-----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, R9OYGyzcapvKoWBsEPDncflDKTz0WH/RlY5/qh9T8BakMd5LpvF3QsGZUbiJVDrK 4qk5p38JvCrggU392t+XJg== 0000950152-99-007566.txt : 19990915 0000950152-99-007566.hdr.sgml : 19990915 ACCESSION NUMBER: 0000950152-99-007566 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990914 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: 99711502 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. 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 JULY 31, 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 JULY 31, 1999 - 3,268,519 SHARES OF CLASS B COMMON STOCK OUTSTANDING JULY 31, 1999 - 1,449,199 -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 FISCAL FOR THE TWO FISCAL QUARTER ENDED QUARTERS ENDED ------------------------ ------------------------ JULY 31, AUGUST 1, JULY 31, AUGUST 1, 1999 1998 1999 1998 -------- --------- -------- --------- - ----------------------------------------------------------------------------------------------------- Revenues . . . . . . . . . . . . . . . . $155,438 $127,299 $279,081 $235,433 -------- -------- -------- -------- Cost of goods sold and expenses: . . . . Cost of goods sold . . . . . . . . . . 116,522 91,695 205,949 168,449 Operating and administrative expenses. 34,005 31,548 65,177 61,064 Interest expense . . . . . . . . . . . 2,697 2,594 5,546 5,332 -------- -------- -------- -------- 153,224 125,837 276,672 234,845 -------- -------- -------- -------- Income before incomes taxes . . . . . . 2,214 1,462 2,409 588 Provision for income taxes . . . . . . 1,058 545 1,155 264 -------- -------- -------- -------- Net income . . . . . . . . . . . . . . $ 1,156 $ 917 $ 1,254 $ 324 - ---------------------------------------------------------------------------------------------------- Earnings per share - Basic $ 0.24 $ 0.20 $ 0.27 $ 0.07 Earnings per share - Diluted $ 0.24 $ 0.19 $ 0.26 $ 0.07
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)
JULY 31, 1999 JANUARY 30, 1999 - ------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash . . . . . . . . . . . . . . . . . . . . . . . $ 2,394 $ 3,367 Short-term investments . . . . . . . . . . . . . . 3,145 2,724 Accounts and notes receivable . . . . . . . . . . 19,048 15,541 Inventory . . . . . . . . . . . . . . . . . . . . 27,761 24,293 Prepaid expenses and other current assets . . . . 2,189 2,324 Deferred income taxes . . . . . . . . . . . . . . 1,449 1,520 --------- --------- Total current assets . . . . . . . . . . . . . 55,986 49,769 Assets Held For Sale . . . . . . . . . . . . . . . 2,486 6,327 Property and Equipment, net . . . . . . . . . . . 103,365 98,829 Intangible Assets, net . . . . . . . . . . . . . . 15,051 15,452 Other Assets, net . . . . . . . . . . . . . . . . 10,157 10,954 --------- --------- Total assets . . . . . . . . . . . . . . . . . . . $ 187,045 $ 181,331 - ------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations . . . $ 1,311 $ 4,056 Accounts payable . . . . . . . . . . . . . . . . . 42,871 35,685 Accrued expenses . . . . . . . . . . . . . . . . . 16,112 15,378 Accrued interest . . . . . . . . . . . . . . . . . 3,731 3,713 --------- --------- Total current liabilities . . . . . . . . . . . 64,025 58,832 Long-Term Obligations, less current portion above . . 103,996 104,451 Other Liabilities . . . . . . . . . . . . . . . . . . 8,485 8,791 Stockholders' Equity: Class A Common Stock . . . . . . . . . . . . . . . 38 37 Class B Common Stock . . . . . . . . . . . . . . . 29 29 Paid-in capital . . . . . . . . . . . . . . . . . 31,072 31,045 Retained deficit . . . . . . . . . . . . . . . . . (5,595) (6,849) Treasury stock, at cost . . . . . . . . . . . . . (15,005) (15,005) --------- --------- Total stockholders' equity . . . . . . . . . . 10,539 9,257 --------- --------- Total liabilities and stockholders' equity . . . . . $ 187,045 $ 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 TWO FISCAL QUARTERS ENDED --------------------------------- JULY 31, 1999 AUGUST 1, 1998 ------------- -------------- Cash flows from operating activities: Net income . . .. . . . . . . . . . . . . . . . . . . $ 1,254 $ 324 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . 5,716 5,245 Change in deferred income taxes . . . . . . . . . . . 1,155 347 (Gain) loss on disposition of properties, net . . . . (1,516) 312 Net change in assets and liabilities: Accounts and notes receivable . . . . . . . . . . . (3,507) 1 Inventory . . . . . . . . . . . . . . . . . . . . . (3,468) (2,267) Accounts payable . . . . . . . . . . . . . . . . . 