<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended May 4, 1996
[ ] 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 Vision Drive, Enfield, CT 06082
(Address of principal executive offices)
Registrant's telephone number, including area code (860) 741-4444
____________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Shares of Class A Common Stock outstanding May 4, 1996 - 2,809,924
Shares of Class B Common Stock outstanding May 4, 1996 - 2,783,060
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
FOR THE FIRST FISCAL
QUARTER ENDED
----------------------
May 4, April 29,
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues................................. $ 141,328 $ 133,442
------------ ----------
Cost of goods sold and expenses:
Cost of goods sold..................... 105,082 98,170
Operating and administrative expenses.. 34,151 33,480
Interest expense....................... 2,748 2,361
------------ ----------
141,981 134,011
------------ ----------
Loss before income taxes............... (653) (569)
Benefit from income taxes................ 260 240
---------- ----------
Net loss............................. $ (393) $ (329)
- -------------------------------------------------------------------------------
Weighted average shares outstanding...... 4,371 5,564
---------- ----------
Loss per share........................... $ (0.09) $ (0.06)
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
May 4, 1996 February 3, 1996
- --------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash....................................... $ 11,712 $ 12,654
Short-term investment...................... 1,514 -
Accounts and notes receivable.............. 10,058 9,752
Inventory.................................. 20,675 20,928
Prepaid expenses and other current assets.. 3,563 3,454
Deferred income taxes...................... 1,676 2,669
---------- ----------
Total current assets.................... 49,198 49,457
---------- ----------
Assets Held For Sale.......................... 8,685 8,685
---------- ----------
Property and Equipment, net................... 80,809 80,387
---------- ----------
Intangible Assets, net........................ 17,175 17,277
---------- ----------
Other Assets, net............................. 8,258 9,132
---------- ----------
Total assets.................................. $ 164,125 $ 164,938
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Current maturities of long-term obligations. $ 1,530 $ 1,430
Accounts payable............................ 37,519 30,803
Accrued expenses............................ 10,318 14,437
Accrued interest............................ 1,350 3,355
---------- ----------
Total current liabilities................ 50,717 50,025
---------- ----------
Long-Term Obligations, less current portion above.. 99,143 99,451
---------- ----------
Other Liabilities.............................. 5,426 6,254
---------- ----------
Stockholders' Equity:
Preferred Stock (serial).................... - -
Class A Common Stock........................ 33 33
Class B Common Stock........................ 30 30
Paid-in capital............................. 29,995 29,971
Retained earnings (deficit)................. (6,214) (5,821)
Treasury stock, at cost.....................
Note receivable from DM Associates..........
(5,005) (5,005)
Total stockholders' equity.................. (10,000) (10,000)
---------- ----------
8,839 9,208
---------- ----------
Total liabilities and stockholders' equity..... $ 164,125 $ 164,938
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral par of these financial statements.
-3-
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
FOR THE FIRST FISCAL QUARTERS ENDED
------------------------------------
May 4, 1996 April 29, 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $ (393) $ (329)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................... 3,134 2,988
Amortization of original issue discount......... 49 -
Change in deferred income taxes................. 1,566 775
Gain on other disposition of properties, net.... (86) (153)
Net change in assets and liabilities:
Accounts and notes receivable................ (306) (99)
Inventory.................................... 253 1,445
Accounts payable............................. 6,716 2,925
Accrued interest............................. (2,005) (1,935)
Other assets and liabilities................. (5,056) (2,101)
- --------------------------------------------------------------------------------
Net cash provided by operating activities........... 3,872 3,516
- --------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of and increase in short-term
investments...................................... (1,514) (30)
Purchase of property and equipment................ (3,951) (3,703)
Proceeds from sale of property, equipment and
assets held for sale........................... 889 9,300
Increase in long-term notes receivable............ (298) -
Proceeds from collection of long-term notes
receivable....................................... 352 40
Increase in intangibles and other
assets........................................... (59) (95)
- --------------------------------------------------------------------------------
Net cash (used in) provided by investing activities. (4,581) 5,512
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in revolving loan, net................... 100 -
Repayment of long-term obligations................ (357) (601)
Issuance of common stock.......................... 24 37
- --------------------------------------------------------------------------------
Net cash used by financing activities............... (233) (564)
- --------------------------------------------------------------------------------
(Decrease) increase in cash......................... (942) 8,464
Cash at beginning of fiscal year.................... 12,654 4,512
- --------------------------------------------------------------------------------
Cash at end of first fiscal quarter................. $ 11,712 $ 12,976
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 4, 1996
(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 2, 1996.
1. Accounting Policies
-------------------
The financial statements included herein have been prepared in accordance
with the accounting policies described in Note 1 to the February 3, 1996 audited
consolidated financial statements included in the Company's Form 10-K. Certain
prior year amounts have been reclassified to conform to the presentation used
for the current year.
2. Changes in Capital Accounts
---------------------------
An analysis of the capital stock accounts for the first fiscal quarter
ended May 4, 1996 follows:
<TABLE>
<CAPTION>
Common Stock
---------------------------------------------------------
Class A Class B
Shares Shares Paid-in
issued at issued at capital
$.01 par $.01 par in excess of
value value Amount par value
----------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Balance February 3, 1996 3,326,296 2,959,017 $ 62,854 $ 29,970,606
Employee stock purchase
plan 2,628 - 26 12,610
Stock options exercised 2,625 - 26 11,818
---------- ---------- ---------- --------------
Balance May 4, 1996 3,331,549 2,959,017 $ 62,906 $ 29,995,034
---------- ---------- ---------- --------------
</TABLE>
-5-
<PAGE>
As of May 4, 1996, 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 2,809,924 Class A shares and 2,783,060 Class B
shares outstanding.
