-----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, RHL30MCZBRKKMk2KFG72+cPPmvn3Y8Pfz+Du+1us7oMFb+Eom0T0+kjInTOUFlu2 MidUSeNA1XigT9us1NZa2A== 0000950152-98-007608.txt : 19980921 0000950152-98-007608.hdr.sgml : 19980921 ACCESSION NUMBER: 0000950152-98-007608 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980801 FILED AS OF DATE: 19980915 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: 98709650 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 AUGUST 1, 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 AUGUST 1, 1998 - 3,145,213 SHARES OF CLASS B COMMON STOCK OUTSTANDING AUGUST 1, 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 SECOND FISCAL FOR THE TWO FISCAL QUARTER ENDED QUARTERS ENDED ------------- -------------- AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2, 1998 1997 1998 1997 - - ---------------------------------------------------------------------------------------------------------------------------------- Revenues . . . . . . . . . . . . . . . . $ 126,129 $ 136,160 $ 235,978 $ 276,097 ------------ ----------- ------------ --------- Cost of goods sold and expenses: Cost of goods sold . . . . . . . . . . 90,315 99,684 169,033 202,100 Operating and administrative expenses. 31,788 31,774 61,145 66,504 Interest expense . . . . . . . . . . . 2,594 2,692 5,332 5,459 ----------- ----------- ------------ --------- 124,697 134,150 235,510 274,063 ------------ ----------- ------------ --------- Income before incomes taxes. . . . . . . 1,432 2,010 468 2,034 Provision for income taxes . . . . . . . (533) (888) (215) (895) ----------- ---------- ----------- ---------- Net income . . . . . . . . . . . . . . $ 899 $ 1,122 $ 253 $ 1,139 - - ------------------------------------------------------------ ---------------- ----------------- ----------------- ---------------- Earnings per share - Basic . . . . . . . $ 0.19 $ 0.24 $ 0.05 $ 0.25 Earnings per share - Diluted . . . . . . $ 0.19 $ 0.23 $ 0.05 $ 0.24 - - ------------------------------------------------------------ ---------------- ----------------- ----------------- ----------------
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)
AUGUST 1, 1998 JANUARY 31, 1998 - - -------------------------------------------------------------------------- ---------------------------------------------------- ASSETS Current Assets: Cash . . . . . . . . . . . . . . . . . . . . . . . $ 3,471 $ 3,806 Short-term investments . . . . . . . . . . . . . . 3,713 3,629 Accounts and notes receivable. . . . . . . . . . . 14,969 14,970 Inventory. . . . . . . . . . . . . . . . . . . . . 19,184 16,808 Prepaid expenses and other current assets. . . . . 2,790 2,231 Deferred income taxes. . . . . . . . . . . . . . . 1,072 1,048 -------------- ----------- Total current assets. . . . . . . . . . . . . . 45,199 42,492 Assets Held For Sale . . . . . . . . . . . . . . . 18,847 10,715 Property and Equipment, net. . . . . . . . . . . . 85,703 82,589 Intangible Assets, net . . . . . . . . . . . . . . 15,559 16,017 Other Assets, net. . . . . . . . . . . . . . . . . 12,929 13,291 -------------- ----------- Total assets . . . . . . . . . . . . . . . . . . . $ 178,237 $ 165,104 - - ------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations. . . . $ 2,053 $ 2,056 Accounts payable . . . . . . . . . . . . . . . . . 38,767 31,297 Accrued expenses . . . . . . . . . . . . . . . . . 15,846 18,177 Accrued interest . . . . . . . . . . . . . . . . . 3,703 3,567 -------------- ----------- Total current liabilities. . . . . . . . . . . . 60,369 55,097 Long-Term Obligations, less current portion above . . 103,183 94,392 Other Liabilities . . . . . . . . . . . . . . . . . . 7,852 9,170 Stockholders' Equity: Preferred Stock (serial) . . . . . . . . . . . . . - - Class A Common Stock . . . . . . . . . . . . . . . 37 36 Class B Common Stock . . . . . . . . . . . . . . . 29 29 Paid-in capital. . . . . . . . . . . . . . . . . . 30,936 30,802 Retained deficit . . . . . . . . . . . . . . . . . (9,164) (9,417) Treasury stock, at cost. . . . . . . . . . . . . . (15,005) (15,005) ------------- ------------ Total stockholders' equity. . . . . . . . . . . 6,833 6,445 -------------- ----------- Total liabilities and stockholders' equity. . . . . . $ 178,237 $ 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 TWO FISCAL QUARTERS ENDED --------------------------------- AUGUST 1, 1998 AUGUST 2, 1997 - - ----------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . $ 253 $ 1,139 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . 