------------------------------------------------- Low High Low High - -------------------------------------------------- Fiscal Year Ended NOVEMBER 30, 1995 First Quarter $15.75 $18.00 $16.00 $19.00 Second Quarter $17.25 $19.75 $17.50 $20.00 Third Quarter $18.25 $22.00 $18.50 $22.37 Fourth Quarter $20.75 $23.25 $20.50 $22.00 Fiscal Year Ended NOVEMBER 30, 1996 First Quarter $20.25 $24.75 $20.00 $25.50 Second Quarter $20.00 $22.75 $19.75 $22.75 Third Quarter $19.00 $22.25 $19.00 $21.50 Fourth Quarter $18.75 $21.00 $18.75 $20.50 As of January 31, 1997, the approximate number of record holders of the Company's Class A common stock was 888 and the approximate number of record holders of the Company's Class B common stock was 432. The Company has not paid cash dividends on its common stock. Future dividends will be determined by the Company's Board of Directors whose decision will be made in light of the earnings, financial position and cash requirements of the Company and other relevant factors existing at the time. The Company's credit agreements contain provisions limiting the payment of dividends. See Notes 3 and 7 of Notes to Consolidated Financial Statements. ITEM 6. SELECTED FINANCIAL DATA The information set forth under the caption "Selected Financial Data" on page 9 of the Registrant's 1996 Annual Report to Stockholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, items from the Company's statement of income expressed as percentages of revenues, and the percentage changes in the dollar amounts of such items from the prior period.
- ------------------------------------------------------------------------------------------------------------ Percentages of Percentage Increase Revenues (Decrease) - ------------------------------------------------------------------------------------------------------------ Years Ended November 30, Fiscal 1996 Fiscal 1995 1996 1995 1994 over 1995 over 1994 - ------------------------------------------------------------------------------------------------------------ Revenues: Net sales 74.9 80.0 78.9 3.5 10.8 Sales of Company-operated restaurants 6.8 -- -- * -- Service fees 13.8 15.4 15.9 (.5) 5.4 Franchise sales and other fees 2.2 2.3 2.5 7.3 (.2) Real estate finance and rental income 1.9 2.0 2.4 5.0 (6.7) Other .4 .3 .3 49.7 (14.0) - --------------------------------------------------------------------------- Total revenues 100.0 100.0 100.0 10.6 9.1 - --------------------------------------------------------------------------- Costs and expenses: Cost of sales 67.6 72.0 71.1 3.9 10.5 Costs of Company-operated restaurants 6.1 -- -- * -- Expenses applicable to real estate finance and rental income 1.8 1.9 2.3 5.1 (7.2) Selling, general and administrative 11.0 12.0 11.9 2.2 9.8 - --------------------------------------------------------------------------- Total costs and expenses 86.5 85.9 85.3 11.5 9.9 - --------------------------------------------------------------------------- Interest income, net .6 .6 .5 12.1 45.8 - --------------------------------------------------------------------------- Minority interest (.3) -- -- * -- - --------------------------------------------------------------------------- Income before income taxes 13.8 14.7 15.2 3.4 5.7 Income taxes 5.4 5.8 6.0 2.9 5.7 - --------------------------------------------------------------------------- Net income 8.4 8.9 9.2 3.7 5.7 - --------------------------------------------------------------------------- * Not meaningful
RESULTS OF OPERATIONS GENERAL. The Company's revenues are derived primarily from service and franchise fees received from franchisees and the sale of perishable and nonperishable supplies and equipment for use by franchised stores. Although the Company does not allocate interest or selling, general and administrative expenses by products sold or services rendered, it believes that a major portion of its operating income results from service fees. 1996 COMPARED TO 1995. The increase of $10,418,314 in net sales resulted primarily from an increase of $10,275,987 in unit sales of frozen and non-frozen foods, paper, plastics and manufactured novelties to authorized warehouses (who in turn sell to franchisees) and an increase of $1,188,198 in permanent and temporary placement and training fees by Firstaff, Inc. These increases were partially offset by a reduction in equipment sales to franchisees of $1,467,518. On February 7, 1996, the Company acquired 10 DAIRY QUEEN/BRAZIER stores and a majority interest in 21 other DAIRY QUEEN/BRAZIER stores located in Kentucky, Tennessee and Indiana. Three additional stores have subsequently been acquired. Net sales for these 34 stores through November 30, 1996 were $27,883,069 and related cost of sales was $25,035,301. Net sales for the fourth quarter were $7,998,602 and related cost of sales was $7,605,192. Service fee income was flat primarily due to the elimination of $1,115,323 in 1996 of service fees due from Company-operated restaurants acquired in 1996. The increase of $985,946 in 1996 in selling, general and administrative expenses was primarily from an increase in personnel and legal support costs. The increase in net interest income of $278,974 in 1996 is primarily the result of an increase in funds available for investing in interest-generating activities. Minority interest represents the income from operations allocated to the minority ownership in 21 DAIRY QUEEN/BRAZIER stores and Firstaff, Inc. The increase in net income per share of 9(cent) when comparing the 1996 period with the 1995 period was due to an increase in the Company's net income and to a decrease in the average number of common and common equivalent shares outstanding. 1995 COMPARED TO 1994. The increase of $28,918,848 in net sales resulted primarily from an increase of $22,921,941 in unit sales of frozen and non-frozen foods, meat products (primarily chicken) and paper and plastics to authorized warehouses, an increase of $2,324,517 in sales of promotional items sold to DAIRY QUEEN stores, and an increase of $3,202,205 in training and temporary placement fees by Firstaff, Inc. These increases were partially offset by a reduction in equipment sales to franchisees of $1,671,845 when comparing 1995 with 1994. This decrease resulted from the introduction of newly-designed menu boards which were offered to stores at discounted prices during the 1994 introductory period and which resulted in net sales of $7,303,574 in 1994. The decreases in real estate, finance and rental income and related expenses in fiscal 1995 reflect a continued number of lease expirations. It is the Company's policy not to renew the Company's obligations with respect to store leases, except in certain limited situations. Selling, general and administrative expenses increased $3,987,301 due to additional personnel and support costs, increased marketing and research cost, legal costs, and other costs relating to the Company's higher overall level of operations in 1995. The increase in net interest income in fiscal 1995 is the result of an increase in the funds available for short-term investments and increased interest rates. The 13 cent increase in net income per share when comparing the 1995 period with the 1994 period was due to an increase in the Company's net income and to a decrease in the average number of common and common equivalent shares outstanding. SEASONALITY OF BUSINESS The Company's business is highly seasonal. DAIRY QUEEN sales generally have been higher during the spring and summer months, while ORANGE JULIUS and KARMELKORN sales tend to be higher during the September to December back-to-school