-----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, KB8UN2OsaAfoF+L0plHrTZy716Jx9cXyM13+6uANOLD7d5MEPlAtvCt0qEbyyx3y G+c9z0SkCSNXCkjCK5C+eA== 0000950152-99-005286.txt : 19990616 0000950152-99-005286.hdr.sgml : 19990616 ACCESSION NUMBER: 0000950152-99-005286 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990501 FILED AS OF DATE: 19990615 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAIRY MART CONVENIENCE STORES INC CENTRAL INDEX KEY: 0000721675 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CONVENIENCE STORES [5412] IRS NUMBER: 042497894 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11627 FILM NUMBER: 99646754 BUSINESS ADDRESS: STREET 1: 210 BROADWAY EAST CITY: CUYAHOGA FALLS STATE: OH ZIP: 44222 BUSINESS PHONE: 2037414444 10-Q 1 DAIRY MART COVENIENCE STORES, INC. 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended MAY 1, 1999 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number 0-12497 ------------------------------ DAIRY MART CONVENIENCE STORES, INC. (Exact name of registrant as specified in its charter) Delaware 04-2497894 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) ONE DAIRY MART WAY, 300 EXECUTIVE PARKWAY WEST, HUDSON, OHIO 44236 (Address of principal executive offices) Registrant's telephone number, including area code (330) 342-6600 ----------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: SHARES OF CLASS A COMMON STOCK OUTSTANDING MAY 1, 1999 - 3,245,660 SHARES OF CLASS B COMMON STOCK OUTSTANDING MAY 1, 1999 - 1,467,199 -1- 2 PART I. FINANCIAL INFORMATION DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share amounts)
FOR THE FIRST FISCAL QUARTER ENDED -------------------- May 1, May 2, 1999 1998 --------- --------- - -------------------------------------------------------------------------------- Revenues ............................... $ 123,643 $ 108,134 --------- --------- Cost of goods sold and expenses: Cost of goods sold ................... 89,427 76,814 Operating and administrative expenses 31,172 29,516 Interest expense ..................... 2,849 2,738 --------- --------- 123,448 109,068 --------- --------- Income (loss) before incomes taxes ..... 195 (934) (Provision for) benefit from income taxes ........................ (98) 305 --------- --------- Net income (loss) .................... $ 97 $ (629) - -------------------------------------------------------------------------------- Income (loss) per share - Basic and Diluted ................... $ 0.02 $ (0.13)
The accompanying notes are an integral part of these financial statements. -2- 3 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands)
MAY 1, 1999 JANUARY 30, 1999 - ------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash ............................................. $ 5,209 $ 3,367 Short-term investments ........................... 2,752 2,724 Accounts and notes receivable .................... 18,148 15,541 Inventory ........................................ 24,767 24,293 Prepaid expenses and other current assets ........ 3,178 2,324 Deferred income taxes ............................ 1,449 1,520 --------- --------- Total current assets .......................... 55,503 49,769 Assets Held For Sale ............................. 2,486 6,327 Property and Equipment, net ...................... 102,962 98,829 Intangible Assets, net ........................... 15,255 15,452 Other Assets, net ................................ 10,270 10,954 --------- --------- Total assets ..................................... $ 186,476 $ 181,331 - ------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations ...... $ 4,052 $ 4,056 Accounts payable ................................. 37,977 35,685 Accrued expenses ................................. 15,000 15,378 Accrued interest ................................. 1,626 3,713 --------- --------- Total current liabilities ...................... 58,655 58,832 Long-Term Obligations, less current portion above ... 110,052 104,451 Other Liabilities ................................... 8,400 8,791 Stockholders' Equity: Class A Common Stock ............................. 37 37 Class B Common Stock ............................. 29 29 Paid-in capital .................................. 31,060 31,045 Retained deficit ................................. (6,752) (6,849) Treasury stock, at cost .......................... (15,005) (15,005) --------- --------- Total stockholders' equity .................... 9,369 9,257 --------- --------- Total liabilities and stockholders' equity .......... $ 186,476 $ 181,331 - -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these balance sheets. -3- 4 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
