-----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, K6FKS3mN1DW/65GgWy7Wo8LTscNR/KMYHGIiLFHCd+qRsfQouad2TBdWgPkVVbmY HbcmzMihmw83ajOc2Eqpjg== 0000950152-98-009582.txt : 19990111 0000950152-98-009582.hdr.sgml : 19990111 ACCESSION NUMBER: 0000950152-98-009582 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981215 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: 98770171 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 OCTOBER 31, 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 OCTOBER 31, 1998 - 3,177,587 SHARES OF CLASS B COMMON STOCK OUTSTANDING OCTOBER 31, 1998 - 1,521,799 -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 THIRD FISCAL FOR THE THREE FISCAL QUARTER ENDED QUARTERS ENDED --------------------------- --------------------------- OCTOBER 31, NOVEMBER 1, OCTOBER 31, NOVEMBER 1, 1998 1997 1998 1997 - - --------------------------------------------------------------------------------------------------------------------------- Revenues . . . . . . . . . . . . . . . . $ 126,183 $ 118,313 $ 362,161 $ 394,410 ------------ ----------- ------------ --------- Cost of goods sold and expenses: Cost of goods sold . . . . . . . . . . 88,721 86,095 257,754 288,195 Operating and administrative expenses. 33,658 30,163 94,803 96,667 Interest expense . . . . . . . . . . . 2,695 2,607 8,027 8,066 ----------- ----------- ------------ --------- 125,074 118,865 360,584 392,928 ------------ ----------- ------------ --------- Income (loss) before incomes taxes . . . 1,109 (552) 1,577 1,482 (Provision) benefit for income taxes . . (508) 242 (723) (653) ----------- ----------- ------------ --------- Net income . . . . . . . . . . . . . . $ 601 $ (310) $ 854 $ 829 - - ------------------------------------------------------------ ---------------- ----------------- ----------------- --------- Earnings (loss) per share - Basic . . . $ 0.13 $ (0.07) $ 0.18 $ 0.18 Earnings (loss) per share - Diluted . . $ 0.13 $ (0.07) $ 0.18 $ 0.17 - - ------------------------------------------------------------ ---------------- ----------------- ----------------- ---------
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)
OCTOBER 31, 1998 JANUARY 31, 1998 - - ------------------------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash . . . . . . . . . . . . . . . . . . . . . . . $ 6,037 $ 3,806 Short-term investments . . . . . . . . . . . . . . 2,543 3,629 Accounts and notes receivable. . . . . . . . . . . 19,591 14,970 Inventory. . . . . . . . . . . . . . . . . . . . . 19,370 16,808 Prepaid expenses and other current assets. . . . . 1,648 2,231 Deferred income taxes. . . . . . . . . . . . . . . 821 1,048 -------------- ----------- Total current assets. . . . . . . . . . . . . . 50,010 42,492 Assets Held For Sale . . . . . . . . . . . . . . . 10,094 10,715 Property and Equipment, net. . . . . . . . . . . . 88,703 82,589 Intangible Assets, net . . . . . . . . . . . . . . 15,367 16,017 Other Assets, net. . . . . . . . . . . . . . . . . 15,434 13,291 -------------- ----------- Total assets . . . . . . . . . . . . . . . . . . . $ 179,608 $ 165,104 - - ------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations. . . . $ 3,353 $ 2,056 Accounts payable . . . . . . . . . . . . . . . . . 39,835 31,297 Accrued expenses . . . . . . . . . . . . . . . . . 15,483 18,177 Accrued interest . . . . . . . . . . . . . . . . . 1,427 3,567 -------------- ----------- Total current liabilities. . . . . . . . . . . . 60,098 55,097 Long-Term Obligations, less current portion above . . 104,186 94,392 Other Liabilities . . . . . . . . . . . . . . . . . . 7,811 9,170 Stockholders' Equity: Preferred Stock (serial) . . . . . . . . . . . . . - - Class A Common Stock . . . . . . . . . . . . . . . 37 36 Class B Common Stock . . . . . . . . . . . . . . . 29 29 Paid-in capital. . . . . . . . . . . . . . . . . . 31,015 30,802 Retained deficit . . . . . . . . . . . . . . . . . (8,563) (9,417) Treasury stock, at cost. . . . . . . . . . . . . . (15,005) (15,005) ------------- ------------ Total stockholders' equity. . . . . . . . . . . 7,513 6,445 -------------- ----------- Total liabilities and stockholders' equity. . . . . . $ 179,608 $ 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 THREE FISCAL QUARTERS ENDED ----------------------------------- OCTOBER 31, 1998 NOVEMBER 1, 1997 - - -------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . $ 854 $ 829 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . 8,008 8,351 Change in deferred income taxes . . . . . . . . . . . 454 435 (Gain) loss on disposition of properties, net . . . . 