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 April 29, 1995
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 May 8, 1995- 2,782,109
Shares of Class B Common Stock outstanding May 8, 1995- 2,785,665
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
Dairy Mart Convenience Stores, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)
<CAPTION>
FOR THE FIRST FISCAL QUARTER ENDED
April 29, 1995 April 30, 1994
<S> <C> <C>
Net Sales of the Company, Its Subsidiaries and Franchises..... $ 176,305 $ 179,329
Revenues...................................................... $ 140,242 $ 141,255
Cost of goods sold and expenses:
Cost of goods sold.......................................... 104,870 105,554
Selling, general and administrative expenses................ 33,733 35,805
Interest expense............................................ 2,361 2,189
(Gain) loss on disposition of properties, net............... (153) 104
Nonrecurring charge......................................... - 285
140,811 143,937
Loss before income taxes and cumulative effect of
accounting change...................................... (569) (2,682)
Benefit from income taxes..................................... 240 1,100
Loss before cumulative effect of accounting change....... (329) (1,582)
Cumulative effect of accounting change (net of income
tax benefit of $271)..................................... - (389)
Net loss................................................. $ (329) $ (1,971)
Weighted average shares outstanding 5,564 5,529
Loss per share:
Before cumulative effect of accounting change............... $ (0.06) $ (0.29)
Cumulative effect of accounting change...................... - (0.07)
Loss per share................................................ $ (0.06) $ (0.36)
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
(in thousands)
<CAPTION>
April 29, 1995 January 28, 1995
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash...................................................... $ 12,976 $ 4,512
Short-term investment..................................... 2,083 2,053
Accounts and notes receivable............................. 12,497 12,398
Inventory................................................. 24,599 26,044
Prepaid expenses and other current assets................. 2,629 1,945
Deferred income taxes..................................... 3,548 3,537
Total current assets................................... 58,332 50,489
Net Book Value of Property and Equipment Held For Sale ...... 13,945 23,378
Property and Equipment:
Land and improvements..................................... 9,419 9,180
Buildings and leaseholds.................................. 31,289 31,370
Equipment................................................. 62,223 59,358
102,931 99,908
Less - Accumulated depreciation........................... 31,822 30,345
Net property and equipment............................. 71,109 69,563
Property Under Capital Leases, net........................... 956 1,015
Other Assets:
Goodwill, net ............................................ 10,567 10,647
Franchise and operating rights, net....................... 7,229 7,314
Notes receivable.......................................... 2,454 2,494
Other..................................................... 7,102 7,328
Total other assets..................................... 27,352 27,783
Total assets................................................. $ 171,694 $ 172,228
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt......................... $ 1,285 $ 1,285
Current portion of capital lease obligations.............. 285 285
Accounts payable.......................................... 31,867 28,942
Accrued expenses.......................................... 16,235 17,214
Accrued interest.......................................... 1,117 3,052
Total current liabilities.............................. 50,789 50,778
Long-Term Debt, less current portion above................... 86,792 87,324
Capital Lease Obligations, less current portion above........ 1,305 1,374
Other Liabilities and Deferred Credits ...................... 6,399 6,837
Deferred Income Taxes........................................ 3,884 3,098
Stockholders' Equity:
Class A Common Stock...................................... 33 33
Class B Common Stock...................................... 30 30
Paid-in capital in excess of par value.................... 27,617 27,580
Retained (deficit) earnings............................... (150) 179
Treasury stock, at cost................................... (5,005) (5,005)
Total stockholders' equity............................. 22,525 22,817
Total liabilities and stockholders' equity................... $ 171,694 $ 172,228
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
(Unaudited)
(in thousands)
FOR THE FIRST FISCAL QUARTER ENDED
April 29, 1995 April 30, 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $ (329) $ (1,971)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Cash flow effect of nonrecurring items......................... (484) (179)
Cumulative effect of accounting change......................... - 389
Depreciation and amortization.................................. 2,988 3,274
Change in deferred income taxes................................ 775 755
(Gain) loss on other disposition of properties, net............ (153) 104
Increase in accounts and notes receivable...................... (99) (996)
Decrease in inventory.......................................... 1,445 292
Increase in accounts payable................................... 2,925 14
(Decrease) increase in accrued interest........................ (1,935) 298
Increase in other current assets and liabilities, net.......... (1,464) (1,429)
(Decrease) increase in other noncurrent liabilities
and deferred credits......................................... (153) 311
Net cash provided by operating activities.......................... 3,516 862
Cash flows from investing activities:
Increase in short-term investment................................ (30) -
Purchase of property and equipment............................... (3,703) (2,619)
Proceeds from sale of property and equipment..................... 9,300 139
Proceeds from long-term notes receivable......................... 40 341
Increase in long-term notes receivable........................... - (622)
Increase in intangibles and other assets, net.................... (95) (99)
Net cash provided (used) by investing activities................... 5,512 (2,860)
Cash flows from financing activities:
Issuance of senior subordinated notes, net of offering costs..... - 73,090
Repayment of term debt........................................... - (22,000)
Retirement of subordinated debentures............................ - (27,944)
Decrease in revolving loan, net.................................. - (12,100)
Repayment of other long-term debt and capital lease obligations.. (601) (549)
Increases in common stock and paid-in capital.................... 37 21
Net cash (used) provided by financing activities................... (564) 10,518
Increase in cash................................................... 8,464 8,520
Cash at beginning of fiscal year................................... 4,512 6,632
Cash at end of first fiscal quarter................................ $ 12,976 $ 15,152
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
Dairy Mart Convenience Stores, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 29, 1995
(Unaudited)
The unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those
rules and regulations, although the Company believes that the disclosures
made are adequate to make the information presented not misleading. The
information furnished reflects all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented, and which are of a normal, recurring nature. It is
suggested that these financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's Form
10-K, filed with the Securities and Exchange Commission on May 15, 1995.
