<PAGE>
THIS DOCUMENT IS A COPY OF THE FORM 10-Q OF DAIRY MART CONVENIENCE
STORES, INC. FOR THE FISCAL QUARTER ENDED OCTOBER 29, 1994 PREVIOUSLY
FILED ON DECEMBER 20, 1994 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP
EXEMPTION.
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
X Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended October 29, 1994
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period From to
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 (IRS Employer Identification No.)
incorporation or organization)
ONE VISION DRIVE, ENFIELD, CT 06082
(Address of principal executive offices)
Registrant's telephone number, including area code (203) 741-4444
N/A
(Former name, former address and former fiscal year, if
changed since last report.)
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
Shares of Class A Common Stock outstanding October 29, 1994- 2,762,850
Shares of Class B Common Stock outstanding October 29, 1994- 2,785,996
<PAGE>
<TABLE>
<CAPTION> 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 QUARTER ENDED FOR THE THREE FISCAL QUARTERS ENDED
OCTOBER 29, 1994 OCTOBER 30, 1993 OCTOBER 29, 1994 OCTOBER 30, 1993
<S> <C> <C> <C> <C>
Net Sales of the Company,
Its Subsidiaries and Franchises $ 197,244 $ 192,132 $ 580,411 $ 581,850
Revenues $ 156,811 $ 149,587 $ 459,393 $ 450,379
Cost of goods sold and expenses:
Cost of goods sold 114,346 107,162 340,646 327,847
Selling, general and administrative
expenses 38,748 38,418 113,293 111,676
Nonrecurring charges 750 -- 2,550 --
Income from operations 2,967 4,007 2,904 10,856
Interest expense (2,237) (1,878) (7,176) (5,751)
Interest income 191 189 811 575
(Loss) gain on disposition of
properties, net (297) (85) (1,761) 59
Income (loss) before income taxes
and cumulative effect of
accounting change 624 2,233 (5,222) 5,739
(Provision for) benefit from income
taxes (256) (894) 2,110 (2,296)
Income (loss) before cumulative
effect of accounting change 368 1,339 (3,112) 3,443
Cumulative effect of accounting change
(net of income tax benefit of $271) -- -- (389) --
Net income (loss) $ 368 $ 1,339 $ (3,501) $ 3,443
Weighted average shares outstanding 5,545 5,562 5,538 5,519
Earnings (loss) per share:
Before cumulative effect of
accounting change $ 0.07 $ 0.24 $ (0.56) $ 0.62
Cumulative effect of accounting
change -- -- (0.07) --
Earnings (loss) per share $ 0.07 $ 0.24 $ (0.63) $ 0.62
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION> DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
OCTOBER 29, 1994 JANUARY 29, 1994
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,894 $ 6,632
Short-term investments, at cost 2,031 --
Accounts and notes receivable 12,237 11,770
Inventory 27,025 26,269
Prepaid expenses and other current assets 2,501 2,013
Deferred income taxes 2,343 2,098
Total current assets 55,031 48,782
PROPERTY AND EQUIPMENT:
Land and improvements 15,673 15,199
Buildings and leaseholds 55,241 54,231
Equipment 82,230 75,418
153,144 144,848
Less - Accumulated depreciation 57,984 52,834
Net property and equipment 95,160 92,014
PROPERTY UNDER CAPITAL LEASES, net 1,099 1,760
OTHER ASSETS:
Goodwill, net 10,695 10,961
Franchise and operating rights, net 7,406 7,656
Notes receivable 2,695 2,267
Other 7,253 6,002
Total other assets 28,049 26,886
Total assets $ 179,339 $ 169,442
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,294 $ 3,071
Current portion of capital lease obligations 332 1,038
Accounts payable 30,185 28,700
Accrued expenses 15,304 15,510
Accrued interest 1,087 978
Total current liabilities 48,202 49,297
LONG-TERM DEBT, less current portion 87,598 71,604
CAPITAL LEASE OBLIBATIONS, less current portion 1,407 1,630
OTHER LIABILITIES AND DEFERRED CREDITS 6,718 6,222
DEFERRED INCOME TAXES 4,964 6,819
STOCKHOLDERS' EQUITY:
Class A Common Stock 33 33
Class B Common Stock 30 30
Paid-in capital in excess of par value 27,564 27,483
Retained earnings 7,828 11,329
Treasury stock, at cost (5,005) (5,005)
Total stockholders' equity 30,450 33,870
Total liabilities and stockholders' equity $ 179,339 $ 169,442
</TABLE>
The accompanying notes are an integral part of these finalcial statements.