5,245 6,020 Change in deferred income taxes . . . . . . . . . . . 347 (1,223) (Gain) loss on disposition of properties, net . . . . 312 (1,633) Net change in assets and liabilities: Accounts and notes receivable . . . . . . . . . . . 1 (5,200) Inventory . . . . . . . . . . . . . . . . . . . . . (2,376) (445) Accounts payable. . . . . . . . . . . . . . . . . . 7,470 1,833 Accrued interest. . . . . . . . . . . . . . . . . . 136 (83) Other assets and liabilities. . . . . . . . . . . . (4,134) 10,453 - - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities . . . . . . . . 7,254 10,861 - - ----------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of and increase in short-term investments . . (84) (20,679) Purchase of property and equipment . . . . . . . . . . (16,797) (13,438) Proceeds from sale of property, equipment and assets held for sale . . . . . . . . . . . . . . . . 573 31,830 Increase in long-term notes receivable . . . . . . . . (345) (418) Proceeds from collection of long-term notes receivable 368 631 (Increase) decrease in intangibles and other assets. . (153) 1,709 - - ----------------------------------------------------------------------------------------------------------------------------- Net cash used by investing activities . . . . . . . . . . (16,438) (365) - - ----------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Increase (decrease) in revolving loan, net . . . . . . 9,200 (10,280) Repayment of long-term obligations . . . . . . . . . . (486) (3,281) Issuance of common stock . . . . . . . . . . . . . . . 135 164 - - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities . . . 8,849 (13,397) - - ----------------------------------------------------------------------------------------------------------------------------- Decrease in cash . . . . . . . . . . . . . . . . . . . . (335) (2,901) Cash at beginning of fiscal year. . . . . . . . . . . . . 3,806 9,290 - - ----------------------------------------------------------------------------------------------------------------------------- Cash at end of second fiscal quarter. . . . . . . . . . . $ 3,471 $ 6,389 - - -----------------------------------------------------------------------------------------------------------------------------
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 AUGUST 1, 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 two fiscal quarters ended August 1, 1998 follows:
COMMON STOCK ------------------------------------------------------------------------ CLASS A SHARES CLASS B SHARES PAID-IN CAPITAL ISSUED AT ISSUED AT IN EXCESS OF $.01 PAR VALUE $.01 PAR VALUE AMOUNT PAR VALUE -------------- -------------- ------------ --------------- Balance January 31, 1998 3,622,663 2,924,006 $ 65,458 $ 30,800,680 Employee stock purchase plan 10,250 - 102 40,900 Stock options exercised 33,925 - 339 94,797 ---------- ---------- --------- ------------- Balance August 1, 1998 3,666,838 2,924,006 $ 65,899 $ 30,936,377 ---------- ---------- --------- -------------
-5- 6 As of August 1, 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 3,145,213 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. The weighted average number of shares used in the calculation of basic earnings per share was 4,670,402 and 4,601,700 for the second fiscal quarter ended August 1, 1998 and August 2, 1997, respectively, and 4,666,291 and 4,586,500 for the two fiscal quarters ended August 1, 1998 and August 2, 1997, respectively. The weighted average number of shares used in the calculation of diluted earnings per share was 4,751,330 and 4,828,431 for the second fiscal quarter ended August 1, 1998 and August 2, 1997, respectively, and 4,751,009 and 4,791,996 for the two fiscal quarters ended August 1, 1998 and August 2, 1997, respectively. 4. Seasonality ----------- The results of operations for the first two fiscal quarters ended August 1, 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 store and gasoline locations in the northeastern United States for $39.1 million. The principal assets sold by the Company included 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. The resulting net pre-tax -6- 7 gain of $3.6 million recognized in the fiscal year ended January 31, 1998 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 two fiscal quarters ended August 1, 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 TWO FISCAL FOR THE FISCAL QUARTERS ENDED YEAR ENDED ------------------ -------------- AUGUST 1, JANUARY 31, 1998 1998 - - -------------------------------------------------------------------------------------------------------------------------------- Revenues. . . . . . . . . . . . . . . $ 235,978 $ 459,348 --------------- ------------- Income (loss) before income taxes . . 