-----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, FpLLGT98XvU/d0d6oSpzPuxofcz5zFmu50tsSemik2CB8rVyCLMzHXl0UF/xnLJ8 qLOkJYSfABS0Pavr5Sx/tg== 0000950109-96-006024.txt : 19960918 0000950109-96-006024.hdr.sgml : 19960918 ACCESSION NUMBER: 0000950109-96-006024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960803 FILED AS OF DATE: 19960917 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: 96631147 BUSINESS ADDRESS: STREET 1: ONE VISION DRIVE CITY: ENFIELD STATE: CT ZIP: 06082 BUSINESS PHONE: 2037414444 10-Q 1 FORM 10-Q PERIOD ENDING 8-03-96 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 August 3, 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 August 3, 1996 - 2,837,541 Shares of Class B Common Stock outstanding August 3, 1996 - 2,783,060 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 FOR THE TWO FISCAL QUARTER ENDED QUARTERS ENDED ------------------------ ---------------------- August 3, July 29, August 3, July 29, 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------ Revenues...................................... $156,132 $150,818 $297,460 $284,260 -------- -------- -------- -------- Cost of goods sold and expenses: Cost of goods sold.......... Operating and administrative expenses........ 114,456 108,601 219,538 206,771 35,193 35,978 69,344 69,458 Interest expense............................. 2,756 2,262 5,504 4,623 -------- -------- -------- -------- 152,405 146,841 294,386 280,852 -------- -------- -------- -------- Income before income taxes................... 3,727 3,977 3,074 3,408 Provision for income taxes.................... (1,493) (1,740) (1,233) (1,500) -------- -------- -------- -------- Net income.................................. $ 2,234 $ 2,237 $ 1,841 $ 1,908 - ------------------------------------------------------------------------------------------------ Weighted average shares outstanding........... 4,700 5,836 4,702 5,773 -------- -------- -------- -------- Earnings per share............................ $0.48 $0.38 $0.39 $0.33 - ------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. Dairy Mart Convenience Stores, Inc. and Subsidiaries Consolidated Balance Sheets (unaudited) (in thousands)
August 3, 1996 February 3, 1996 - ------------------------------------------------------------------------------- ASSETS Current Assets: Cash....................................... $ 17,654 $ 12,654 Short-term investment...................... 1,532 - Accounts and notes receivable.............. 11,476 9,752 Inventory.................................. 20,466 20,928 Prepaid expenses and other current assets.. 3,639 3,454 Deferred income taxes...................... 2,282 2,669 -------- -------- Total current assets.................... 57,049 49,457 -------- -------- Assets Held For Sale.......................... 8,685 8,685 -------- -------- Property and Equipment, net................... 82,647 80,387 -------- -------- Intangible Assets, net........................ 17,401 17,277 -------- -------- Other Assets, net............................. 10,275 9,132 -------- -------- Total assets.................................. $176,057 $164,938 - ------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations..... $ 1,465 $ 1,430 Accounts payable................................ 34,656 30,803 Accrued expenses................................ 15,371 14,437 Accrued interest................................ 3,654 3,355 -------- -------- Total current liabilities.................... 55,146 50,025 -------- -------- Long-Term Obligations, less current portion above.. 99,466 99,451 -------- -------- Other Liabilities.................................. 10,238 6,254 -------- -------- Stockholders' Equity: Preferred Stock (serial)........................ - - Class A Common Stock............................ 33 33 Class B Common Stock............................ 30 30 Paid-in capital................................. 30,129 29,971 Retained earnings (deficit)..................... (3,980) (5,821) Treasury stock, at cost......................... Note receivable from DM Associates.............. (5,005) (5,005) Total stockholders' equity................... (10,000) (10,000) -------- -------- 11,207 9,208 -------- -------- Total liabilities and stockholders' equity......... $176,057 $164,938 - -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. Dairy Mart Convenience Stores, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) (in thousands)
FOR THE TWO FISCAL QUARTERS ENDED --------------------------------- August 3, 1996 July 29, 1995 - ------------------------------------------------------------------------------------------ Cash flows from operating activities: Net Income.............................................. $ 1,841 $ 1,908 Adjustments to reconcile net income to net cash provided by operating activities: Cash flow effect of corporate governance and restructuring initiatives and other operating costs................ (1,788) (2,080) Depreciation and amortization......................... 5,833 5,915 Amortization of original issue discount............... 97 - Change in deferred income taxes....................... (866) 1,625 (Gain) loss on other disposition of properties, net... (89) 176 Net change in assets and liabilities: Accounts and notes receivable...................... (1,724) (1,095) Inventory.......................................... 462 4,705 Accounts payable................................... 