and holiday shopping periods. Historically, the Company has earned a substantial portion of its operating profit during the second and third quarters (spring and summer months). The following table shows the Company's net income by quarter for each of the past five fiscal years: - -------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter Total - -------------------------------------------------- Net income (IN THOUSANDS) 1992 $4,406 $8,674 $10,536 $5,479 $29,095 1993 4,548 8,727 10,677 5,936 29,888 1994 4,614 9,260 11,164 6,383 31,421 1995 4,910 9,848 11,747 6,712 33,217 1996 5,089 10,206 12,387 6,763 34,445 LIQUIDITY AND CAPITAL RESOURCES Funds for working capital, acquisitions of territorial rights, acquisitions of the Company's common stock and capital expenditures during the last three years have been provided by internally-generated funds (net income plus amortization and depreciation). Available liquid resources at November 30, 1996 included $38,384,589 in cash and cash equivalents. The Company does not have any material commitments for capital expenditures during fiscal year 1996 and be lieves that its existing credit arrangements, along with working capital generated by operations, will be sufficient to meet existing and presently anticipated needs. IMPACT OF INFLATION The Company does not believe its business is affected by inflation to a greater extent than the general economy. Generally, the Company has been able to offset the inflationary impact of costs and wages through a combination of productivity gains and price increases. PROSPECTIVE INFORMATION The statements which are not historical facts contained in this report are forward-looking statements that involve certain risk and uncertainties including, but not limited to, risk associated with the uncertainty of future financial results, the impact of competitive products or pricing, the effect of economic conditions and other uncertainties detailed in the Company's filings with the Securities and Exchange Commission. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA An index to the consolidated financial statements and financial statement schedules is found on page 35 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to Directors, appearing under "Election of Directors" in the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 18, 1997, is incorporated herein by reference. The names, ages, and positions of all of the officers of the Company are listed below along with their business experience during the past five years. Officers are normally elected annually by the Board of Directors at its annual meeting. Charles W. Mooty is the son of John W. Mooty. There are no other family relationships among these officers nor any arrangement between any officer and any person pursuant to which the officer was selected.
- ---------------------------------------------------------------------------------------------------------- Years with Name Position with Company (1) Age Company - ---------------------------------------------------------------------------------------------------------- John W. Mooty Chairman of the Board and Chairman of the Executive Committee and Director 74 26 Michael P. Sullivan President and Chief Executive Officer and Director 62 22 Edward A. Watson Executive Vice President and Chief Operating Officer 52 25 Charles W. Mooty Executive Vice President, Chief Financial and Administrative Officer and Treasurer 36 9 David M. Bond Secretary, Assistant Treasurer and Controller 60 27 Mark S. Broin Vice President - Information Services 51 25 George H. Fougeron Vice President - Franchise Operations 51 24 Stephen M. Frances Vice President - Franchise Development and Lease Management Services 47 11 John F. Hockert Vice President - Financial Services 54 29 Michael J. Leary Vice President - Purchasing and Distribution 57 25 Glenn S. Lindsey Vice President - Research and Development 56 15 Srinivasa B. Murthy Vice President - Administrative Services 53 25 Signe M. Pagel Vice President - Human Resources, Meeting and Travel Services 47 26 Gary H. See Vice President - Marketing and Consumer Research 50 22 William C. Zucco Vice President - Law and General Counsel 51 8
(1) Unless indicated to the contrary, each of such person's primary occupation for at least the past five years has been as an officer of the Company or a subsidiary of the Company. John W. Mooty is a member of the Minneapolis law firm of Gray, Plant, Mooty, Mooty & Bennett, P.A., with which firm he has been associated for more than five years. ITEM 11. EXECUTIVE COMPENSATION Information with respect to directors and officers, appearing under "Information Concerning Directors and Officers" in the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 18, 1997, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to security ownership of certain beneficial owners and management, appearing under "Outstanding Stock" in the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 18, 1997, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information with respect to certain relationships and related transactions, appearing under "Information Concerning Directors and Officers" in the Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to be held on March 18, 1997, is incorporated herein by reference. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to exhibits, financial statements and financial statement schedules. - ------------------------------------------------------------------------------------------------------------ Financial Statements: - ------------------------------------------------------------------------------------------------------------ Consolidated balance sheet at November 30, 1996 and 1995 Consolidated statement of income for each of the three years in the period ended November 30, 1996 Consolidated statement of stockholders' equity for each of the three years in the period ended November 30, 1996 Consolidated statement of cash flows for each of the three years in the period ended November 30, 1996 Notes to consolidated financial statements Report of Independent Auditors - ------------------------------------------------------------------------------------------------------------ Financial statement schedules: - ------------------------------------------------------------------------------------------------------------ Consolidated schedules for each of the three years in the period ended November 30, 1996 II - Valuation and qualifying accounts All other schedules are omitted since the required information is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto. - ------------------------------------------------------------------------------------------------------------ Exhibits: - ------------------------------------------------------------------------------------------------------------ No. 3(a) Restated Certificate of Incorporation, as amended (incorporated herein by reference to Registrant's Annual Report, Form 10-K, for the fiscal year ended November 30, 1991). No. 3(b) Restated By-Laws (incorporated herein by reference to Registrant's Annual Report, Form 10-K, for the fiscal year ended November 30, 1986). No. 11 Computation of Earnings per Share. No. 13 Registrant's 1996 Annual Report to Stockholders. Those portions of the 1996 Annual Report to Stockholders expressly incorporated by reference herein, shall be deemed filed with the commission. No. 21 Subsidiaries of Registrant. No. 23 Consent of Independent Auditors. No. 27 Financial Data Schedule. (b) Reports on Form 8-K. - ------------------------------------------------------------------------------------------------------------ No reports on Form 8-K were filed during the last quarter of the period covered by this report.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL DAIRY QUEEN, INC. By /s/ Michael P. Sullivan ------------------------------------- Michael P. Sullivan President and Chief Executive Officer Date: February 21, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