<PAGE>
<TABLE>
<CAPTION> DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
FOR THE THREE FISCAL QUARTERS ENDED
OCTOBER 29, 1994 OCTOBER 30, 1993
<S> <C> <C>
Cash flows from operating activities: $ (3,501) $ 3,443
Net income (loss)
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change 389 --
Depreciation and amortization 9,336 9,577
(Decrease) increase in deferred income taxes (2,100) 1,632
Loss (gain) on other disposition of properties, net 1,312 (59)
(Increase) decrease in receivables (467) 1,049
Increase in inventory (756) (535)
Increase in accounts payable 1,485 1,301
Increase in other current assets and
liabilities, net (213) (3,546)
Increase in other noncurrent liabilities
and deferred credits
496 136
Net cash provided by operating activities 5,981 12,998
Cash Flows from investing activities:
Purchase of short-term investments (3,931) --
Proceeds from sale of short-term investments 1,900 --
Purchase of property and equipment (12,766) (10,905)
Proceeds from sale of property and equipment 569 1,730
Proceeds from long-term notes receivable 972 1,104
Increase in long-term notes receivable (1,400) (164)
Decrease (increase) in other assets 185 (717)
Net cash used by investing activities (14,471) (8,952)
Cash flows from financing activities:
Issuance of senior subordinated notes, net of
offering costs 72,653 --
Repayment of term debt (22,000) (7,000)
Retirement of subordinated debentures (27,944) --
Decrease in revolving loan, net (12,100) (400)
Additional long-term debt 1,362 4,476
Repayment of other long-term debt and capital
lease obligations (1,300) (1,535)
Other increases in common stock and paid-in capital 81 245
Net cash provided (used) by financing activities 10,752 (4,214)
Increase in cash and cash equivalents 2,262 (168)
Cash and cash equivalents at beginning of fiscal year 6,632 6,483
Cash and cash equivalents at end of third fiscal
quarter $ 8,894 $ 6,315
</TABLE>
The accompanying notes are in integral part of these financial statements.
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 29, 1994
(Unaudited)
The unaudited consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those
rules and regulations, although the Company believes that the disclosures
made are adequate to make the information presented not misleading. The
information furnished reflects all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented, and which are of a normal, recurring nature. It is
suggested that these financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's Form
10-K, filed with the Securities and Exchange Commission on April 29, 1994.
1. Accounting Policies
The financial statements included herein have been prepared in accordance
with the accounting policies described in Note 1 to the January 29, 1994
audited consolidated financial statements included in the Company's Form
10-K, except as discussed in Notes 2 and 3 below. Certain prior year
amounts have been reclassified to conform to the presentation used for the
current year.
<PAGE>
2. Cumulative Effect of Accounting Change
The Company historically has recorded its self insurance reserves for certain
property and liability insurance risks on a present value basis using a
discount rate based upon the estimated incremental borrowing rate of the
Company which was 8% as of January 29, 1994. As of January 30, 1994, the
Company changed its method of accounting to discount its self insurance
reserves at a risk free rate of return. The cumulative effect of this
change in accounting method was a charge to income of $389,000, net of the
applicable income tax benefit of $271,000, in the first fiscal quarter
ended April 30, 1994.
3. Short-term Investments
The Company's short-term investments consist of U.S. Treasury Bills with
maturities of less than one year. The Company is accounting for these
investments as being held to maturity in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities". As of October 29, 1994, the carrying amount
of the Treasury Bills of $2,031,000 approximated the fair value.
4. Changes in Capital Accounts
An analysis of the capital stock accounts for the first three fiscal quarters
ended October 29, 1994 follows:
<TABLE>
<CAPTION> 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
<S> <C> <C> <C> <C>
Balance January 29, 1994 3,268,729 2,956,015 $ 62,249 $ 27,483,049
Employee stock purchase plan 14,934 -- 149 52,937
Stock options exercised 750 6,000 68 27,870
Exchange of Class B shares
for Class A shares 62 (62) -- --
Balance October 29,1994 3,284,475 2,961,953 $ 62,466 $ 27,563,856
</TABLE>
<PAGE>
As of October 29, 1994, there were 521,625 shares of Class A Common
Stock and 175,957 shares of Class B Common Stock held as treasury stock at an
aggregate cost of $5,004,847, leaving 2,762,850 Class A shares and 2,785,996
Class B shares outstanding.