468 (6,358) --------------- -------------- Net income (loss) . . . . . . . . . . $ 253 $ (4,519) - - -------------------------------------------------------------- ----------------------------------------------------------------- Earnings (loss) per share - Basic . . $ 0.05 $ (0.98) Earnings (loss) per share - Diluted . $ 0.05 $ (0.98) - - -------------------------------------------------------------- -----------------------------------------------------------------
-7- 8 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 a consolidating 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 omitted accordingly. 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 investments in subsidiaries and intercompany balances and transactions. -8- 9 Supplemental Consolidating Statement of Operations for the Two Fiscal Quarters Ended August 1, 1998 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated --------- ------------ ----------- ------------ ------------ Revenues. . . . . . . . . . . . . . . . $ 45 $ 235,701 $ 232 $ - $ 235,978 Cost of goods sold and expenses: Cost of goods sold. . . . . . . . . . - 169,033 - - 169,033 Operating and administrative expenses 131 61,004 10 - 61,145 Interest expense. . . . . . . . . . . 4,903 254 175 - 5,332 -------------------------------------------------------------------------------- 5,034 230,291 185 - 235,510 -------------------------------------------------------------------------------- Income (loss) before income taxes and equity in income of consolidated subsidiaries . . . . . . . . . . . . (4,989) 5,410 47 - 468 (Provision for) benefit from income taxes. . . . . . . . . . . . 2,295 (2,488) (22) - (215) -------------------------------------------------------------------------------- Income (loss) before equity in income of consolidated subsidiaries (2,694) 2,922 25 - 253 Equity in income of consolidated subsidiaries. . . . . . . . . . . . . 2,947 25 - (2,972) - -------------------------------------------------------------------------------- Net income. . . . . . . . . . . . . $ 253 $ 2,947 $ 25 $ (2,972) $ 253 ===================================================================================================================================
-9- 10 Supplemental Consolidating Balance Sheets as of August 1, 1998 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ -------- ------------ ------------ ASSETS Current Assets: Cash . . . . . . . . . . . . . . . . $ - $ 3,328 $ 143 $ - $ 3,471 Short-term investments . . . . . . . - 3 3,710 - 3,713 Accounts and notes receivable. . . . 583 13,765 621 - 14,969 Inventory. . . . . . . . . . . . . . - 19,184 - - 19,184 Prepaid expenses and other current assets . . . . . . . . . . 31 2,759 - - 2,790 Deferred income taxes. . . . . . . . 963 109 - - 1,072 -------------------------------------------------------------------------------- Total current assets . . . . . . . 1,577 39,148 4,474 - 45,199 Assets Held For Sale. . . . . . . . . . - 18,847 - - 18,847 Property and Equipment, net . . . . . . - 85,703 - - 85,703 Intangible Assets, net. . . . . . . . . - 15,559 - - 15,559 Other Assets, net . . . . . . . . . . . 1,409 9,742 1,778 - 12,929 Investment in and Advances to subsidiaries . . . . . . . . . . . . 129,461 1,888 222 (131,571) - -------------------------------------------------------------------------------- Total assets. . . . . . . . . . . . . . $ 132,447 $ 170,887 $ 6,474 $(131,571) $ 178,237 - - ----------------------------------------------------------------------------------------------------------------- ---------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations. . . . . . . . . . . . $ 637 $ 316 $ 1,100 $ - $ 2,053 Accounts payable . . . . . . . . . . 21,260 17,507 - - 38,767 Accrued expenses . . . . . . . . . . 715 15,115 16 - 15,846 Accrued interest . . . . . . . . . . 3,585 - 118 - 3,703 -------------------------------------------------------------------------------- Total current liabilities. . . . . 26,197 32,938 1,234 - 60,369 -------------------------------------------------------------------------------- Long-Term Obligations, less current portion above. . . . . . . . 99,417 636 3,130 - 103,183 Other Liabilities . . . . . . . . . . . - 7,852 - - 7,852 Stockholders' Equity. . . . . . . . . . 6,833 129,461 2,110 (131,571) 6,833 -------------------------------------------------------------------------------- Total liabilities and stockholders' equity . . . . . . . . $ 132,447 $ 170,887 $ 6,474 $(131,571) $ 178,237 ==================================================================================================================================