615 (1,765) Net change in assets and liabilities: Accounts and notes receivable . . . . . . . . . . . (4,621) (3,492) Inventory . . . . . . . . . . . . . . . . . . . . . (2,562) (505) Accounts payable. . . . . . . . . . . . . . . . . . 8,538 3,655 Accrued interest. . . . . . . . . . . . . . . . . . (2,140) (2,363) Other assets and liabilities. . . . . . . . . . . . (3,356) 2,833 - - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities . . . . . . . . 5,790 7,978 - - -------------------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of and increase in short-term investments . . 1,086 (5,747) Purchase of property and equipment . . . . . . . . . . (37,174) (22,427) Proceeds from sale of property, equipment and assets held for sale . . . . . . . . . . . . . . . . 22,056 31,277 Increase in long-term notes receivable . . . . . . . . (1,097) (419) Proceeds from collection of long-term notes receivable 798 639 (Increase) decrease in intangibles and other assets. . (419) 1,706 - - -------------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by investing activities . . . (14,750) 5,029 - - -------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Increase (decrease) in revolving loan, net . . . . . . 12,800 (10,280) Repayment of long-term obligations . . . . . . . . . . (1,823) (3,613) Issuance of common stock . . . . . . . . . . . . . . . 214 220 - - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities . . . 11,191 (13,673) - - -------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash . . . . . . . . . . . . . . . . 2,231 (666) Cash at beginning of fiscal year. . . . . . . . . . . . . 3,806 9,290 - - -------------------------------------------------------------------------------------------------------------------------------- Cash at end of third fiscal quarter . . . . . . . . . . . $ 6,037 $ 8,624 - - --------------------------------------------------------------------------------------------------------------------------------
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 OCTOBER 31, 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. These financial statements should 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 three fiscal quarters ended October 31, 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 17,174 - 172 64,026 Stock options exercised 53,125 - 531 149,901 Exchange of Class B Shares for Class A Shares 6,250 (6,250) - - ---------- ---------- --------- -------------- Balance October 31, 1998 3,699,212 2,917,756 $ 66,161 $ 31,014,607 ---------- ---------- --------- -------------
-5- 6 As of October 31, 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 3,177,587 Class A shares and 1,521,799 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 4,681,970 and 4,618,126 for the third fiscal quarter ended October 31, 1998 and November 1, 1997, respectively, and 4,671,518 and 4,597,042 for the three fiscal quarters ended October 31, 1998 and November 1, 1997, respectively. The weighted average number of shares used in the calculation of diluted earnings per share was 4,729,095 and 4,618,126 for the third fiscal quarter ended October 31, 1998 and November 1, 1997, respectively, and 4,743,704 and 4,796,350 for the three fiscal quarters ended October 31, 1998 and November 1, 1997, respectively. 4. Seasonality ----------- The results of operations for the first three fiscal quarters ended October 31, 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 -6- 7 manufacturing facility in Ohio for $4.1 million. The resulting net pre-tax 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 three fiscal quarters ended October 31, 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 THREE FISCAL FOR THE FISCAL QUARTERS ENDED YEAR ENDED -------------------- -------------- OCTOBER 31, JANUARY 31, 1998 1998 - - -------------------------------------------------------------------------------------------------------------------------------- Revenues. . . . . . . . . . . . . . . $ 362,161 $ 459,348 --------------- ------------- Income (loss) before income taxes . . 1,577 (6,358) --------------- -------------- Net income (loss) . . . . . . . . . . $ 854 $ (4,519) - - -------------------------------------------------------------------------------------------------------------------------------- Earnings (loss) per share - Basic . . $ 0.18 $ (0.98) Earnings (loss) per share - Diluted . $ 0.18 $ (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 Three Fiscal Quarters Ended October 31, 1998
