-----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, F4ZHyRxAkSS7ZbFY1P0MDOKj75aIGC3T1ccoBntTmOOfzwFoQ6QXd0MHt5KNsfl5 JUP0ux/6BHlx+pIlvuk0nQ== 0000950152-97-004559.txt : 19970625 0000950152-97-004559.hdr.sgml : 19970625 ACCESSION NUMBER: 0000950152-97-004559 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970503 FILED AS OF DATE: 19970617 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: 001-11627 FILM NUMBER: 97625472 BUSINESS ADDRESS: STREET 1: ONE VISION DR CITY: ENFIELD STATE: CT ZIP: 06082 BUSINESS PHONE: 2037414444 10-Q 1 DAIRY MART CONVENIENCE STORES, INC. FORM 10-Q 1 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 3, 1997 [ ] 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.) 210 BROADWAY EAST, CUYAHOGA FALLS, OHIO 44222 (Address of principal executive offices) Registrant's telephone number, including area code (330) 923-0421 -------------------- 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 3, 1997 - 3,023,694 SHARES OF CLASS B COMMON STOCK OUTSTANDING MAY 3, 1997 - 2,783,060 -1- 2 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 3, MAY 4, 1997 1996 Revenues ..................................... $ 139,929 $ 141,328 --------- --------- Cost of goods sold and expenses: Cost of goods sold .................. 102,408 105,082 Operating and administrative expenses 34,730 34,151 Interest expense .................... 2,767 2,748 --------- --------- 139,905 141,981 --------- --------- Income (loss) before income taxes ... 24 (653) (Provision for) benefit from income taxes .... (7) 260 --------- --------- Net income (loss) ................... $ 17 $ (393) - - --------------------------------------------------------------------------- Weighted average shares outstanding .......... 4,756 4,371 --------- --------- Income (loss) per share ...................... $ 0.00 $ (0.09) - - ---------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. -2- 3 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
MAY 3, 1997 FEBRUARY 1, 1997 ================================================================================= ASSETS (Unaudited) Current Assets: Cash .................................... $ 13,422 $ 9,290 Short-term investment ................... 1,515 1,533 Accounts and notes receivable ........... 11,585 13,588 Inventory ............................... 19,622 20,184 Prepaid expenses and other current assets 3,206 3,279 Deferred income taxes ................... 1,674 1,811 --------- --------- Total current assets ................. 51,024 49,685 --------- --------- Assets Held For Sale ............................. 5,932 9,543 --------- --------- Property and Equipment, net ...................... 91,707 89,448 --------- --------- Intangible Assets, net ........................... 16,862 17,039 --------- --------- Other Assets, net ................................ 9,330 9,790 --------- --------- Total assets ..................................... $ 174,855 $ 175,505 - - ------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations ... $ 1,362 $ 1,383 Accounts payable .............................. 31,508 30,640 Accrued expenses .............................. 13,415 13,167 Accrued interest .............................. 1,447 3,335 --------- --------- Total current liabilities ............ 47,732 48,825 --------- --------- Long-Term Obligations, less current portion above 110,113 109,045 --------- --------- Other Liabilities ................................ 8,973 9,722 --------- --------- Stockholders' Equity: Preferred Stock (serial) ...................... -- -- Class A Common Stock .......................... 35 35 Class B Common Stock .......................... 30 30 Paid-in capital ............................... 30,667 30,560 Retained earnings (deficit) ................... (7,690) (7,707) Treasury stock, at cost ....................... (5,005) (5,005) Note receivable from DM Associates ............ (10,000) (10,000) --------- --------- Total stockholders' equity ........... 8,037 7,913 --------- --------- Total liabilities and stockholders' equity ....... $ 174,732 $ 175,505 - - -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. -3- 4 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