/s/ Michael P. Sullivan President and Chief Executive February 20, 1997 - ------------------------------ Officer (principal executive Michael P. Sullivan officer) and Director /s/ Charles W. Mooty Executive Vice President and February 20, 1997 - ------------------------------ Treasurer (principal financial Charles W. Mooty officer) /s/ David M. Bond Controller (principal accounting February 20, 1997 - ------------------------------ officer) David M. Bond /s/ Ernest F. Dorn, Jr. Director February 20, 1997 - ------------------------------ Ernest F. Dorn, Jr. /s/ Richard I. Giertsen Director February 20, 1997 - ------------------------------ Richard I. Giertsen /s/ Frank L. Heit Director February 20, 1997 - ------------------------------ Frank L. Heit /s/ C. David Luther Director February 20, 1997 - ------------------------------ C. David Luther /s/ Jane N. Mooty Director February 20, 1997 - ------------------------------ Jane N. Mooty /s/ John W. Mooty Director February 20, 1997 - ------------------------------ John W. Mooty /s/ Thomas R. Stuart Director February 20, 1997 - ------------------------------ Thomas R. Stuart
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS INTERNATIONAL DAIRY QUEEN, INC. Additions Balance at Charged to Balance at Beginning Costs and End of DESCRIPTION Of Year Expenses Deductions Year - ----------- ------- -------- ---------- ---- Reserves deducted from related assets: Doubtful accounts and notes: Years ended November 30 1996 $572,000 $177,636 $274,909(1) $474,727 1995 610,738 257,047 295,785(1) 572,000 1994 845,071 347,771 582,104(1) 610,738 (1) Write-offs of oncollectible accounts and notes, net of recoveries. EX-11 2 COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11: Year Ended November 30, 1992 1993 1994 1995 1996 --------------------------------------------------------------------------- Net Income for year $29,094,668 $29,887,693 $31,420,899 $33,216,662 $34,445,147 =========================================================================== Weighted average common shares outstanding 25,988,362 25,081,056 24,218,145 23,070,525 22,428,293 Dilutive common stock equivalents: Stock options, based on treasury stock method using average market price 47,959 22,862 43,020 147,143 219,313 --------------------------------------------------------------------------- Total common and common equivalent shares included in computation of primary and fully-diluted earnings per share: 26,036,321 25,103,918 24,261,165 23,217,668 22,647,606 =========================================================================== Earnings per share $1.12 $1.19 $1.30 $1.43 $1.52 --------------------------------------------------------------------------- (A) Fully-diluted earnings per share is not presented on face of statement of income since incremental dilution is less than 3%. Prior year amounts have been restated to reflect the three-for-one stock split approved by the Board of Directors on March 12, 1991.
EX-13 3 1996 ANNUAL REPORT TO STOCKHOLDERS
SELECTED FINANCIAL DATA (000's omitted, except per share amounts) Years ended November 30: 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 - ---------------------------------------------------------------------------------------------------------------------------- OPERATIONS Revenues: Net sales $308,141 $297,723 $268,804 $241,612 $228,051 $221,726 $216,080 $192,063 $181,856 $165,377 Sales by Company- operated restaurants 27,883 -- -- -- -- -- -- -- -- -- Service fees 56,846 57,110 54,170 51,601 50,627 46,933 45,065 42,387 40,603 33,389 Real estate finance and rental income 7,918 7,543 8,081 8,988 9,984 11,308 12,480 12,810 12,854 5,151 Other 10,719 9,599 9,777 8,893 8,448 8,856 9,480 7,769 7,916 6,985 - ---------------------------------------------------------------------------------------------------------------------------- Total revenues 411,507 371,975 340,832 311,094 297,110 288,823 283,105 255,029 243,229 210,902 - ---------------------------------------------------------------------------------------------------------------------------- Costs and expenses: Cost of sales 278,317 267,867 242,413 217,155 204,650 197,714 191,665 170,533 161,954 148,409 Costs of Company- operated restaurants 25,035 -- -- -- -- -- -- -- -- -- Expenses applicable to real estate finance and rental income 7,386 7,030 7,572 8,441 9,357 10,677 11,816 11,975 12,030 4,537 Selling, general and administrative 45,468 44,481 40,494 37,516 35,472 35,211 36,033 33,075 33,964 29,241 - ---------------------------------------------------------------------------------------------------------------------------- Total costs and expenses 356,206 319,378 290,479 263,112 249,479 243,602 239,514 215,583 207,948 182,187 - ---------------------------------------------------------------------------------------------------------------------------- 55,301 52,597 50,353 47,982 47,631 45,221 43,591 39,446 35,281 28,715 Interest income (expense), net 2,579 2,300 1,578 1,426 (316) 180 232 (615) (1,755) (1,957) Minority interest in subsidiaries (1,135) -- -- -- -- -- -- -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Income before income taxes 56,745 54,897 51,931 49,408 47,315 45,401 43,823 38,831 33,526 26,758 Income taxes 22,300 21,680 20,510 19,520 18,220 17,480 17,310 15,540 13,410 11,850 - ---------------------------------------------------------------------------------------------------------------------------- Net income $ 34,445 $33,217 $31,421 $29,888 $ 29,095 $ 27,921 $ 26,513 $ 23,291 $ 20,116 $ 14,908 - ---------------------------------------------------------------------------------------------------------------------------- Earnings per common and common equivalent share $1.52 $1.43 $1.30 $1.19 $1.12 $1.05 $.97 $.83 $.70 $.51 - ---------------------------------------------------------------------------------------------------------------------------- Average common and common equivalent shares outstanding 22,648 23,218 24,261 25,103 26,036 26,588 27,427 28,213 28,841 29,060 BALANCE SHEET DATA (AT PERIOD END): Total assets $229,434 $211,489 $197,887 $184,398 $179,480 $174,951 $161,400 $129,136 $115,047 $118,944 Long-term debt 3,543 24,760 23,344 23,902 25,820 46,011 41,813 21,699 26,953 36,842 Working capital 49,037 63,744 55,278 36,382 35,570 36,682 29,142 19,806 7,703 3,746 Total stockholders' equity(1) 168,110 147,700 131,361 116,685 102,599 96,773 83,225 75,704 57,738 43,497
(1) During the above periods the Company purchased shares of its common stock as follows: 1996 - 751,420 shares; 1995 - 1,005,926 shares; 1994 - 975,254 shares; 1993 - 887,718 shares; 1992 - 675,971 shares; 1991 - 695,257 shares; 1990 - 1,057,761 shares; 1989 - 434,346 shares; 1988 - 600,834 shares; and 1987 - 86,100 shares. The aggregate cost of these repurchases was $123,962,906 which has been charged to stockholders' equity. On December 1, 1993, the Company adopted FASB Statement No. 109, "Accounting for Income Taxes", which resulted in the restatement of the Company's previously issued consolidated financial statements. The principal effect of the restatement was to record a net increase in deferred taxes and a reduction of $9,860,000 in retained earnings as of December 1, 1991.