3,853 1,197 Accrued interest................................... 299 (56) Other assets and liabilities....................... 6,521 (2,043) - ---------------------------------------------------------------------------------------- Net cash provided by operating activities................. 14,439 10,252 - ---------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of and increase in short-term investments...... (1,532) (61) Purchase of property and equipment...................... (9,429) (7,962) Proceeds from sale of property, equipment and assets held for sale................................. 2,233 10,671 Increase in long-term notes receivable.................. (1,368) (507) Proceeds from collection of long-term notes receivable.. 971 516 Increase in intangibles and other assets................ (425) (92) - ---------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities....... (9,550) 2,565 - ---------------------------------------------------------------------------------------- Cash flows from financing activities: Increase in long-term obligations....................... 650 - Repayment of long-term obligations...................... (697) (1,022) Increase in common stock and paid-in capital............ 158 77 - ---------------------------------------------------------------------------------------- Net cash provided (used)by financing activities........... 111 (945) - ---------------------------------------------------------------------------------------- Increase in cash.......................................... 5,000 11,872 Cash at beginning of fiscal year.......................... 12,654 4,512 - ---------------------------------------------------------------------------------------- Cash at end of second fiscal quarter...................... $ 17,654 $ 16,384 - ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. Dairy Mart Convenience Stores, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AUGUST 3, 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/A Amendment No. 2, filed with the Securities and Exchange Commission on August 23, 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/A Amendment No. 2. 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 two fiscal quarters ended August 3, 1996 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 February 3, 1996 3,326,296 2,959,017 $ 62,854 $ 29,970,606 Employee stock purchase plan 5,245 - 52 25,669 Stock options exercised 27,625 - 276 133,068 -------------- ------------- -------- ---------------- Balance August 3, 1996 3,359,166 2,959,017 $ 63,182 $ 30,129,343 -------------- ------------- -------- ----------------
As of August 3, 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 2,837,541 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 being treated similar to treasury stock for earnings (loss) per share purposes. 4. Seasonality ----------- The results of operations for the first two fiscal quarters ended August 3, 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. 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, statement of operations, balance sheet, and cash flows 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 for the Two Fiscal Quarters Ended August 3, 1996
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated -------- ------------ ----- ------------ ------------ (in thousands) Revenues............................. $ 135 $297,054 $ 271 $ - $297,460 -------- -------- ------ --------- --------- Cost of goods sold and expenses: Cost of goods sold.................. - 219,538 - - 219,538 Operating and administrative expenses........................... 138 69,206 - - 69,344 Interest expense.................... 5,077 253 174 - 5,504 -------- -------- ------ --------- --------- 5,215 288,997 174 - 294,386 -------- -------- ------ --------- --------- Income (loss) before income taxes and equity in income (loss) of consolidated subsidiaries....... (5,080) 8,057 97 - 3,074 Benefit from (provision for) income taxes....................... 2,037 (3,264) (6) - (1,233) -------- -------- ------ --------- --------- Income (loss) before equity in income (loss) of consolidated subsidiaries..................... (3,043) 4,793 91 - 1,841 Equity in income (loss) of consolidated subsidiaries.......... 4,884 91 - (4,975) - -------- -------- ------ --------- --------- Net income (loss)................ $ 1,841 $ 4,884 $ 91 $ (4,975) $ 1,841 ======== ======== ====== ========= =========
Supplemental Consolidating Balance Sheets as of August 3, 1996
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated -------------- ------------ ------ ------------- ------------ (in thousands) ASSETS Current Assets: Cash........................... $ 6,125 $ 10,768 $ 761 $ - $ 17,654 Short-term investment.......... - - 1,532 - 1,532 Accounts and notes receivable.. 610 10,036 830 - 11,476 Inventory...................... - 20,466 - - 20,466 Prepaid expenses and other current assets.......... 127 3,512 - - 3,639 Deferred income taxes.......... 1,217 1,065 - - 2,282 ------ -------- ------ --------- -------- Total current assets........ 8,079 45,847 3,123 - 57,049 ------ -------- ------ --------- -------- Assets Held For Sale.............. - 8,685 - - 8,685 Property and Equipment, net....... - 82,647 - - 82,647 Intangible Assets, net............ - 17,401 - - 17,401 Other Assets, net................. 3,433 4,170 2,672 - 10,275 Investment in and advances to subsidiaries.................... 