-----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, Ci0AUHe2uqLVbIS4Xx/ge7WiF/DHfDt/6LyBrUccWDAudnHlr7OBrJB+h8BxX/kN QnTn+ADu6TjY9gfvM3DbVg== 0000950109-96-003919.txt : 19960619 0000950109-96-003919.hdr.sgml : 19960619 ACCESSION NUMBER: 0000950109-96-003919 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960504 FILED AS OF DATE: 19960618 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAIRY MART CONVENIENCE STORES INC CENTRAL INDEX KEY: 0000721675 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CONVENIENCE STORES [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: 001-11627 FILM NUMBER: 96582581 BUSINESS ADDRESS: STREET 1: ONE VISION DRIVE CITY: ENFIELD STATE: CT ZIP: 06082 BUSINESS PHONE: 2037414444 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________________ (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended May 4, 1996 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 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 (I.R.S. Employer incorporation or organization) Identification No.) One Vision Drive, Enfield, CT 06082 (Address of principal executive offices) Registrant's telephone number, including area code (860) 741-4444 ____________________ 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 --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Shares of Class A Common Stock outstanding May 4, 1996 - 2,809,924 Shares of Class B Common Stock outstanding May 4, 1996 - 2,783,060 -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 FIRST FISCAL QUARTER ENDED ---------------------- May 4, April 29, 1996 1995 - -------------------------------------------------------------------------------- Revenues................................. $ 141,328 $ 133,442 ------------ ---------- Cost of goods sold and expenses: Cost of goods sold..................... 105,082 98,170 Operating and administrative expenses.. 34,151 33,480 Interest expense....................... 2,748 2,361 ------------ ---------- 141,981 134,011 ------------ ---------- Loss before income taxes............... (653) (569) Benefit from income taxes................ 260 240 ---------- ---------- Net loss............................. $ (393) $ (329) - ------------------------------------------------------------------------------- Weighted average shares outstanding...... 4,371 5,564 ---------- ---------- Loss per share........................... $ (0.09) $ (0.06) - --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. -2- DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (in thousands)
May 4, 1996 February 3, 1996 - -------------------------------------------------------------------------------- ASSETS (Unaudited) Current Assets: Cash....................................... $ 11,712 $ 12,654 Short-term investment...................... 1,514 - Accounts and notes receivable.............. 10,058 9,752 Inventory.................................. 20,675 20,928 Prepaid expenses and other current assets.. 3,563 3,454 Deferred income taxes...................... 1,676 2,669 ---------- ---------- Total current assets.................... 49,198 49,457 ---------- ---------- Assets Held For Sale.......................... 8,685 8,685 ---------- ---------- Property and Equipment, net................... 80,809 80,387 ---------- ---------- Intangible Assets, net........................ 17,175 17,277 ---------- ---------- Other Assets, net............................. 8,258 9,132 ---------- ---------- Total assets.................................. $ 164,125 $ 164,938 - -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations. $ 1,530 $ 1,430 Accounts payable............................ 37,519 30,803 Accrued expenses............................ 10,318 14,437 Accrued interest............................ 1,350 3,355 ---------- ---------- Total current liabilities................ 50,717 50,025 ---------- ---------- Long-Term Obligations, less current portion above.. 99,143 99,451 ---------- ---------- Other Liabilities.............................. 5,426 6,254 ---------- ---------- Stockholders' Equity: Preferred Stock (serial).................... - - Class A Common Stock........................ 33 33 Class B Common Stock........................ 30 30 Paid-in capital............................. 29,995 29,971 Retained earnings (deficit)................. (6,214) (5,821) Treasury stock, at cost..................... Note receivable from DM Associates.......... (5,005) (5,005) Total stockholders' equity.................. (10,000) (10,000) ---------- ---------- 8,839 9,208 ---------- ---------- Total liabilities and stockholders' equity..... $ 164,125 $ 164,938 - --------------------------------------------------------------------------------
The accompanying notes are an integral par of these financial statements. -3- DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) (in thousands)