FOR THE FIRST FISCAL QUARTER ENDED -------------------------- MAY 1, 1999 May 2, 1998 ----------- ----------- Cash flows from operating activities: Net income (loss) ......................................... $ 97 $ (629) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization ............................ 2,810 2,607 Change in deferred income taxes .......................... 98 398 Gain on disposition of properties, net ................... (855) (41) Net change in assets and liabilities: Accounts and notes receivable .......................... (401) 505 Inventory .............................................. (474) (508) Accounts payable ....................................... 2,292 7,207 Accrued interest ....................................... (2,135) (2,150) Other assets and liabilities ........................... (1,041) (3,337) - ------------------------------------------------------------------------------------------- Net cash provided by operating activities .................... 391 4,052 - ------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of short-term investments ........................ (28) (33) Purchase of property and equipment ........................ (8,326) (9,254) Net proceeds from sale of property, equipment and assets held for sale .................................... 4,231 408 Increase in long-term notes receivable .................... (164) (75) Proceeds from collection of long-term notes receivable .... 218 87 (Increase) decrease in intangibles and other assets ....... (51) 48 - ------------------------------------------------------------------------------------------- Net cash used in investing activities ........................ (4,120) (8,819) - ------------------------------------------------------------------------------------------- Cash flows from financing activities: Borrowings on revolving loan, net ......................... 5,900 7,000 Repayment of long-term obligations ........................ (344) (241) Issuance of common stock .................................. 15 100 - ------------------------------------------------------------------------------------------- Net cash provided by financing activities .................... 5,571 6,859 - ------------------------------------------------------------------------------------------- Increase in cash ............................................. 1,842 2,092 Cash at beginning of fiscal year ............................. 3,367 3,806 - ------------------------------------------------------------------------------------------- Cash at end of first fiscal quarter .......................... $ 5,209 $ 5,898 - -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. -4- 5 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MAY 1, 1999 (Unaudited) The unaudited consolidated financial statements for Dairy Mart Convenience Store, Inc. and Subsidiaries ("Dairy Mart") 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 Dairy Mart 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 Dairy Mart's Form 10-K, filed with the Securities and Exchange Commission on April 30, 1999. 1. Accounting Policies ------------------- The financial statements included herein have been prepared in accordance with the accounting policies described in Note 1 to the January 30, 1999 audited consolidated financial statements included in Dairy Mart's Form 10-K. Certain prior year amounts have been reclassified to conform to the presentation used for the current year. 2. Changes in Capital ------------------ Accounts An analysis of the capital stock accounts for the first fiscal quarter ended May 1, 1999 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 30, 1999 3,744,223 2,881,156 $ 66,245 $ 31,045,094 Employee stock purchase plan 5,062 - 50 15,034 Stock options exercised - - - - Exchange of Class B Shares for Class A Shares 18,000 (18,000) - - ---------- ---------- --------- ------------- Balance May 1, 1999 3,767,285 2,863,156 $ 66,295 $ 31,060,128 ---------- ---------- --------- -------------