114,678 1,258 758 (116,694) - ------- -------- ------ --------- -------- Total assets...................... $126,190 $160,008 $6,553 $(116,694) $176,057 - ----------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations........ $ 1,145 $ 320 $ - $ - $ 1,465 Accounts payable............... 17,137 17,510 9 - 34,656 Accrued expenses............... 723 14,494 154 - 15,371 Accrued interest............... 3,552 - 102 - 3,654 ------- -------- ------ --------- -------- Total current liabilities................ 22,557 32,324 265 - 55,146 ------- -------- ------ --------- -------- Long-Term Obligations, less current portion above....... 92,294 2,942 4,230 - 99,466 Other Liabilities................. 132 10,064 42 - 10,238 Stockholders' Equity.............. 11,207 114,678 2,016 (116,694) 11,207 ------- -------- ------ --------- -------- Total liabilities and stockholders' equity............ $126,190 $160,008 $6,553 $(116,694) $176,057 ======== ======== ======= ========= ========
Supplemental Consolidating Statement of Cash Flows for the Two Fiscal Quarters ended August 3, 1996
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated -------- ------------ ----- ------------ ------------ (in thousands) Net cash provided by (used in) operating activities.............................. $ (5,215) $ 19,580 $ 74 $ - $14,439 -------- -------- ------- --------- ------- Cash flow from investing activities: Purchase of and increase in short-term investments............................ - - (1,532) - (1,532) Purchase of property and equipment...... - (9,429) - - (9,429) Proceeds from sale of property, equipment and assets held for sale..... - 2,233 - - 2,233 Investment in and advances to subsidiaries........................... 9,606 (9,123) (483) - - Increase in long-term notes receivable.. - (120) (1,248) - (1,368) Proceeds from collection of long-term receivables.................. - 60 911 - 971 Increase in intangibles and other assets....................... - (428) 3 - (425) -------- -------- ------- --------- ------- Net cash provided by (used in) investing activities............................ 9,606 (16,807) (2,349) - (9,550) -------- -------- ------- --------- ------- Cash flows from financing activities: Increase in revolving loan, net......... 300 350 - - 650 Repayment of long-term obligations...... (463) (226) (8) - (697) Increase in common stock and paid-in capital................................. 158 - - - 158 -------- -------- ------- --------- ------- Net cash provided by (used in) financing activities.............................. (5) 124 (8) - 111 -------- -------- ------- --------- ------- Increase (decrease) in cash............... 4,386 2,897 (2,283) - 5,000 Cash at beginning of year................. 1,739 7,871 3,044 - 12,654 -------- -------- ------- --------- ------- Cash at end of second fiscal quarter...... $ 6,125 $ 10,768 $ 761 $ - $17,654 ======== ======== ======= ========= =======
Supplemental Consolidating Statement of Operations for the Two fiscal Quarters ended July 29, 1995
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated -------- ------------ ----- ------------ ------------ (in thousands) Revenues................................... $ 376 $283,601 $283 $ - $284,260 --------- -------- ---- -------- --------- Cost of goods sold and expenses: Cost of goods sold....................... - 206,771 - - 206,771 Operating and administrative expenses................................ 203 69,255 - - 69,458 Interest expense.......................... 4,127 316 180 - 4,623 --------- -------- ---- -------- --------- 4,330 276,342 180 - 280,852 --------- -------- ---- -------- --------- Income (loss) before income taxes and equity in income (loss) of consolidated subsidiaries.......... (3,954) 7,259 103 - 3,408 Benefit from (provision for) income taxes.............................. 1,740 (3,231) (9) - (1,500) --------- -------- ---- -------- --------- Income (loss) before equity in income (loss) of consolidated subsidiaries............................ (2,214) 4,028 94 - 1,908 Equity in income (loss) of consolidated subsidiaries................. 4,122 94 - (4,216) - --------- -------- ---- -------- --------- Net income (loss)....................... $ 1,908 $ 4,122 $ 94 $ (4,216) $ 1,908 ========= ======== ==== ======== =========
Supplemental Consolidating Balance Sheets as of February 3, 1996
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated -------- ------------ ----- ------------ ------------ (in thousands) ASSETS Current Assets: Cash............................. $ 1,739 $ 7,871 $3,044 $ - $ 12,654 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 $ 490 $ 8 $ - $ 1,430 Accounts payable.......... 15,919 14,875 9 - 30,803 Accrued expenses.......... 2,211 12,221 5 - 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 ========= =========== ====== =========== ==========
Supplemental Consolidating Statement of Cash Flows for the Two Quarters ended July 29, 1995