THE FIRST FISCAL QUARTERS ENDED ------------------------------- MAY 3, 1997 MAY 4, 1996 ==================================================================================== Cash flows from operating activities: Net income (loss) .................................... $ 17 $ (393) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ...................... 3,163 3,134 Amortization of original issue discount ............ 49 49 Change in deferred income taxes .................... 431 1,566 Loss (gain) on disposition of properties, net ...... 45 (86) Net change in assets and liabilities: Accounts and notes receivable ................. 2,003 (306) Inventory ..................................... 562 253 Accounts payable .............................. 868 6,716 Accrued interest .............................. (2,188) (2,005) Other assets and liabilities .................. (428) (5,056) - - ----------------------------------------------------------------------------------- Net cash provided by operating activities .............. 4,522 3,872 - - ----------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of and change in short-term investments ..... 18 (1,514) Purchase of property and equipment ................... (5,124) (3,951) Proceeds from sale of property, equipment and assets held for sale .............................. 3,641 889 Increase in long-term notes receivable ............... (168) (298) Proceeds from collection of long-term notes receivable 163 352 Increase in intangibles and other assets ............. (25) (59) - - ----------------------------------------------------------------------------------- Net cash used in investing activities .................. (1,495) (4,581) - - ----------------------------------------------------------------------------------- Cash flows from financing activities: Increase in revolving loan, net ...................... 1,620 100 Repayment of long-term obligations ................... (622) (357) Issuance of common stock ............................. 107 24 - - ----------------------------------------------------------------------------------- Net cash provided by (used in) financing activities .... 1,105 (233) - - ----------------------------------------------------------------------------------- Increase(decrease) in cash ............................. 4,132 (942) Cash at beginning of fiscal year ....................... 9,290 12,654 - - ----------------------------------------------------------------------------------- Cash at end of first fiscal quarter .................... $ 13,422 $ 11,712 - - -----------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. -4- 5 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES Notes To Consolidated Financial Statements May 3, 1997 (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 1, 1997. 1. Accounting Policies ------------------- The financial statements included herein have been prepared in accordance with the accounting policies described in Note 1 to the February 1, 1997 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 3, 1997 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 1, 1997 3,509,576 2,959,017 $ 64,677 $ 30,560,173 Employee stock purchase plan 30,125 - 301 85,142 Stock options exercised 5,618 - 56 21,461 ---------- ---------- --------- ------------- Balance May 3, 1997 3,545,319 2,959,017 $ 65,034 $ 30,666,776 ---------- ---------- --------- -------------
-5- 6 As of May 3, 1997, 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 3,023,694 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. During 1997, the Financial Accounting Standards Board issued SFAS 128, "Earnings per Share". The statement will revise the methods and disclosures regarding earnings per share. The Company is required to adopt SFAS 128 in the fourth quarter of fiscal 1998. 4. Seasonality ----------- The results of operations for the first fiscal quarter ended May 3, 1997 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 consolidating basis, statement of operations, balance sheet, and cash flow information for the Company ("Parent Company Only"), for the Guarantor Subsidiaries and for Financial Opportunities -6- 7 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 purpose 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 3, 1997
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ (in thousands) Revenues ........................... $ 68 $139,774 $ 87 $ -- $ 139,929 Cost of goods sold and expenses: Cost of goods sold .............. -- 102,408 -- -- 102,408 Operating and administrative expenses ....................... 69 34,657 4 -- 34,730 Interest expense ................ 2,487 192 88 -- 2,767 --------- --------- --------- --------- --------- 2,556 137,257 92 -- 139,905 --------- --------- --------- --------- --------- Income (loss) before income taxes and equity in income (loss) of consolidated subsidiaries . (2,488) 2,517 (5) -- 24 (Provision for) benefit from income taxes ...................... 697 (705) 1 -- (7) --------- --------- --------- --------- --------- Income (loss) before equity in income (loss) of consolidated subsidiaries ................. (1,791) 1,812 (4) -- 17 Equity in income (loss) of consolidated subsidiaries ......... 1,808 (4) -- (1,804) -- --------- --------- --------- --------- --------- Net income (loss) ............... $ 17 $ 1,808 $ (4) $ (1,804) $ 17 ========= ========= ========= ========= =========