-5- 6 As of May 1, 1999, 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 3,245,660 Class A shares and 1,467,199 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 4,747,211 and 4,750,688 for the first fiscal quarters ended May 1, 1999 and May 2, 1998, respectively. The weighted average number of shares used in the calculation of diluted earnings per share was 4,769,237 and 4,750,688 for the first fiscal quarter ended May 1, 1999 and May 2, 1998, respectively. 4. Seasonality ----------- The results of operations for the first fiscal quarter ended May 1, 1999 are not necessarily indicative of results to be expected for the full fiscal year. The convenience store industry in Dairy Mart's marketing areas experiences a higher percentage of revenues and profit margins during the summer months than during the winter months. Historically, Dairy Mart has achieved more favorable financial results in its second and third fiscal quarters, as compared to its first and fourth fiscal quarters. 5. Sale of Former Headquarters Facility ------------------------------------ During the first quarter of fiscal year 2000, Dairy Mart sold its former headquarters facility in Enfield, Connecticut for $5.3 million. As a result, Dairy Mart recognized an $858,000 pre-tax gain on the sale. A portion of the sale proceeds will be used to repay in full a related mortgage of $2.5 million. -6- 7 6. Supplemental Consolidating Financial Information (unaudited) ------------------------------------------------------------ Dairy Mart's payment obligations under the Series A and Series B Senior Subordinated Notes are guaranteed by certain of Dairy Mart'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 Dairy Mart Convenience Stores, Inc. ("Parent Company"), for the Guarantor Subsidiaries and for Financial Opportunities, Inc. ("FINOP"), Dairy Mart'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 inter-company balances and transactions. -7- 8 Supplemental Consolidating Statement of Operations for the First Fiscal Quarter Ended May 1, 1999 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ Revenues ......................................... $ 61 $ 123,494 $ 88 $ - $ 123,643 Cost of goods sold and expenses: Cost of goods sold ............................. - 89,427 - - 89,427 Operating and administrative expenses .......... 80 31,087 5 - 31,172 Interest expense ............................... 2,673 53 123 - 2,849 ----------------------------------------------------------------------- 2,753 120,567 128 - 123,448 ----------------------------------------------------------------------- Income (loss) before income taxes and equity in income (loss) of consolidated subsidiaries ..................... (2,692) 2,927 (40) - 195 Benefit from (provision for) income taxes ................................. 1,346 (1,464) 20 - (98) ----------------------------------------------------------------------- Income (loss) before equity in income of consolidated subsidiaries .......... (1,346) 1,463 (20) - 97 Equity in income (loss) of consolidated subsidiaries ................................... 1,443 (20) - (1,373) - ----------------------------------------------------------------------- Net income (loss) ........................... $ 97 $ 1,443 $ (20) $ (1,373) $ 97 ============================================================================================================================
-8- 9 Supplemental Consolidating Balance Sheets as of May 1, 1999 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ ASSETS Current Assets: Cash ............................ $ 84 $ 5,079 $ 46 $ - $ 5,209 Short-term investments .......... 138 3 2,611 - 2,752 Accounts and notes receivable ... 3,756 13,311 1,081 - 18,148 Inventory ....................... - 24,767 - - 24,767 Prepaid expenses and other current assets ................ 13 3,165 - - 3,178 Deferred income taxes ........... 1,449 - - - 1,449 -------------------------------------------------------------------------- Total current assets .......... 5,440 46,325 3,738 - 55,503 - --------------------------------------------------------------------------------------------------------------------- Assets Held For Sale ............... - 2,486 - - 2,486 Property and Equipment, net ........ - 102,962 - - 102,962 Intangible Assets, net ............. - 15,255 - - 15,255 Other Assets, net .................. 1,608 10,397 966 (2,701) 10,270 Investment in and Advances to subsidiaries .................... 137,801 1,428 444 (139,673) - -------------------------------------------------------------------------- Total assets ....................... $ 144,849 $ 178,853 $ 5,148 $(142,374) $ 186,476 - --------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations ................... $ 3,807 $ 245 $ - $ - $ 4,052 Accounts payable ................ 23,785 14,192 - - 37,977 Accrued expenses ................ - 14,988 12 - 15,000 Accrued income taxes ............ - 2,701 - (2,701) - Accrued interest ................ 1,492 - 134 - 1,626 -------------------------------------------------------------------------- Total current liabilities ..... 29,084 32,126 145 - 58,655 -------------------------------------------------------------------------- Long-Term Obligations, less current portion above ........... 106,396 526 3,130 - 110,052 Other Liabilities .................. - 8,400 - - 8,400 Stockholders' Equity ............... 9,369 137,801 1,872 (139,673) 9,369 -------------------------------------------------------------------------- Total liabilities and stockholders' equity ............ $ 144,849 $ 178,853 $ 5,148 $(142,374) $ 186,476 =====================================================================================================================