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated -------- ------------ ----- ------------ ------------ (in thousands) Net cash (used in) provided by operating activities.............................. $ (1,713) $ 11,858 $ 107 $ - $ 10,252 --------- ----------- ------ ----------- ---------- Cash flow from investing activities: Purchase of and increase in short-term investments............................ - - (61) - (61) Purchase of property and equipment...... - (7,962) - - (7,962) Proceeds from sale of property, equipment and assets held for sale..... - 10,671 - - 10,671 Investment in and advances to subsidiaries........................... 17,494 (17,438) (56) - - Increase in long-term notes receivable.. - - (507) - (507) Proceeds from collection of long-term receivables.................. - 67 449 - 516 Increase in intangibles and other assets....................... (14) (80) 2 - (92) --------- ----------- ------ ----------- ---------- Net cash provided by (used in) investing activities................... 17,480 (14,742) (173) - 2,565 --------- ----------- ------ ----------- ---------- Cash flows from financing activities: Repayment of long-term obligations...... (536) (486) - - (1,022) Increase in common stock and paid-in capital................................ 77 - - - 77 --------- ----------- ------ ----------- ---------- Net cash used in financing activities..... (459) (486) - - (945) --------- ----------- ------ ----------- ---------- Increase (decrease) in cash.............. 15,308 (3,370) (66) - 11,872 Cash at beginning of year................. - 3,418 1,094 - 4,512 --------- ----------- ------ ----------- ---------- Cash at end of second fiscal quarter...... $ 15,308 $ 48 $1,028 $ - $ 16,384 ========= =========== ====== =========== ==========
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 two fiscal quarters increased by $13.2 million from the prior year first two fiscal quarters, and revenues for the second fiscal quarter increased by $5.3 million from the prior year second fiscal quarter. A summary of revenues by functional area for the comparative second fiscal quarter and the first two fiscal quarters is as follows:
FOR THE SECOND FISCAL FOR THE TWO FISCAL QUARTER ENDED QUARTERS ENDED -------------------------- ------------------------ Aug 3, July 29, Aug 3, July 29, (in millions) 1996 1995 1996 1995 - ----------------------------------------------------- ------------------------ Convenience store $ 90.6 $ 90.4 $171.7 $169.4 Gasoline 64.5 59.8 124.0 113.6 Other 1.0 0.6 1.8 1.3 -------------------------- ----------------------- Total $156.1 $150.8 $297.5 $284.3 ========================== =======================
Convenience store revenues increased $2.3 million, or 1.4%, in the current year first two fiscal quarters as compared to the prior year first two fiscal quarters, and convenience store revenues for the current year second fiscal quarter increased $0.2 million as compared to the prior year second fiscal quarter. These increases were primarily due to a 1.7% increase and a 1.2% increase in comparable store sales for the two fiscal quarters and second fiscal quarter, respectively, partially offset by a reduction of approximately 60 underperforming stores in the current fiscal year. Although the reduction in stores had a negative impact on revenues they did not have a material adverse effect on results of operations, since the majority of stores closed or sold had been operating at a loss. Gasoline revenues increased $10.4 million in the current year first two fiscal quarters as compared to the prior year first two fiscal quarters, and gasoline revenues for the current year second fiscal quarter increased $4.7 million as compared to the prior year second fiscal quarter. These increases were due to an increase in the average selling price of gasoline of 7.0 cents per gallon and 5.0 cents per gallon for the two fiscal quarters and second fiscal quarter, respectively, combined with an increase in total gasoline gallons sold of 2.2 million and 1.5 million for the two fiscal quarters and second fiscal quarter, respectively. The increase in gasoline gallons sold was achieved despite a decrease in the average number of gasoline retailing facilities. The Company operated on average twenty-five fewer gasoline retailing facilities during the current year first two fiscal quarters and seventeen fewer gasoline retailing facilities during the second fiscal quarter, as compared to the corresponding periods of the prior year. On a per location basis, average store gallons sold increased by 3.8% and 7.7% in the current year first two fiscal quarters and second fiscal quarter, respectively, as compared to the corresponding periods of the prior year. The increase in gallons sold was due primarily to further development of new stores having a major gasoline presence and the remodeling and expansion of gasoline facilities at certain existing locations offset by the closure of certain low volume gasoline locations. Gross Profits Gross profits for the current year first two fiscal quarters increased by $0.4 million from the prior year first two fiscal quarters, and gross profits for the current year second fiscal quarter decreased by $0.5 million from the prior year second fiscal quarter. A summary of the gross profits by functional area for the comparative second fiscal quarter and the first two fiscal quarters is as follows:
FOR THE SECOND FISCAL FOR THE TWO FISCAL QUARTER ENDED QUARTERS ENDED --------------------- --------------------- Aug 3, July 29, Aug 3, July 29, (in millions) 1996 1995 1996 1995 - -------------------------------------------------------- --------------------- Convenience store $34.1 $34.8 $64.0 $64.3 Gasoline 6.6 6.8 12.1 11.9 Other 1.0 0.6 1.8 1.3 --------------------- --------------------- Total $41.7 $42.2 $77.9 $77.5 ===================== =====================