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ Revenues. . . . . . . . . . . . . . . . $ 76 $ 361,750 $ 335 $ - $ 362,161 Cost of goods sold and expenses: Cost of goods sold. . . . . . . . . . - 257,754 - - 257,754 Operating and administrative expenses 201 94,586 16 - 94,803 Interest expense. . . . . . . . . . . 7,326 456 245 - 8,027 ---------------------------------------------------------------------------- 7,527 352,796 261 - 360,584 ---------------------------------------------------------------------------- Income (loss) before income taxes and equity in income of consolidated subsidiaries . . . . . . . . . . . . (7,451) 8,954 74 - 1,577 Benefit from (provision for) income taxes. . . . . . . . . . . . 3,428 (4,117) (34) - (723) - ---------------------------------------------------------------------------- Income (loss) before equity in income of consolidated subsidiaries (4,023) 4,837 40 - 854 Equity in income of consolidated subsidiaries. . . . . . . . . . . . . 4,877 40 - (4,917) - ---------------------------------------------------------------------------- Net income. . . . . . . . . . . . . $ 854 $ 4,877 $ 40 $ (4,917) $ 854 =============================================================================================================================
-9- 10 Supplemental Consolidating Balance Sheets as of October 31, 1998 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ ASSETS Current Assets: Cash . . . . . . . . . . . . . . . . $ 100 $ 5,785 $ 152 $ - $ 6,037 Short-term investments . . . . . . . - 3 2,540 - 2,543 Accounts and notes receivable. . . . 890 18,128 573 - 19,591 Inventory. . . . . . . . . . . . . . - 19,370 - - 19,370 Prepaid expenses and other current assets . . . . . . . . . . 15 1,633 - - 1,648 Deferred income taxes. . . . . . . . 953 (132) - - 821 -------------------------------------------------------------------------------- Total current assets . . . . . . . 1,958 44,787 3,265 - 50,010 Assets Held For Sale. . . . . . . . . . - 10,094 - - 10,094 Property and Equipment, net . . . . . . - 88,703 - - 88,703 Intangible Assets, net. . . . . . . . . - 15,367 - - 15,367 Other Assets, net . . . . . . . . . . . 1,552 12,106 1,776 - 15,434 Investment in and Advances to subsidiaries . . . . . . . . . . . . 129,291 1,828 297 (131,416) - -------------------------------------------------------------------------------- Total assets. . . . . . . . . . . . . . $ 132,801 $ 172,885 $ 5,338 $(131,416) $ 179,608 - - ------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations. . . . . . . . . . . . $ 3,094 $ 259 $ - $ - $ 3,353 Accounts payable . . . . . . . . . . 20,235 19,600 - - 39,835 Accrued expenses . . . . . . . . . . 170 15,301 12 - 15,483 Accrued interest . . . . . . . . . . 1,356 - 71 - 1,427 -------------------------------------------------------------------------------- Total current liabilities. . . . . 24,855 35,160 83 - 60,098 -------------------------------------------------------------------------------- Long-Term Obligations, less current portion above. . . . . . . . 100,433 623 3,130 - 104,186 Other Liabilities . . . . . . . . . . . - 7,811 - - 7,811 Stockholders' Equity. . . . . . . . . . 7,513 129,291 2,125 (131,416) 7,513 -------------------------------------------------------------------------------- Total liabilities and stockholders' equity . . . . . . . . $ 132,801 $ 172,885 $ 5,338 $(131,416) $ 179,608 ===============================================================================================================================
-10- 11 Supplemental Consolidating Statement of Cash Flows for the Three Fiscal Quarters Ended October 31, 1998
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ Net cash provided by (used in) operating activities . . . . . . . . . . $ (1,589) $ 7,287 $ 92 $ - $ 5,790 -------------------------------------------------------------------------------- Cash flows from investing activities: - Decrease in short-term investments . . - - 1,086 - 1,086 Purchase of property and equipment . - (37,174) - - (37,174) Net proceeds from sale of property, equipment and assets held for sale - 22,056 - - 22,056 Investment in and advances to subsidiaries . . . . . . . . . . . (10,486) 10,646 (160) - - Increase in long-term notes receivables. . . . . . . . . . . . - (1,097) - - (1,097) Proceeds from collection of long-term receivables. . . . . . . - 798 - - 798 Increase in intangibles and other assets . . . . . . . . . . . (355) (64) - - (419) -------------------------------------------------------------------------------- Net cash provided by (used by) investing activities . . . . . . . . (10,841) (4,835) 926 - (14,750) -------------------------------------------------------------------------------- Cash flows from financing activities: Issuance of long-term obligations. . - - - - - Increase in revolving loan, net. . . 