7,186 7,470 Accrued interest . . . . . . . . . . . . . . . . . 18 136 Other assets and liabilities . . . . . . . . . . . (416) (4,314) - ------------------------------------------------------------------------------------------------ Net cash provided by operating activities . . . . . . . . 6,422 7,254 - ------------------------------------------------------------------------------------------------ Cash flows from investing activities: Increase in short-term investments . . . . . . . . . . (421) (84) Purchase of property and equipment, net . . . . . . . . . (10,065) (16,797) Net proceeds from sale of property, equipment and assets held for sale . . . . . . . . . . . . . . . . 5,887 573 Increase in long-term notes receivable . . . . . . . . (164) (345) Proceeds from collection of long-term notes receivable 461 368 Decrease (increase) in intangibles and other assets 159 (153) - ------------------------------------------------------------------------------------------------ Net cash used in investing activities . . . (4,143) (16,438) - ------------------------------------------------------------------------------------------------ Cash flows from financing activities: Increase in revolving loan, net . . . . . . . . . . . . 100 9,200 Repayment of long-term obligations . . . . . . . . . . (3,380) (486) Issuance of common stock . . . . . . . . . . . . . . . 28 135 - ------------------------------------------------------------------------------------------------ Net cash (used in) provided by financing activities . . . . (3,252) 8,849 - ------------------------------------------------------------------------------------------------ Decrease in cash . . . . . . . . . . . . . . .. . . . . . . (973) (335) Cash at beginning of fiscal year . . . . . . . . . . . . 3,367 3,806 - ------------------------------------------------------------------------------------------------ Cash at end of second fiscal quarter . . . . . . . . . . . $ 2,394 $ 3,471 - ------------------------------------------------------------------------------------------------
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 JULY 31, 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 two fiscal quarters ended July 31, 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 9,921 - 99 26,841 Stock options exercised - - - - Exchange of Class B Shares for Class A Shares 36,000 (36,000) - - ----------- ----------- ----------- ----------- Balance July 31, 1999 3,790,144 2,845,156 $ 66,344 $31,071,935 ----------- ----------- ----------- -----------
-5- 6 As of July 31, 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 3,268,519 Class A shares and 1,449,199 Class B shares outstanding. 3. EARNINGS PER SHARE Earnings 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 4,717,718 and 4,670,402 for the second fiscal quarters ended July 31, 1999 and August 1, 1998, respectively, and 4,714,445 and 4,666,291 for the first two fiscal quarters ended July 31, 1999 and August 1, 1998, respectively. The weighted average number of shares used in the calculation of diluted earnings per share was 4,802,277 and 4,751,330 for the second fiscal quarter ended July 31, 1999 and August 1, 1998, respectively, and 4,785,757 and 4,751,009 for the first two fiscal quarters ended July 31, 1999 and August 1, 1998, respectively. 4. SEASONALITY The results of operations for the first two fiscal quarters ended July 31, 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. 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 -6- 7 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 Two Fiscal Quarters Ended July 31, 1999 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ Revenues . . . . . . . . . . . . . . . $ 116 $ 278,802 $ 163 $ -- $ 279,081 Cost of goods sold and expenses: Cost of goods sold . . . . . . . . . -- 205,949 -- -- 205,949 Operating and administrative expenses 152 65,014 11 -- 65,177 Interest expense . . . . . . . . . . 4,981 453 112 -- 5,546 --------------------------------------------------------------------- 5,133 271,416 123 -- 276,672 --------------------------------------------------------------------- Income (loss) before income taxes and equity in income (loss) of consolidated subsidiaries . . . . . (5,017) 7,386 40 -- 2,409 Benefit from (provision for) income taxes . . . . . . . . . . . 2,508 (3,643) (20) -- (1,155) --------------------------------------------------------------------- Income (loss) before equity in income of consolidated subsidiaries (2,509) 3,743 20 -- 1,254 Equity in income of consolidated subsidiaries . . . . . . . . . . . . 3,763 20 -- (3,783) -- --------------------------------------------------------------------- --------- Net income . . . . . . . . . . . . $ 1,254 $ 3,763 $ 20 $ (3,783) $ 1,254 - -----------------------------------------------------------------------------------------------------------------