FOR THE FIRST FISCAL QUARTERS ENDED ------------------------------------ May 4, 1996 April 29, 1995 - ------------------------------------------------------------------------------------------ Cash flows from operating activities: Net loss.......................................... $ (393) $ (329) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization................... 3,134 2,988 Amortization of original issue discount......... 49 - Change in deferred income taxes................. 1,566 775 Gain on other disposition of properties, net.... (86) (153) Net change in assets and liabilities: Accounts and notes receivable................ (306) (99) Inventory.................................... 253 1,445 Accounts payable............................. 6,716 2,925 Accrued interest............................. (2,005) (1,935) Other assets and liabilities................. (5,056) (2,101) - -------------------------------------------------------------------------------- Net cash provided by operating activities........... 3,872 3,516 - -------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of and increase in short-term investments...................................... (1,514) (30) Purchase of property and equipment................ (3,951) (3,703) Proceeds from sale of property, equipment and assets held for sale........................... 889 9,300 Increase in long-term notes receivable............ (298) - Proceeds from collection of long-term notes receivable....................................... 352 40 Increase in intangibles and other assets........................................... (59) (95) - -------------------------------------------------------------------------------- Net cash (used in) provided by investing activities. (4,581) 5,512 - -------------------------------------------------------------------------------- Cash flows from financing activities: Increase in revolving loan, net................... 100 - Repayment of long-term obligations................ (357) (601) Issuance of common stock.......................... 24 37 - -------------------------------------------------------------------------------- Net cash used by financing activities............... (233) (564) - -------------------------------------------------------------------------------- (Decrease) increase in cash......................... (942) 8,464 Cash at beginning of fiscal year.................... 12,654 4,512 - -------------------------------------------------------------------------------- Cash at end of first fiscal quarter................. $ 11,712 $ 12,976 - --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. -4- DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 4, 1996 (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 May 2, 1996. 1. Accounting Policies ------------------- The financial statements included herein have been prepared in accordance with the accounting policies described in Note 1 to the February 3, 1996 audited consolidated financial statements included in the Company's Form 10-K. Certain prior year amounts have been reclassified to conform to the presentation used for the current year. 2. Changes in Capital Accounts --------------------------- An analysis of the capital stock accounts for the first fiscal quarter ended May 4, 1996 follows:
Common Stock --------------------------------------------------------- Class A Class B Shares Shares Paid-in issued at issued at capital $.01 par $.01 par in excess of value value Amount par value ----------- ----------- ---------- -------------- Balance February 3, 1996 3,326,296 2,959,017 $ 62,854 $ 29,970,606 Employee stock purchase plan 2,628 - 26 12,610 Stock options exercised 2,625 - 26 11,818 ---------- ---------- ---------- -------------- Balance May 4, 1996 3,331,549 2,959,017 $ 62,906 $ 29,995,034 ---------- ---------- ---------- --------------
-5- As of May 4, 1996, 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 2,809,924 Class A shares and 2,783,060 Class B shares outstanding. 3. 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. The Company's note receivable from DM Associates Limited Partnership is secured by 1,220,000 shares of the Company's Class B Common Stock, which shares are treated similar to treasury stock for earnings (loss) per share purposes. 4. Seasonality ----------- The results of operations for the first fiscal quarter ended May 4, 1996 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 more favorable financial results in its second and third fiscal quarters, as compared to its first and fourth fiscal quarters. -6- 5. Supplemental Consolidating Financial Information (unaudited) ------------------------------------------------------------ The Company's payment obligations under the Series A and Series B Senior Subordinated Notes are guaranteed by certain of the Company's subsidiaries ("Guarantor Subsidiaries"). The Notes are fully and unconditionally guaranteed on an unsecured, senior subordinated, joint and several basis by each of the guarantor subsidiaries. The following supplemental financial information sets forth, on an unconsolidated basis, balance sheet, statement of operations and cash flow information for the Company ("Parent Company Only"), for the Guarantor Subsidiaries and for Financial Opportunities Inc. ("FINOP"), the Company's non- guarantor subsidiary. Separate complete financial statements of the respective guarantor subsidiaries would not provide additional information which would be useful in assessing the financial condition of the guarantor subsidiaries, and are accordingly omitted. Investment in subsidiaries are accounted for by the Parent Company on the equity method for purposes of the supplemental consolidating presentation. Earnings of the subsidiaries are, therefore, reflected in the Parent Company's investment accounts and earnings. The principle elimination entries eliminate the Parent Company's investment in subsidiaries and intercompany balances and transactions.