1. Accounting Policies
The financial statements included herein have been prepared in
accordance with the accounting policies described in Note 1 to the January
28, 1995 audited consolidated financial statements included in the
Company's Form 10-K. Certain prior year amounts have been reclassified to
conform to the presentation used for the current year.
<PAGE>
<TABLE>
2. Changes in Capital Accounts
An analysis of the capital stock accounts for the first fiscal
quarter ended April 29, 1995 follows:
<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 28, 1995 3,290,460 2,961,953 $ 62,526 $ 27,579,716
Employee stock purchase plan 4,943 - 49 16,757
Stock options exercised 7,375 - 74 20,208
Exchange of Class B shares
for Class A shares 331 (331) - -
Balance April 29,1995 3,303,109 2,961,622 $ 62,649 $ 27,616,680
<FN>
As of April 29, 1995, 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 2,781,484 Class A shares and
2,785,665 Class B shares outstanding.
</FN>
</TABLE>
3. Loss Per Share
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.
4. Seasonality
The results of operations for the first fiscal quarter ended April
29, 1995 are not necessarily indicative of results to be expected for the
full fiscal year. The convenience store industry in the Company's
marketing areas experiences a higher percentage of revenues and profit
margins during the summer months than during the winter months.
Historically, the Company has achieved more favorable financial results in
its second and third fiscal quarters, as compared to its first and fourth
fiscal quarters.
5. Nonrecurring Charge
The Company recorded a nonrecurring charge of $285,000 in the first
fiscal quarter ended April 30, 1994 for duplicative interest expense, net
of interest income, associated with the issuance of the Company's 10.25%
senior subordinated notes on March 3, 1994, and the Retirement of the
Company's 14.25% subordinated debentures on April 4, 1994.
<PAGE>
Dairy Mart Convenience Stores, Inc. and Subsidiaries
FISCAL QUARTER ENDED APRIL 29, 1995
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues
Revenues for the current year first fiscal quarter decreased $1.1
million from the prior year first fiscal quarter. A summary of revenues by
operating area for the comparative first fiscal quarters is shown below:
FOR THE FIRST FISCAL
QUARTER ENDED
April 29, April 30,
(in millions) 1995 1994
Convenience store $ 79.0 $ 86.0
Gasoline 53.8 48.0
Manufacturing and distribution 6.8 6.7
Other 0.6 0.6
Total $140.2 $141.3
Convenience store revenues decreased $7.0 million, or 8.1%, in the
current year first fiscal quarter as compared to the prior year first
fiscal quarter. This decrease was primarily due to a reduction in the
average number of stores operated in the current year first fiscal quarter
as a result of the closing or sale of underperforming stores, combined with
a 1.1% decrease in comparable store sales. Although such closures had a
negative impact on revenues, they did not have a material adverse effect on
the results from operations, since the majority of stores closed or sold had
been operating at a loss.
Gasoline revenues increased $5.8 million in the current year first
fiscal quarter as compared to the prior year first fiscal quarter due to
an increase in the average selling price of gasoline of 6.4 cents per
gallon combined with an increase in total gasoline gallons sold of 2.8
million. The increase in gasoline gallons sold was due primarily to
further development of new stores having a major gasoline presence and
the remodeling and expansion of gasoline facilities at certain existing
locations.
Manufacturing and distribution and Other revenues remained
relatively constant in the current year first fiscal quarter as compared
to the prior year first fiscal quarter.