CONSOLIDATED BALANCE SHEET November 30 ASSETS 1996 1995 - --------------------------------------------------------------------------------------------------------- Current assets: Cash and cash equivalents $ 38,384,589 $ 34,699,296 Marketable securities 3,098,043 7,751,246 Notes receivable 5,194,928 5,740,227 Accounts receivable, less allowance for doubtful accounts of $474,727 and $572,000 in 1996 and 1995, respectively 31,316,989 27,393,504 Inventories 6,511,170 5,376,178 Prepaid expenses 2,434,611 2,710,837 Miscellaneous 1,995,461 2,050,955 - --------------------------------------------------------------------------------------------------------- Total current assets 88,935,791 85,722,243 - --------------------------------------------------------------------------------------------------------- Other assets: Notes receivable 17,439,493 19,839,041 Miscellaneous 5,900,418 3,776,488 - --------------------------------------------------------------------------------------------------------- Total other assets 23,339,911 23,615,529 - --------------------------------------------------------------------------------------------------------- Other revenue producing assets: Franchise rights and service contracts, at cost less accumulated amortization of $25,491,920 and $22,563,537 in 1996 and 1995, respectively (Note 3) 98,761,713 88,181,850 Rental properties, net (Note 5) 4,471,475 3,305,341 Miscellaneous 11,583 17,045 - --------------------------------------------------------------------------------------------------------- Total other revenue producing assets 103,244,771 91,504,236 - --------------------------------------------------------------------------------------------------------- Property, plant and equipment, net (Note 5) 13,913,268 10,646,964 - --------------------------------------------------------------------------------------------------------- Total assets $229,433,741 $211,488,972 - --------------------------------------------------------------------------------------------------------- November 30 LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 - --------------------------------------------------------------------------------------------------------- Current liabilities: Drafts and accounts payable $ 16,000,182 $ 11,309,771 Committed advertising 1,963,141 844,714 Other liabilities 10,050,533 7,762,106 Income taxes payable 1,035,860 1,731,190 Current maturities of long-term debt (Note 3) 10,848,766 330,244 - --------------------------------------------------------------------------------------------------------- Total current liabilities 39,898,482 21,978,025 - --------------------------------------------------------------------------------------------------------- Deferred franchise income 405,756 395,852 Deferred income taxes (Note 2) 14,920,000 15,070,000 Long-term debt (Note 3) 3,542,646 24,760,321 Other long-term liabilities 1,835,723 1,584,340 Contingencies and commitments (Notes 4 and 8) Minority interest in subsidiaries 721,484 -- Stockholders' equity (Note 7): Class A common stock, $.01 par value: Authorized shares - 32,000,000 Issued and outstanding shares - 13,893,814 (14,369,440 in 1995) 138,938 143,694 Class B common stock, $.01 par value: Authorized shares - 10,000,000 Issued and outstanding shares - 8,228,426 (8,418,248 in 1995) 82,284 84,183 Paid-in capital 6,095,957 4,874,823 Retained earnings (Note 3) 163,677,527 144,622,945 Equity adjustment from foreign currency translation (1,885,056) (2,025,211) Total stockholders' equity 168,109,650 147,700,434 - --------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $229,433,741 $211,488,972 - --------------------------------------------------------------------------------------------------------- SEE ACCOMPANYING NOTES.