Supplemental Consolidating Statement of Operations May 4, 1996 Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated -------- ------------ ----- ------------- ------------- (in thousands) Revenues............................ $ 43 $141,155 $ 130 $ - $141,328 Cost of goods sold and expenses: Cost of goods sold............... - 105,082 - - 105,082 Operating and administrative expenses........................ 69 34,078 4 - 34,151 Interest expense................. 2,448 211 89 - 2,748 Equity earnings of subsidiaries.. (1,821) - - 1,821 - ------- ---------- ------ -------------- ----------- 696 139,371 93 1,821 141,981 ------- ---------- ------ -------------- ----------- Income (loss) before income taxes.................. (653) 1,784 37 (1,821) (653) Benefit from income taxes........... 260 - - - 260 ------- ---------- ------ -------------- ----------- Net income (loss)................ $ (393) $ 1,784 $ 37 $ (1,821) $ (393) ======= ========== ====== ============== ===========
-7- Supplemental Consolidating Balance Sheet May 4, 1996
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated -------- ------------- ----- ------------ ------------ (in thousands) ASSETS Current Assets: Cash............................. $ 1,549 $ 8,716 $ 1,447 $ - $ 11,712 Short-term investment............ - - 1,514 - 1,514 Accounts and notes receivable.... - 9,400 658 - 10,058 Inventory........................ - 20,675 - - 20,675 Prepaid expenses and other current assets............ 14 3,549 - - 3,563 Deferred income taxes............ 807 869 - - 1,676 -------- -------- ------- ----------- -------- Total current assets.......... 2,370 43,209 3,619 - 49,198 -------- -------- ------- ----------- -------- Assets Held For Sale................ - 8,685 - - 8,685 Property and Equipment, net......... - 80,809 - - 80,809 Intangible Assets, net.............. - 17,175 - - 17,175 Other Assets, net................... 2,373 3,658 2,227 - 8,258 Investment in and advances to subsidiaries...................... 115,190 1,481 481 (117,152) - -------- -------- ------- ----------- -------- Total assets........................ $119,933 $155,017 $ 6,327 $ (117,152) $164,125 - -------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations........... $ 1,032 $ 498 $ - $ - $ 1,530 Accounts payable.................. 15,233 22,277 9 - 37,519 Accrued expenses.................. 1,074 9,244 - - 10,318 Accrued interest.................. 1,253 - 97 - 1,350 -------- -------- ------- ----------- -------- Total current liabilities................... 18,592 32,019 106 - 50,717 -------- -------- ------- ----------- -------- Long-Term Obligations, less current portion above.......... 92,272 2,641 4,230 - 99,143 Other Liabilities.................... 230 5,167 29 - 5,426 Stockholders' Equity................. 8,839 115,190 1,962 (117,152) 8,839 -------- -------- ------- ----------- -------- Total liabilities and stockholders equity............... $119,933 $155,017 $ 6,327 $ (117,152) $164,125 ======== ======== ======= =========== ========
-8- Supplemental Consolidating Statement Cash Flows May 4, 1996
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------------- ------------ ------------ ------------ ------------ (in thousands) Net cash provided (used) by operating activities................................. $ (5,904) $ 9,753 $ 23 $ - $ 3,872 ------------- ------------ ------------ ------------ ------------ Cash flow from investing activities: Purchase of and increase in short-term investments............................... - - (1,514) - (1,514) Purchase of property and equipment........ - (3,951) - - (3,951) Proceeds from sale of property, equipment and assets held for sale........ - 889 - - 889 Investment in and advances to subsidiaries.............................. 5,940 (5,734) (206) - - Increase in long-term notes receivable. - (55) (243) - (298) Proceeds from collection of long-term receivables..................... - - 352 - 352 Increase in intangibles and other assets.......................... - 57 (2) - (59) ------------- ------------ ------------ ------------ ------------ Net cash provided by (used in) investing activities................................ 5,940 (8,908) (1,613) - (4,581) ------------- ------------ ------------ ------------ ------------ Cash flows from financing activities: Increase in revolving loan, net............. 100 - - - 100 Repayment of long-term obligations.......... (350) - (7) - (357) Issuance of common stock.................... 24 - - - 24 ------------- ------------ ------------ ------------ ------------ Net cash used in financing activities................................... (226) - (7) - (233) ------------- ------------ ------------ ------------ ------------ Increase (decrease) in cash................... (190) 845 (1,597) - (942) Cash at beginning of year..................... 1,739 7,871 3,044 - 12,654 ------------- ------------ ------------ ------------ ------------ Cash at end of first fiscal quarter............ $ 1,549 $ 8,716 $ 1,447 $ - $ 11,712 ============= ============ ============ ============= ============
