-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, oqeegE7s7a2MmF3mPTBg0wczfK9DWLuNxWqOVGopiWo/b99+1IOGs+FX7mPfGAWy dl/QhUTFK8iiHiB5FFy9Gw== 0000721675-94-000005.txt : 19940922 0000721675-94-000005.hdr.sgml : 19940922 ACCESSION NUMBER: 0000721675-94-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940730 FILED AS OF DATE: 19940920 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAIRY MART CONVENIENCE STORES INC CENTRAL INDEX KEY: 0000721675 STANDARD INDUSTRIAL CLASSIFICATION: 5412 IRS NUMBER: 042497894 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12497 FILM NUMBER: 94549592 BUSINESS ADDRESS: STREET 1: ONE VISION DRIVE CITY: ENFIELD STATE: CT ZIP: 06082 BUSINESS PHONE: 2037414444 10-Q 1 10-Q FOR SECOND QUARTER FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended July 30, 1994 Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition Period From to Commission File Number 0-12497 DAIRY MART CONVENIENCE STORES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 04-2497894 (State or other Jurisdiction of (IRS Employer Identification No.) incorporation or organization) ONE VISION DRIVE, ENFIELD, CT 06082 (Address of principal executive offices) Registrant's telephone number, including area code (203) 741-4444 N/A (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes X No Shares of Class A Common Stock outstanding July 30, 1994 - 2,756,784 Shares of Class B Common Stock outstanding July 30, 1994 - 2,786,058 1
PART I. FINANCIAL INFORMATION DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share amounts) FOR THE SECOND FISCAL QUARTER ENDED FOR THE TWO FISCAL QUARTERS ENDED JULY 30, 1994 JULY 31, 1993 JULY 30, 1994 JULY 31, 1993 Net Sales of the Company, Its Subsidiaries and Franchises $ 204,075 $ 205,264 $ 383,167 $ 389,718 Revenues $ 161,564 $ 158,777 $ 302,582 $ 300,792 Cost of goods sold and expenses: Cost of goods sold 120,746 115,420 226,300 220,685 Selling, general and administrative expenses 38,740 37,552 74,545 73,258 Nonrecurring charge 1,800 -- 1,800 -- Income (loss) from operations 278 5,805 (63) 6,849 Interest expense (2,400) (1,955) (4,939) (3,873) Interest income 318 182 620 386 (Loss) gain on disposition of properties, net (1,360) 16 (1,464) 144 Income (loss) before income taxes and cumulative effect of accounting change (3,164) 4,048 (5,846) 3,506 Benefit from (provision for) income taxes 1,266 (1,624) 2,366 (1,402) Income (loss) before cumulative effect of accounting change (1,898) 2,424 (3,480) 2,104 Cumulative effect of accounting change (net of income tax benefit of $271) -- -- (389) -- Net income (loss) $ (1,898) $ 2,424 $ (3,869) $ 2,104 Weighted average shares outstanding 5,539 5,493 5,534 5,497 Earnings (loss) per share: Before cumulative effect of accounting change (0.34) 0.44 (0.63) 0.38 Cumulative effect of accounting change -- -- (0.07) -- Earnings (loss) per share $ (0.34) $ 0.44 $ (0.70) $ 0.38
The accompanying notes are an integral part of these financial statements. 2
DAIRY MART CONVENIENCE STORES, INC. CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS JULY 30, 1994 JANUARY 29, 1994 (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 12,133 $ 6,632 Short-term investments, at cost 3,931 -- Accounts and notes receivable 12,805 11,770 Inventory 27,121 26,269 Prepaid expenses and other current assets 2,998 2,013 Deferred income taxes 2,365 2,098 Total current assets 61,353 48,782 PROPERTY AND EQUIPMENT: Land and improvements 15,431 15,199 Buildings and leaseholds 53,890 54,231 Equipment 78,522 75,418 147,843 144,848 Less - Accumulated depreciation 56,265 52,834 Net property and equipment 91,578 92,014 PROPERTY UNDER CAPITAL LEASES, net 1,157 1,760 OTHER ASSETS: Goodwill, net 10,787 10,961 Franchise and operating rights, net 7,488 7,656 Notes receivable 2,526 2,267 Other 8,127 6,002 Total other assets 28,928 26,886 Total assets $ 183,016 $ 169,442 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 1,223 $ 3,071 Current portion of capital lease obligations 332 1,038 Accounts payable 31,698 28,700 Accrued expenses 17,257 15,510 Accrued interest 3,213 978 Total current liabilities 53,723 49,297 LONG-TERM DEBT, less current portion 87,535 71,604 CAPITAL LEASE OBLIGATIONS, less current portion 1,482 1,630 OTHER LIABILITIES AND DEFERRED CREDITS 5,815 6,222 DEFERRED INCOME TAXES 4,395 6,819 STOCKHOLDERS' EQUITY: Class A Common Stock 33 33 Class B Common Stock 30 30 Paid-in capital in excess of par value 27,548 27,483 Retained earnings 7,460 11,329 Treasury stock, at cost (5,005) (5,005) Total stockholders' equity 30,066 33,870 Total liabilities and stockholders' equity $ 183,016 $ 169,442