-8- 9 Supplemental Consolidating Balance Sheets as of July 31, 1999 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ --------- ------------ ------------ ASSETS Current Assets: Cash . . . . . . . . . . . . . . . . $ -- $ 2,324 $ 70 $ -- $ 2,394 Short-term investments . . . . . . . 138 374 2,633 -- 3,145 Accounts and notes receivable . . . 2,269 15,748 1,031 -- 19,048 Inventory . . . . . . . . . . . . . -- 27,761 -- -- 27,761 Prepaid expenses and other current assets . . . . . . . . . . 125 2,064 -- -- 2,189 Deferred income taxes . . . . . . . -- 1,449 -- -- 1,449 ------------------------------------------------------------------ Total current assets . . . . . . . 2,532 49,720 3,734 -- 55,986 Assets Held For Sale . . . . . . . . . -- 2,486 -- -- 2,486 Property and Equipment, net . . . . . . -- 103,365 -- -- 103,365 Intangible Assets, net . . . . . . . . -- 15,051 -- -- 15,051 Other Assets, net . . . . . . . . . . . 3,047 8,767 917 (2,574) 10,157 Investment in and Advances to subsidiaries . . . . . . . . . . . . 137,750 1,390 522 (139,662) -- ------------------------------------------------------------------ Total assets . . . . . . . . . . . . . $ 143,329 $ 180,779 $ 5,173 $(142,236) $ 187,045 - ------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current maturities of long-term obligations . . . . . . . . . . . $ 1,068 $ 243 $ -- $ -- $ 1,311 Accounts payable . . . . . . . . . . 25,145 17,726 -- -- 42,871 Accrued expenses . . . . . . . . . . -- 16,104 8 -- 16,112 Accrued income taxes 2,574 -- -- (2,574) -- Accrued interest . . . . . . . . . . 3,608 -- 123 -- 3,731 ------------------------------------------------------------------ Total current liabilities . . . . 32,395 34,073 131 (2,574) 64,025 ------------------------------------------------------------------ Long-Term Obligations, less current portion above . . . . . . . 100,395 471 3,130 -- 103,996 Other Liabilities . . . . . . . . . . . -- 8,485 -- -- 8,485 Stockholders' Equity . . . . . . . . . 10,539 137,750 1,912 (139,662) 10,539 ------------------------------------------------------------------ Total liabilities and stockholders' equity . . . . . . . . $ 143,329 $ 180,779 $ 5,173 $(142,236) $ 187,045 - ------------------------------------------------------------------------------------------------------------------------
-9- 10 Supplemental Consolidating Statement of Cash Flows for the Two Fiscal Quarters Ended July 31, 1999 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ -------- ------------- ------------ Net cash (used in) provided by operating activities . . . . . . . . $ (569) $ 6,856 $ 135 $ - $ 6,422 ------------------------------------------------------------------------- Cash flows from investing activities: Decrease in short-term investments . . . . . . . . . . . - (371) (50) - (421) Purchase of property and equipment . - (10,065) - - (10,065) Net proceeds from sale of property, equipment and assets held for sale - 5,887 - - 5,887 Investment in and (advances to) subsidiaries . . . . . . . . . . . 3,259 (3,027) (232) - - (Decrease) increase in long-term notes receivables . . . . . . . . . - (357) 193 - (164) Proceeds from collection of long-term receivables . . . . . . - 461 - - 461 (Increase) decrease in intangibles and other assets . . . . . . .. . . (64) 199 24 - 159 ------------------------------------------------------------------------- Net cash provided by (used in) investing activities . . . . . . . . 3,195 (7,273) (65) - (4,143) ------------------------------------------------------------------------- Cash flows from financing activities: Increase in revolving loan, net . . 100 - - - 100 Repayment of long-term obligations . (3,273) (107) - - (3,380) Issuance of common stock . . . . . . 28 - - - 28 ------------------------------------------------------------------------- Net cash (used in) provided by financing activities . . . . . . . . (3,145) (107) - - (3,252) ------------------------------------------------------------------------- (Decrease) increase in cash . . . . . (519) (524) 70 - (973) Cash at beginning of fiscal year . . . 519 2,848 - - 3,367 ------------------------------------------------------------------------- Cash at end of second fiscal quarter . $ - $ 2,324 $ 70 $ - $ 2,394 - -------------------------------------------------------------------------------------------------------------------------------