-10- 11 Supplemental Consolidating Statement of Cash Flows for the Two Fiscal Quarters Ended August 1, 1998 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ Net cash provided by operating activities . . . . . . . . . . . . . $ 1,902 $ 5,274 $ 78 $ - $ 7,254 -------------------------------------------------------------------------------- Cash flows from investing activities: - Purchase of and change in - short-term investments . . . . . . - - (84) - (84) Purchase of property and equipment . - (16,797) - - (16,797) Net proceeds from sale of property, equipment and assets held for sale - 573 - - 573 Investment in and advances to subsidiaries . . . . . . . . . . . (10,789) 10,874 (85) - - Increase in long-term notes receivables. . . . . . . . . . . . - (7) (338) - (345) Proceeds from collection of long-term receivables. . . . . . . - 30 338 - 368 Increase in intangibles and other assets . . . . . . . . . . . (130) (23) - - (153) ================================================================================ Net cash used by investing activities . . . . . . . . . . . . . (10,919) (5,350) (169) - (16,438) -------------------------------------------------------------------------------- Cash flows from financing activities: Increase in revolving loan, net. . . 9,200 - - - 9,200 Repayment of long-term obligations . (318) (168) - - (486) Issuance of common stock . . . . . . 135 - - - 135 -------------------------------------------------------------------------------- Net cash provided by (used in) financing activities . . . . . . . . 9,017 (168) - - 8,849 -------------------------------------------------------------------------------- Decrease in cash . . . . . . . . . . . 0 (244) (91) - (335) Cash at beginning of fiscal year . . . 0 3,572 234 - 3,806 -------------------------------------------------------------------------------- Cash at end of second fiscal quarter . $ 0 $ 3,328 $ 143 $ - $ 3,471 ==================================================================================================================================
-11- 12 Supplemental Consolidating Statement of Operations for the Two Fiscal Quarters Ended August 2, 1997 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ --------- ------------ ------------ Revenues . . . . . . . . . . . . . . . $ 267 $ 275,611 $ 219 $ - $ 276,097 Cost of goods sold and expenses: Cost of goods sold . . . . . . . . . - 202,100 - - 202,100 Operating and administrative expenses 139 66,350 15 - 66,504 Interest expense . . . . . . . . . . 4,883 400 176 - 5,459 -------------------------------------------------------------------------------- 5,022 268,850 191 - 274,063 -------------------------------------------------------------------------------- Income (loss) before income taxes and equity in income of consolidated subsidiaries. . . . . (4,755) 6,761 28 - 2,034 (Provision for) benefit from income taxes . . . . . . . . . . . 2,092 (2,975) (12) - (895) -------------------------------------------------------------------------------- Income (loss) before equity in income of consolidated subsidiaries . . . . . . . . . . (2,663) 3,786 16 - 1,139 Equity in income of consolidated subsidiaries. . . . 3,802 16 - (3,818) - -------------------------------------------------------------------------------- Net income . . . . . . . . . . $ 1,139 $ 3,802 $ 16 $ (3,818) $ 1,139 ==================================================================================================================================
-12- 13 Supplemental Consolidating Balance Sheets as of January 31, 1998 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ -------- ------------ ------------ 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 ==================================================================================================================================