The accompanying notes are an integral part of these financial statements. 3
DAIRY MART CONVENIENCE STORES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) FOR THE TWO FISCAL QUARTERS ENDED JULY 30, 1994 JULY 31, 1993 Cash flows from operating activities: Net income (loss) $ (3,869) $ 2,104 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of accounting change 389 -- Depreciation and amortization 6,366 6,450 (Decrease) increase in deferred income taxes (2,691) 1,186 Loss (gain) on other disposition of properties, net 946 (144) (Increase) decrease in receivables (1,035) 52 Increase in inventory (852) (798) Increase in accounts payable 2,998 1,983 Decrease (increase) in other current assets and liabilities, net 3,369 (3,255) (Decrease) increase in other noncurrent liabilities and deferred credits (407) 138 Net cash provided by operating activities 5,214 7,716 Cash flows from investing activities: Purchase of short-term investments (3,931) -- Purchase of property and equipment (6,198) (7,750) Proceeds from sale of property and equipment 362 453 Proceeds from long-term notes receivable 666 844 Increase in long-term notes receivable (925) (20) Increase in other assets (454) (206) Net cash used by investing activities (10,480) (6,679) Cash flows from financing activities: Issuance of senior subordinated notes, net of offering costs 72,743 -- Repayment of term debt (22,000) (2,000) Retirement of subordinated debentures (27,944) -- Decrease in revolving loan, net (12,100) (2,300) Additional long-term debt 929 4,128 Repayment of other long-term debt and capital lease obligations (926) (970) Other increases in common stock and paid-in capital 65 190 Net cash provided (used) by financing activities 10,767 (952) Increase in cash and cash equivalents 5,501 85 Cash and cash equivalents at beginning of fiscal year 6,632 6,483 Cash and cash equivalents at end of second fiscal quarter $ 12,133 $ 6,568
The accompanying notes are an integral part of these financial statements. 4 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 30, 1994 (Unaudited) The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. The information furnished reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented, and which are of a normal, recurring nature. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's Form 10-K, filed with the Securities and Exchange Commission on April 29, 1994. 1. Accounting Policies The financial statements included herein have been prepared in accordance with the accounting policies described in Note 1 to the January 29, 1994 audited consolidated financial statements included in the Company's Form 10-K, except as discussed in Notes 2 and 3 below. Certain prior year amounts have been reclassified to conform to the presentation used for the current year. 5 2. Cumulative Effect of Accounting Change The Company historically has recorded its self insurance reserves for certain property and liability insurance risks on a present value basis using a discount rate based upon the estimated incremental borrowing rate of the Company which was 8% as of January 29, 1994. As of January 30, 1994, the Company changed its method of accounting to discount its self insurance reserves at a risk free rate of return. The cumulative effect of this change in accounting method was a charge to income of $389,000, net of the applicable income tax benefit of $271,000,in the first fiscal quarter ended April 30,1994. 3. Short-term Investments The Company's short-term investments consist of U.S. Treasury Bills with maturities of less than one year. The Company is accounting for these investments as being held to maturity in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities". As of July 30, 1994, the carrying amount of the Treasury Bills of $3,931,000 approximated the fair value. 4. Changes in Capital Accounts An analysis of the capital stock accounts for the two fiscal quarters ended July 30, 1994 follows:
Common Stock Class A Shares Class B Shares Paid-in capital issued at issued at in excess of $.01 par value $.01 par value Amount par value Balance January 29, 1994 3,268,729 2,956,015 $ 62,249 $ 27,483,049 Employee stock purchase plan 8,930 -- 89 37,026 Stock options exercised 750 6,000 68 27,870 Balance July 31, 1994 3,278,409 2,962,015 $ 62,406 $ 27,547,945