-10- 11 Supplemental Consolidating Statement of Operations for the Two Fiscal Quarters Ended August 1, 1998 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ Revenues . . . . . . . . . . . . . . . $ 45 $ 235,156 $ 232 $ - $ 235,433 Cost of goods sold and expenses: Cost of goods sold . . . . . . . . . - 168,449 - - 168,449 Operating and administrative expenses 131 60,923 10 - 61,064 Interest expense . . . . . . . . . . 4,903 254 175 - 5,332 --------------------------------------------------------------------- 5,034 229,626 185 - 234,845 Income (loss) before income taxes and equity in income of consolidated subsidiaries . . . . (4,989) 5,530 47 - 588 Benefit from (provision for) income taxes . . . . . . . . . . . 2,295 (2,537) (22) - (264) --------------------------------------------------------------------- Income (loss) before equity in income of consolidated subsidiaries . . . . . . . . . . (2,694) 2,993 25 - 324 Equity in income of consolidated subsidiaries . . . 3,018 25 - (3,043) - --------------------------------------------------------------------- Net income . . . . . . . . . . $ 324 $ 3,018 $ 25 $ (3,043) $ 324 - -----------------------------------------------------------------------------------------------------------------
-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 Two Fiscal Quarters Ended August 1, 1998 (in thousands)
Parent Guarantor Company Subsidiaries FINOP Eliminations Consolidated ------- ------------ ----- ------------ ------------ Net cash provided by operating activities . . . . . . . . . $ 1,902 $ 5,274 $ 78 $ - $ 7,254 --------------------------------------------------------------------- Cash flows from investing activities: Increase in short-term investments - - (84) - (84) Purchase of property and equipment . - (16,797) - - (16,797) Net proceeds from sale of property, equipment and assets held for sale - 573 - - 573 Investment in and (advances to) subsidiaries . . . . . . . . . . . (10,789) 10,874 (85) - - Increase in long-term notes receivables . . . . . . . . . . . - (7) (338) - (345) Proceeds from collection of long-term receivables . . . . . . - 30 338 - 368 Decrease in intangibles and other assets . . . . . . . . . . . (130) (23) - - (153) --------------------------------------------------------------------- Net cash (used in) investing activities . . . . . . . . (10,919) (5,350) (169) - (16,438) --------------------------------------------------------------------- Cash flows from financing activities: Increase in revolving loan, net . . 9,200 - - - 9,200 Repayment of long-term obligations . (318) (168) - - (486) Issuance of common stock . . . . . . 135 - - - 135 --------------------------------------------------------------------- Net cash provided by (used in) financing activities . . . . . . . . 9,017 (168) - - 8,849 --------------------------------------------------------------------- Increase (decrease) in cash . . . . . 0 (244) (91) - (335) Cash at beginning of fiscal year . . . 0 3,572 234 - 3,806 --------------------------------------------------------------------- Cash at end of second fiscal quarter . $ 0 $ 3,328 $ 143 $ - $ 3,471 - -----------------------------------------------------------------------------------------------------------------
-13- 14 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: SECOND QUARTER FISCAL YEAR 2000 RESULTS COMPARED TO SECOND QUARTER FISCAL YEAR 1999 RESULTS CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) For the Second Quarters Ended July 31, 1999, and August 1, 1998
For the Second Fiscal For the Two Fiscal Quarter Ended Quarters Ended ---------------------- ---------------------- July 31, August 1, July 31, August 1, 1999 1998 1999 1998 --------- --------- -------- --------- Revenues $155,438 $127,299 $279,081 $235,433 Cost of goods sold and expenses: Cost of goods sold 116,522 91,695 205,949 168,449 Operating & administrative expenses 34,005 31,548 65,177 61,064 Interest expense 2,697 2,594 5,546 5,332 -------- ---------------------------------- 153,224 125,837 276,672 234,845 Income before income taxes 2,214 1,462 2,409 588 Provision from income taxes 1,058 545 1,155 264 -------- ---------------------------------- Net income $ 1,156 $ 917 $ 1,254 $ 324 Income per share- Basic $ 0.24 $ 0.20 $ 0.27 $ 0.07 Income per share- Diluted $ 0.24 $ 0.19 $ 0.26 $ 0.07