-7- 8 Supplemental Consolidating Balance Sheets May 3, 1997
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ (in thousands) ASSETS Current Assets: Cash ............................ $ 3,329 $ 8,142 $ 1,951 $ -- $ 13,422 Short-term investment ........... -- -- 1,515 -- 1,515 Accounts and notes receivable ... -- 11,093 492 -- 11,585 Inventory ....................... -- 19,622 -- -- 19,622 Prepaid expenses and other current assets ........... -- 3,206 -- -- 3,206 Deferred income taxes ........... 809 865 -- -- 1,674 --------- --------- --------- --------- --------- Total current assets ......... 4,138 42,928 3,958 -- 51,024 --------- --------- --------- --------- --------- Assets Held For Sale ............... -- 5,932 -- -- 5,932 Property and Equipment, net ........ -- 91,707 -- -- 91,707 Intangible Assets, net ............. -- 16,862 -- -- 16,862 Other Assets, net .................. 1,191 5,949 2,190 -- 9,330 Investment in and advances to subsidiaries ..................... 123,487 1,658 356 (125,501) -- --------- --------- --------- --------- --------- Total assets ....................... $ 128,816 $ 165,036 $ 6,504 $(125,501) $ 174,855 - - ----------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations ......... $ 914 $ 448 $ -- $ -- $ 1,362 Accounts payable ................ 14,723 16,785 -- -- 31,508 Accrued expenses ................ 312 13,087 16 -- 13,415 Accrued interest ................ 1,244 -- 203 -- 1,447 --------- --------- --------- --------- --------- Total current liabilities .... 17,193 30,320 219 -- 47,732 --------- --------- --------- --------- --------- Long-Term Obligations, less current portion above ........ 103,586 2,297 4,230 -- 110,113 Other Liabilities .................. -- 8,932 41 -- 8,973 Stockholders' Equity ............... 8,037 123,487 2,014 (125,501) 8,037 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity ............. $ 128,816 $ 165,036 $ 6,504 $(125,501) $ 174,855 ========= ========= ========= ========= =========
-8- 9 Supplemental Consolidating Statement of Cash Flows May 3, 1997
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ ( in thousands) Net cash provided by (used in) by operating activities ............................. $ (1,340) $ 5,590 $ 272 $ -- $ 4,522 -------- -------- -------- ------ -------- Cash flow from investing activities: Purchase of and change in short-term investments ................ -- -- 18 -- 18 Purchase of property and equipment ..... -- (5,124) -- -- (5,124) Proceeds from sale of property, equipment and assets held for sale .... -- 3,641 -- -- 3,641 Investment in and advances to subsidiaries .......................... 3,297 (3,784) 487 -- -- Increase in long-term notes receivable . -- (168) -- -- (168) Proceeds from collection of long-term receivables ................. -- 163 -- -- 352 Increase in intangibles and other assets ...................... 1 (28) 2 -- (25) -------- -------- -------- ------ -------- Net cash provided by (used in) investing activities ............................. 3,298 (5,300) 507 -- (1,495) -------- -------- -------- ------ -------- Cash flows from financing activities: Increase in revolving loan, net ........ 1,620 -- -- -- 1,620 Repayment of long-term obligations ..... (456) (166) -- -- (622) Issuance of common stock ............... 107 -- -- -- 107 -------- -------- -------- ------ -------- Net cash provided by (used in) financing activities ............................. 1,271 (166) -- -- 1,105 -------- -------- -------- ------ -------- Increase (decrease) in cash .............. 3,229 124 779 -- 4,132 Cash at beginning of year ................ 100 8,018 1,172 -- 9,290 -------- -------- -------- ------ -------- Cash at end of first fiscal quarter ...... $ 3,329 $ 8,142 $ 1,951 $ -- $ 13,422 ======== ======== ======== ====== ========
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 --------- --------- --------- --------- --------- 2,517 139,371 93 -- 141,981 --------- --------- --------- --------- --------- Income (loss) before income taxes and equity in income (loss) of consolidated subsidiaries . (2,474) 1,784 37 (1,821) (653) Benefit from (provision for) income taxes ...................... 985 (710) (15) -- 260 --------- --------- --------- --------- --------- Income (loss) before equity in income (loss) of consolidated subsidiaries ................. (1,489) 1,074 22 -- (393) Equity in income (loss) of consolidated subsidiaries ......... 1,096 22 -- (1,118) -- --------- --------- --------- --------- --------- Net income (loss) ............... $ (393) $ 1,096 $ 22 $ (1,118) $ (393) ========= ========= ========= ========= =========