-9- 10 Supplemental Consolidating Statement of Cash Flows for the Fiscal Quarter Ended May 1, 1999 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ Net cash (used in) provided by operating activities $(8,991) $ 9,316 $ 66 $ - $ 391 ---------------------------------------------------------------- Cash flows from investing activities: Increase in short-term investments ................................... - - (28) - (28) Purchase of property and equipment .............. - (8,326) - - (8,326) Net proceeds from sale of property, equipment and assets held for sale ............ - 4,231 - - 4,231 Investment in and (advances to) subsidiaries .................................. 3,129 (2,975) (154) - - Increase (decrease) in long-term notes receivables ............................. - (331) 167 - (164) Proceeds from collection of long-term receivables ......................... - 218 - - 218 (Increase) decrease in intangibles and other assets .............................. (195) 149 (5) - (51) ---------------------------------------------------------------- Net cash provided by (used in) investing activities ............................ 2,934 (7,034) (20) - (4,120) ---------------------------------------------------------------- Cash flows from financing activities: Increase in revolving loan, net ................. 5,900 - - - 5,900 Repayment of long-term obligations .............. (293) (51) - - (344) Issuance of common stock ........................ 15 - - - 15 ---------------------------------------------------------------- Net cash provided by (used in) financing activities ............................ 5,622 (51) - - 5,571 ---------------------------------------------------------------- (Decrease) increase in cash ....................... (435) 2,231 46 - 1,842 Cash at beginning of fiscal year .................. 519 2,848 - - 3,367 ---------------------------------------------------------------- Cash at end of first fiscal quarter ............... $ 84 $ 5,079 $ 46 $ - $ 5,209 ======================================================================================================================
-10- 11 Supplemental Consolidating Statement of Operations for the Fiscal Quarter Ended May 2, 1998 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ Revenues ......................................... $ 12 $ 108,015 $ 107 $ - $ 108,134 Cost of goods sold and expenses: Cost of goods sold ............................. - 76,814 - - 76,814 Operating and administrative expenses .......... 65 29,448 3 - 29,516 Interest expense ............................... 2,463 188 87 - 2,738 ------------------------------------------------------------------------------ 2,528 106,450 90 - 109,068 Income (loss) before income taxes and equity in income of consolidated subsidiaries .................... (2,516) 1,565 17 - (934) Benefit from (provision for) income taxes ................................. 830 (519) (6) - 305 ------------------------------------------------------------------------------ Income (loss) before equity in income of consolidated subsidiaries ............................... (1,686) 1,046 11 - (629) Equity in income of consolidated subsidiaries .................. 1,057 11 - (1,068) - ------------------------------------------------------------------------------ Net (loss) income ........................ $ (629) $ 1,057 $ 11 $ (1,068) $ (629) - ===============================================================================================================================
-11- 12 Supplemental Consolidating Balance Sheets as of January 30, 1999 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ ASSETS Current Assets: Cash .......................................... $ 519 $ 2,848 $ - $ - $ 3,367 Short-term investments ........................ 138 3 2,583 - 2,724 Accounts and notes receivable ................. 1,327 13,093 1,121 - 15,541 Inventory ..................................... - 24,293 - - 24,293 Prepaid expenses and other current assets .............................. - 2,324 - - 2,324 Deferred income taxes ......................... - 1,520 - - 1,520 ----------------------------------------------------------------------- Total current assets ........................ 