Supplemental Consolidating Statement of Operations April 29, 1995
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------------- ------------ ------------ ------------ ------------ (in thousands) Revenues...................................... $ 48 $ 133,264 $ 130 $ - $ 133,442 Cost of goods sold and expenses: Cost of goods sold......................... - 98,170 - - 98,170 Operating and administrative expenses.................................. 102 33,374 4 - 33,480 Interest expense........................... 2,097 169 95 - 2,361 Equity earnings of subsidiaries............ (1,582) - - 1,582 - ------------- ------------ ------------ ------------ ------------ 617 131,713 99 1,582 134,011 ------------- ------------ ------------ ------------ ------------ Income (loss) before income taxes............................ (569) 1,551 31 (1,582) (569) Benefit from income taxes..................... 240 - - - 240 ------------- ------------ ------------ ------------ ------------ Net income (loss)......................... $ (329) $ 1,551 $ 31 $ (1,582) $ (329) ============= ============ ============ ============ ============
-9- Supplemental Consolidating Balance Sheets February 3, 1996
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------------- ------------ ------------ ------------ ------------ (in thousands) ASSETS Current Assets: Cash..................................... $ 1,739 $ 7,871 $ 3,044 $ - $ 12,654 Short-term investment.................... - - - - - Accounts and notes receivable............ - 9,081 671 - 9,752 Inventory................................ - 20,928 - - 20,928 Prepaid expenses and other current assets.................... 60 3,394 - - 3,454 Deferred income taxes.................... 859 1,810 - - 2,669 ------------- ------------ ------------ ------------ ------------ Total current assets.................. 2,658 43,084 3,715 - 49,457 ------------- ------------ ------------ ------------ ------------ Assets Held For Sale........................ - 8,685 - - 8,685 Property and Equipment, net................. - 80,387 - - 80,387 Intangible Assets, net...................... - 17,277 - - 17,277 Other Assets, net........................... 2,442 4,352 2,338 - 9,132 Investment in and advances to subsidiaries.............................. 119,309 1,650 275 (121,234) - ------------- ------------ ------------ ------------ ------------ Total assets................................ $ 124,409 $ 155,435 $ 6,328 $ (121,234) $ 164,938 - ------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations.................. $ 932 $ 491 $ 7 $ - $ 1,430 Accounts payable......................... 15,919 14,875 9 - 30,803 Accrued expenses......................... 2,211 12,220 6 - 14,437 Accrued interest......................... 3,236 - 119 - 3,355 ------------- ------------ ------------ ------------ ------------ Total current liabilities............. 22,298 27,586 141 - 50,025 ------------- ------------ ------------ ------------ ------------ Long-Term Obligations, less current portion above................. 92,573 2,648 4,230 - 99,451 Other Liabilities........................... 330 5,892 32 - 6,254 Stockholders' Equity........................ 9,208 119,309 1,925 (121,234) 9,208 ------------- ------------ ------------ ------------ ------------ Total liabilities and stockholders' equity...................... $ 124,409 $ 155,435 $ 6,328 $ (121,234) $ 164,938 ============= ============ ============ ============ ============
-10- Supplemental Consolidating Statement Cash Flows April 29, 1995
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------------- ------------ ------------ ------------ ------------ (in thousand) Net cash (used) provided by operating activities................................ $ (2,800) $ 6,159 $ 157 $ - $ 3,516 ------------- ------------ ------------ ------------ ------------ Cash flow from investing activities Purchase of and increase in short-term investments.............................. - - (30) - (30) Purchase of property and equipment........ - (3,703) - - (3,703) Proceeds from sale of property, equipment and assets held for sale....... - 9,300 - - 9,300 Investment in and advances to subsidiaries............................. 8,202 (8,084) (118) - - Proceeds from collection of long-term receivables.................... - 40 - - 40 Decrease (increase) in intangibles and other assets......................... (7) (85) (3) - (95) ------------ ------------ ------------ ------------ ------------ Net cash provided by (used in) investing activities..................... 8,195 (2,532) (151) - 5,512 ------------- ------------ ------------ ------------ ------------ Cash flows from financing activities: Repayment of long-term obligations........ (255) (346) - - (601) Issuance of common stock. 37 - - - 37 ------------- ------------ ------------ ------------ ------------ Net cash used in financing activities...... (218) (346) - - (564) ------------- ------------ ------------ ------------ ------------ Increase in cash........................... 5,177 3,281 6 - 8,464 Cash at beginning of year.................. - 3,418 1,094 - 4,512 ------------- ------------ ------------ ------------ ------------ Cash at end of first fiscal quarter........ $ 5,177 $ 6,699 $ 1,100 $ - $ 12,976 ============= ============ ============ ============ ============
