-----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, LQh9Rl70X7Q9rDHxm10LNJsL7zCh8ZQwxUIx5UJykzDVQPGz0ryN44RbrrVKEE4A hP9uh71lHyo8aQGotcb2bw== 0000950152-98-005366.txt : 19980624 0000950152-98-005366.hdr.sgml : 19980624 ACCESSION NUMBER: 0000950152-98-005366 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980502 FILED AS OF DATE: 19980616 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: SEC FILE NUMBER: 001-11627 FILM NUMBER: 98649391 BUSINESS ADDRESS: STREET 1: 210 BROADWAY EAST CITY: CUYAHOGA FALLS STATE: OH ZIP: 44222 BUSINESS PHONE: 2037414444 10-Q 1 DAIRY MART CONVENIENCE STORES, INC. 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 2, 1998 [ ] 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 DAIRY MART WAY, 300 EXECUTIVE PARKWAY WEST, HUDSON, OHIO 44236 (Address of principal executive offices) Registrant's telephone number, including area code (330) 342-6600 -------------------- 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 2, 1998 - 3,134,132 Shares of Class B Common Stock outstanding May 2, 1998 - 1,528,049 -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 QUARTERS ENDED ------------------------- MAY 2, MAY 3, 1998 1997 - - --------------------------------------------------------------------------------------------- Revenues ................................................. $ 109,849 $ 139,937 --------- --------- Cost of goods sold and expenses: Cost of goods sold ..................................... 78,718 102,416 Operating and administrative expenses .................. 29,357 34,730 Interest expense ....................................... 2,738 2,767 --------- --------- 110,813 139,913 Income (loss) before income taxes ...................... (964) 24 Benefit from (provision for)income taxes ............... 318 (7) --------- --------- Net income (loss) ................................. $ (646) $ 17 - - ---------------------------------------------------------------------------------------------- Weighted average shares outstanding 4,662 4,756 Income (loss) per share ................................. $ (0.14) $ 0.00 - - ----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. -2- 3 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands)
MAY 2, 1998 JANUARY 31, 1998 - - -------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash .............................................................. $ 5,898 $ 3,806 Short-term investments ............................................ 3,662 3,629 Accounts and notes receivable ..................................... 14,465 14,970 Inventory ......................................................... 17,286 16,808 Prepaid expenses and other current assets ......................... 2,657 2,231 Deferred income taxes ............................................. 927 1,048 --------- --------- Total current assets .......................................... 44,895 42,492 Assets Held for Sale ................................................. 12,763 10,715 Property and Equipment, net .......................................... 87,111 82,589 Intangible Assets, net ............................................... 15,752 16,017 Other Assets, net .................................................... 12,942 13,291 --------- --------- Total assets ......................................................... $ 173,463 $ 165,104 - - -------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations .......................... $ 2,055 $ 2,056 Accounts payable ..................................................... 38,504 31,297 Accrued expenses ..................................................... 15,638 18,177 Accrued interest ..................................................... 1,417 3,567 --------- --------- Total current liabilities ..................................... 57,614 55,097 Long-Term Obligations, less current portion above ..................................................... 101,189 94,392 Other Liabilities .................................................... 8,761 9,170 Stockholders' Equity Preferred Stock (serial) .......................................... - - Class A Common Stock .............................................. 37 36 Class B Common Stock .............................................. 29 29 Paid-in capital ................................................... 30,901 30,802 Retained deficit .................................................. (10,063) (9,417) Treasury stock, at cost ........................................... (15,005) (15,005) --------- --------- Total stockholders' equity .................................... 5,899 6,445 --------- --------- Total liabilities and stockholders' equity ........................... $ 173,463 $ 165,104 - - --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these balance sheets. -3- 4 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