<PAGE>
Gross Margins
Gross margins for the current year first fiscal quarter decreased
$300,000 from the prior year first fiscal quarter. A summary of the
gross margins by operating area for the comparative first fiscal quarters
is shown below:
FOR THE FIRST FISCAL
QUARTER ENDED
April 29, April 30,
(in millions) 1995 1994
Convenience store $ 29.6 $ 29.9
Gasoline 5.1 5.1
Manufacturing and distribution 0.1 0.1
Other 0.6 0.6
Total $ 35.4 $ 35.7
Convenience store gross margins decreased by $300,000 in the
current year first fiscal quarter as compared to the prior year first
fiscal quarter primarily due to the reduction in the average number of
stores described above, offset by improved product gross margins and
higher lottery commissions.
Gasoline gross margins remained constant in the current year first
fiscal quarter as compared to the prior year first fiscal quarter as the
increase in total gallons sold described above was offset by a decrease
of 0.5 cents in gross margin per gallon.
Manufacturing and distribution and Other gross margins remained
constant in the current year first fiscal quarter as compared to the
prior year first fiscal quarter.
<PAGE>
Selling and General and Administrative Expenses
Selling expenses for the current year first fiscal quarter
decreased $1.5 million from the prior year first fiscal quarter. General
and administrative expenses for the current year first fiscal quarter
decreased $600,000 from the prior year first fiscal quarter. A summary of
selling expenses by operating area and general and administrative
expenses for the comparative first fiscal quarters is shown below:
FOR THE FIRST FISCAL
QUARTER ENDED
April 29, April 30,
(in millions) 1995 1994
Convenience store $ 23.7 $ 25.4
Gasoline 3.0 2.8
26.7 28.2
General and administrative expenses 7.0 7.6
Total $ 33.7 $ 35.8
Convenience store selling expenses decreased $1.7 million in the
current year first fiscal quarter as compared to the prior year first
fiscal quarter due to the closure or sale of underperforming stores as
described above, partially offset by higher labor and rent costs on a per
store basis.
Gasoline selling expenses increased $200,000 in the current year
first fiscal quarter as compared to the prior year first fiscal quarter
primarily due to increased environmental expenses associated with the
remediation of gasoline locations after considering expected
reimbursements from various state environmental trust funds. Other
gasoline selling expenses also increased as a result of the operation
of new or remodeled expanded facilities as described above.
General and administrative expenses decreased in the current year
first fiscal quarter as compared to the prior year first fiscal quarter
primarily due to a reduced level of administrative support staff.
<PAGE>
Interest Expense and Taxes
Interest expense increased in the current year first fiscal quarter
as compared to the prior year first fiscal quarter due to an increased
level of borrowings associated with the recapitalization of the Company's
debt structure with the issuance of $75.0 million of 10.25% Senior
Subordinated Notes (the "Notes") in March 1994 and to a lesser extent the
overall increase in current interest rates on variable rate borrowings.
The effective tax rate for the Company was a benefit of 42% for
the current year first fiscal quarter and a benefit of 41% for the prior
year first fiscal quarter. The Company provides for income taxes at
the effective rate expected to be incurred for the entire fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates substantial operating cash flow since most of
its revenues are received in cash. The amount of cash generated from
operations in the current year first fiscal quarter significantly
exceeded the current debt service requirements of the Company's long-term
debt and capital lease obligations. The current year first fiscal
quarter capital expenditures of the Company were primarily funded by the
excess operating cash flow after debt service as well as by the cash
received from the sale and leaseback of 16 existing store properties in
March, 1995. In addition, the Company has a revolving line of credit
available, although not currently utilized, to address the timing of
certain working capital disbursements in the future. Management believes
that the cash flow from operations and the sale of certain
underperforming and non-operating assets will provide the Company with
ample liquidity and the capital necessary to achieve the anticipated
expansion in its retail operations (see Capital Expenditures).
Cash Provided by Operating Activities
During the current year first fiscal quarter, net cash generated by
operations was $2.7 million higher than the prior year first fiscal
quarter. This increase was primarily due to increased working capital as
well as improved results of operations in the current year first
fiscal quarter as compared to the prior year first fiscal quarter (see
RESULTS OF OPERATIONS).
During the current year first fiscal quarter, the Company paid its
trade payables in an average of 26 days, which compares to 24 days for
the fiscal year ended January 28, 1995 and 25 days for the prior year
first fiscal quarter. 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. As of April 29, 1995 and January 28, 1995, the amounts due the
issuer were $5.8 million and $5.3 million, respectively. 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.
Cash Provided by Financing Activities
During the current year first fiscal quarter, net cash of $564,000
was used primarily to repay long-term debt and capital lease obligations.