5. 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.
6. Seasonality
The results of operations for the fiscal quarter ended October 29, 1994
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.
7. Nonrecurring Charges
During the third fiscal quarter ending October 29, 1994, the Company
recorded a nonrecurring charge of $750,000 related to severance and other
personnel related costs associated with a reduction in administrative support
positions by the Company. See Part II, Item 5 "Other Information - Reduction
of Administrative Support Staff, Other Cost Savings and Revenue Enhancement"
of this Form 10-Q.
During the second fiscal quarter ended July 30, 1994, the Company
recorded a nonrecurring charge of $1.8 million for costs, including legal
expenses, associated with the removal of the Company's President and Chief
Executive Officer by the Board of Directors, and the settlement of disputes
arising therefrom. See Part II, Item 1 "Legal
<PAGE>
Proceedings" of this Form 10-Q as well as the Company's current reports on
Form 8-K dated September 7, 1994 and September 13, 1994, respectively for
further discussion.
8. Subsequent Event
Subsequent to the end of the third fiscal quarter, the Company reached
agreement with the Internal Revenue Service to settle certain disputed items,
primarily related to the deductibility of certain intangible assets
associated with prior acquisitions. The terms of the settlement required the
Company to pay approximately $1.2 million, of which $578,000 represents
pretax interest charges, and to reduce the deductibility of the remaining
basis of certain intangible assets by $3.3 million. The Company, which had
previously established an estimated reserve for this settlement, is currently
evaluating the adequacy of such reserve and the impact of the settlement on
the Company's effective tax rate.
<PAGE>
<PAGE>
DAIRY MART CONVENIENCE STORES, INC.
FISCAL QUARTER ENDED OCTOBER 29, 1994
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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
exceeds all of the current debt service requirements of the Company's long-
term debt and capital lease obligations. The capital expenditures of the
Company are funded by the excess cash flow available after debt service and
may also be funded using cash provided from the Company's financing
activities including mortgage and equipment financing and other forms of
long-term debt. Additionally, the Company has a revolving line of credit
available to address the seasonality of operations and timing of certain
working capital disbursements.
For both the current and prior year third fiscal quarters ended October
29, 1994 and October 30, 1993, respectively, the Company paid its trade
payables in an average of 25 days, which compares to 24 days for the entire
fiscal year ended January 29, 1994. The cash flow of the Company is also
favorably impacted by the Company's use of funds from the sale of money
orders, pending weekly remittance of such funds to the issuer of the money
orders. The amount due the issuer each week varies, depending on the volume
and dollar values of money orders issued. At October 29, 1994 and January
29, 1994, $5.3 million and $6.2 million, respectively, were due the issuer.
The Company's remittance obligation
to the issuer of the money orders is primarily secured by an outstanding
letter of credit in the amount of $6.5 million.
<PAGE>
During the current year first three fiscal quarters, cash generated by
operations was approximately $7.0 million lower than the prior year first
three fiscal quarters. The decrease was primarily due to reduced earnings in
the current year (see "Results of Operations").
Cash used by the Company's investing activities was approximately $5.5
million higher in the current year first three fiscal quarters as compared to
the prior year first three fiscal quarters, due in part to the investment of
$3.9 million in U.S. Treasury Bills partially offset by the sale of $1.9
million of such investments. In addition, the Company's investing activities
were increased in the current year three fiscal quarters due to an increased
level of capital expenditures resulting primarily from increased development
of new stores as well as the replacement or upgrading of certain of its
operating assets. The Company intends to continue to increase its level of
capital expenditures in the areas described above. Such capital expenditures
will be financed primarily by cash generated from operations as well as
mortgage and equipment financing and the remaining excess proceeds realized
from the sale of the Company's 10.25% Senior Subordinated Notes (see below).
In addition, the Company intends to sell and leaseback certain of its
existing super pumper retail gasoline locations and may in the future lease,
or sell and leaseback, the real estate upon which new super pumpers are
located.