6 As of July 30, 1994, there were 521,625 shares of Class A Common Stock and 175,957 shares of Class B Common Stock held as treasury stock at an aggregate cost of $5,004,847, leaving 2,756,784 Class A shares and 2,786,058 Class B shares outstanding. 5. Earnings(loss) Per Share Earnings(loss) per share is based on the weighted average number of shares outstanding, including the dilutive effect of stock options, if appropriate, during each period. 6. Seasonality The results of operations for the fiscal quarter ended July 30, 1994 are not necessarily indicative of results to be expected for the full fiscal year. The convenience store industry in the Company's marketing areas experiences a higher percentage of revenues and profit margins during the summer months than during the winter months. Historically, the Company has achieved higher earnings in its second and third fiscal quarters, as compared to its first and fourth fiscal quarters. 7. Nonrecurring Charge The Company recorded a nonrecurring charge of $1.8 million in the second fiscal quarter ended July 30, 1994 for costs,including legal expenses,associated with the removal of the Company's President and Chief Executive Officer by the Board of Directors and the settlement of disputes arising therefrom. See Part II, Item 1 "Legal Proceedings" and Part II, Item 5 "Other Information - Recent Developments" of this Form 10-Q for further discussion. 7 DAIRY MART CONVENIENCE STORES, INC. FISCAL QUARTER ENDED JULY 30, 1994 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Company generates substantial operating cash flow since most of its revenues are received in cash. The amount of cash generated from operations exceeds all of the current debt service requirements of the Company's long-term debt and capital lease obligations. The capital expenditures of the Company are primarily funded by the excess cash flow available after debt service but may also be funded using cash provided from the Company's financing activities including mortgage and equipment financing and other forms of long-term debt. Additionally, the Company has a revolving line of credit available to address the seasonality of operations and timing of certain working capital disbursements. During the second fiscal quarter ended July 30, 1994, the Company paid its trade payables in an average of 26 days, which compares to 24 days for the entire fiscal year ended January 29, 1994 and 23 days for the second fiscal quarter ended July 31, 1993. The cash flow of the Company is also favorably impacted by the Company's use of funds from the sale of money orders, pending weekly remittance of such funds to the issuer of the money orders. The amount due the issuer each week varies, depending on the volume and dollar values of money orders issued. At July 30, 1994 and January 29, 1994, $5.8 million and 6.2 million, respectively, were due the issuer. The Company's remittance obligation to the issuer of the money orders is primarily secured by an outstanding letter of credit in the amount of $6.5 million. 8 During the current year first two fiscal quarters, cash generated by operations was approximately $2.5 million lower than the prior year first two fiscal quarters. The decrease was primarily due to reduced earnings in the current year (see "Results of Operations"), partially offset by changes in certain of the Company's working capital accounts. Cash used by the Company's investing activities was approximately $3.8 million higher in the current year first two fiscal quarters as compared to the prior year first two fiscal quarters, primarily due to the investment of $3.9 million in U.S. Treasury Bills using excess proceeds realized from the sale of the Company's 10.25% Senior Subordinated Notes (see below). These short-term investments were made to mitigate the Company's interest expense related to these excess proceeds until the funds are used for capital expenditures and/or general corporate and working capital purposes.Partially offsetting the above increase was a reduction in capital expenditures in the current year two fiscal quarters. However, the Company currently intends to increase its level of capital expenditures in the future due to the increased development of new stores as well as the replacement or upgrading of certain of its operating assets. Such capital expenditures will be financed primarily by cash generated from operations as well as mortgage and equipment financing and available short-term investments. In addition, the Company may sell and leaseback certain of its existing super pumper locations and may in the future lease, or sell and leaseback, the real estate of new super pumper locations. 