-14- 15 REVENUES Revenues for the first two quarters of the current year increased $43.6 million compared to the same period for the prior year. Revenues for the second quarter increased $28.1 million compared to the same period for the prior year. A summary of revenues by functional area is shown below:
For the Second Fiscal For the Two Fiscal Quarters Ended Quarters Ended ------------------------- ------------------------ July 31, August 1, July 3 August 1, 1999 1998 1999 1998 -------- ---------- -------- --------- (in millions) Convenience Stores $ 96.4 $ 81.6 $ 173.1 $ 150.4 Gasoline 58.8 45.5 105.5 84.7 Other .2 .2 .5 .3 -------- -------- -------- -------- Total $ 155.4 $ 127.3 $ 279.1 $ 235.4
Convenience store revenues increased $22.7 million or 15.1% in the current year first two quarters compared to the prior year first two quarters and $14.8 million, or 18.1% in the current year second quarter, as a result of comparable corporate store sales increases of 11.7% and 14.6% for the first two quarters and the second quarter, respectively, and the opening of twenty-four new stores during the prior four quarters, partially offset by the closure and/or sale of twenty-six under performing 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 $20.8 million in the current year first two quarters compared to the prior year and $13.3 million in the current year second quarter compared to the prior year because total gallons sold increased 19.1 million in the current year first two quarters compared to the prior year and 10.1 million in the current year second quarter compared to the prior year. Gallons sold increased as a result of the new store openings described above and a 9.7% increase in comparable-store gallons sold for the first two quarters and a 9.9% increase in comparable-store gallons sold for the second quarter. -15- 16 GROSS PROFITS Gross profits increased $6.1 million for the first two quarters and $3.3 million for the second quarter. A summary of gross profits by functional area is shown below:
For the Second Fiscal For the Two Fiscal Quarters Ended Quarter Ended ----------------------- ----------------------- July 31, August 1, July 31, August 1, 1999 1998 1999 1998 --------- --------- --------- ---------- (in millions) Convenience Stores $ 33.3 $ 30.4 $ 61.8 $ 57.2 Gasoline 5.4 5.0 10.8 9.5 Other .2 .2 .5 .3 ------- ------- ------- ------- Total $ 38.9 $ 35.6 $ 73.1 $ 67.0
Convenience store gross profit increased by $4.6 million or 8.0% for the current year first two quarters compared to the prior year, and by $2.9 million or 9.5% in the current year second quarter. These increases were attributable to the increases in convenience store sales, as described above offset partially by a decrease in convenience store gross profit margins as a result of a decrease in tobacco product gross profit margins. Gasoline gross profits increased $1.3 million for the current year first two quarters compared to the prior year first two quarters, and increased $0.4 million in the current year second quarter. These increases are primarily attributable to the increase in gallons sold, described above, offset partially by slightly lower gasoline gross profit margins. OPERATING AND ADMINISTRATIVE EXPENSES Operating and administrative expenses increased $4.1 million for the current year first two quarters compared to the prior year first two quarters, and increased $2.5 million in the current year second quarter. Operating expenses increased as a result of higher store wages and occupancy costs associated with the new store openings described above. INTEREST EXPENSE, INFLATION AND TAXES Interest expense increased $0.2 million for the current year first two quarters compared to the prior year first two quarters, and increased $0.1 million in the current year second quarter, 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 two quarters of fiscal 2000 and 1999. -16- 17 The effective tax rate for the Company was 47.9% and 44.9% for the first two quarters of fiscal year 2000 and 1999, respectively, and 47.8% and 37.3% for the second quarters of fiscal year 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 other forms of 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 capital 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 July 31, 1999, Dairy Mart had $10.3 million in outstanding revolving credit loans and had $5.9 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 July 31, 1999, Dairy Mart had $19 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 