FOR THE FIRST FISCAL QUARTERS ENDED ------------------- MAY 2, 1998 MAY 3, 1997 ----------------------------- Cash flows from operating activities: Net income (loss) ..................................................... $ (646) $ 17 Adjustment to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ...................................... 2,607 3,163 Change in deferred income taxes .................................... 385 431 (Gain) loss on disposition of properties, net ...................... (41) 45 Net change in assets and liabilities: Accounts and notes receivable .................................... 505 2,003 Inventory ........................................................ (478) 562 Accounts payable ................................................. 7,207 868 Accrued interest ................................................. (2,150) (2,188) Other assets and liabilities ..................................... (3,337) (379) - - ------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities ............................. 4,052 4,522 - - ------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of and change in short-term investments ................... (33) 18 Purchase of property and equipment ................................. (9,254) (5,124) Proceeds from sale of property, equipment and assets held for sale ........................................... 408 3,641 Increase in long-term notes receivable ............................. (75) (168) Proceeds from collection of long-term notes receivable ......................................................... 87 163 Decrease (increase) in intangibles and other assets ....................................................... 48 (25) - - ------------------------------------------------------------------------------------------------------------- Net cash used in investing activities ................................. (8,819) (1,495) - - ------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Increase in revolving loan, net .................................... 7,000 1,620 Repayment of long-term obligations ................................. (241) (622) Issuance of common stock ........................................... 100 107 - - ------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities ............................. 6,859 1,105 - - ------------------------------------------------------------------------------------------------------------- Increase in cash ...................................................... 2,092 4,132 Cash at beginning of fiscal year ...................................... 3,806 9,290 - - ------------------------------------------------------------------------------------------------------------- Cash at end of first fiscal quarter ................................... $ 5,898 $ 13,422 - - -------------------------------------------------------------------------------------------------------------
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 2, 1998 (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, 1998. 1. ACCOUNTING POLICIES The financial statements included herein have been prepared in accordance with the accounting policies described in Note 1 to the January 31, 1998 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 2, 1998 follows:
CLASS A SHARES CLASS B SHARES PAID-IN CAPITAL ISSUED AT ISSUED AT IN EXCESS OF $.01 PAR VALUE $.01 PAR VALUE AMOUNT PAR VALUE -------------- -------------- ----------- --------------- Balance January 31, 1998 3,622,663 2,924,006 $ 65,458 $ 30,800,680 Employee stock purchase plan 5,419 0 54 22,977 Stock options exercised 27,675 0 277 77,347 ---------- ---------- --------- -------------- Balance May 2, 1998 3,655,757 2,924,006 $ 65,789 $ 30,901,004 ---------- ---------- --------- --------------
As of May 2, 1998, there were 521,625 shares of Class A Common Stock and 1,395,957 shares of Class B Common Stock held as treasury stock at an aggregate cost of $15,004,847, leaving 3,134,132 Class A shares and 1,528,049 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. -5- 6 4. SEASONALITY The results of operations for the first fiscal quarter ended May 2, 1998 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. UNAUDITED PRO FORMA INFORMATION In fiscal year 1998, the Company sold 156 convenience stores and retail gasoline locations based in the northeastern United States for $39.1 million. The principal assets sold by the Company include inventories, convenience store and gasoline fixtures and equipment, land, buildings, and building and leasehold improvements. In fiscal year 1998, the Company also sold a former office and manufacturing facility in Ohio for $4.1 million. These transactions resulted in a pre-tax gain of $3.6 million which has been excluded from the pro forma results shown below. The following unaudited pro forma information of the Company for the fiscal year ended January 31, 1998 and the first fiscal quarter ended May 2, 1998, has been prepared assuming that the asset sales had occurred as of the beginning of the fiscal year ended January 31, 1998. The unaudited pro forma information is not necessarily indicative of the results which would have been reported if the transaction had occurred at the beginning of the fiscal year ended January 31, 1998, or which may be reported in the future. The unaudited pro forma information reflects the exclusion, for both fiscal periods shown, of historical revenues, cost of goods sold, operating expenses, and direct and indirect administrative expenses associated with the assets sold. Additionally, the unaudited pro forma information reflects the elimination of historical interest expense related to debt retired based on the assumption that proceeds from the sale of assets had been received at the beginning of the fiscal year ended January 31, 1998, and also reflects the elimination of the estimated income tax effect of the associated excluded results of operations for the assets sold. The unaudited pro forma information is as follows: (Unaudited) (in thousands, except per share amounts)