9 The Company estimates that future capital expenditure requirements to comply with federal and state underground gasoline storage tank regulations will be approximately $16.0 million to $20.0 million in the aggregate through December, 1998, which cost could be reduced for locations (especially low volume locations) which may be closed in lieu of the capital costs of compliance. The Company has also initiated a program to install in all stores within three years a point-of-sale (POS) system designed to provide more accurate and timely information regarding store operations and to decrease administrative overhead. The cost of the POS system, including new cash registers and personal computers, is currently estimated to be approximately $7.0 million to $9.0 million, and is anticipated to be funded by equipment financing. The ultimate amount of discretionary capital expenditures that the Company will incur in the future will be determined by the available sources of funds, including, but not limited to, those described above. During the current year first fiscal quarter, the Company issued $75.0 million principal amount of 10.25% senior subordinated notes (the "Notes"), all of the principal of which is due March 15, 2004. The net proceeds from the sale of the Notes, were used to repay the entire outstanding indebtedness under a previous bank term loan and a bank revolving loan and to redeem in full the Company's 14.25% subordinated debentures. The Company issued the Notes in order to facilitate future growth and to improve the Company's financial and operating flexibility by significantly reducing the Company's debt amortization requirements by approximately $53 million over the next five fiscal years. 10 In addition to cash flow from operations, potential mortgage, equipment and other financing and the available excess proceeds from the sale of the Notes, the Company's sources of liquidity include borrowing availability under a senior credit facility entered into by the Company during the current year first fiscal quarter in connection with the issuance of the Notes and the repayment of the previous bank term and revolving loans. The new credit facility provides for the availability of up to $30.0 million in revolving loans reduced by outstanding letters of credit not to exceed $15.0 million in the aggregate. As of July 30, 1994, the Company had no outstanding revolving credit loans under the new credit facility, but did have $12.6 million of letters of credit outstanding thereunder, including, as discussed above, the $6.5 million letter of credit issued to secure the Company's remittance obligation to the issuer of money orders. The Company intends to utilize the new credit facility as needed for working capital and general corporate purposes, including addressing the seasonality of operations and the timing of certain working capital disbursements. In addition to the foregoing, reference is made to the information contained in Item 5 of Part II included in this Form 10-Q. Results of Operations Revenues for the first two fiscal quarters ended July 30, 1994 increased by $1.8 million or 0.6% from the first two fiscal quarters ended July 31, 1993. For the second fiscal quarter alone, revenues increased by $2.8 million or 1.8% from the corresponding period of the prior year. The current year revenue increases for both the first two fiscal quarters and the second fiscal quarter were due to higher 11 revenues from the convenience store and manufacturing and distribution areas of the Company. In addition, revenues for the second fiscal quarter alone were further increased due to higher gasoline revenues, although gasoline revenues were decreased on a current year-to-date basis. Convenience store revenues increased from $180.5 million in the prior year first two fiscal quarters to $183.9 million in the current year first two fiscal quarters, while for the second fiscal quarter alone, convenience store revenues increased from $96.5 million in the prior year to $97.8 million in the current year. These increases were due primarily to a comparable store sales increase of approximately 2.0% for the current year first two fiscal quarters and 1.8% for the current year second fiscal quarter, as compared to the corresponding periods of the prior year. The overall increase in the Company's convenience store revenues was partially offset in both the current year first two fiscal quarters and second fiscal quarter by decreased revenues resulting from the closing of underperforming stores. Although such closures had a negative impact on revenues, they did not have a material adverse effect on the results of operations or earnings (other than the initial write-off of estimated unrecoverable costs), since the majority of stores closed had been operating at a loss. The Company owned or franchised 1,004 stores at July 30, 1994, as compared to 1,022 stores at January 29, 1994 and 1,061 stores at July 31, 1993. Manufacturing and distribution revenues increased in the current year first two fiscal quarters and second fiscal quarter due to increased sales of ice cream to an external distributor as well as increased sales of cigarettes and candy to stores in certain marketing areas of the Company. 