-9- 10 Supplemental Consolidating Balance Sheets February 1, 1997
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ (in thousands) ASSETS Current Assets: Cash ............................ $ 100 $ 8,018 $ 1,172 $ -- $ 9,290 Short-term investments .......... -- -- 1,533 -- 1,533 Accounts and notes receivable ... 20 12,897 671 -- 13,588 Inventory ....................... -- 20,184 -- -- 20,184 Prepaid expenses and other current assets ........... 20 3,259 -- -- 3,279 Deferred income taxes ........... 933 878 -- -- 1,811 --------- --------- --------- --------- --------- Total current assets ......... 1,073 45,236 3,376 -- 49,685 --------- --------- --------- --------- --------- Assets Held For Sale ............... -- 9,543 -- -- 9,543 Property and Equipment, net ........ -- 89,448 -- -- 89,448 Intangible Assets, net ............. -- 17,039 -- -- 17,039 Other Assets, net .................. 1,389 6,209 2,192 -- 9,790 Investment in and advances to subsidiaries ..................... 126,784 1,175 843 (128,802) -- --------- --------- --------- --------- --------- Total assets ....................... $ 129,246 $ 168,650 $ 6,411 $(128,802) $ 175,505 - - ----------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations ......... $ 929 $ 454 $ -- $ -- $ 1,383 Accounts payable ................ 13,800 16,840 -- -- 30,640 Accrued expenses ................ 726 12,432 9 -- 13,167 Accrued interest ................ 3,520 -- 115 -- 3,635 --------- --------- --------- --------- --------- Total current liabilities .... 18,975 29,726 124 -- 48,825 --------- --------- --------- --------- --------- Long-Term Obligations, less current portion above ........ 102,358 2,457 4,230 -- 109,045 Other Liabilities .................. -- 9,683 39 -- 9,722 Stockholders' Equity ............... 7,913 126,784 2,018 (128,802) 7,913 --------- --------- --------- --------- --------- Total liabilities and stockholders' equity ............. $ 129,246 $ 168,650 $ 6,411 $(128,802) $ 175,505 ========= ========= ========= ========= =========
-10- 11 Supplemental Consolidating Statement of Cash Flows May 4, 1996
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ (in thousands) Net cash provided by (used) by operating activities ............................. $ (5,201) $ 9,065 $ 8 $ -- $ 3,872 -------- -------- -------- ------ -------- Cash flow from investing activities: Purchase of 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 .......................... 5,237 (5,046) (191) -- -- 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 .............................. 5,237 (8,220) (1,598) -- (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 ======== ======== ======== ====== ========
6. Subsequent Events ----------------- In March 1997, the Company announced that it had agreed to sell its 161 convenience store locations in Connecticut, Rhode Island, Massachusetts and New York to the DB Companies, Inc., a Rhode Island based convenience store operator and gasoline wholesaler and retailer for approximately $39.7 million. This transaction is subject to certain contingencies but is expected to close on or about June 20, 1997. -11- 12 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 decreased by $1.4 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 3, MAY 4, (IN MILLIONS) 1997 1996 ------------------------------------------- CONVENIENCE STORES $ 80.8 $ 81.1 GASOLINE 58.4 59.6 OTHER 0.7 0.6 ----------------- TOTAL $139.9 $141.3 =================
Convenience store revenues decreased $0.3 million, or 0.4%, in the current year first fiscal quarter as compared to the prior year first fiscal quarter due to a reduction of 63 underperforming stores mostly offset by the opening of 11 new stores and a 1.9% increase in comparable store sales. 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 decreased $1.2 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter due to a decrease in the number of gasoline gallons sold of 3.5 million partially offset by an increase in the average selling price of gasoline of 5.1 cents per gallon. -12- 13 GROSS PROFITS Gross profits for the current year first fiscal quarter increased $1.3 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 3, MAY 4, (IN MILLIONS) 1997 1996 ---------------------------------------------- CONVENIENCE STORES $ 30.5 $ 30.0 GASOLINE 6.3 5.6 OTHER 0.7 0.6 ------------------- TOTAL $ 37.5 $ 36.2 ===================