FOR THE FISCAL FOR THE FISCAL QUARTER ENDED YEAR ENDED ------------- ---------------- MAY 2, 1998 JANUARY 31, 1998 ----------------------------------------- Revenues ................................................... $ 109,849 $ 459,348 ----------- ------------- Loss before income taxes ................................... (964) (6,358) ----------- ------------- Net loss ................................................... $ (646) $ (4,519) - - --------------------------------------------------------------------------------------------------------- Loss per share ............................................. $ (0.14) $ (0.98) - - ---------------------------------------------------------------------------------------------------------
-6- 7 6. 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, statements of operations, balance sheets, and cash flow information for the Company ("Parent Company"), 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. Investments 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 2, 1998
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ (in thousands) Revenues ......................................... $ 12 $ 109,730 $ 107 $ - $ 109,849 Cost of goods sold and expenses: Cost of goods sold ............................ - 78,718 - - 78,718 Operating and administrative expenses ..................................... 65 29,289 3 - 29,357 Interest expense .............................. 2,463 188 87 2,738 --------- --------- --------- --------- --------- $ 2,528 $ 108,195 $ 90 $ - $ 110,813 --------- --------- --------- --------- --------- Income (loss) before income taxes and equity in income of consolidated subsidiaries ................... (2,516) 1,535 17 - (964) Benefit from (provision for) income taxes ................................. 830 (506) (6) - 318 --------- --------- --------- --------- --------- Income (loss) before equity in income of consolidated subsidiaries ................................... (1,686) 1,029 11 - (646) Equity in income of consolidated subsidiaries ...................... 1,040 11 - (1,051) 0 --------- --------- --------- --------- --------- Net income (loss) ........................... $ (646) $ 1,040 $ 11 $ (1,051) $ (646) --------- --------- --------- --------- ---------
-7- 8 SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS May 2, 1998
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ (in thousands) ASSETS Current Assets: Cash .................................. $ - $ 5,565 $ 333 $ - $ 5,898 Short-term investments ................ - 3 3,659 - 3,662 Accounts and notes receivable ......... 551 13,322 592 - 14,465 Inventory ............................. - 17,286 - - 17,286 Prepaid expenses and other current assets ...................... 88 2,569 - - 2,657 Deferred income taxes ................. 677 250 - - 927 --------- --------- --------- --------- --------- Total current assets .............. 1,316 38,995 4,584 - 44,895 --------- --------- --------- --------- --------- Assets Held For Sale ..................... - 12,763 - - 12,763 Property and Equipment, net .............. - 87,111 - - 87,111 Intangible Assets, net ................... - 15,752 - - 15,752 Other Assets, net ........................ 1,391 9,771 1,780 - 12,942 Investment in and advances to subsidiaries ........................ 126,031 2,025 71 (128,127) - --------- --------- --------- --------- --------- Total assets ............................. $ 128,738 $ 166,417 $ 6,435 $(128,127) $ 173,463 - - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations ............... $ 637 $ 318 $ 1,100 $ - $ 2,055 Accounts payable ...................... 22,585 15,919 - - 38,504 Accrued expenses ...................... 948 14,671 19 - 15,638 Accrued interest ...................... 1,327 - 90 - 1,417 --------- --------- --------- --------- --------- Total current liabilities .......... 25,497 30,908 1,209 - 57,614 --------- --------- --------- --------- --------- Long-Term Obligations, less current portion above .................. 97,342 717 3,130 - 101,189 Other Liabilities ........................ - 8,761 0 - 8,761 Stockholders' Equity ..................... 5,899 126,031 2,096 (128,127) 5,899 --------- --------- --------- --------- --------- Total liabilities and stockholders equity ................................... $ 128,738 $ 166,417 $ 6,435 $(128,127) $ 173,463 - - ----------------------------------------------------------------------------------------------------------------------