12,800 - - - 12,800 Repayment of long-term obligations . (484) (239) (1,100) - (1,823) Issuance of common stock . . . . . . 214 - - - 214 -------------------------------------------------------------------------------- Net cash provided by (used in) financing activities . . . . . . . . 12,530 (239) (1,100) - 11,191 -------------------------------------------------------------------------------- Increase (decrease) in cash . . . . . 100 2,213 (82) - 2,231 Cash at beginning of fiscal year . . . - 3,572 234 - 3,806 -------------------------------------------------------------------------------- Cash at end of third fiscal quarter. . $ 100 $ 5,785 $ 152 $ - $ 6,037 ================================================================================================================================
-11- 12 Supplemental Consolidating Statement of Operations for the Three Fiscal Quarters Ended November 1, 1997 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ Revenues . . . . . . . . . . . . . . . $ 1,098 $ 392,977 $ 335 $ - $ 394,410 Cost of goods sold and expenses: Cost of goods sold . . . . . . . . . - 288,195 - - 288,195 Operating and administrative expenses 204 96,439 24 - 96,667 Interest expense . . . . . . . . . . 7,308 494 264 - 8,066 -------------------------------------------------------------------------------- 7,512 385,128 288 - 392,928 Income (loss) before income taxes and equity in income of consolidated subsidiaries. . . . . (6,414) 7,849 47 - 1,482 Benefit from (provision for) income taxes . . . . . . . . . . . 2,822 (3,454) (21) - (653) -------------------------------------------------------------------------------- Income (loss) before equity in income of consolidated subsidiaries . . . . . . . . . . (3,592) 4,395 26 - 829 Equity in income of consolidated subsidiaries. . . . 4,421 26 - (4,447) - -------------------------------------------------------------------------------- Net income . . . . . . . . . . $ 829 $ 4,421 $ 26 $ (4,447) $ 829 ================================================================================================================================
-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 Three Quarters Ended November 1, 1997 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ Net cash (used in) provided by operating activities . . . . . . . . . . . . . . $ (577) $ 8,283 $ 272 $ - $ 7,978 -------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of and increase in short-term investments . . . . . . - (4,905) (842) - (5,747) Purchase of property and equipment . - (22,427) - - (22,427) Net proceeds from sale of property, equipment and assets held for sale - 31,277 - - 31,277 Investment in and advances to subsidiaries . . . . . . . . . . . 15,631 (16,420) 789 - - Increase in long-term notes receivables. . . . . . . . . . . . - (419) - - (419) Proceeds from collection of long-term receivables. . . . . . . - 429 210 - 639 Decrease in intangibles and other assets . . . . . . . . . . . 29 1,671 6 - 1,706 -------------------------------------------------------------------------------- Net cash provided by (used in) investing activities . . . . . . . . 15,660 (10,794) 163 - 5,029 -------------------------------------------------------------------------------- Cash flows from financing activities: Decrease in revolving loan, net. . . (10,280) - - - (10,280) Repayment of long-term obligations . (1,913) (1,700) - - (3,613) Issuance of common stock . . . . . . 220 - - - 220 -------------------------------------------------------------------------------- Net cash used in financing activities . . . . . . . . . . . . . (11,973) (1,700) - - (13,673) -------------------------------------------------------------------------------- Increase (decrease) in cash. . . . . . 3,110 (4,211) 435 - (666) Cash at beginning of fiscal year . . . 100 8,018 1,172 - 9,290 -------------------------------------------------------------------------------- Cash at end of third fiscal quarter. . $ 3,210 $ 3,807 $ 1,607 $ - $ 8,624 ===============================================================================================================================