-13- 14 Supplemental Consolidating Statement of Cash Flows for the Two Quarters Ended August 2, 1997 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated --------- ------------ -------- ------------ ------------ Net cash provided by operating activities . . . . . . . . . . . . . $ 5,518 $ 5,205 $ 138 $ - $ 10,861 -------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of and increase in short-term investments . . . . . . - (19,878) (801) - (20,679) Purchase of property and equipment . - (13,438) - - (13,438) Net proceeds from sale of property, equipment and assets held for sale - 31,830 - - 31,830 Investment in and advances to subsidiaries . . . . . . . . . . . 7,764 (7,971) 207 - - Increase in long-term notes receivables. . . . . . . . . . . . - (23) (395) - (418) Proceeds from collection of long-term receivables. . . . . . . - 26 605 - 631 Decrease in intangibles and other assets . . . . . . . . . . . 29 1,676 4 - 1,709 -------------------------------------------------------------------------------- Net cash provided by (used in) investing activities . . . . . . . . 7,793 (7,778) (380) - (365) -------------------------------------------------------------------------------- Cash flows from financing activities: Decrease in revolving loan, net. . . (10,280) - - - (10,280) Repayment of long-term obligations . (1,672) (1,609) - - (3,281) Issuance of common stock . . . . . . 164 - - - 164 -------------------------------------------------------------------------------- Net cash used in financing activities . . . . . . . . . . . . . (11,788) (1,609) - - (13,397) -------------------------------------------------------------------------------- Increase (decrease) in cash. . . . . . 1,523 (4,182) (242) - (2,901) Cash at beginning of fiscal year . . . 100 8,018 1,172 - 9,290 -------------------------------------------------------------------------------- Cash at end of second fiscal quarter . $ 1,623 $ 3,836 $ 930 $ - $ 6,389 - - ----------------------------------------------------------------------------------------------------------------------------------
-14- 15 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 year first two fiscal quarters and current year second fiscal quarter as compared to the corresponding periods of the prior fiscal year. The unaudited Pro Forma Consolidated Statements of Operations as presented below reflect exclusion, for all comparative fiscal periods shown, of the historical revenues, cost of goods sold, operating expenses, direct and indirect administrative expenses and the pre-tax gain associated with the assets sold. Additionally, the unaudited Pro Forma Consolidated Statements of Operations reflect the elimination of historical interest expense related to the 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 second fiscal quarter and the first two fiscal quarters are as follows: -15- 16 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share amounts)
FOR THE SECOND FISCAL FOR THE TWO FISCAL QUARTER ENDED QUARTERS ENDED ------------------------- ------------------------- AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2, 1998 1997 1998 1997 - - --------------------------------------------------------------------------------------------------------------------------------- Revenues . . . . . . . . . . . . . . . . . . $ 126,129 $ 120,829 $ 235,978 $ 234,049 ------------ ----------- ------------ --------- Cost of goods sold and expenses: Cost of goods sold . . . . . . . . . . 90,315 88,012 169,033 170,660 Operating and administrative expenses. 31,788 30,661 61,145` 59,403 Interest expense . . . . . . . . . . . 2,594 2,577 5,332 5,178 ----------- ----------- ------------ --------- $ 124,697 $ 121,250 $ 235,510 $ 235,241 ------------ ----------- ------------ --------- Income (loss) before incomes taxes . . . 1,432 (421) 468 (1,192) Provision for income taxes . . . . . . . (533) 185 (215) 525 ----------- ----------- ----------- --------- Net income . . . . . . . . . . . . . . $ 899 $ (236) $ 253 $ (667) - - ---------------------------------------------------------------------------------------------------------------------------------- Earnings per share - Basic . . . . . . . $ 0.19 $ (0.05) $ 0.05 $ (0.15) Earnings per share - Diluted . . . . . . $ 0.19 $ (0.05) $ 0.05 $ (0.15) - - ----------------------------------------------------------------------------------------------------------------------------------