-11- Dairy Mart Convenience Stores, Inc. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenues Revenues for the current year first fiscal quarter increased by $7.9 million from the prior year first fiscal quarter. A summary of revenues by functional area for the comparative first fiscal quarter is as follows:
FOR THE FIRST FISCAL QUARTER ENDED -------------------- May 4, April 29, (in millions) 1996 1995 ---------------------------------------------- Convenience stores $ 81.1 $ 79.0 Gasoline 59.6 53.8 Other 0.6 0.6 ------ ------ Total $141.3 $133.4 ====== ======
Convenience store revenues increased $2.1 million, or 2.7%, in the current year first fiscal quarter as compared to the prior year first fiscal quarter due to an increase in comparable store sales of 2.3% partially offset by a reduction of 65 underperforming stores. Although the reduction in stores had a negative impact on revenues they did not have material adverse effect on results of operations. Gasoline revenues increased $5.8 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter due to an increase in the average selling price of gasoline of 9.3 cents per gallon. Gasoline gallons sold increased marginally in the current year first fiscal quarter as compared to the corresponding period of the prior year despite the decrease in gasoline facilities from 410 sites at the end of the first fiscal quarter of fiscal 1996 as compared to 376 sites at the end of the current year first fiscal quarter. On a per location basis, comparable store gallons sold increased by 2.6% in the current year first fiscal quarter as compared to the corresponding period of the prior year. These gallonage increases were due to the further development of new stores having a major gasoline presence and the remodeling and expansion of gasoline facilities at certain existing locations. -12- Gross Profits Gross profits for the current year first fiscal quarter increased $0.9 million from the prior year first fiscal quarter. A summary of the gross profits by functional area for the comparative first fiscal quarter is as follows:
FOR THE FIRST FISCAL QUARTER ENDED -------------------- May 4, April 29, (in millions) 1996 1995 ---------------------------------------------- Convenience stores $ 30.0 $ 29.6 Gasoline 5.6 5.1 Other 0.6 0.6 ------ ------ Total $ 36.2 $ 35.3 ====== ======
Convenience store gross profits increased by $0.4 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter due to increased marketing allowances and higher lottery commissions, partially offset by the overall reduction in the number of stores, as described above. Gasoline gross profits increased by $0.5 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter primarily due to an increase of 0.81 cents in gross margin per gallon. Operating and Administrative Expenses Operating and administrative expenses for the current year first fiscal quarter increased $0.7 million from the prior year first fiscal quarter. A summary of expenses by functional area for the comparative first fiscal quarter is as follows:
FOR THE FIRST FISCAL QUARTER ENDED -------------------- May 4, April 29, (in millions) 1996 1995 ---------------------------------------------- Convenience stores $ 24.1 $ 23.7 Gasoline 3.6 3.0 Administrative and Other 6.5 6.8 ------ ------ Total $ 34.2 $ 33.5 ====== ======
Convenience store operating expenses increased $0.4 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter due to higher labor and maintenance costs on a per store basis, partially offset by the closure or sale of underperforming stores, as described above. The increase -13- in maintenance costs was primarily attributable to snow removal expenses caused by severe weather conditions in certain geographic areas in which the Company operates. Gasoline operating expenses increased $0.6 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter due to the operation of higher volume new or remodeled and expanded facilities, as described above. Administrative and other expenses decreased by $0.3 million in the current year first fiscal quarter as compared to the corresponding period of the prior year due to a reduced level of administrative