Convenience store gross profits decreased by $0.3 million in the current year first two fiscal quarters as compared to the prior year first two fiscal quarters, and convenience store gross profits for the current year second fiscal quarter decreased by $0.7 million as compared to the prior year second fiscal quarter. These decreases were primarily due to lower product gross margins and due to the overall reduction in the average number of stores, as described above, partially offset by increased marketing allowances and an increase in comparable store sales, as described above. Gasoline gross profits increased by $0.2 million in the current year first two fiscal quarters as compared to the prior year first two fiscal quarters due to an increase in the gasoline gallons sold, as described above. Gasoline gross profits in the current year second fiscal quarter decreased by $0.2 million as compared to the prior year second fiscal quarter primarily due to a decrease of 0.87 cents in gross profit per gallon, partially offset by an increase in the gasoline gallons sold, as described above. Other gross profits increased by $0.5 million in the current year first two fiscal quarters as compared to the prior year first two fiscal quarters, and other gross profits for the current year second fiscal quarter increased by $0.4 million as compared to the prior year second fiscal quarter primarily due to marketing allowances from third-party dairy manufacturers. Operating and Administrative Expenses Operating and administrative expenses for the current year first two fiscal quarters decreased $0.2 million from the prior year first two fiscal quarters, and operating and administrative expenses for the second fiscal quarter decreased by $0.8 million from the prior year second fiscal quarter. A summary of expenses by functional area for the comparative second fiscal quarter and the first two fiscal quarters is as follows:
FOR THE SECOND FISCAL FOR THE TWO FISCAL QUARTER ENDED QUARTERS ENDED --------------------- ------------------ Aug 3, July 29, Aug 3, July 29, (in millions) 1996 1995 1996 1995 - ------------------------------------------------- ------------------ Convenience store $25.5 $25.3 $49.6 $49.0 Gasoline 3.4 3.4 7.0 6.4 Administrative and other 6.3 7.3 12.7 14.1 ----------------- ---------------- Total $35.2 $36.0 $69.3 $69.5 ================= ================
Convenience store operating expenses increased by $0.6 million in the current year first two fiscal quarters as compared to the prior year first two fiscal quarters, and convenience store operating expenses for the current year second fiscal quarter increased by $0.2 million as compared to the prior year second fiscal quarter. These increases were primarily due to higher labor, rent and depreciation costs on a per store basis, partially offset by the closure or sale of underperforming stores, as described above. Gasoline operating expenses increased by $0.6 million in the current year first two fiscal quarters as compared to the prior year first two fiscal quarters primarily due to an increase in environmental expenses associated with the remediation of gasoline locations after considering probable reimbursements from various state environmental trust funds and due to the operation of higher volume new or remodelled and expanded facilities, as described above. Gasoline operating expenses remained constant in the current year second fiscal quarter as compared to the prior year second fiscal quarter. Administrative and other expenses decreased by $1.4 million in the current year first two fiscal quarters, and decreased by $1.0 million in the current year second fiscal quarter as compared to the corresponding periods of the prior year. The decreases were due to a reduced level of administrative support staff and lower professional fees. Interest Expense and Taxes Interest expense increased in the current year first two fiscal quarters and the second fiscal quarter as compared to the corresponding periods of the prior year 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 provision of 40% for both the current year first two fiscal quarters and the current year second fiscal quarter as compared to a provision of 44% for the corresponding periods of the prior fiscal year. The Company provides for income taxes at the effective rate expected to be incurred for the entire fiscal year. 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 two fiscal quarters significantly exceeded the current debt service requirements of the Company's long-term obligations. The current year capital expenditures of the Company were funded by the excess operating cash flow and by the cash generated in the current year 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 two fiscal quarters, net cash generated by operations was $4.2 million higher than the prior year first two fiscal quarters as a result of the net change in accounts payable, inventory and other assets and liabilities, net of the change in deferred income taxes. The cash flow associated with inventory decreased due to an overall lower amount of store and gasoline inventory and due to a reduced amount of inventory liquidations associated with a lower number of store closures or sales of underperforming stores. The increase in other assets and liabilities, net of the change in deferred income taxes, in the current year first two fiscal quarters was due to the receipt of marketing allowances from a grocery wholesaler under the terms of a new supply agreement which expires in fiscal 2006. The Company is deferring these marketing allowances over the life of the agreement. During the current year first two fiscal quarters, the Company paid its trade payables in an average of 27 days, compared to 27 days for the fiscal year ended February 3, 1996 and 25 days for the prior year first two fiscal quarters. 