-8- 9 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS May 2, 1998
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ (in thousands) Net cash provided by operating activities ................ $ 414 $ 3,572 $ 66 $ - $ 4,052 --------- --------- --------- --------- --------- Cash flow from investing activities: Purchase of and change in short- term investments ................ - - (33) - (33) Purchase of property and equipment - (9,254) - - (9,254) Proceeds from sale of property, equipment and assets held for sale ............................ - 408 - - 408 Investment in and advances to subsidiaries .................... (7,359) 7,293 66 - - Increase in long-term notes receivable ...................... - - (75) - (75) Proceeds from collection of long-term notes receivable ...... - 12 75 - 87 Decrease in intangibles and other assets .................... - 48 - - 48 --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities ............ (7,359) (1,493) 33 - (8,819) --------- --------- --------- --------- --------- Cash flows from financing activities: Increase in revolving loan, net ... 7,000 - - - 7,000 Repayment of long-term obligations (155) (86) - - (241) Issuance of common stock .......... 100 - - - 100 --------- --------- --------- --------- --------- Net cash provided by (used in) financing activities ................ 6,945 (86) 0 - 6,859 --------- --------- --------- --------- --------- Increase in cash .................... 0 1,993 99 - 2,092 Cash at beginning of year ........... 0 3,572 234 - 3,806 --------- --------- --------- --------- --------- Cash at end of first fiscal quarter . $ 0 $ 5,565 $ 333 $ - $ 5,898 --------- --------- --------- --------- ---------
-9- 10 SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS May 3,1997
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ (in thousands) Revenues ..................................... $ 68 $ 139,782 $ 87 $ - $ 139,937 Cost of goods sold and expenses: Cost of goods sold ........................ - 102,416 - - 102,416 Operating and administrative expenses ................................. 69 34,657 4 - 34,730 Interest expense .......................... 2,487 192 88 2,767 --------- --------- --------- --------- --------- $ 2,556 $ 137,265 $ 92 $ - $ 139,913 --------- --------- --------- --------- --------- Income (loss) before income taxes and equity in income (loss) of consolidated subsidiaries ............................. (2,488) 2,517 (5) - 24 Benefit from (provision for) 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 --------- --------- --------- --------- ---------
-10- 11 SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS January 31, 1998
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ (in thousands) ASSETS Current Assets: Cash ...................................... $ - $ 3,572 $ 234 $ - $ 3,806 Short-term investments..................... - 3 3,626 - 3,629 Accounts and notes receivable ............. 1,254 13,040 676 - 14,970 Inventory ................................. - 16,808 - - 16,808 Prepaid expenses and other current assets .......................... 69 2,162 - - 2,231 Deferred income taxes ..................... 852 196 - - 1,048 --------- --------- --------- --------- --------- Total current assets .................. 2,175 35,781 4,536 - 42,492 --------- --------- --------- --------- --------- Assets Held For Sale ......................... - 10,715 - - 10,715 Property and Equipment, net .................. - 82,589 - - 82,589 Intangible Assets, net ....................... - 16,017 - - 16,017 Other Assets, net ............................ 1,580 9,929 1,782 - 13,291 Investment in and advances to subsidiaries ............................ 118,672 1,948 137 (120,757) - --------- --------- --------- --------- --------- Total assets ................................. $ 122,427 $ 156,979 $ 6,455 $(120,757) $ 165,104 - - --------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations ................... $ 637 $ 319 $ 1,100 $ - $ 2,056 Accounts payable .......................... 20,138 11,159 - - 31,297 Accrued expenses .......................... 1,297 16,857 23 - 18,177 Accrued interest .......................... 3,450 - 117 - 3,567 --------- --------- --------- --------- --------- Total current liabilities .............. 25,522 28,335 1,240 - 55,097 --------- --------- --------- --------- --------- Long-Term Obligations, less current portion above ...................... 90,460 802 3,130 - 94,392 Other Liabilities ............................ - 9,170 - - 9,170 Stockholders' Equity ......................... 6,445 118,672 2,085 (120,757) 6,445 --------- --------- --------- --------- --------- Total liabilities and stockholders equity .................. $ 122,427 $ 156,979 $ 6,455 $(120,757) $ 165,104 - - ---------------------------------------------------------------------------------------------------------------------
-11- 12 SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS May 3, 1997