REVENUES - - -------- Revenues for the current year first two fiscal quarters increased by $2.0 million from the prior year first two fiscal quarters, and revenues for the current year 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: -16- 17
FOR THE SECOND FISCAL FOR THE TWO FISCAL QUARTER ENDED QUARTERS ENDED --------------------------- ----------------------- AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2, (IN MILLIONS) 1998 1997 1998 1997 - - -------------------------------------------------------------------------- ---------------------- CONVENIENCE STORES $ 83.0 $ 75.0 $ 155.7 $ 143.0 GASOLINE 42.7 45.1 79.4 89.8 OTHER 0.4 0.7 0.9 1.2 --------------------------- ----------------------- TOTAL $ 126.1 $ 120.8 $ 236.0 $ 234.0 =========================== =======================
Convenience store revenues increased by $12.7 million, or 8.9%, 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 by $8.0 million, or 10.7%, as compared to the prior year second fiscal quarter. These increases were primarily due to increases in comparable company-operated store sales. The increase in comparable company- operated store sales in the current year two fiscal quarters was 9.7%, and the increase in comparable company-operated store sales for the current year second fiscal quarter was 11.1%. In addition to the increase in comparable company-operated store sales, the Company has opened ten new stores in the last twelve months. These increases are partially offset by the closure and/or sale of 33 underperforming stores in the last twelve months. Although the reduction in stores has a negative impact on revenues, it does 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 $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 decreased $2.4 million as compared to the prior year second fiscal quarter. The decrease in gasoline revenues for the first two fiscal quarters was due to a decrease in the average selling price of gasoline of 14.5 cents per gallon, partially offset by an increase in total gallons sold of 1.1 million. The decrease in gasoline revenue for the second fiscal quarter was due to a decrease in the average selling price of gasoline of 13.2 cents per gallon, partially offset by an increase in total gallons sold of 2.7 million. -17- 18 GROSS PROFITS Gross profits for the current year first two fiscal quarters increased $3.5 million from the prior year first two fiscal quarters, and gross profits for the current year second fiscal quarter increased $3.0 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 --------------------------- --------------------------- AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2, (IN MILLIONS) 1998 1997 1998 1997 --------------------------------------------------- --------------------------- CONVENIENCE STORES $ 30.4 $ 27.1 $ 56.5 $ 52.2 GASOLINE 5.0 5.0 9.5 10.0 OTHER 0.4 0.7 0.9 1.2 --------------------------- --------------------------- TOTAL $ 35.8 $ 32.8 $ 66.9 $ 63.4 =========================== ===========================
Convenience store gross profits increased by $4.3 million in the current year first two fiscal quarters as compared to the prior year first two fiscal quarters, and convenience store gross profits increased $3.3 million in the current year second fiscal quarter as compared to the prior year second fiscal quarter. The increase in the current year first two fiscal quarters was due to the increase in comparable store sales, as described above, offset in part by slightly lower store-related gross margins. The increase in the current year second fiscal quarter was primarily due to the increase in comparable stores, as described above, and higher gross margins. Gasoline gross profits decreased by $0.5 million in the current year first two fiscal quarters as compared to the prior year first two fiscal quarters, and gasoline gross profits were unchanged in the current year second fiscal quarter as compared to the prior year second fiscal quarter. The decrease in the current year first two fiscal quarters was a result of a decrease in gasoline gross profit of 0.8 cents per gallon in the current year first two fiscal quarters as compared to the prior year first two fiscal quarters, offset in part by an increase in gasoline gallons sold, as described above. In the current year -18- 19 second fiscal quarter, gasoline gallons increased 2.7 million as compared to the prior year second fiscal