Convenience store gross profits increased by $0.5 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter due to improved product gross margins and increased marketing allowances. Gasoline gross profits increased by $0.7 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter due to an increase of 2.24 cents in gross profit per gallon. OPERATING AND ADMINISTRATIVE EXPENSES Operating and administrative expenses for the current year first fiscal quarter increased $0.6 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 3, MAY 4, (IN MILLIONS) 1997 1996 ---------------------------------------------- CONVENIENCE STORES $ 24.2 $ 24.1 GASOLINE 3.6 3.6 ADMINISTRATIVE AND OTHER 6.9 6.4 ------------------- TOTAL $ 34.7 $ 34.1 ===================
-13- 14 Convenience store operating expenses increased $0.1 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter due to higher labor, depreciation and maintenance costs. Gasoline operating expenses remained constant in the current year first fiscal quarter as compared to the prior year first fiscal quarter. Administrative and other expenses increased by $0.5 million in the current year first fiscal quarter as compared to the corresponding period of the prior year due to incremental costs associated with the relocation and establishment of the Ohio corporate office and an increase in the Company's health, workers' compensation and commercial liability insurance expense attributable to unfavorable claims experience. INTEREST EXPENSE AND TAXES Interest expense remained constant in the current year first fiscal quarter as compared to the prior year first fiscal quarter. The effective tax rate for the Company was a provision of 29% for the current year first fiscal quarter and a benefit of 40% for the prior year first fiscal quarter. LIQUIDITY AND CAPITAL RESOURCES The Company generates substantial operating cash flow since a majority of its revenues are received in cash. The amount of cash generated from operations significantly exceeded the current debt service requirements of the Company's long-term obligations. The capital expenditures of the Company were primarily funded by the excess cash flow available after debt service and by the cash generated from the sale of certain assets. Additionally, the Company has a revolving line of credit available, to address the seasonality of operations and the timing of capital expenditures and certain working capital disbursements. Management believes that the cash flow from operations, the proceeds from the sale of -14- 15 certain assets held for sale and the proceeds from the sale of 161 convenience store locations (see Note 6 to the Consolidated Financial Statements), 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 Net cash provided by operating activities increased by $0.7 million in the current year first fiscal quarter as compared to the corresponding period of the prior year. This was primarily due to improved results of operations in the current year first fiscal quarter (see "Results of Operations") and a net favorable change in other assets and liabilities, net of the change in deferred income taxes partially offset by a net unfavorable change in working capital accounts. The decrease in other assets and liabilities, net of the change in deferred income taxes in both the current and prior year first fiscal quarters was due to a decrease in various accrued expenses related primarily to legal and professional fee accruals and workers' compensation and liability insurance reserves. The net unfavorable change in working capital was due to a net unfavorable change in accounts payable due to the timing of payments to the issuers of money orders, as noted below, partially offset by a net favorable change in accounts and notes receivable due to a reduction in the current year first fiscal quarter as compared to an increase in the prior year first fiscal quarter. The decrease in the current year first fiscal quarter was due to the collection of a gasoline excise tax rebate due the Company. During the current year first fiscal quarter, the Company paid its trade payables in an average of 28 days, which compares to 26 days for fiscal 1997 and 30 days for the prior year first fiscal quarter. The cash flow of the Company is also favorably impacted by the Company's use of -15- 16 funds from the sale of money orders, pending remittance of such funds to the issuer of the money orders. As of May 3, 1997, February 1, 1997 and May 4, 1996, the amounts due the issuer were $7.7 million, $7.9 million and $12.4 million respectively. CASH PROVIDED BY FINANCING ACTIVITIES Cash provided by financing activities increased by $1.3 million in the current year first fiscal quarter as compared to the