CONSOLIDATED STATEMENT OF INCOME Year ended November 30 1996 1995 1994 - --------------------------------------------------------------------------------------------------------- Revenues: Net sales $308,141,341 $297,723,027 $268,804,179 Sales by Company-operated restaurants 27,883,069 -- -- Service fees 56,846,253 57,110,333 54,170,022 Franchise sales and other fees 9,237,764 8,609,606 8,627,218 Real estate finance and rental income 7,918,359 7,543,330 8,081,030 Other 1,479,957 988,795 1,150,051 - --------------------------------------------------------------------------------------------------------- Total revenues 411,506,743 371,975,091 340,832,500 - --------------------------------------------------------------------------------------------------------- Costs and expenses: Cost of sales 278,316,872 267,867,004 242,412,898 Costs of Company-operated restaurants 25,035,301 -- -- Expenses applicable to real estate finance and rental income 7,386,367 7,030,137 7,571,984 Selling, general and administrative 45,467,477 44,481,531 40,494,230 - --------------------------------------------------------------------------------------------------------- Total costs and expenses 356,206,017 319,378,672 290,479,112 - --------------------------------------------------------------------------------------------------------- 55,300,726 52,596,419 50,353,388 Interest income, net (Note 3) 2,579,217 2,300,243 1,577,511 Minority interest in subsidiaries (1,134,796) -- -- - --------------------------------------------------------------------------------------------------------- Income before income taxes 56,745,147 54,896,662 51,930,899 Income taxes (Note 2) 22,300,000 21,680,000 20,510,000 - --------------------------------------------------------------------------------------------------------- Net income $ 34,445,147 $ 33,216,662 $ 31,420,899 - --------------------------------------------------------------------------------------------------------- Earnings per common and common equivalent share (Notes 1 and 7) $1.52 $1.43 $1.30 - --------------------------------------------------------------------------------------------------------- SEE ACCOMPANYING NOTES.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------ Cumulative Common Stock Paid-in Retained Translation - ------------------------------------------------------------------------------------------------------------ Class A Class B Capital Earnings Adjustment - ------------------------------------------------------------------------------------------------------------ Balance at November 30, 1993 $156,594 $90,291 $3,957,075 $114,377,927 $(1,897,199) Purchase and constructive retirement of 805,481 shares of Class A common stock (8,055) -- (133,637) (13,678,764) -- Purchase and constructive retirement of 169,773 shares of Class B common stock -- (1,697) (28,167) (2,887,810) -- Exercise of incentive stock options--issued 19,916 shares of Class A common stock 199 -- 313,833 -- -- Conversion of 43,384 shares of Class B common stock to 43,384 shares of Class A common stock 434 (434) -- -- -- Net income -- -- -- 31,420,899 -- Translation adjustment for 1994 -- -- -- -- (320,417) - ------------------------------------------------------------------------------------------------------------ Balance at November 30, 1994 149,172 88,160 4,109,104 129,232,252 (2,217,616) Purchase and constructive retirement of 652,308 shares of Class A common stock (6,523) -- (139,544) (11,256,341) -- Purchase and constructive retirement of 353,618 shares of Class B common stock -- (3,536) (75,648) (6,569,628) -- Exercise of incentive stock options--issued 60,415 shares of Class A common stock 604 -- 980,911 -- -- Conversion of 44,114 shares of Class B common stock to 44,114 shares of Class A common stock 441 (441) -- -- -- Net income -- -- -- 33,216,662 -- Translation adjustment for 1995 -- -- -- -- 192,405 - ------------------------------------------------------------------------------------------------------------ Balance at November 30, 1995 143,694 84,183 4,874,823 144,622,945 (2,025,211) Purchase and constructive retirement of 631,670 shares of Class A common stock (6,317) -- (174,061) (12,908,245) -- Purchase and constructive retirement of 119,750 shares of Class B common stock -- (1,198) (32,997) (2,482,320) -- Exercise of incentive stock options--issued 86,058 shares of Class A common stock 860 -- 1,428,192 -- -- Conversion of 70,072 shares of Class B common stock to 70,072 shares of Class A common stock 701 (701) -- -- -- Net income -- -- -- 34,445,147 -- Translation adjustment for 1996 -- -- -- -- 140,155 - ------------------------------------------------------------------------------------------------------------ Balance at November 30, 1996 $138,938 $82,284 $6,095,957 $163,677,527 $(1,885,056) - ------------------------------------------------------------------------------------------------------------ SEE ACCOMPANYING NOTES.
CONSOLIDATED STATEMENT OF CASH FLOWS Year ended November 30 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net income $34,445,147 $33,216,662 $31,420,899 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,414,525 4,810,872 4,293,917 Sales of (investments in) trading securities 5,123,507 (5,110,054) -- Provision for losses on accounts and notes receivable 177,636 257,047 347,771 Other (47,416) (10,652) 2,902 Changes in operating assets and liabilities (Note 6) 1,344,379 (11,258,838) (2,532,974) - ------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 47,457,778 21,905,037 33,532,515 - ------------------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES Cost of acquisitions, net of cash acquired (5,483,496) -- -- Purchase of franchise rights and service contracts (3,709,667) (1,171,189) (3,662,463) Net payments advanced to operators, under secured loans, for store renovations and equipment (1,111,016) (1,593,383) (2,046,425) Capital expenditures (5,486,254) (3,198,527) (1,902,968) Maturities of marketable securities 4,835,741 5,515,000 9,789,490 Investments in marketable securities (6,778,417) (1,200,000) (6,756,192) Proceeds from disposal of capital assets 138,502 96,627 12,382 Other 13,900 5,954 16,039 - ------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (17,580,707) (1,545,518) (4,550,137) - ------------------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES Principal payments on long-term debt (12,347,456) (664,899) (2,103,785) Purchase and retirement of common shares (15,605,138) (18,051,220) (16,738,130) Other 1,678,946 1,179,183 542,135 - ------------------------------------------------------------------------------------------------------------ Net cash used in financing activities (26,273,648) (17,536,936) (18,299,780) - ------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash 81,870 110,493 (104,440) - ------------------------------------------------------------------------------------------------------------ Net increase in cash and cash equivalents 3,685,293 2,933,076 10,578,158 Cash and cash equivalents at beginning of year 34,699,296 31,766,220 21,188,062 - ------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of year $38,384,589 $34,699,296 $31,766,220 - ------------------------------------------------------------------------------------------------------------ SEE ACCOMPANYING NOTES.