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 issuer of the money orders. As of August 3, 1996 and February 3, 1996, the amounts due the issuer were $7.8 million and $7.6 million, respectively. As of April 30, 1996, the Company changed its money order issuer and settled its remittance obligation with the former money order issuer in May 1996, 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 current issuer of money orders. Cash Used by Financing Activities Cash provided by financing activities increased by $1.1 million in the current year first two fiscal quarters as compared to the corresponding period of the prior year primarily due to lower debt service requirements and due to an increase in the Company's long-term obligations. During the current year first two fiscal quarters, the Company entered into a new $30.0 million senior revolving credit facility 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 August 3, 1996 the Company had no outstanding revolving credit loans and had $6.5 million in outstanding letters of credit. Cash Used by Investing Activities Net cash used by investing activities increased by $12.1 million in the current year first two fiscal quarters as compared to the corresponding period of the prior year due to reduced cash flows generated from the sale of certain assets, including the sale and leaseback of existing store properties. In addition, the Company increased its capital expenditure requirements with respect to new store construction and remodeling of existing store locations. Finally, 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 $20 to $25 million for capital expenditures in fiscal 1997 by purchasing store and gasoline equipment for new stores, remodeling a certain number of 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 August 3, 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. Other Liquidity Item During fiscal 1996, the Company acquired a $10,000,000 note receivable (Note) from DM Associates Limited Partnership (DM Associates) collateralized by 1,220,000 shares of the Company's Class B Common Stock (Pledged Shares). This Note is due and payable in September 1997 and if collected, would favorably impact the liquidity of the Company. The Company does not, however, currently anticipate collection of this Note and may therefore take direct ownership and control of the Pledged Shares in full satisfaction of the Note. If the Pledged Shares are acquired from DM Associates, it is the current intention of the Company to retire such shares. 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 August 3, 1996, the Company had recorded an accrual of $1,441,000 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 August 3, 1996, the Company has recorded a net state trust fund reimbursement receivable of $878,000 (representing a gross receivable of $1,446,000 less an allowance of $568,000). 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 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. 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: On July 10, 1996, the Company filed a report on Form 8-K which indicated that a stipulation settlement had been filed with Delaware Court of Chancery in connection with a shareholder derivative action captioned Kahn vs. Dairy Mart Convenience Stores in which the Company was named as a nominal defendant. 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. Date: September 17, 1996 /s/ Gregory G. Landry ---------------------------------- Gregory G. Landry Executive Vice President Chief Financial Officer EX-11 2 STATEMENT RE COMPUTATIONS 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 SECOND FISCAL FOR THE TWO FISCAL QUARTER ENDED QUARTERS ENDED -------------------------- --------------------------- August 3, July 29, August 3, July 29, 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------- Net income................. $ 2,234 $ 2,237 $ 1,841 $ 1,908 ---------- ---------- ---------- ---------- Weighted average shares.... 5,602 5,577 5,596 5,571 Dilutive options........... 318 259 326 202 Effect of DM Associates stock (1,220) - (1,220) - ---------- ---------- ---------- ---------- Total shares for EPS purposes $ 4,700 $ 5,836 $ 4,702 $ 5,773 - ---------------------------------------------------------------------------------------------- Net income per share............... $ 0.48 $ 0.38 $ 0.39 $ 0.33 ==============================================================================================
EX-27 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 6-MOS FEB-01-1997 FEB-04-1996 AUG-03-1996 17,654 1,532 13,079 1,603 20,466 57,049 120,750 39,434 176,057 55,146 99,466 63 0 0 11,207 176,057 0 297,460 219,538 288,882 0 427 5,504 3,074 (1,233) 1,841 0 0 0 1,841 .39 .39
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