quarter, offset by a decrease in gasoline gross profit of 0.8 cents per gallon. Other 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 other gross profits decreased $0.3 million in the current year second fiscal quarter as compared to the prior year second fiscal quarter. These decreases were primarily a result of interest income generated in the prior year on the proceeds from the sale of certain assets in fiscal year 1998. OPERATING AND ADMINISTRATIVE EXPENSES Operating and administrative expenses for the current year first two fiscal quarters increased $1.7 million from the prior year first two fiscal quarters, and operating and administrative expenses for the current year second fiscal quarter increased by $1.0 million from the prior year second fiscal quarter. These increases were primarily due to higher store labor and depreciation expenses, and certain expenses related to the relocation of the Company's information processing center from Connecticut to Ohio. These increases were partially offset by lower commercial insurance and environmental remediation-related expense. INTEREST EXPENSE AND TAXES Pro forma interest expense increased $0.2 million in the current year first two fiscal quarters as compared to the prior year first two fiscal quarters, and interest expense remained constant in the current year second fiscal quarter as compared to the prior year second fiscal quarter. The increase in interest expense is a result of the Company's increased borrowings under its revolving line of credit. The effective tax rate for the Company was a provision of 46% and 37% for the current year first two fiscal quarters and the current year second fiscal quarter, respectively, and a benefit of 44% and 44% for the corresponding periods of the prior year. -19- 20 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. In May 1998 the Company received a $47.2 million forward commitment that provides real estate sale/leaseback or mortgage financing on a long-term basis. Additionally, the Company has a $30.0 million senior revolving credit facility with $15.0 million available for issuance of letters of credit. The Company uses the revolving line of credit to address the seasonality of operations and the timing of capital expenditures and certain working capital disbursements. As of August 1, 1998, the Company had $9.2 million in outstanding revolving credit loans and had $7.8 million in outstanding letters of credit. The Capital expenditures of the Company during the first two quarters of fiscal year 1999 were funded by the borrowings under the Company's revolving line of credit, proceeds from real estate sale/leasebacks, and excess operating cash flow available after debt service. Management believes that the cash flow from operations, the proceeds from the sale of assets held for sale or other forms of long-term asset financing and/or leasing, supplemented by the availability of the revolving credit facility, 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 $3.6 million in the current year first two fiscal quarters as compared to the corresponding period of the prior year primarily due to a net unfavorable change in other assets and liabilities, partially offset by a favorable change in working capital accounts. The unfavorable change in other assets and liabilities is a result of an increase in certain liabilities in the prior year related to the sale of the 156 Northeastern stores and the Company's former manufacturing facility, -20- 21 as described above. The net favorable change in working capital was primarily due to the timing of payments to the issuers of money orders and an increase in trade accounts payable, coupled with a favorable change in accounts and notes receivable partially offset by an increase in the average store inventory required to support the increases in comparable store sales, as described above. CAPITAL EXPENDITURES The Company anticipates spending approximately $30 to $35 million, net of sale/leaseback transactions, 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 August 1, 1998, and other forms of long-term equipment financing and/or leasing, supplemented by the availability of the senior revolving credit facility, if necessary. 