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION POLICY The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. The Company's fiscal year ends on November 30th. BUSINESS SEGMENT INFORMATION The Company is engaged in principally one business segment--developing, licensing, franchising and servicing a system of retail stores featuring over-the-counter sales of dairy desserts, food and blended fruit drinks. In 1996 the Company acquired and is operating 34 DAIRY QUEEN/BRAZIER restaurants, 21 of which are joint venture partnerships. CASH EQUIVALENTS Cash equivalents include all short-term investments with a remaining maturity of ninety days or less at date of purchase. The fair value of cash and cash equivalents approximates their carrying amount. MARKETABLE SECURITIES Investments with a remaining maturity of more than ninety days at the date of purchase are classified as marketable securities. Management determines the appropriate classification of debt securities at the time of purchase. Trading account debt securities are held for resale in anticipation of short-term market movements and are stated at fair value. Net gains, both realized and unrealized, are included in interest income. Debt securities classified as held-to-maturity, are stated at amortized cost, which approximates market value. Interest on held-to-maturity securities is included in interest income. DEPRECIATION AND AMORTIZATION Depreciation and amortization of rental properties and property, plant and equipment are provided principally on the straight-line method over estimated useful lives of the asset or the remaining term of the lease for leasehold improvements. The Company follows a policy of amortizing the cost of franchise rights and service contracts acquired subsequent to 1970 over forty years. The cost of acquisitions prior to 1971 (approximately $12,800,000) is not being amortized. Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," requires impairment losses to be recorded on long-lived assets, including franchise rights, when indicators of impairment are present and the undiscounted cash flow estimated to be generated by the assets are less than the carrying amount of such assets. The Company adopted SFAS No. 121 in 1996. Such adoption did not have a material effect on the Company's financial statements. INVENTORIES Inventories consist primarily of store equipment and merchandise and are carried at the lower of cost (first-in, first-out) or market. FRANCHISE SALES The Company recognizes revenues from initial store franchise fees when the store is opened, and from the sale of area franchise rights over the period when services are expected to be performed. Direct costs incurred prior to store openings are deferred until the revenue is recognized. COMMITTED ADVERTISING Committed advertising represents unexpended amounts received from franchisees to finance national and regional advertising programs. INCOME TAXES The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's consolidated financial statements or tax returns. Deferred tax assets and liabilities are calculated based on the difference between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company has not provided for income taxes on the undistributed earnings of its Canadian subsidiaries (approximately $10,800,000 at November 30, 1996). To the extent these earnings may be repatriated, foreign tax credits will be available to substantially eliminate any additional U.S. income taxes which might otherwise result from such repatriation. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Earnings per common share amounts are based on the adjusted weighted average number of common and common equivalent shares outstanding during each year of 22,647,606, 23,217,668 and 24,261,165 in 1996, 1995 and 1994, respectively. CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash investments and accounts and notes receivable. The Company places its cash investments with high credit quality financial institutions generally with maturities of one year or less and, by policy, limits the amount of credit exposure of any one financial institution. Accounts receivable are generally unsecured; however, concentrations of credit risk with respect to these receivables are limited due to the large number of customers and their dispersion across many different geographic areas. Notes receivable are generally secured by the equipment purchased or the existing franchise agreement. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. PRESENTATION Certain financial statement items have been reclassified to conform to the current year's format. 2 INCOME TAXES United States income before income taxes, which includes charges for foreign exchange losses, was: $51,964,338, $49,560,586 and $48,062,230 in 1996, 1995 and 1994, respectively. Foreign income before income taxes, which includes certain nontax-deductible charges was: $4,780,809, $5,336,076 and $3,868,669 in 1996, 1995 and 1994, respectively. Income taxes consist of the following (000's omitted): 1996 1995 1994 - -------------------------------------------------- CURRENT: U.S. federal $16,567 $16,062 $15,126 State 2,783 2,765 2,574 Foreign 3,067 3,656 2,703 - -------------------------------------------------- 22,417 22,483 20,403 - -------------------------------------------------- DEFERRED: U.S. federal (140) (471) 144 State 10 (49) 20 Foreign 13 (283) (57) (117) (803) 107 - -------------------------------------------------- $22,300 $21,680 $20,510 - -------------------------------------------------- Included in foreign taxes are taxes withheld by foreign countries on dividends and service fees received by U.S. entities. Deferred income taxes relate principally to differences in amortization of franchise rights and service contracts for financial statement and income tax pur poses.The following is a reconciliation of differences between the U.S. federal statutory income tax rate and the consolidated effective tax rate: 1996 1995 1994 - -------------------------------------------------- U.S. federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal effect 3.2 3.3 3.3 Foreign income taxes 1.3 1.2 1.0 Other, net (.2) -- .2 - -------------------------------------------------- Consolidated effective tax rate 39.3% 39.5% 39.5% - -------------------------------------------------- The Internal Revenue Service's examination of the Company's consolidated federal income tax returns for the years ended November 30, 1991 through 1993 was concluded in 1996 without significant adjustments. 