Explanation

This risk was not identified. The financial statements for the parent company, International Dairy Queen, Inc. (IDQ), which guarantees performance, show consistent profitability and positive, though decreasing, stockholder's equity. While large dividends have been paid to its parent, Berkshire Hathaway, the company's operating performance appears stable and does not indicate an inability to support the franchise system. The backing of Berkshire Hathaway provides an additional layer of financial security.

Potential Mitigations

• A franchise-experienced accountant should review the complete, audited financial statements, including all footnotes and the auditor’s opinion.
• Discuss the franchisor's financial health and capital structure with your financial advisor, paying attention to revenue sources and dividend policies.
• Verifying the strength and enforceability of the parent company's Guarantee of Performance with your attorney is a crucial step.

Explanation

This risk was not identified. The franchisee turnover rates, based on the data provided in the Item 20 tables for direct-licensed outlets, have been approximately 5.2%, 4.9%, and 2.8% for the years 2022, 2023, and 2024, respectively. These figures, which show a declining trend, are not considered high for the quick-service restaurant industry and do not suggest systemic problems or widespread franchisee dissatisfaction.

Potential Mitigations

• It is still valuable to have your accountant review the Item 20 tables to independently verify turnover rates and trends.
• Contacting a sample of franchisees from the lists of current and former operators in the FDD can provide direct insight into their experiences.
• When speaking with the franchisor, you could ask for their perspective on the reasons for the cessations that did occur.

Explanation

This risk was not identified. The data in Item 20 shows that the number of direct-licensed franchise outlets has been decreasing over the last three years. The system is mature and not undergoing a period of rapid expansion that might strain its support resources. The concern is more about system maturity and potential saturation rather than the risks associated with excessively fast growth.

Potential Mitigations

• Engage a business advisor to research local market saturation and growth potential for a new location within this mature system.
• A discussion with your accountant about the financial implications of entering a stable or contracting system is prudent.
• Questions for your attorney could include the franchisor's obligations if market conditions decline.

Explanation

This risk was not identified. American Dairy Queen Corporation was incorporated in 1962 and has been franchising for decades, making it one of the most established and mature franchise systems in the world. With thousands of outlets globally, the business model is well-proven and has demonstrated long-term consumer demand and brand recognition. This is not a new or unproven system.

Potential Mitigations

• A business advisor can still help you analyze the long-term history and evolution of the brand to understand its market position today.
• Reviewing the extensive history of the company in Item 1 with your attorney can provide context for the current franchise offering.
• Your accountant can review the long-term financial data in Item 21 to assess the stability that comes with a mature system.

Explanation

This risk was not identified. Dairy Queen is an iconic brand that has demonstrated sustained consumer demand for many decades. The business model is centered on frozen treats and quick-service food, which are established market segments, not a temporary or fleeting trend. The brand's longevity and market presence indicate it is not a fad business.

Potential Mitigations

• A business advisor can help you analyze the long-term consumer trends in the quick-service restaurant and frozen treat markets.
• Discussing the brand's continued relevance and marketing strategies with current franchisees can provide valuable insight.
• Your financial advisor can help assess the business's resilience through various economic cycles based on its long history.

Explanation

This risk was not identified. The executive team detailed in Item 2 possesses extensive experience. The CEO has been with ADQ since 2001, and other key leaders have long tenures with the company or significant prior experience at other major food service and franchise brands like Domino's and IHOP. The management team appears to be very experienced in both the industry and in managing a large franchise system.

Potential Mitigations

• You should still review the specific backgrounds of the management team members listed in Item 2 with your business advisor.
• When speaking with current franchisees, inquire about their direct experiences with the management team's leadership and support.
• Your attorney can review the FDD for any recent, significant changes in key management that could signal a shift in strategy.

Explanation

The franchisor is ultimately owned by Berkshire Hathaway, Inc., a publicly-traded holding company. While this structure means decisions could be influenced by shareholder value, Berkshire Hathaway is well-known for its long-term investment strategy, which is different from a typical private equity firm's short-term focus on a quick exit. This long-term approach may reduce the risk of sudden, detrimental changes aimed at boosting short-term profit.

Potential Mitigations

• A business advisor can help you research Berkshire Hathaway's management philosophy and its historical approach to its subsidiary companies.
• Ask your attorney to review the assignment clause in the Franchise Agreement to understand how a sale of the parent company could affect you.
• Discuss with current franchisees whether they have observed any significant changes in franchisor behavior related to its ownership structure.

Explanation

This risk was not identified. The FDD clearly discloses the franchisor's parent company, International Dairy Queen, Inc. (IDQ), and its ultimate parent, Berkshire Hathaway, Inc. Furthermore, the FDD includes the audited consolidated financial statements of the parent, IDQ, along with a Guarantee of Performance from IDQ, which is the appropriate level of disclosure in this context.

Potential Mitigations

• A franchise attorney should confirm that the provided parent company guarantee is legally sufficient and enforceable.
• An accountant should review the parent company's financial statements for a complete picture of the entity backing your franchise.
• When performing due diligence, it is wise to ask the franchisor about the relationship and operational integration with its parent company.

Explanation

This risk was not identified. Item 1 of the FDD explicitly states that American Dairy Queen Corporation has not had any predecessors within the last ten years. Therefore, there are no predecessor history issues to evaluate, which simplifies the due diligence process regarding the franchisor's historical performance and stability.

Potential Mitigations

• Your attorney can confirm this statement during the review of the FDD.
• In discussions with long-term franchisees, you can inquire about the company's history to ensure no unstated corporate changes have occurred.
• A business advisor can help you research the company's public history to verify the information presented in Item 1.