The Company estimates that future capital expenditure requirements to
comply with federal and state underground gasoline storage tank regulations
will be approximately $16.0 million to $20.0 million in the
<PAGE>
aggregate through December, 1998, which cost could be reduced for locations
(especially low volume locations) which may be closed in lieu of the capital
costs of compliance. The Company has also initiated a program to install in
all stores within three years a point-of-sale (POS) system designed to
provide more accurate and timely information regarding store operations and
to decrease administrative overhead. The cost of the POS system, including
new cash registers and personal computers, is currently estimated to be
approximately $7.0 million to $9.0 million, and is anticipated to be funded
by equipment financing. The total amount of discretionary capital
expenditures that the Company will incur in the future will be determined, in
part, by the available sources of funds, including, but not limited to, those
described above.
During the current year first fiscal quarter, the Company issued $75.0
million principal amount of 10.25% Senior Subordinated Notes (the "Notes"),
all of the principal of which is due March 15, 2004. The net proceeds from
the sale of the Notes were used to repay the entire outstanding indebtedness
under a previous bank term loan and a bank revolving loan and to redeem in
full the Company's 14.25% subordinated debentures. The Company issued the
Notes in order to facilitate future growth and to improve the Company's
financial and operating flexibility by significantly reducing the Company's
debt amortization requirements by approximately $53 million over the next
five fiscal years.
In addition to cash flow from operations, potential mortgage, equipment
and other financing and the available excess proceeds from the sale of the
Notes, the Company's sources of liquidity include borrowing
<PAGE>
availability under a senior credit facility entered into by the Company
during the current year first fiscal quarter in connection with the issuance
of the Notes and the repayment of the previous bank term and revolving loans.
The new credit facility provides for the availability of up to $30.0 million
in revolving loans, reduced by outstanding letters of credit not to exceed
$15.0 million in the aggregate. As of October 29, 1994, the Company had no
outstanding revolving credit loans under the new credit facility, but did
have $12.6 million of letters of credit outstanding thereunder, including, as
discussed above, the $6.5 million letter of credit issued to secure the
Company's remittance obligation to the issuer of money orders. The Company
intends to utilize the new credit facility as needed for working capital and
general corporate purposes, including addressing the seasonality of
operations and the timing of certain working capital disbursements.
RESULTS OF OPERATIONS
Revenues for the first three fiscal quarters ended October 29, 1994
increased by $9.0 million or 2.0% from the first three fiscal quarters ended
October 30, 1993. For the third fiscal quarter alone, revenues increased by
$7.2 million or 4.8% from the corresponding period of the prior year. The
current year revenue increases for both the first three fiscal quarters and
the third fiscal quarter were due to
higher revenues from the convenience store, gasoline and manufacturing and
distribution areas of the Company.
Convenience store revenues increased from $271.0 million in the prior
year first three fiscal quarters to $277.1 million in the current <PAGE>
year first three fiscal quarters, while for the third fiscal quarter alone,
convenience store revenues increased from $90.5 million in the prior year to
$93.3 million in the current year. These increases were due primarily to a
comparable store sales increase of approximately 2.7% for the current year
first three fiscal quarters and 3.6% for the current year third fiscal
quarter, as compared to the corresponding periods of the prior year. The
overall increase in the Company's convenience store revenues was partially
offset in both the current year first three fiscal quarters and third fiscal
quarter by decreased revenues resulting from the closing of underperforming
stores. Although such closures had a negative impact on revenues, they did
not have a material adverse effect on the results of operations (other than
the initial write-off of estimated unrecoverable costs), since the majority
of stores closed had been operating at a loss. The Company owned or
franchised 993 stores at October 29, 1994, as compared to 1,022 stores at
January 29, 1994 and 1,053 stores at October 30, 1993.
Gasoline revenues increased from $157.5 million in the prior year first
three fiscal quarters to $159.6 million in the current year first three
fiscal quarters, while for the third fiscal quarter alone, gasoline revenues
increased from $51.9 million in the prior year to $55.9 million in the
current year. These increases resulted primarily
from an increase in the average selling price of gasoline of 1.1 cents per
gallon for the current year first three fiscal quarters and 7.2 cents per
gallon for the third fiscal quarter alone, as compared to the corresponding
periods of the prior year. In addition, gasoline revenues were favorably
impacted in both the current year three fiscal quarters <PAGE>
and third fiscal quarter by an increase in total gallons sold of
approximately 1.1 million gallons and 640,000 gallons, respectively, as
compared to the corresponding periods of the prior year. The increases in
gasoline gallons sold represented, on a per location basis, an average
gallonage increase of approximately 1.4% in the current year first three
fiscal quarters and 0.8% for the current year third fiscal quarter alone.