3 LONG-TERM DEBT Long-term debt is summarized as follows (000's omitted): 1996 1995 - -------------------------------------------------------- 8.25% subordinated capital notes, redeemed in 1996 $ -- $11,509 8.45% senior notes, maturing in October of 1997 10,000 10,000 6% to 12% notes payable, secured by certain franchise rights and service contracts, maturing at various dates through January of 2015 (current maturities-- $660 and $194 at 1996 and 1995, respectively) 3,873 3,020 Other long-term debt (current maturities--$184 and $130 at 1996 and 1995, respectively) 502 539 Obligations under capital leases (current maturities--$5 and $6 at 1996 and 1995, respectively) 17 22 - -------------------------------------------------------- 14,392 25,090 Less current maturities 10,849 330 - -------------------------------------------------------- $ 3,543 $24,760 - -------------------------------------------------------- The Company's senior notes contain provisions which, among other things, limit additional indebtedness and commitments under lease agreements and limit the amount available for dividends or purchase of the Company's capital stock, the most restrictive of which is that dividends are limited to 100% of net income for the fiscal year immediately preceding the year in which any such dividend is paid. Aggregate maturities of long-term debt for the years subsequent to November 30, 1996 are: $10,848,766, $693,154, $544,464, $254,790, $245,141 and $1,805,097 in 1997, 1998, 1999, 2000, 2001 and thereafter, respectively. Interest income, net consists of interest income of $4,599,428, $4,237,866 and $3,463,755 in 1996, 1995 and 1994, respectively, and interest expense of $2,020,211, $1,937,623 and $1,886,244 in 1996, 1995 and 1994, respectively. 4 LEASES The Company and its subsidiaries have leases for retail stores, administrative facilities and equip ment. Certain of the leased properties are subleased to franchise operators under noncancelable operating subleases, with rentals generally equal to or greater than rentals payable on the prime leases. Most of the leases and subleases require the lessee to pay executory costs (property taxes, maintenance, and insurance); and many of the leases provide for one or more renewal options. In addition, Company-owned real estate has been leased to franchise operators under long-term leases. Total operating lease rental expense in the statement of income, including rentals on leases with terms of one year or less and including executory costs when included in rent, is summarized as follows (000's omitted): 1996 1995 1994 - -------------------------------------------------------- Minimum rentals $6,617 $7,142 $7,710 Contingent rentals 288 347 413 Less sublease income: Minimum rentals (4,871) (5,573) (6,114) Contingent rentals (343) (420) (463) $1,691 $1,496 $1,546 - -------------------------------------------------------- Minimum future rental obligations, excluding executory costs included in rentals, under operating leases at November 30, 1996 are $5,656,535, $5,033,366, $4,307,342, $3,841,778, $3,117,500 and $14,234,750 in 1997, 1998, 1999, 2000, 2001 and thereafter, respectively. Minimum future rental receivables under operating leases at November 30, 1996 are $4,410,470, $3,886,603, $3,116,011, $2,777,583, $2,224,691 and $7,644,887 in 1997, 1998, 1999, 2000, 2001 and thereafter, respectively. 5 RENTAL PROPERTIES AND PROPERTY, PLANT AND EQUIPMENT Rental properties and property, plant and equipment consist of (000's omitted): 1996 1995 - ---------------------------------------------------- Rental properties, at cost: Land $ 476 $ 448 Buildings 1,519 1,804 Equipment 706 715 Leasehold improvements 3,430 1,788 - ---------------------------------------------------- 6,131 4,755 Less accumulated depreciation 1,660 1,450 - ---------------------------------------------------- $ 4,471 $ 3,305 - ---------------------------------------------------- 1996 1995 - ---------------------------------------------------- Property, plant and equipment, at cost: Land $ 800 $ 800 Buildings 5,074 5,346 Equipment 17,831 14,428 Leasehold improvements 1,648 206 - ---------------------------------------------------- 25,353 20,780 Less accumulated depreciation 11,440 10,133 - ---------------------------------------------------- $ 13,913 $ 10,647 - ---------------------------------------------------- 6 STATEMENT OF CASH FLOWS Changes in operating assets and liabilities included in net cash provided by operating activities (000's omitted): 1996 1995 1994 - ----------------------------------------------------------- Accounts and notes receivable $ (5,311) $ (5,203) $ 1,528 Inventories and prepaid expenses (545) (1,281) (2,817) Drafts and accounts payable 4,743 (5,934) 375 Committed advertising 1,094 (1,629) (700) Other liabilities 2,194 1,470 (668) Income taxes payable (690) 1,283 (515) Deferred franchise income 9 (40) 157 Deferred income taxes (150) 75 107 - ----------------------------------------------------------- $ 1,344 $(11,259) $ (2,533) - ----------------------------------------------------------- Supplementary disclosures to consolidated statement of cash flows: Cash payments for income taxes, net of refunds, were $23,047,544, $20,542,135 and $21,062,976 in 1996, 1995 and 1994, respectively; in these periods interest payments were $1,970,645, $1,764,736 and $1,929,624 respectively. The Company incurred liabilities for the acquisition of franchise rights of $2,716,364, $1,770,307 and $2,862,504 in 1996,1995, and 1994, respectively. 7 STOCKHOLDER'S EQUITY Class A common stock is entitled to dividends of 110% of dividends paid on Class B common stock, other than dividends payable solely in Com pany stock. Class A common stock has more limited voting rights than Class B common stock. Generally, the holders of Class A common stock are entitled to elect 25% of the Company's Board of Directors, but, except as otherwise required by law, shall not be enti tled to vote on any other matter. Class A common stock also has certain liquidation preferences which, among other things, provide for a minimum distribution to holders of Class A common stock before any distributions are made to holders of Class B common stock. Class B common stock may be converted into Class A common stock at the option of the holder. In 1996, the Company purchased and constructively retired 631,670 shares of Class A common stock at an average price of $20.72 per share and 119,750 shares of Class B common stock at an average price of $21.01 per share. In 1995, the Company purchased and constructively retired 652,308 shares of Class A common stock at an average price of $17.48 per share and 353,618 shares of Class B common stock at an average price of $18.80 per share. The number of retired shares has been eliminated from common stock and the cost allocated between common stock, additional paid-in capital and retained earnings. The Company follows Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee stock options. Under APB 25, when the exercise price of employee stock options equals the market price of the underlying stock on the date of the grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share as calculated under the provisions of State ment of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," will be disclosed beginning in fiscal year 1997. In 1993, the Company adopted its Incentive Stock Option Plan of 1993 which provides for the granting of options to key employees of the Company and its subsidiaries to purchase common shares. The plan also reserves 1,200,000 shares of Class A common stock for issuance thereunder. Under this plan, the option price per share may not be less than the fair market value of a share on the date of grant. One year after the grant, 25% of granted options become exercisable with an additional 25% becoming exercisable each year thereafter. Stock option activity under this plan is summarized as follows: - -------------------------------------------------- Number of Shares Price Range - -------------------------------------------------- Outstanding