-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 three fiscal quarters and current year third 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 third fiscal quarter and the first three 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 THIRD FISCAL FOR THE THREE FISCAL QUARTER ENDED QUARTERS ENDED -------------------- -------------------- OCTOBER 31, NOVEMBER 1, OCTOBER 31 NOVEMBER 1, 1998 1997 1998 1997 - - ---------------------------------------------------------------------------------------------------------------------------- Revenues . . . . . . . . . . . . . . . . . . $ 126,183 $ 118,297 $ 362,161 $ 352,346 ------------ ----------- ------------ --------- Cost of goods sold and expenses: Cost of goods sold . . . . . . . . . . 88,721 86,018 257,754 256,678 Operating and administrative expenses. 33,658 30,273 94,803 89,676 Interest expense . . . . . . . . . . . 2,695 2,606 8,027 7,784 ----------- ----------- ------------ --------- $ 125,074 $ 118,897 $ 360,584 $ 354,138 ----------- ----------- ------------ --------- Income (loss) before incomes taxes . . . 1,109 (600) 1,577 (1,792) (Provision) benefit for income taxes . . (508) 264 (723) 788 ----------- ----------- ------------ --------- Net income (loss). . . . . . . . . . . $ 601 $ (336) $ 854 $ (1,004) - - ---------------------------------------------------------------------------------------------------------------------------- Earnings (loss) per share - Basic . . . $ 0.13 $ (0.07) $ 0.18 $ (0.22) Earnings (loss) per share - Diluted . . $ 0.13 $ (0.07) $ 0.18 $ (0.22) - - ----------------------------------------------------------------------------------------------------------------------------
REVENUES Revenues for the current year first three fiscal quarters increased by $9.9 million from the prior year first three fiscal quarters, and revenues for the current year third fiscal quarter increased by $7.9 million from the prior year third fiscal quarter. A summary of revenues by functional area for the comparative third fiscal quarter and the first three fiscal quarters is as follows: -16- 17
FOR THE THIRD FISCAL FOR THE THREE FISCAL QUARTERS ENDED QUARTER ENDED --------------------------- ---------------------------- OCTOBER 31, NOVEMBER 1, OCTOBER 31, NOVEMBER 1, (IN MILLIONS) 1998 1997 1998 1997 - - -------------------------------------------------------------------------- ---------------------------- CONVENIENCE STORES $ 80.8 $ 73.9 $ 236.5 $ 216.9 GASOLINE 41.9 43.1 121.3 132.9 OTHER 3.5 1.3 4.4 2.5 -------------------------- -------------------------- TOTAL $ 126.2 $ 118.3 $ 362.2 $ 352.3 ========================== ==========================
Convenience store revenues increased $19.6 million, or 9.0%, in the current year first three fiscal quarters as compared to the prior year first three fiscal quarters, and convenience store revenues for the current year third fiscal quarter increased by $6.9 million, or 9.3%, as compared to the prior year third 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 three fiscal quarters was 9.4%, and the increase in comparable company-operated store sales for the current year third fiscal quarter was 8.6%. In addition to these increases in comparable company-operated store sales, the Company has opened sixteen new stores in the last twelve months. These increases are partially offset by the closure and/or sale of 35 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 $11.6 million in the current year first three fiscal quarters as compared to the prior year first three quarters, and gasoline revenues for the current year third fiscal quarter decreased $1.2 million as compared to the prior year third fiscal quarter. The decrease in gasoline revenues for the first three fiscal quarters was due to a decrease in the average selling price of gasoline of 16.0 cents per gallon, partially offset by an increase in total gallons sold of 7.0 million. The decrease in gasoline revenue for the third fiscal quarter was due to a decrease in the average selling price of gasoline of 18.5 cents per gallon, partially offset by an increase in total gallons sold of 6.0 million. -17- 18 GROSS PROFITS Gross profits for the current year first three fiscal quarters increased $8.7 million from the prior year first three fiscal quarters, and gross profits for the current year third fiscal quarter increased $5.2 million from the prior year third fiscal quarter. A summary of the gross profits by functional area for the comparative third fiscal quarter and the first three fiscal quarters is as follows:
FOR THE THIRD FISCAL FOR THE THREE FISCAL QUARTER ENDED QUARTERS ENDED --------------------------- ------------------------ OCTOBER 31, NOVEMBER 1, OCTOBER 31, NOVEMBER 1, (IN MILLIONS) 1998 1997 1998 1997 -------------------------------------------------------------- ------------------------ CONVENIENCE STORES $ 28.9 $ 26.3 $ 85.4 $ 78.5 GASOLINE 5.1 4.7 14.6 14.7 OTHER 3.5 1.3 4.4 2.5 --------------------------- --------------------- TOTAL $ 37.5 $ 32.3 $ 104.4 $ 95.7 =========================== =====================