corresponding period of the prior year primarily due to the use of the Company's revolving credit facility. The Company has a $30.0 million senior revolving credit facility with $15.0 million available for issuance of letters of credit. The Company may utilize the revolving credit facility as needed for working capital and general corporate purposes. As of May 3, 1997, the Company had $11.9 million in outstanding revolving credit loans and had $5.6 million in outstanding letters of credit. CASH USED BY INVESTING ACTIVITIES Net cash used by investing activities decreased by $3.1 million in the current year first fiscal quarter as compared to the corresponding period of the prior year primarily due to increased cash flows generated from the sale of certain assets. Partially offsetting the above decrease in the current year first fiscal quarter was increased capital expenditures with respect to new store construction and remodeling of existing store locations. CAPITAL EXPENDITURES The Company anticipates spending approximately $35 million for capital expenditures in fiscal 1998 by purchasing store and gasoline equipment for new stores, remodeling a certain number of existing store and gasoline locations, implementing and/or upgrading office and store -16- 17 technology and meeting the Company's requirements to comply with federal and state underground gasoline storage tank regulations (see "Environmental Responsibility"). These capital expenditures will be funded primarily by cash generated from operations, the proceeds from the sale of assets held for sale as of May 3, 1997, the proceeds from the sale of 161 convenience store locations as noted above, supplemented by the availability of a senior revolving line of credit or other forms of equipment financing and/or leasing, if necessary. 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 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 May 3, 1997, the Company had recorded an accrual of $1,880,000 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 -17- 18 with the terms and conditions of such trust funds. As of May 3, 1997, the Company had recorded a net state trust fund reimbursement receivable of $1,490,000 (representing a gross receivable of $2,460,000 less an allowance of $970,000). Although there are no assurances as to the timing, the Company believes that it is probable that reimbursements from the 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 $7.0 to $8.0 million in the aggregate through December 1998. These costs could be reduced for low volume retail gasoline 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 is based on factors and assumptions that could change due to modifications of regulatory requirements or detection of unanticipated environmental conditions. -18- 19 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.) Reports on Form 8-K On March 19, 1997, the Company filed a Current Report on form 8-K, in which the Company reported that it had agreed to sell its 161 convenience store locations in Connecticut, Massachusetts, Rhode Island and New York. In addition, the Company reported that it had agreed to sell it former corporate headquarters in Enfield, Connecticut. The Company also noted that both transactions were subject to certain contingencies but were expected to close on or about May 15, 1997. During the first quarter of fiscal 1997, the Company filed no reports on Form 8-K. -19- 20 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: June 17, 1997 /s/ Gregory G. Landry ----------------------------- Gregory G. Landry Executive Vice President Chief Financial Officer -20- EX-11 2 EXHIBIT 11 1 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 3, MAY 4, 1997 1996 Net income (loss)................................... $ 17 $ (393) --------- --------- Weighted average shares............................. 5,792 5,591 Dilutive options.................................... 184 - Effect of DM Associates stock....................... (1,220) (1,220) --------- --------- Total shares for EPS purposes....................... $ 4,756 $ 4,371 - - -------------------------------------------------------------------------------- Net income (loss) per share......................... $ 0.00 $ (0.09) ================================================================================
-21- EX-27 3 EXHIBIT 27
5 THIS STATEMENT 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 JAN-31-1998 FEB-02-1997 MAY-03-1997 13,422 1,515 13,126 1,541 19,622 51,024 137,962 46,255 174,855 47,732 110,113 65 0 0 8,037 174,855 139,929 139,929 102,408 139,905 0 2,767 24 7 17 0 0 0 0 17 0.00 0.00
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