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ (in thousands) Net Cash provided (used) by operating activities ................................. $ (1,340) $ 5,590 $ 272 $ - $ 4,522 -------- -------- -------- -------- -------- Cash flow from investing activities: Purchase of and increase 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 notes receivable ............... - 163 - - 163 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 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 -------- -------- -------- -------- --------
7. SUBSEQUENT EVENTS In May 1998, the Company announced that it has leased its former headquarters facility in Enfield, Connecticut, and will relocate certain administrative functions from that building to its headquarters in Hudson, Ohio. The Company has estimated that the cost of consolidating these functions will be approximately $1.3 million which costs will be primarily spent in fiscal year 1999. Additionally, the Company has estimated that the operating expenses associated with the leased facility will be reduced annually by approximately $0.7 million beginning in fiscal year 2000. In May 1998, the Company also announced that it has entered into a long-term supply and branding agreement with Chevron Products Company to sell Chevron-branded gasoline and related products at its convenience stores in Kentucky and southern Indiana. Approximately 60 existing Dairy Mart locations in Kentucky and southern Indiana will carry the Chevron brand, as well as many of the Company's new locations planned to be constructed in that region. In May, 1998, the Company received a $47.2 million forward commitment providing real estate sale/leaseback or mortgage financing on a long term basis. The Company intends to use the proceeds under this agreement to reduce outstanding borrowings on its revolving line of credit and to finance the real estate associated with its new store development program. Borrowing under this facility will initially bear an interest rate equal to the sum of the ten year U.S. Treasury Note plus 3.5%. -12- 13 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- RESULTS OF OPERATIONS During fiscal year 1998, the Company sold 156 convenience store and retail gasoline locations based in the northeastern United States for $39.1 million. The Company also sold a former office and manufacturing facility for $4.1 million. The following discussion and analysis of Results of Operations is based on unaudited Pro Forma Consolidated Statements of Operations, as shown below, for the current fiscal year quarter as compared to the corresponding period of the prior fiscal year. The unaudited Pro Forma Consolidated Statements of Operations as presented below reflect exclusion, for the two fiscal quarters shown, of the historical revenues, cost of goods sold, operating expenses, and direct and indirect administrative expenses associated with the assets sold. Additionally, the unaudited Pro Forma Consolidated Statements of Operations reflect the elimination of historical interest expense related to debt retired based on the assumption that proceeds from the asset sales had been received as of the beginning of the prior fiscal year, and also reflect the elimination of the estimated income tax effect of the associated excluded results of operations for the assets sold. The unaudited Pro Forma Consolidated Statements of Operations for the comparative first fiscal quarters are as follows: PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except share amounts)
FOR THE FIRST FISCAL QUARTER ENDED -------------------- MAY 2, MAY 3, 1998 1997 - - --------------------------------------------------------------------------------------- Revenues ......................................... $ 109,849 $ 113,220 --------- --------- Cost of goods sold and expenses: Cost of goods sold ............................... 78,718 82,648 Operating and administrative expenses ............ 29,357 28,742 Interest expense ................................. 2,738 2,601 --------- --------- 110,813 113,991 --------- --------- Loss before income taxes ......................... (964) (771) Benefit from income taxes ........................ 318 225 --------- --------- Net loss .................................... $ (646) $ (546) - - --------------------------------------------------------------------------------------- Weighted average shares outstanding .............. 4,662 4,756 --------- --------- Loss per share ................................... $ (0.14) $ (0.11) - - ---------------------------------------------------------------------------------------
-13- 14 REVENUES Revenues for the current year first fiscal quarter decreased by $3.4 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 QUARTERS ENDED -------------------- (IN MILLIONS) MAY 2, MAY 3, 1998 1997 -------------------- CONVENIENCE STORES .......................... $ 72.6 $ 68.0 GASOLINE .................................... 36.7 44.7 OTHER ....................................... 0.5 0.5 --------- --------- TOTAL $ 109.8 $ 113.2 --------- ---------