support staff and a decrease in the Company's workers' compensation and commercial liability insurance expense attributable to improved specific claims experience. Interest Expense and Taxes Interest expense increased in the current year first fiscal quarter as compared to the prior year first fiscal quarter due to an increased level of borrowing associated with the issuance of $13.5 million principal amount of 10.25% senior subordinated notes (Series B) in December 1995. The effective tax rate for the Company was a benefit of 40% and 42% for the current year first fiscal quarter and for the prior year first fiscal quarter, respectively. The Company provides for income taxes at the effective rate expected to be incurred for the entire fiscal year. -14- 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 in the current year first fiscal quarter significantly exceeded the current debt service requirements of the Company's long-term obligations. The current year capital expenditures of the Company were primarily funded by the excess operating cash flow and by the cash generated from the sale of certain assets. In addition, the Company has a revolving line of credit available to address the timing of certain working capital and capital expenditure disbursements. Management believes that the cash flow from operations and the proceeds from the sale of certain assets, supplemented by the availability of a revolving line of credit, will provide the Company with adequate liquidity and the capital necessary to achieve its expansion initiatives in its retail operations (see Capital Expenditures). Cash Provided by Operating Activities During the current year first fiscal quarter, net cash generated by operations was $0.4 million higher than the prior year first fiscal quarter as a result of the net change in certain working capital and other balance sheet accounts. The changes in working capital and other balance sheet accounts in the current year first fiscal quarter were primarily related to accounts payable, inventory and other assets and liabilities, net of the change in deferred income taxes. The increase in accounts payable in the current year first fiscal quarter was primarily due to the timing of payments to the issuers of money orders, as described below. The cash flow generated from inventory decreased due to a lower number of store closures or sales in the current year first fiscal quarter as compared to the corresponding period of the prior year. The decrease in other assets and liabilities, net of the change in deferred income taxes, in the current year first fiscal quarter was due to the decrease in various accrued expenses related primarily to lower legal and professional fee accruals and workers' compensation and commercial liability insurance reserves. During the current year first fiscal quarter, the Company paid its trade -15- payables in an average of 30 days, compared to 27 days for the fiscal year ended February 3, 1996 and 26 days for the prior year first fiscal quarter. The cash flow of the Company is also favorably impacted by the Company's use of funds from the sale of money orders, pending remittance of such funds to the issuers of the money orders. As of April 30, 1996, the Company changed its money order issuer and due to the timing of the settlement with the former issuer, the combined obligation to the issuers of the money orders was $12.4 million as of May 4, 1996. As of February 3, 1996, the amount due to the former issuer of money orders was $7.6 million. In May 1996, the Company settled its remittance obligation with the former money order issuer, which resulted in the release of an outstanding letter of credit in the amount of $7.5 million. The Company is not required to issue a letter of credit to the new issuer of money orders. Cash Used by Financing Activities Cash used by financing activities decreased by $0.3 million in the current year first fiscal quarter as compared to the corresponding period of the prior year primarily due to lower debt service requirements. During the current year first fiscal quarter, the Company entered into a new senior revolving credit facility. Under the terms of the new $30.0 million senior revolving credit facility, the Company has initially available up to $20.0 million in aggregate extensions of credit with $15.0 million available for the issuance of letters of credit. The Company may utilize the new revolving credit facility as needed for working capital and general corporate purposes. As of May 4, 1996, the Company had $0.1 million outstanding on the revolving credit facility and had $14.0 million in outstanding letters of credit, which amount was subsequently reduced by the $7.5 million letter of credit previously provided to the issuer of money orders, as described above. Cash Used by Investing Activities Net