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 1, 1998, the Company had recorded an accrual of $5,147,000 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 August 1, 1998, the Company had recorded a net state trust fund reimbursement receivable of $4,662,000. Although there are no assurances as to the timing, the Company believes that it is probable that reimbursements from the state environmental trust funds -21- 22 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 $2.0 to $3.0 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 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. -22- 23 PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On June 25, 1998, the Company held its Annual Meeting of its stockholders. The following matters were voted on at the Annual Meeting: 1. The election of Thomas W. Janes and Albert T. Adams as Class A Directors and Frank W. Barrett, Jr., Kermit Birchfield, Jr., John W. Everets, Jr., Gregory G. Landry, and Robert B. Stein, Jr. as Class B Directors; and 2. Amendment to the Company's 1995 Stock Option Plan to increase the number of shares of Common Stock for which awards may be granted from 650,000 shares to 1,150,000 shares. The following chart shows the number of votes cast for or against, as well as the number of abstentions and nonvotes, as to each matter voted on at the Annual Meeting: For Against Abstain Nonvotes ------- ------- ------- -------- 1. Election of Mr. Janes . . . . . 218,792 5,738 - - 2. Election of Mr. Adams . . . . . 218,943 5,587 - - 3. Election of Mr. Barrett . . . . 1,297,629 12,538 - - 4. Election of Mr. Birchfield . . 1,298,929 11,238 - - 5. Election of Mr. Everets . . . . 1,298,929 11,238 - - 6. Election of Mr. Landry . . . . 1,298,929 11,238 - - 7. Election of Mr. Stein . . . . . 1,298,929 11,238 - - 8. Amendment to the Company's 1995 Stock Option Plan . . . 897,927 102,821 1,361 532,588 Item 5. OTHER INFORMATION. Pursuant to an amendment to Securities Exchange Act Rule 14a-4 (c) (1) which became effective June 29, 1998, the persons acting under proxies solicited by this Company's Board of Directors in connection with the Company's 1999 annual meeting of stockholders will have discretionary authority to vote the shares represented thereby on any matter properly presented by a stockholder at such meeting that is not specifically set forth in the notice of such meeting if the Company does not have notice of such matter on or before April 15, 1999 (unless the date of the 1999 annual meeting is changed by more than 30 days from June 17, 1999 in which event such persons will have such discretionary authority if the Company does not have notice of such matter a reasonable time before the Company mails its proxy materials for such meeting). 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 During the second quarter of fiscal year 1999, the Company filed no reports on Form 8-K. -23- 24 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 15, 1998 /s/ Dale W. Fuller ------------------------------------- Dale W. Fuller Executive Vice President and Chief Administrative Officer (Principal Accounting Officer) -24- 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 PER SHARE
FOR THE SECOND FISCAL FOR THE TWO FISCAL QUARTER ENDED QUARTERS ENDED --------------------------- --------------------------------- AUGUST 1, AUGUST 2, AUGUST 1 AUGUST 2, 1998 1997 1998 1997 - - ---------------------------------------------------------------------------------------------------------------------------------- Net income . . . . . . . . . . . . . . $ 899 $ 1,122 $ 253 $ 1,139 Weighted average shares . . . . . . . . . 4,670 5,821 4,666 5,807 Dilutive options. . . . . . . . . . . . 81 227 85 205 Effect of DM Associates stock . . . . . - (1,220) - (1,220) --------------------------------------------------------------------- Total shares for EPS purposes . . . . . . 4,751 4,828 4,751 4,792 - - ---------------------------------------------------------------------------------------------------------------------------------- Earnings per share - Basic. . . . . . . . $ 0.19 $ 0.24 $ 0.05 $ 0.25 Earnings per share - Diluted. . . . . . . $ 0.19 $ 0.23 $ 0.05 $ 0.24 ==================================================================================================================================
-25- 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 6-MOS JAN-30-1999 FEB-01-1998 AUG-01-1998 3,471 3,713 17,421 (2,452) 19,184 45,199 156,525 (51,975) 178,237 60,369 103,183 0 0 66 6,833 178,237 0 235,978 169,033 230,178 0 0 5,332 468 (215) 253 0 0 0 253 0.05 0.05
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