Convenience store revenues increased by $4.6 million, or 6.8%, in the current first fiscal quarter as compared to the prior year first fiscal quarter primarily due to a 7.4% increase in comparable company operated store sales coupled with the opening of 10 new stores, partially offset by the closure and/or sale of 25 underperforming stores. Although the reduction in stores has a negative impact on revenues, it did not have a material adverse effect on results of operations, because the majority of these stores closed and/or sold had been operating at a loss. Gasoline revenues decreased $8.0 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter as a result of a decrease in the average selling price of gasoline of 16.1 cents per gallon and a decrease in total gallons sold of 1.6 million. The decreases in average selling price and in gasoline gallons sold was a result of a highly competitive retailing environment experienced by the Company, particularly in its Southeast market where the Company's gasoline volumes have historically been strong. GROSS PROFITS Gross profits for the current year first fiscal quarter increased $0.5 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 QUARTERS ENDED -------------------- (IN MILLIONS) MAY 2, MAY 3, 1998 1997 -------------------- CONVENIENCE STORES ........................... $ 26.1 $ 25.1 GASOLINE ..................................... 4.5 5.0 OTHER ........................................ 0.5 0.5 --------- --------- TOTAL $ 31.1 $ 30.6 --------- ---------
Convenience store gross profits increased by $1.0 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter. The increase was primarily due to the increase in comparable store sales, as described above, offset in part by slightly lower product gross margins. -14- 15 Gasoline gross profits decreased by $0.5 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter, due to a decrease in gasoline gross profit of 0.8 cents per gallon in the current fiscal quarter as compared to the prior year quarter and a decline in gasoline gallons sold as described above. 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. Certain expenses in the prior year first fiscal quarter related to gasoline operations have been reclassed to convenience store operations to conform with current year presentation. A summary of expenses by functional area for the comparative first fiscal quarter is as follows:
FOR THE FIRST FISCAL QUARTERS ENDED ----------------------- (IN MILLIONS) MAY 2, MAY 3, 1998 1997 - - -------------------------------------------------------------------------- CONVENIENCE STORES ........................... $ 22.0 $ 20.9 GASOLINE ..................................... 1.7 1.8 OTHER ........................................ 5.7 6.0 --------- --------- TOTAL $ 29.4 $ 28.7 --------- ---------
Convenience store operating expenses increased $1.1 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter as a result of higher store labor, store supplies, depreciation and store rent expenses, partially offset by the reduction in the number of underperforming stores, as described above. Gasoline operating expenses decreased by $0.1 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter. This decrease is primarily due to lower gasoline commissions paid to franchisees, mostly offset by higher depreciation expenses. Administrative and other expenses decreased by $0.3 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter as a result of lower commercial insurance expense. The lower commercial insurance expense is a result of lower claims experienced by the Company for its general liability and workers' compensation insurances. INTEREST EXPENSE AND TAXES Pro forma interest expense increased by $0.1 million in the current year first fiscal quarter as compared to the prior year first fiscal quarter due to interest expense associated with the Company's use of its revolving line of credit. The effective tax rate for the Company was a benefit of 33% for the current year first fiscal quarter versus a benefit of 29% for the corresponding periods of the prior 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 significantly exceeded the current debt service requirements of the Company's long-term obligations. Additionally, the Company has a revolving line of credit available to address the seasonality of operations and the timing of capital -15- 16 expenditures and certain working capital disbursements. The capital expenditures of the Company were primarily funded by the Company's borrowings under its revolving line of credit coupled with the excess cash flow available after debt service. Management believes that the cash flow from operations, the proceeds from the sale of certain assets, supplemented by the availability of a revolving credit facility or other forms of asset financing and/or leasing, if necessary, 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 decreased by $0.5 million in the current year first fiscal quarter as compared to the corresponding period of the prior year primarily due to a reduced Results of Operations (see Consolidated Statements of Operations) and a net unfavorable change in other assets and liabilities, offset in part by a favorable change in working capital accounts. The unfavorable