Convenience store gross profits increased by $6.9 million in the current year first three fiscal quarters as compared to the prior year first three fiscal quarters, and convenience store gross profits increased $2.6 million in the current year third fiscal quarter as compared to the prior year third fiscal quarter. These increases are primarily due to the increase in comparable store sales, as described above. Gasoline gross profits decreased $0.1 million in the current year first three fiscal quarters as compared to the prior year first three fiscal quarters, and gasoline gross profits increased $0.4 million in the current year third fiscal quarter as compared to the prior year third fiscal quarter. The decrease in the current year first three fiscal quarters was due to a decrease in gasoline gross profit of 0.7 cents per gallon as compared to the prior year first three fiscal quarters, offset by an increase in gasoline gallons sold, as described above. The increase in the current year third fiscal quarter was primarily due to an increase in gasoline gallons sold of 6.0 million as compared to the prior year third fiscal quarter, partially offset by a decrease in gasoline gross profit of 0.6 cents per gallon. -18- 19 Other gross profits increased by $1.9 million in the current year first three fiscal quarters as compared to the prior year first three fiscal quarters, and other gross profits increased $2.2 million in the current year third fiscal quarter. These increases were primarily a result of a fee due the Company of $3.0 million on the termination of a long-term ATM agreement. The Company's former partner in the agreement has agreed to the termination fee in lieu of its ongoing payment obligations under the agreement which were approximately $130,000 per month. These increases were partially offset by the recognition in the prior year third fiscal quarter of $0.6 million in interest income associated with the retirement of the note receivable from DM Associates Limited Partnership. OPERATING AND ADMINISTRATIVE EXPENSES Operating and administrative expenses for the current year first three fiscal quarters increased $5.1 million from the prior year first three fiscal quarters, and operating and administrative expenses for the current year third fiscal quarter increased $3.4 million from the prior year third fiscal quarter. The increase in the current year first three fiscal quarters was 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, partially offset by lower environmental remediation-related expense. The increase in the current year third fiscal quarter was primarily due to higher store labor and depreciation expenses and certain expenses related to the relocation of the Company's information processing center. INTEREST EXPENSE AND TAXES Pro forma interest expense increased $0.2 million in the current year first three fiscal quarters as compared to the prior year first three fiscal quarters, and interest expense increased $0.1 million in the current year third fiscal quarter as compared to the prior year third 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% for both the current year first three fiscal quarters and the current year third fiscal -19- 20 quarter, respectively, and a benefit of 44% for each of 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. 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 October 31, 1998, the Company had $12.8 million in outstanding revolving credit loans and had $7.9 million in outstanding letters of credit. The capital expenditures of the Company during the first three 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 $2.2 million in the current year first three 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 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, partially offset by an increase in the average store inventory required to support the increases in comparable store sales, as described above, and an increase in accounts and notes receivable. CAPITAL EXPENDITURES The Company anticipates spending approximately $20 to $25 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 excess cash generated from operations, the proceeds from the sale of certain assets held for sale as of October 31, 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 October 31, 1998, the Company had recorded an accrual of $5,057,000 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 October 31, 1998, the Company had recorded a net state trust fund reimbursement receivable of $4,579,000. 