1,984 44,081 3,704 - 49,769 ----------------------------------------------------------------------- Assets Held For Sale ............................. - 6,327 - - 6,327 Property and Equipment, net ...................... - 98,829 - - 98,829 Intangible Assets, net ........................... - 15,452 - - 15,452 Other Assets, net ................................ 1,689 11,271 1,134 (3,140) 10,954 Investment in and Advances to Subsidiaries .................................. 140,880 1,602 290 (142,772) - ----------------------------------------------------------------------- Total assets ..................................... $ 144,553 $ 177,562 $ 5,128 $(145,912) $ 181,331 - ---------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations ....................... $ 3,807 $ 249 $ - $ - $ 4,056 Accounts payable .............................. 23,776 11,885 24 - 35,685 Accrued expenses .............................. 183 15,186 9 - 15,378 Accrued income taxes .......................... 2,593 - - (2,593) - Accrued interest .............................. 3,641 (1) 73 - 3,713 ----------------------------------------------------------------------- Total current liabilities ................... 34,000 27,319 106 (2,593) 58,832 ----------------------------------------------------------------------- Long-Term Obligations, less current portion above ......................... 100,749 572 3,130 - 104,451 Other Liabilities ................................ 547 8,791 - (547) 8,791 Stockholders' Equity ............................. 9,257 140,880 1,892 (142,772) 9,257 ----------------------------------------------------------------------- Total liabilities and stockholders' equity .......................... $ 144,553 $ 177,562 $ 5,128 $(145,912) $ 181,331 ============================================================================================================================
-12- 13 Supplemental Consolidating Statement of Cash Flows for the Quarter Ended May 2, 1998 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ Net cash provided by operating activities ........................ $ 414 $ 3,572 $ 66 $ - $ 4,052 --------------------------------------------------------------- Cash flows from investing activities: Increase in short-term investments . - - (33) - (33) Purchase of property and equipment . - (9,254) - - (9,254) Net proceeds from sale of property, equipment and assets held for sale - 408 - - 408 Investment in and (advances to) subsidiaries ..................... (7,359) 7,293 66 - - Increase in long-term notes receivables ...................... - - (75) - (75) Proceeds from collection of long-term receivables ............ - 12 75 - 87 Increase in intangibles and other assets ..................... - 48 - - 48 --------------------------------------------------------------- Net cash provided by (used in) investing activities ............... (7,359) (1,493) 33 - (8,819) --------------------------------------------------------------- Cash flows from financing activities: Increase in revolving loan, net .... 7,000 - - - 7,000 Repayment of long-term obligations . (155) (86) - - (241) Issuance of common stock ........... 100 - - - 100 --------------------------------------------------------------- Net cash provided by (used in) financing activities ............... 6,945 (86) - - 6,859 --------------------------------------------------------------- Increase in cash ..................... - 1,993 99 - 2,092 Cash at beginning of fiscal year ..... - 3,572 234 - 3,806 --------------------------------------------------------------- Cash at end of first fiscal quarter .. $ - $ 5,565 $ 333 $ - $ 5,898 =========================================================================================================
-13- 14 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- RESULTS OF OPERATIONS: FIRST QUARTER FISCAL YEAR 2000 RESULTS COMPARED TO FIRST QUARTER FISCAL YEAR 1999 RESULTS CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) For the First Quarters Ended:
May 1, May 2, 1999 1998 - -------------------------------------------------------------------------------- Revenues ..................................... $ 123,643 $ 108,134 ------------ --------- Cost of goods sold and expenses: Cost of goods sold ......................... 89,427 76,814 Operating and administrative expenses ...... 31,172 29,516 Interest expense ........................... 2,849 2,738 ------------ --------- 123,448 109,068 ------------ --------- Income (loss) before incomes taxes ........... 195 (934) (Provision for) benefit from income taxes .............................. (98) 305 ----------- --------- Net income (loss) .......................... $ 97 $ (629) - -------------------------------------------------------------------------------- Income (loss) per share - Basic and Diluted ......................... $ 0.02 $ (0.13)