12 The lower gasoline revenues in the current year first two fiscal quarters resulted primarily from a decrease in the average selling price of gasoline of 2.0 cents per gallon for the current year first two fiscal quarters as compared to the prior year. This decrease was partially offset by an increase in total gallons sold of approximately 400,000 gallons in the current year first two fiscal quarters, which, on a per location basis, equated to an average gallonage increase of approximately 1.8%. For the current year second fiscal quarter alone, gasoline revenues were increased due primarily to an increase in total gallons sold of approximately 2.0 million gallons, which, on a per location basis, resulted in an average gallonage increase of approximately 4.3% in the current year second fiscal quarter as compared to the prior year second fiscal quarter. This increase in gallons sold was partially offset by a decrease in the average selling price of gasoline of 1.6 cents per gallon for the current year second fiscal quarter as compared to the prior year second fiscal quarter. Income from operations decreased by $6.9 million for the current year first two fiscal quarters and decreased by $5.5 million for the current year second fiscal quarter alone, as compared to the corresponding periods of the prior year. This was attributable to a decrease in earnings from the convenience store, gasoline and manufacturing and distribution operations of the Company, as well as the $1.8 million nonrecurring charge in the current year second fiscal quarter (see Note 7 to the Consolidated Financial Statements). 13 Overall, income from convenience store operations decreased for both the current year first two fiscal quarters and the second fiscal quarter primarily due to reduced product gross margins partially offset by the comparable store sales increases discussed above. The reduced gross margins were caused in part by significant product promotions, as well as an increase in costs associated with the Company's last-in, first-out (LIFO) inventory valuation method. (The LIFO provision was reduced in the prior year due to a decrease in cigarette prices, which constitutes one of the Company's major product categories.) Convenience store operations were also impacted by higher store selling expenses in the current year first two fiscal quarters and second fiscal quarter due primarily to increased store maintenance and advertising costs. Income from gasoline operations also decreased for both the current year first two fiscal quarters and the second fiscal quarter, due to a decrease in gasoline gross margins of approximately 0.9 cents per gallon for the first two fiscal quarters and 2.8 cents per gallon for the second fiscal quarter alone, as compared to the corresponding periods of the prior year. Additionally, for both the current year first two fiscal quarters and the second fiscal quarter, the Company incurred higher operating costs related to compliance with environmental regulations, reflecting an increase in the expenses associated with the remediation of the Company's gasoline locations after considering expected reimbursements of a portion of the total remediation costs from various state environmental trust funds. Such remediation costs are incurred in the ordinary course of business and can fluctuate from year to year. 14 These decreases were partially offset by the increase in gasoline gallons sold described above. Income from manufacturing and distribution operations decreased in the current year first two fiscal quarters and the second fiscal quarter due primarily to reduced operating margins, resulting in part from competitive product pricing, as well as increased labor costs. Other selling, general and administrative expenses remained relatively constant for the first two fiscal quarters and increased slightly for the second fiscal quarter alone, when compared to the corresponding periods of the prior year. Interest expense, net of interest income, increased by $832,000 in the current year