two fiscal quarters, net cash provided by operating activities decreased $0.8 million compared to the same period of the prior year. This decrease was a result of increases in vendor-related discount and allowance receivables and inventory increases associated with the increase in convenience store revenues described above partially offset by Dairy Mart's improved profitability and a net change in other assets and liabilities. The net change in other assets and liabilities is primarily a result of lower environmental remediation expenditures during the current year. -17- 18 CASH USED BY INVESTING ACTIVITIES Net cash used in investing activities was $4.1 million in the current year first two fiscal quarters compared to $16.4 million in the same period of the prior year. The decrease in cash used by investing activities was primarily a result of proceeds received during the current year from the sale of Dairy Mart's former headquarters facility and decreased purchases of property and equipment, net of sale/leaseback proceeds. CASH PROVIDED BY FINANCING ACTIVITIES Net cash used by financing activities was $3.2 in the current year first two quarters compared to net cash provided of $8.8 million in 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 and the repayment in the current fiscal year of a mortgage related to Dairy Mart's former headquarters facility. CAPITAL EXPENDITURES Dairy Mart anticipates spending approximately $20 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 a 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 -18- 19 completion, with all remaining phases expected to be completed by October, 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 October, 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 currently evaluating their responses. Contingency planning efforts are being undertaken to evaluate alternative sources and ascertain the continuation of normal business. Such contingency planning efforts are expected to be complete by October, 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. -19- 20 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. -20- 21 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 Dairy Mart's Board of Directors in connection with Dairy Mart'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 Dairy Mart 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 10, 1999 in which event such persons will have such discretionary authority if Dairy Mart does not have notice of such matter a reasonable time before Dairy Mart mails its proxy materials for such meeting). Item 6. EXHIBITS AND REPORTS ON FORM 8-K. a) Exhibits: 1. Exhibit (11)- Statement re Computation of Per-Share Earnings. 2. Exhibit (27) - Financial Data Schedule. Submitted in electronic format only. b) Reports on Form 8-K During the second quarter of fiscal year 2000, the Company filed no reports on Form 8-K. -21- 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DAIRY MART CONVENIENCE STORES, INC. DATE: September 14, 1999 /s/ Gregory G. Landry ---------------------- Gregory G. Landry Executive Vice President and Chief Financial Officer -22- EX-11 2 EXHIBIT 11 1 EXHIBIT 11 DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES STATEMENT RE COMPUTATIONS OF PER-SHARE EARNINGS (in thousands, except per share amounts) CALCULATION OF EARNINGS PER SHARE
For the Second Fiscal For the Two Fiscal Quarter Ended Quarters Ended --------------------------------------------------- July 31, August 1, July 31 August 1, 1999 1998 1999 1998 --------------------------------------------------- Net income . . . . . . . . . . . . . $1,156 $ 917 $1,254 $ 324 Weighted average shares . . . . . . . . . 4,718 4,670 4,714 4,666 Dilutive options . . . . . . . . . . . 84 81 72 85 --------------------------------------------------- Total shares for EPS purposes . . . . . . 4,802 4,751 4,786 4,751 - ------------------------------------------------------------------------------------------------------ Earnings per share - Basic . . . . . . . . $ 0.24 $ 0.20 $ 0.27 $ 0.07 Earnings per share - Diluted . . . . . . $ 0.24 $ 0.19 $ 0.26 $ 0.07 - ------------------------------------------------------------------------------------------------------
-23- 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 MAY-02-1999 JUL-31-1999 2,394 3,145 21,122 (2,074) 27,761 55,986 161,997 (56,146) 187,045 64,025 103,996 0 0 67 10,472 187,045 0 155,438 116,522 150,527 0 0 2,697 2,214 1,058 1,156 0 0 0 1,156 0.24 0.24
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