cash used by investing activities increased by $10.1 million in the current year first fiscal quarter as compared to the corresponding period of the prior year due to reduced cash flows generated from the sale of certain assets, -16- including the sale and leaseback of existing store properties. In addition, the Company's investing activities were increased due to the purchase in the current year first fiscal quarter of a U.S. Treasury Bill. Capital Expenditures The Company anticipates spending approximately $25 million for capital expenditures in fiscal 1997 by purchasing store and gasoline equipment for new stores, remodeling approximately 40 to 50 existing stores, installing fast food concepts, such as Taco Bell(R), Subway(R) and Pizza Hut(R) in the new and remodeled stores, installing store automation in a number of locations, significantly upgrading certain gasoline locations to provide credit card readers at the pump, improve outdoor lighting and to meet current environmental standards (see "Environmental Responsibility"). These capital expenditures will be funded primarily by cash generated from operations and from cash generated by the disposition of assets held for sale as of May 4, 1996, supplemented by the availability of the Company's senior revolving line of credit. The Company intends to lease the real estate for the majority of new store locations. Environmental Responsibility The Company accrues its estimate of all costs to be incurred for assessment and remediation with respect to releases of regulated substances from existing and previously operated retail gasoline facilities. As of May 4, 1996, the Company had recorded an accrual of $1,650,000 for such costs, the majority of which are anticipated to be spent over the next 3 to 5 years. The Company is entitled to reimbursement of a portion of the above costs from various state environmental trust funds based upon compliance with the terms and conditions of such trust funds. As of May 4, 1996, the Company has recorded a net state trust fund reimbursement receivable of $1,056,000 (representing a gross receivable of $1,638,000 less an allowance of $582,000). Although there are no assurances as to the timing, the Company believes that it is probable that reimbursements from state environmental trust funds will be received within one to four years from the payment of the reimbursable assessment and remediation -17- expenses. In addition, the Company estimates that future capital expenditure requirements to comply with federal and state underground gasoline storage tank regulations will be approximately $10.0 to $12.0 million in the aggregate through December 1998. These costs could be reduced for low volume locations closed in lieu of the capital cost of compliance. The Company's estimate of costs to be incurred for environmental assessment and remediation and for required underground storage tank upgrading and other regulatory compliance are based on factors and assumptions that could change due to modifications of regulatory requirements or detection of unanticipated environmental conditions. -18- PART II Other Information Item 6. Exhibits and Reports on Form 8-K. (a.) Exhibits: 1. Exhibit (11) - Statement re Computation of Per-Share Earnings. 2. Exhibit (27) - Financial Data Schedule. Submitted in electronic format only. (b.) 8-K Reports: During the first quarter of fiscal 1997, the Company filed no reports on Form 8-K. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DAIRY MART CONVENIENCE STORES, INC. /s/ Gregory G. Landry ----------------------------------- Date: June 18, 1996 Gregory G. Landry Executive Vice President Chief Financial Officer EX-11 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS Exhibit 11 Dairy Mart Convenience Stores, Inc. and Subsidiaries STATEMENT RE COMPUTATIONS OF PER-SHARE EARNINGS (in thousands, except per share amounts) CALCULATION OF EARNINGS (LOSS) PER SHARE FOR THE FIRST FISCAL QUARTER ENDED ---------------------
May 4, April 29, 1996 1995 ---------- --------- Net earnings (loss)................. $ (393) $ (329) ---------- --------- Weighted average shares............. 5,591 5,564 Dilutive options.................... - - Effect of DM Associates stock....... (1,220) - ---------- --------- Total shares for EPS purposes....... $ 4,371 $ 5,564 - ------------------------------- ---------- --------- Net income (loss) per share......... $ (0.09) $ (0.06) ===========================================================================
EX-27.1 3 FINANCIAL DATA SCHEDULE
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 3-MOS FEB-01-1997 FEB-04-1996 MAY-04-1996 11,712 1,514 11,588 1,530 20,675 49,198 120,039 39,230 164,125 50,717 99,143 0 0 63 8,839 164,125 0 141,328 105,082 139,233 0 0 2,748 (653) 260 (393) 0 0 0 (393) (0.09) (0.09)
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