first two fiscal quarters and by $309,000 in the current year second fiscal quarter alone primarily due to the overall increase in the Company's long-term debt obligations. In addition, interest expense for the current year-to-date period was increased due to duplicative interest expense during March, 1994 associated with the Company's Notes issued March 3, 1994 and the 14.25% subordinated debentures which were outstanding through April 4, 1994, the date on which the debentures were redeemed in full. These increases were partially offset by increased interest income in the current year due to the investment of the excess proceeds from the sale of the Notes in U.S. Treasury Bills and other cash equivalents as discussed above. Loss on disposition of properties was negatively impacted in the current year first two fiscal quarters and second fiscal quarter due to the writedown of a vacant office building to market value as well as a charge for the write-off of estimated unrecoverable costs related to approximately 60 locations that the Company has decided to close or sell. 15 The effective tax rate for the Company was a benefit of 40% for both the current year first two fiscal quarters and second fiscal quarter alone as compared to a provision of 40% for both the prior year first two fiscal quarters and second fiscal quarter. The Company provides for income taxes at the effective rate expected to be incurred for the entire year. Net loss for the current year first two fiscal quarters was $3,869,000 or $0.70 per share, as compared to net income of $2,104,000 or $0.38 per share. Net loss for the current year second fiscal quarter was $1,898,000 or $0.34 per share, as compared to $2,424,000 or $0.44 per share for the corresponding period of the prior year. In addition to the items discussed above, the net loss in the current year first two fiscal quarters was impacted by a $389,000 charge (net of the related income tax benefit) for the cumulative effect of an accounting change related to the rate used to discount the Company's self-insurance reserves (see Note 2 to the Consolidated Financial Statements). 16 PART II- OTHER INFORMATION Item 1. Legal Proceedings On August 30, 1994, the Company commenced a civil action in the Chancery Court, New Castle County, State of Delaware against Frank Colaccino, former President and Chief Executive Officer of the Company. The action arises from Mr. Colaccino's attempt to (i) remove three Directors (Messrs. Mitchell J.Kupperman, Gregory G.Landry and Robert B. Stein) of Dairy Mart, and elect new directors as their replacements by executing a written consent on behalf of DM Associates (the majority shareholder of Dairy Mart), and (ii) request a call of a special meeting of shareholders of the Company for September 14, 1994. The action seeks , among other relief, a declaration that the written consent is null and void and that the request for a special shareholders' meeting also is null and void pending further action by the Company's Board of Directors. In addition, Mr. Colaccino, along with Stephen N. Krevalin, Albert C. Woodruff, III and J. Ronald Rinaldi (Mr. Colaccino's replacement director nominees), brought an action against Dairy Mart and Messrs. Kupperman, Landry and Stein on September 1, 1994 in the Chancery Court, New Castle County, State of Delaware, seeking to have the Court declare that Messrs. Kupperman, Landry and Stein were validly removed as directors and replaced by Mr. Colaccino's designees and to have the removed directors permanently enjoined from continuing to act as directors of the Company, or, alternatively, to have the Court direct the Company and its directors to hold the special meeting requested by Mr. Colaccino. 17 A hearing is scheduled before the Chancery Court later this month with respect to the forgoing actions. On September 15, 1994 the Company announced by a press release that it had reached an agreement in principle with Mr. Colaccino to settle their disputes,including the above-described actions. The settlement is subject to the execution of definitive documentation. The proposed terms of the settlement with Mr. Colaccino include the withdrawal by the Company and Mr. Colaccino of all litigation, certain severance payments to be made by the Company to Mr. Colaccino over a three-year period, the vesting of certain existing stock options that were previously granted by the Company to Mr. Colaccino and the extension of the exercise period of all options held by Mr. Colaccino to eighteen months after the date of Mr.Colaccino's removal, reimbursement and payment by the Company of certain expenses and the resignation of Mr. Colaccino as a director of the Company. The estimated costs of settlement and related matters ,including legal expenses, have been reflected as a nonrecurring charge in the Company's second quarter financial statements as set forth in Part I, Item 1. Financial Statements hereto. 