REVENUES Revenues for the quarter increased $15.5 million compared to the same period for the prior year. A summary of revenues by functional area is shown below: -14- 15 For the Fiscal Quarter Ended May 1, May 2, 1999 1998 -------- -------- (in millions) Convenience Stores $ 76.0 $ 68.6 Gasoline 46.8 39.1 Other .8 .4 -------- -------- Total $ 123.6 $ 108.1 ======== ======== Convenience store revenues increased $7.4 million, or 10.8%, as a result of an 8.4% increase in comparable corporate store sales and the opening of nineteen new stores during the prior four quarters, partially offset by the closure and/or sale of 27 underperforming stores during the same period. Although the reduction in stores had a negative impact on revenues, it did not have a material adverse effect on results of operations, because the majority of stores closed and/or sold had been operating at a loss. Gasoline revenues increased $7.7 million as a result of an increase of 9.0 million gallons of gasoline sold, partially offset by a $0.035 per gallon decrease in the average selling price of gasoline. Gallons sold increased as a result of the new store openings described above and a 9.4% increase in comparable store gallons sold. GROSS PROFITS Gross profits increased $2.9 million. A summary of gross profits by functional area is shown below:
For the Fiscal Quarter Ended May 1, May 2, 1999 1998 ------- ------- (in millions) Convenience Stores $ 28.0 $ 26.4 Gasoline 5.4 4.5 Other .8 .4 ------- ------- Total $ 34.2 $ 31.3 ======= =======
Convenience store gross profits increased by $1.6 million or 6%. The increase was attributable to the increase in convenience store sales, as described above. Convenience store gross profit margins decreased slightly as a result of a decrease in tobacco product gross profit margins. Gasoline gross profits increased $0.9 million. This increase is primarily attributable to the increase in gallons sold, described above, offset partially by a decrease in gross profit per gallon of $0.003. -15- 16 OPERATING AND ADMINISTRATIVE EXPENSES Operating and administrative expenses increased $1.7 million. A summary of operating and administrative expenses is shown below:
For the Fiscal Quarter Ended May 1, May 2, 1999 1998 ------- ------- (in millions) Operating Expenses $ 26.2 $ 24.0 General & Administrative Expenses 5.9 5.6 Gain on Disposition of Assets (.9) (.1) ------- ------- Total $ 31.2 $ 29.5 ======= =======
Operating expenses increased as a result of higher store wages and occupancy costs. These increases were partially offset by lower environmental remediation expenses in the first quarter of fiscal year 2000. General and administrative expenses increased as a result of higher commercial insurance and depreciation expenses. Gain on disposition of assets increased as a result of a pre-tax gain of $858,000 recognized on the sale of a former headquarters facility. [See "Notes to Consolidated Financial Statements", Note 5] INTEREST EXPENSE, INFLATION AND TAXES Interest expense increased $0.1 million as a result of additional equipment financing undertaken during the fourth quarter of fiscal year 1999. Inflation did not have a material effect on Dairy Mart's revenues, gross profits, operating and administrative expenses in the first quarters of fiscal 2000 and 1999. The effective tax rate for Dairy Mart was a provision of 50.0% and a benefit of 33.0% for the first quarters of fiscal years 2000 and 1999, respectively. The higher effective tax rate in the current year is a result of nondeductible expenses related to the amortization of acquired assets. LIQUIDITY AND CAPITAL RESOURCES Dairy Mart generates substantial operating cash flow because a majority of its revenues are received in cash. The amount of cash generated from operations exceeded the current debt service requirements of Dairy Mart's long-term obligations. Dairy Mart is pursuing expansion initiatives in its retail operations (see "Capital Expenditures"). Dairy Mart's capital expenditures are generally funded by the excess operating cash flow available after debt service, the proceeds from the sale of property, equipment and assets held for sale and various forms of -16- 17 long-term asset financing and/or leasing. Additionally, Dairy Mart has a $30.0 million senior revolving credit facility available to address the seasonality of operations and the timing of capita expenditures and certain working capital disbursements. Dairy Mart can issue up to $15.0 million of letters of credit under the facility. The