Manufacturing and distribution revenues increased in the current year
first three fiscal quarters and third fiscal quarter due to increased sales
of ice cream to an external distributor as well as increased sales of
cigarettes and candy to stores in certain marketing areas of the Company.
Income from operations decreased by $8.0 million for the current year
first three fiscal quarters and decreased by $1.0 million for the current
year third fiscal quarter alone, as compared to the corresponding periods of
the prior year. This was attributable to a decrease in earnings from the
convenience store and manufacturing and distribution operations of the
Company, as well as the $2.6 million of nonrecurring charges in the current
year three fiscal quarters of which $750,000 was recorded in the current year
third fiscal quarter alone
(see Note 7 to the Consolidated Financial Statements). In addition, income
for operations for the current year first three fiscal quarters was further
decreased due to lower earnings from gasoline operations, although gasoline
earnings increased for the current year third fiscal quarter alone.
<PAGE>
Income for convenience store operations decreased for both the current
year first three fiscal quarters and the third fiscal quarter primarily due
to reduced product gross margins partially offset by the comparable store
sales increases discussed above. The reduced gross margins were caused in
part by product promotions, as well as an increase in costs associated with
the Company's last-in, first-out (LIFO) inventory valuation method. (The
LIFO provision was reduced in the prior year three fiscal quarters and third
fiscal quarter due to a decrease in cigarette prices, which constitutes one
of the Company's major product categories.) Convenience store operations
were also impacted by higher store selling expenses in the current year first
three fiscal quarters and third fiscal quarter due primarily to increased
store labor costs.
Income from gasoline operations decreased for the current year first
three fiscal quarters, due to a decrease in gasoline gross margins of
approximately 0.2 cents per gallon as compared to the first three fiscal
quarters of the prior year, partially offset by the increase in gasoline
gallons sold described above. Additionally, for the current year first three
fiscal quarters, the Company incurred higher operating costs related to
compliance with environmental regulations, reflecting
an increase in the expenses associated with the remediation of the Company's
gasoline locations after considering expected reimbursements of a portion of
the total remediation costs from various state environmental trust funds.
Such remediation costs are incurred in the ordinary course of business and
can fluctuate from year to year. Gasoline earnings increased for the current
year third fiscal quarter as <PAGE>
compared to the prior year third fiscal quarter due to an increase in
gasoline gross margins of 1.3 cents per gallon, combined with higher gasoline
gallons sold as discussed above, and lower operating costs related to
compliance with environmental regulations.
Income from manufacturing and distribution operations decreased in the
current year first three fiscal quarters and the third fiscal quarter due
primarily to reduced operating margins, resulting in part from competitive
product pricing, as well as increased labor costs.
Other selling, general and administrative expenses remained relatively
constant for the current year first three fiscal quarters and for the third
fiscal quarter when compared to the corresponding periods of the prior year.
Interest expense, net of interest income, increased by $1,189,000 in
the current year first three fiscal quarters and by $357,000 in the current
year third fiscal quarter alone primarily due to the overall increase in the
Company's long-term debt obligations. In addition, interest expense for the
current year-to-date period was increased due to duplicative interest expense
during March, 1994 associated with the Company's Notes issued March 3, 1994
and the 14.25% subordinated
debentures which were outstanding through April 4, 1994, the date on which
the debentures were redeemed in full. These increases were partially offset
by increased interest income in the current year earned on the Company's
higher average cash balance as well as the investment of a portion of the
Company's cash in U.S. Treasury Bills and other cash equivalents as discussed
above.
<PAGE>
Loss on disposition of properties was negatively impacted in the
current year first three fiscal quarters due to the writedown of a vacant
office building to market value as well as a charge for the write-off of
estimated unrecoverable costs related to approximately 60 locations that the
Company has decided to close or sell.
The effective tax rate for the Company was a benefit of 40% for the
current year first three fiscal quarters and a provision of 41% for the
current year third fiscal quarter alone as compared to a provision of 40% for
both the prior year first three fiscal quarters and third fiscal quarter.
The Company provides for income taxes at the effective rate expected to be
incurred for the entire year, except for the potential adjustment in the
current year fourth fiscal quarter related to the settlement of an Internal
Revenue Service income tax examination (See Note 8 to the Consolidated
Financial Statements).