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. -21- 22 In addition, the Company estimates that future capital expenditure requirements to comply with federal and state underground gasoline storage tank regulations will be approximately $1.0 to $2.0 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 in order to link its retail stores, which were previously not automated, to the home office. 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 new systems implemented by the Company are designed to be year 2000 compliant. The Company is also in the process of evaluating the year 2000 compliance of various non-information technology systems. Because the implementation and timing of the automation project were not affected by year 2000 concerns, the Company does not consider the costs of this project to be related to year 2000 compliance. The Company does not expect to incur significant additional 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 third party suppliers and vendors to become year 2000 compliant to ensure that no business interruption is experienced at the turn of the century. The Company has sent questionnaires to all of its material vendors to ascertain their state of year 2000 readiness and is in the process of receiving and evaluating their responses. The Company hopes to complete its assessment of its supplier and vendor year 2000 compliance in the next quarter. Due to the Company's ongoing efforts to assess the year 2000 readiness of suppliers and vendors, the Company is unable to determine a reasonable worst case scenario at this time. Although currently considered unlikely, a material interruption in the Company's business could result from the failure of the Company's primary suppliers and vendors to receive orders and deliver goods and services. The Company will determine whether a contingency plan is needed after it has evaluated responses to its vendor and customer questionnaires. BUSINESS OUTLOOK Statements contained in this 10-Q that are not historical facts, including those relating to future financial performance, capital expenditures, estimated costs for environmental remediation, and year 2000 compliance, may constitute forward-looking statements with respect to Dairy Mart's future performance. Forward-looking statements are generally identified by the words "anticipate," "believe," "expect," "plan," "intend," "should," "estimate," and similar expressions. Factors that could cause actual results to differ materially from those in the forward-looking statements include competition, general economic conditions, the availability of capital, the ability to obtain suitable locations for new stores, construction delays, the ability to attract and retain key personnel and other factors disclosed in this 10-Q and Dairy Mart's other filings with the Securities and Exchange Commission. -22- 23 PART II. OTHER INFORMATION 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 the 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 third 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: December 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 THIRD FISCAL FOR THE THREE FISCAL QUARTER ENDED QUARTERS ENDED -------------------------------- -------------------------------- OCTOBER 31, NOVEMBER 1, OCTOBER 31, NOVEMBER 1, 1998 1997 1998 1997 - - ------------------------------------------------------------------------------------------------------------------------------- Net income (loss) . . . . . . . . . . . . $ 601 $ (310) $ 854 $ 829 Weighted average shares . . . . . . . . . 4,682 4,618 4,672 5,410 Dilutive options. . . . . . . . . . . . 47 - 72 199 Effect of DM Associates stock . . . . . - - - (813) ---------------------------------------------------------------------- Total shares for EPS purposes . . . . . . 4,729 4,618 4,744 4,796 - - ------------------------------------------------------------------------------------------------------------------------------- Earnings (loss) per share - Basic . . . . $ 0.13 $ (0.07) $ 0.18 $ 0.18 Earnings (loss) per share - Diluted . . . $ 0.13 $ (0.07) $ 0.18 $ 0.17 ===============================================================================================================================
-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 9-MOS JAN-30-1999 FEB-01-1998 OCT-31-1998 6,037 2,543 21,727 (2,136) 19,370 50,010 140,727 (52,562) 179,608 60,098 104,186 0 0 66 7,447 179,608 0 362,161 257,754 352,557 0 0 8,027 1,557 (723) 854 0 0 0 854 0.18 0.18
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