18 Item 5. Other Information Recent Developments On August 25, 1994, the Board of Directors of the Company removed Frank Colaccino as Chief Executive Officer and President of the Company. On August 30, 1994, the Company was informed of the dissolution of the general partner of DM Associates Limited Partnership ("DM Associates"). DM Associates holds a majority of the voting power of the Company's outstanding common stock. The dissolution of DM Associates' former general partner without the prior written consent of the Connecticut Development Authority (the "CDA") constitutes a default under the loan agreement between the CDA and DM Associates (the "CDA Loan Agreement"). On September 1, 1994, the Company received a copy of a notice of default delivered by the CDA to DM Associates (the "Notice") and, unless such default is waived by the CDA within 30 days from the date of the Notice, an event of default will have occurred under the CDA Loan Agreement. If such event of default occurs, the CDA will have the right to vote and sell 1,220,000 shares of Class B Common Stock of the Company (or approximately 40% of the total voting power of all classes of stock of the Company) that were pledged to it as security for the loan. The Company has been advised that representatives of DM Associates have commenced discussions with the CDA regarding the foregoing. The dissolution of the former general partner of DM Associates and the selection of a new general partner may or may not also constitute an event of default under the Company's $30 million bank credit facility and may or may not give rise to a right in favor of the holders of the Company's 10.25% Senior Subordinated Notes due 2004 in the aggregate principal amount of $75 million to cause the Company to purchase such notes at a cash price equal to 101% of the principal amount then outstanding, plus any accrued interest thereon. 19 The Company has been in contact with its bank lenders and Bear, Stearns & Co. Inc., the underwriter of the Company's 10.25% Senior Subordinated Notes, with respect to these matters. The Company believes that it will be able to obtain the requisite waivers or amendments to the underlying agreements, if necessary, in a manner that will not materially adversely affect the Company's financial condition, although the Company has not as yet obtained any guarantees or commitments to this effect. In connection with the foregoing, on September 8, 1994, the Company announced that it had been advised that the limited partners of DM Associates have selected New DM Management Associates, a Connecticut general partnership, as the new general partner of DM Associates. Charles Nirenberg, the Chairman of the Board of Directors and a director of the Company (see below) and a limited partner of DM Associates,is serving as the managing general partner of new DM Management Associates. In addition, at a meeting of the Board of Directors of the Company held on September 16,1994, the Board, following the recommendation of its Special Commitee, appointed and elected Charles Nirenberg as a director and as the Chairman of the Board,and further elected Robert B.Stein,Jr.,as President, effective immediately. The Special Committee was formed by the Board on August 25,1994 to review various governance matters and make a recommendation for the selection of a new President. For certain additional information regarding certain other recent events see Part II, Item 1 above. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, registrant had duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DAIRY MART CONVENIENCE STORES, INC. Date: September 19, 1994 /s/ Gregory G. Landry Gregory G. Landry Executive Vice President Chief Financial Officer 21 EX-27 2
5 This schedule contains summary financial information extracted from Consolidated Statements of Operations and Consolidated Balance Sheets and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS JAN-28-1995 JAN-30-1994 JUL-30-1994 12,133 3,931 14,935 2,130 27,121 61,353 147,843 56,265 183,016 53,723 89,017 63 0 0 30,003 183,016 383,167 302,582 226,300 300,845 1,800 398 4,939 (5,846) 2,366 (3,480) 0 0 (389) (3869) (0.70) (0.70)
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