facility is due and payable on April 30, 2003. As of May 1, 1999, Dairy Mart had $16.1 million in outstanding revolving credit loans and had $6.7 million in outstanding letters of credit under the facility. In May 1998, Dairy Mart received a $53.7 million forward commitment that provides real estate sale/leaseback or mortgage financing on a long-term basis to fund the real estate acquisitions associated with its new store development program. At May 1, 1999, Dairy Mart had approximately $21.0 million available under this agreement. Dairy Mart accounts for these real estate sale/leaseback transactions as operating leases. In January 1999, Dairy Mart entered into a $3.8 million sale/leaseback arrangement for equipment financing which was fully utilized at the end of fiscal year 1999. The term of this lease is for 48 months with principal and interest due on a monthly basis. Dairy Mart accounted for this transaction as a capital lease. Management believes that the cash flow from operations, the proceeds from the sale of certain assets held for sale and other forms of asset financing and/or leasing, supplemented by the availability under the revolving credit facility, will provide Dairy Mart with adequate liquidity and the capital necessary to achieve its expansion initiatives. CASH PROVIDED BY OPERATING ACTIVITIES During the current year first quarter, net cash provided by operating activities decreased $3.7 million compared to the same period of the prior year. This decrease was primarily a result of the timing of money order payments and was partially offset by a net change in other assets and liabilities and by Dairy Mart's improved profitability during the first quarter of fiscal year 2000. The net change in other assets and liabilities is a result of lower environmental remediation expenditures during the current year first quarter. CASH USED BY INVESTING ACTIVITIES Net cash used in investing activities was $4.1 million in the current year first quarter compared to $8.8 million in the prior year. The decrease was a result of additional proceeds from sale/leaseback transactions relating to new stores received in the current fiscal year first quarter. CASH PROVIDED BY FINANCING ACTIVITIES Net cash provided by financing activities was $5.6 million for the current quarter compared to $6.9 million for the same period of the prior year. The decrease was a result of lower borrowings under Dairy Mart's revolving credit facility in the current fiscal year first quarter. -17- 18 CAPITAL EXPENDITURES Dairy Mart anticipates spending approximately $25.0 million, net of sale/leaseback transactions, for capital expenditures in fiscal year 2000 by purchasing store and gasoline equipment for new stores, remodeling a certain number of existing store and gasoline locations and implementing and/or upgrading office and store technology. ENVIRONMENTAL RESPONSIBILITY During fiscal year 1998, Dairy Mart adopted the American Institute of Certified Public Accountants' Statement of Position ("SOP") No. 96-1, "Environmental Remediation Liabilities", which provides guidance on specific accounting issues that are present in the recognition, measurement and disclosure of environmental remediation liabilities. Dairy Mart accrues its estimate of all costs to be incurred for assessment and remediation with respect to release of regulated substances from existing and previously operated retail gasoline facilities. YEAR 2000 The Year 2000 issue ("Y2K") is the result of computer software programs being coded to use two digits rather than four to define the applicable year. Some of Dairy Mart's older computer programs that have date-sensitive coding may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations, causing disruptions in operations. Dairy Mart's process toward resolution of its Y2K issue has been ongoing for the past three years and the project includes the following phased approach: (1) awareness; (2) assessment and replacement; (3) contingency planning; (4) renovation; (5) testing and certification; and (6) production release. Phases one and two are complete. Phases three through six are in various stages of completion, with all remaining phases expected to be complete by September, 1999. As a part of Dairy Mart's broader initiatives with respect to retail store automation, Dairy Mart purchased and implemented a Y2K compliant, commercial-off-the-shelf retail accounting system to replace the existing legacy accounting system and related sub-systems. In conjunction with the implementation of this system, Dairy Mart migrated its remaining financial, human resources and other systems from an existing mainframe environment