at November 30, 1994 1,038,607 Granted 264,750 $16.75 Canceled (33,577) $15.33-$20.25 Exercised (60,415) $15.33-$16.50 - -------------------------------------------------- Outstanding at November 30, 1995 1,209,365 $15.33-$20.25 Granted 271,796 $21.75 Canceled (5,708) $16.00-$21.75 Exercised (86,058) $15.33-$20.25 - -------------------------------------------------- Outstanding at November 30, 1996 1,389,395 $15.33-$21.75 - -------------------------------------------------- Exercisable at November 30, 1996 729,184 - -------------------------------------------------- Shares of authorized but unissued Class A common stock were reserved as follows at November 30, 1996: Conversion of Class B common stock into Class A common stock 8,228,426 Exercise of Incentive Stock Option Plan options 1,534,121 - -------------------------------------------------- 9,762,547 - -------------------------------------------------- 8 CONTINGENCIES The Company and its wholly-owned subsidiary, American DAIRY QUEEN Corporation (ADQ), are defendants in a class action by franchisees and subfranchisees for declaratory judgement, injunctive relief, actual damages in an unspecified amount, treble damages, costs and attorneys' fees. Plaintiffs allege that ADQ and the Company have breached certain contractual obligations and violated certain provisions of the federal antitrust laws in connection with the approval of alternative manufacturers. Plaintiffs also allege breach of contract claims and claims for breach of fiduciary duty related to the administration of advertising funds. No trial date has been set. While the Company and counsel believe meritorious defenses exist against the aforementioned claims, the eventual outcome of these matters cannot be predicted at this time. The Company is unable to measure the amount of probable loss, if any, or a realistic range of reasonably possible loss at this stage of the litigation. Accordingly, no accrual for potential loss related to these actions has been reflected in the financial statements. 9 QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly operating data for 1996 and 1995 are as follows (000's omitted, except per share amounts): 1996 - --------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter - --------------------------------------------------------------- Net sales $58,859 $90,861 $94,730 $63,691 Sales by Company- operated restaurants 2,168 8,279 9,438 7,998 Cost of sales 53,201 81,799 85,529 57,788 Cost of sales of Company-operated restaurants 1,967 7,269 8,194 7,605 - --------------------------------------------------------------- 5,859 10,072 10,445 6,296 Service fees and other revenues 14,507 20,124 23,763 17,089 - --------------------------------------------------------------- 20,366 30,196 34,208 23,385 Other costs and expenses 12,586 13,494 13,880 12,894 Net interest income 726 428 531 894 Minority interest in subsidiaries (117) (314) (462) (242) - --------------------------------------------------------------- Income before taxes 8,389 16,816 20,397 11,143 Income taxes 3,300 6,610 8,010 4,380 - --------------------------------------------------------------- Net income $ 5,089 $10,206 $12,387 $ 6,763 - --------------------------------------------------------------- Earnings per share $.22 $.45 $.55 $.30 - --------------------------------------------------------------- 1995 - --------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter - --------------------------------------------------------------- Net sales $52,924 $86,201 $92,477 $66,121 Cost of sales 47,556 77,459 83,010 59,842 - --------------------------------------------------------------- 5,368 8,742 9,467 6,279 Service fees and other revenues 14,607 19,948 22,883 16,814 - --------------------------------------------------------------- 19,975 28,690 32,350 23,093 Other costs and expenses 12,353 12,897 13,418 12,843 Net interest income 498 485 485 832 - --------------------------------------------------------------- Income before taxes 8,120 16,278 19,417 11,082 Income taxes 3,210 6,430 7,670 4,370 - --------------------------------------------------------------- Net income $ 4,910 $ 9,848 $11,747 $ 6,712 - --------------------------------------------------------------- Earnings per share $.21 $.42 $.51 $.29 - --------------------------------------------------------------- REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders International DAIRY QUEEN, Inc. We have audited the accompanying consolidated balance sheet of International DAIRY QUEEN, Inc. as of November 30, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended November 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of International DAIRY QUEEN, Inc. at November 30, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended November 30, 1996, in conformity with generally accepted accounting principles. Minneapolis, Minnesota January 10, 1997 /S/ Ernst & Young LLP Ernst & Young LLP EX-21 4 SUBSIDIARIES OF REGISTRANT EXHIBIT NO. 21- SUBSIDIARIES OF THE REGISTRATION INTERNATIONAL DAIRY QUEEN, INC. Jurisdiction of Subsidiary (1) Incorporation - ---------- ------------- American Dairy Queen Corporation Delaware Orange Julius of America California DQF, Inc. Minnesota Golden Skillet International, Inc. Minnesota Karmelkorn Shoppes, Inc. Delaware Dairy Queen of Georgia, Inc. Minnesota Dairy Queen Canada, Inc. (2)(3) Canada (Federal) Dairy Queen Corporate Stores, Inc. (4)(5)(6) Kentucky (1) All subsidiaries are 100% owned by Registrant. (2) IDQ Canada, Inc. {Canada (Federal)} is a wholly-owned subsidiary Of Dairy Queen Canada, Inc. (3) Orange Julius Canada, Ltd. {Canada (Federal)} is a wholly-owned subsidiary of Dairy Queen Canada, Inc. (4) DQ Wholly-Owned Stores, Inc. (Kentucky) is a wholly-owned subsidiary of Dairy Queen Corporate Stores, Inc. (5) DQ Joint Venture Stores, Inc. (Kentucky) is a wholly-owned subsidiary of Dairy Queen Corporate Stores, Inc. (6) DQ Managed Stores, Inc. (Kentucky) is a wholly-owned subsidiary of Dairy Queen Corporate Stores, Inc. Registrant also owns 60% of the outstanding capital stock of Firstaff, Inc., a Minnesota corporation. EX-23 5 CONSENT OF INDEPENDENT AUDITORS Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of International Dairy Queen, Inc. of our report dated January 10, 1997, included in the 1996 Annual Report to Shareholders of International Dairy Queen, Inc. Our audits also included the financial statement schedule of International Dairy Queen, Inc. listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements (Nos. 33-40784, 33-52781, and 33-58615) on Form S-8 of our report dated January 10, 1997, with respect to the consolidated financial statements incorporated herein by reference, and our report included in the preceding paragraph with respect to the financial statement schedule included in this Annual Report (Form 10-K) of International Dairy Queen, Inc. Minneapolis, Minnesota February 19, 1997 /S/ Ernst & Young LLP Ernst & Young LLP EX-27 6 FINANCIAL DATA SCHEDULE
5 1000 12-MOS NOV-30-1996 DEC-01-1995 NOV-30-1996 38,385 3,098 36,987 475 6,511 88,936 25,353 11,440 229,434 39,898 3,543 0 0 221 167,888 229,434 336,024 411,507 303,352 310,739 45,467 178 2,020 56,745 22,300 34,445 0 0 0 34,445 $ 1.52 $ 1.52
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