Net loss for the current year first three fiscal quarters was
$3,501,000 or $0.63 per share, as compared to net income of $3,443,000 or
$0.62 per share for the prior year first three fiscal quarters. Net income
for the current year third fiscal quarter was $368,000 or $0.07 per share, as
compared to $1,339,000 or $0.24 per share for the
corresponding period of the prior year. In addition to the items discussed
above, the net loss in the current year first three fiscal quarters was
impacted by a $389,000 charge (net of the related income tax benefit) for the
cumulative effect of an accounting change related to the rate used to
discount the Company's self-insurance reserves (see Note 2 to the
Consolidated Financial Statements).
<PAGE>
PART II- OTHER INFORMATION
Item 1. Legal Proceedings
The Quarterly Report on Form 10-Q of the Company for the quarterly
period ended July 30, 1994 (the "Second Quarter 10-Q") described in Item 1 of
Part II certain legal proceedings that had arisen with respect to the
termination of Frank Colaccino as President and Chief Executive Officer of
the Company. The Second Quarter 10-Q further stated that an agreement in
principle had been reached with Mr. Colaccino to settle the disputes and
legal proceedings between Mr. Colaccino and the Company, and that the
estimated costs of the settlement and related matters, including legal
expenses, had been reflected as a nonrecurring charge in the Second Quarter
10-Q (the "Settlement"). The Company anticipates that the Settlement
documents reflecting this agreement in principle will be executed in the near
future.
Item 5. Other Information
Matters Arising Out of the Termination of Frank Colaccino
The Company has been advised by Charles Nirenberg, Chairman of the Board of
Directors of the Company, that an affiliate of his has purchased from the
Connecticut Development Authority (the "CDA"), the indebtedness that was owed
by DM Associates Limited Partnership ("DM Associates") to the CDA. Mr.
Nirenberg has advised the Company and DM Associates that such affiliate
intends to waive any existing default with respect to such
indebtedness. <PAGE>
<PAGE>
Reduction of Administrative Support Staff, Other Cost Savings and
Revenue Enhancement
On November 3, 1994 the Company announced a reduction of approximately
20% of its administrative support staff, or a total of 112 positions. The
reduction included 63 positions at the Company's corporate headquarters in
Enfield, Connecticut, as well as regional office downsizing and an
elimination of other positions through attrition.
The staff reductions are anticipated to result in annualized pretax
savings to the Company of approximately $4.1 million. A nonrecurring pretax
charge of $750,000 was recorded in the Company's third fiscal quarter
relating to costs of severance and outplacement services offered to the
transitioning employees.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K:
On September 8, 1994, the Company filed a Current Report on Form 8-K
with the SEC in which the Company described the removal, by the Board of
Directors of the Company, of Frank Colaccino as Chief Executive Officer and
President on August 25, 1994. The Board of Directors also named Robert B.
Stein, Jr. as Chief Operating Officer of the Company.
On September 13, 1994, the Company filed a Current Report on Form 8-K
with the SEC in which the Company described its issuance of a press release
on September 2, 1994 containing a complete description of
certain events concerning the Company and its majority stockholder.
No financial statements were filed with either Current Report.
<PAGE>
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 19, 1994 /s/ Gregory G. Landry
Gregory G. Landry
Executive Vice President
Chief Financial Officer
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Consolidated Statements of Operations and consolidated Balance Sheets and
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-START> JAN-30-1994
<PERIOD-END> OCT-29-1994
<CASH> 8,894
<SECURITIES> 2,031
<RECEIVABLES> 14,599
<ALLOWANCES> 2,362
<INVENTORY> 27,027
<CURRENT-ASSETS> 55,031
<PP&E> 153,144
<DEPRECIATION> 57,984
<TOTAL-ASSETS> 179,339
<CURRENT-LIABILITIES> 48,202
<BONDS> 89,005
<COMMON> 63
0
0
<OTHER-SE> 30,387
<TOTAL-LIABILITY-AND-EQUITY> 179,339
<SALES> 580,411
<TOTAL-REVENUES> 459,393
<CGS> 340,646
<TOTAL-COSTS> 453,939
<OTHER-EXPENSES> 2,550
<LOSS-PROVISION> 544
<INTEREST-EXPENSE> 7,176
<INCOME-PRETAX> (5,222)
<INCOME-TAX> (2,110)
<INCOME-CONTINUING> (3,112)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (389)
<NET-INCOME> (3,501)
<EPS-PRIMARY> (0.63)
<EPS-DILUTED> (0.63)
<PAGE>
</TABLE>