to a new Unix-based client/server architecture certified to be Y2K compliant. Dairy Mart is in various stages of testing, renovating and implementing system changes. Dairy Mart expects to complete these internal Y2K initiatives by September, 1999. Dairy Mart is also reviewing the efforts being undertaken by its third party suppliers and vendors to become Y2K compliant. Dairy Mart sent questionnaires during the fourth quarter of fiscal 1999 to all of its significant vendors and suppliers to ascertain their state of Y2K readiness and is evaluating their responses. Dairy Mart expects to complete assessment and testing of its supplier and vendor Y2K compliance by the end of June, 1999. Contingency planning efforts -18- 19 will escalate following completion of third party assessments and testing and such contingency planning efforts are expected to be complete by September, 1999. Because Dairy Mart's scheduled replacements of mainframe systems and retail store automation and accounting systems are considered by management to be a planned capital expenditure and incidental to the Y2K issue, Dairy Mart does not consider these expenditures to be specifically related to Y2K compliance and upgrades. Dairy Mart has used internal resources to assess and address internal and third party Y2K readiness. These internal costs are included as general and administrative expenses in Dairy Mart's financial statements and are not tracked separately for purposes of determining costs of Y2K readiness. Dairy Mart's estimates regarding the expected completion dates involved in Dairy Mart's Y2K project are based on various assumptions regarding future events, including the availability of resources, the success of third parties in addressing their own Y2K issues, and other factors. There are significant risks to Dairy Mart if actual completion dates or costs differ materially from expected completion dates and costs. These risks include the need to process transactions manually at significant costs to Dairy Mart, significant delays in obtaining key operational data for analysis, the inability to pay vendors, settle receivables or procure merchandise for resale on a timely basis and to perform other critical business functions which could have a material adverse effect on Dairy Mart's financial position and the results of its operations. Further, Dairy Mart cannot reasonably estimate the impact on Dairy Mart of key third parties not successfully addressing their own Year 2000 issues, although Dairy Mart believes that it will generally have alternative sources for comparable products and does not expect to experience any material business disruptions. Due to the uncertainty of these factors, Dairy Mart is unable to quantify a worst-case scenario at this time. 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. -19- 20 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. In the Dairy Mart Convenience Stores, Inc. Derivative Litigation, which is pending in the Chancery of New Castle County as Consolidated C.A. No. 14713 and is described more fully in Dairy Mart's Form 10-K for the fiscal year ended 1999, the Court has recently denied both sides' motion for summary judgment and set a trial date for July 27, 1999. Dairy Mart is not able to determine what the results of the litigation will be. 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 first quarter of fiscal year 2000, the Company filed no reports on Form 8-K. -20- 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DAIRY MART CONVENIENCE STORES, INC. DATE: June 14, 1999 /s/ Gregory G. Landry --------------------------------- Gregory G. Landry Executive Vice President and Chief Financial Officer -21- 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 FIRST FISCAL QUARTER ENDED -------------------- MAY 1, MAY 2, 1999 1998 - -------------------------------------------------------------------------------- Net income (loss) . . . . . . . . . . . . $ 97 $ (629) Weighted average shares . . . . . . . . . 4,747 4,751 Dilutive options . . . . . . . . . . . 22 - Total shares for EPS purposes . . . . . . 4,769 4,751 - -------------------------------------------------------------------------------- Earnings (loss) per share - Basic and Diluted . . . . . . . . . . $ 0.02 $ (0.13) - --------------------------------------------------------------------------------
-22- EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JAN-29-2000 JAN-31-1999 MAY-01-1999 5,209 2,752 20,222 (2,074) 24,767 55,503 157,765 (52,317) 186,476 58,655 110,052 0 0 66 9,303 186,476 0 123,643 89,427 120,599 0 0 2,849 195 (98) 97 0 0 0 97 0.02 0.02
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