change in other assets and liabilities was due to a decrease in various accrued expense related primarily to environmental accruals, accrued wages and workers' compensation and liability insurance reserves. The net favorable change in working capital was primarily due to the timing of payments to the issuers of money orders, partially offset by a reduced favorable change in accounts receivable and notes receivable in the current year first fiscal quarter as compared to the prior year first fiscal quarter and the collection of a gasoline excise tax rebate due to the Company in the prior year first fiscal quarter. CASH USED IN INVESTING ACTIVITIES Net cash used in investing activities increased by $7.3 million in the current year first fiscal quarter as compared to the corresponding period of the prior year primarily due an increased level of capital expenditures with respect to new store construction, store automation and remodeling of existing store locations and a reduced level of net proceeds generated from the sale of property and equipment. CASH PROVIDED BY FINANCING ACTIVITIES Cash provided by financing activities increased $5.8 million in the current year first fiscal quarter as compared to the corresponding period of the prior year primarily due to an increase in the outstanding balance 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 for working capital and general corporate purposes. As of May 2, 1998, the Company had $7.0 million in outstanding revolving credit loans and had $9.8 million in outstanding letters of credit. CAPITAL EXPENDITURES The Company anticipates spending approximately $35 million for capital expenditures in fiscal year 1999 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 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 certain assets held for sale as of May 2, 1998, 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. -16- 17 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 2,1998, the Company had recorded an accrual of $6,050,000 for such costs, the majority of which are anticipated to be spent over the next one to five 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 2, 1998, the Company has recorded a net state trust fund reimbursement receivable of $4,500,000. 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 five 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 $3.0 to $4.0 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. YEAR 2000 COMPUTER COSTS During fiscal year 1998 the Company undertook the implementation of its store automation program. The first phase of this program was completed in fiscal year 1998 with the remaining two phases expected to be completed by the end of fiscal year 2000. The store automation program, when fully implemented, is expected to enhance accounting and management controls, improve retail margins through centralized retail pricing, improve inventory management, and achieve efficiencies. In conjunction with the development of this and other systems, the Company has been addressing the functionality of all the Company's computer systems for the year 2000. The systems implemented by the Company are designed to be year 2000 compliant. The Company does not expect to incur significant costs in the future that would have material impact on Company's operating results. The Company is also in the process of reviewing the efforts being undertaken by its vendors and customers to become year 2000 compliant to ensure that no business interruption is experienced at the turn of the century. The Company is not currently aware of vendor or customer circumstances that may have a material adverse impact on the Company. -17- 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 year 1999, the Company filed no reports on Form 8-K. -18- 19 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 16, 1998 /s/ Dale W. Fuller -------------------------- Dale W. Fuller Executive Vice President and Chief Administrative Officer (Principal Accounting Officer) -19- 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 FISCAL QUARTERS ENDED ----------------------- MAY 2, MAY 3, 1998 1997 ================================================================================ Net income (loss) ................................ $ (646) $ 17 --------- --------- Weighted average shares .......................... 4,662 5,792 Dilutive options .............................. - 184 Effect of DM Associates stock ................. - (1,220) --------- --------- Total shares for EPS purposes .................... 4,662 4,756 - - -------------------------------------------------------------------------------- Net income (loss) per share ...................... $ (0.14) $ 0.00 ================================================================================
-20- EX-27 3 EXHIBIT 27
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 JAN-30-1999 FEB-01-1998 MAY-02-1998 5,898 3,662 16,900 (2,435) 17,286 44,895 137,383 (50,272) 173,463 64,614 94,189 66 0 0 5,833 173,463 0 109,849 78,718 110,813 0 0 2,738 (964) 318 (646) 0 0 0 (646) (0.14) (0.14)
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