During the prior year first fiscal quarter, net cash of $10.5 million was
provided from the issuance of the Notes and the subsequent repayment of
the indebtedness under a bank term loan and bank revolving loan and to
redeem in full the Company's 14.25% subordinated debentures.
<PAGE>
During the current year first fiscal quarter, management
finalized an amendment of the Company's senior credit facility,
temporarily reducing the total availability to $20.0 million with
$15.0 million available for the issuance of letters of credit. As of
April 29, 1995, the Company had no outstanding revolving credit loans
under the amended credit facility, but did have $11.8 million of letters
of credit outstanding thereunder. The Company may utilize the amended
credit facility as needed for working capital and general corporate purposes.
Cash Used by Investing Activities
During the current year first fiscal quarter, net cash of $5.5
million was provided by investing activities primarily due to proceeds
received on the sale and leaseback of existing real estate described
above. The proceeds partially funded the increased level of current year
first fiscal quarter capital expenditures compared to the prior year
first fiscal quarter. Consistent with the Company's overall objective to
strengthened its investment in retail operations, the remaining proceeds
available from the sale and leaseback transaction, cash generated from
operations and the cash to be received on the anticipated disposition of
underperforming and non-operating assets, will be used to fund future
capital expenditures of the Company including the development of new
stores and the upgrading and remodeling of existing stores.
Capital Expenditures
The Company anticipates spending approximately $22 million for
capital expenditures in the current fiscal year ending February 3, 1996
by purchasing store and gasoline equipment for new store locations,
remodeling certain of its existing stores, introducing Branded Fast
Food concepts in a number of stores, and significantly upgrading certain
gasoline locations to provide credit card readers at the pump, to improve
outdoor lighting and to meet current environmental standards (see
Environmental Responsibility). These capital expenditures, of which $3.7
million were incurred during the current year first fiscal quarter, are
to be funded primarily by cash generated from operations and from cash
received on the disposition of assets held for sale. The Company also
intends to lease the real estate for the majority of new store locations.
Environmental Responsibility
The Company accrues its estimate of all costs to be incurred for
assessment and remediation with respect to releases of regulated
substances from existing and previously operated retail gasoline
facilities. As of April 29, 1995, the Company had recorded an accrual of
$2,302,000 for such costs, the majority of which are anticipated to be
spent over the next 3 to 5 years.
The Company is entitled to reimbursement of a portion of the above
costs from various state environmental trust funds based upon compliance
with the terms and conditions of such trust funds. As of April 29, 1995,
the Company has recorded a net state trust fund reimbursement receivable
of $1,030,000 (representing a gross receivable of $1,372,000 less an
allowance of $342,000). Although there are no assurances as to the
timing, the Company anticipates receiving reimbursements from the state
environmental trust funds within one to four years from the payment of
the reimbursable assessment and remediation expenses.
In addition, the Company estimates that future capital expenditure
requirements to comply with federal and state underground gasoline
storage tank regulations will be approximately $12.0 to $16.0 million in
the aggregate through December 1998. These costs could be reduced for
low volume locations closed in lieu of the capital cost of compliance.
The Company's estimate of costs to be incurred for environmental
assessment and remediation and for required underground storage tank
upgrading and other regulatory compliance are based on factors and
assumptions that could change due to modifications of regulatory
requirements or detection of unanticipated environmental conditions.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
On February 14, 1995, the Company filed a Current Report
on Form 8-K with the SEC in which the Company reported that the
Company, Frank Colaccino, the former President and Chief Executive
Officer of the Company, and certain other parties executed definitive
documents settling certain disputes and litigation between the parties.
In addition, the Company reported that it received an amendment to
Schedule 13D of DM Associates Limited Partnership, dated January 27, 1995.
No financial statements were filed with the 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: June 12, 1995 /s/ Gregory G. Landry
Gregory G. Landry
Executive Vice President
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> APR-29-1995
<CASH> 12,976
<SECURITIES> 2,083
<RECEIVABLES> 16,811
<ALLOWANCES> 1,860
<INVENTORY> 24,599
<CURRENT-ASSETS> 58,332
<PP&E> 102,931
<DEPRECIATION> 31,822
<TOTAL-ASSETS> 171,694
<CURRENT-LIABILITIES> 50,789
<BONDS> 88,097
<COMMON> 63
0
0
<OTHER-SE> 22,462
<TOTAL-LIABILITY-AND-EQUITY> 171,694
<SALES> 176,305
<TOTAL-REVENUES> 140,242
<CGS> 104,870
<TOTAL-COSTS> 138,603
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 132
<INTEREST-EXPENSE> 2,361
<INCOME-PRETAX> (569)
<INCOME-TAX> 240
<INCOME-CONTINUING> (329)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (329)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