3. Earnings (Loss) Per Share
-------------------------
Earnings (loss) per share is based on the weighted average number of shares
outstanding, including the dilutive effect of stock options, if appropriate,
during each period. The Company's note receivable from DM Associates Limited
Partnership is secured by 1,220,000 shares of the Company's Class B Common
Stock, which shares are treated similar to treasury stock for earnings (loss)
per share purposes.
4. Seasonality
-----------
The results of operations for the first fiscal quarter ended May 4, 1996
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.
-6-
<PAGE>
5. Supplemental Consolidating Financial Information (unaudited)
------------------------------------------------------------
The Company's payment obligations under the Series A and Series B Senior
Subordinated Notes are guaranteed by certain of the Company's subsidiaries
("Guarantor Subsidiaries"). The Notes are fully and unconditionally guaranteed
on an unsecured, senior subordinated, joint and several basis by each of the
guarantor subsidiaries. The following supplemental financial information sets
forth, on an unconsolidated basis, balance sheet, statement of operations and
cash flow information for the Company ("Parent Company Only"), for the Guarantor
Subsidiaries and for Financial Opportunities Inc. ("FINOP"), the Company's non-
guarantor subsidiary. Separate complete financial statements of the respective
guarantor subsidiaries would not provide additional information which would be
useful in assessing the financial condition of the guarantor subsidiaries, and
are accordingly omitted.
Investment 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 investment in subsidiaries and intercompany balances and
transactions.
<TABLE>
<CAPTION>
Supplemental Consolidating Statement of Operations
May 4, 1996
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
-------- ------------ ----- ------------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues............................ $ 43 $141,155 $ 130 $ - $141,328
Cost of goods sold and expenses:
Cost of goods sold............... - 105,082 - - 105,082
Operating and administrative
expenses........................ 69 34,078 4 - 34,151
Interest expense................. 2,448 211 89 - 2,748
Equity earnings of subsidiaries.. (1,821) - - 1,821 -
------- ---------- ------ -------------- -----------
696 139,371 93 1,821 141,981
------- ---------- ------ -------------- -----------
Income (loss) before
income taxes.................. (653) 1,784 37 (1,821) (653)
Benefit from income taxes........... 260 - - - 260
------- ---------- ------ -------------- -----------
Net income (loss)................ $ (393) $ 1,784 $ 37 $ (1,821) $ (393)
======= ========== ====== ============== ===========
</TABLE>
-7-
<PAGE>
Supplemental Consolidating Balance Sheet
May 4, 1996
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
-------- ------------- ----- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash............................. $ 1,549 $ 8,716 $ 1,447 $ - $ 11,712
Short-term investment............ - - 1,514 - 1,514
Accounts and notes receivable.... - 9,400 658 - 10,058
Inventory........................ - 20,675 - - 20,675
Prepaid expenses and
other current assets............ 14 3,549 - - 3,563
Deferred income taxes............ 807 869 - - 1,676
-------- -------- ------- ----------- --------
Total current assets.......... 2,370 43,209 3,619 - 49,198
-------- -------- ------- ----------- --------
Assets Held For Sale................ - 8,685 - - 8,685
Property and Equipment, net......... - 80,809 - - 80,809
Intangible Assets, net.............. - 17,175 - - 17,175
Other Assets, net................... 2,373 3,658 2,227 - 8,258
Investment in and advances to
subsidiaries...................... 115,190 1,481 481 (117,152) -
-------- -------- ------- ----------- --------
Total assets........................ $119,933 $155,017 $ 6,327 $ (117,152) $164,125
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
Current Liabilities:
Current maturities of
long-term obligations........... $ 1,032 $ 498 $ - $ - $ 1,530
Accounts payable.................. 15,233 22,277 9 - 37,519
Accrued expenses.................. 1,074 9,244 - - 10,318
Accrued interest.................. 1,253 - 97 - 1,350
-------- -------- ------- ----------- --------
Total current
liabilities................... 18,592 32,019 106 - 50,717
-------- -------- ------- ----------- --------
Long-Term Obligations,
less current portion above.......... 92,272 2,641 4,230 - 99,143
Other Liabilities.................... 230 5,167 29 - 5,426
Stockholders' Equity................. 8,839 115,190 1,962 (117,152) 8,839
-------- -------- ------- ----------- --------
Total liabilities and
stockholders equity............... $119,933 $155,017 $ 6,327 $ (117,152) $164,125
======== ======== ======= =========== ========
</TABLE>
-8-
<PAGE>
Supplemental Consolidating Statement Cash Flows
May 4, 1996
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net cash provided (used) by operating
activities................................. $ (5,904) $ 9,753 $ 23 $ - $ 3,872
------------- ------------ ------------ ------------ ------------
Cash flow from investing activities:
Purchase of and increase in short-term
investments............................... - - (1,514) - (1,514)
Purchase of property and equipment........ - (3,951) - - (3,951)
Proceeds from sale of property,
equipment and assets held for sale........ - 889 - - 889
Investment in and advances to
subsidiaries.............................. 5,940 (5,734) (206) - -
Increase in long-term notes receivable. - (55) (243) - (298)
Proceeds from collection of
long-term receivables..................... - - 352 - 352
Increase in intangibles
and other assets.......................... - 57 (2) - (59)
------------- ------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities................................ 5,940 (8,908) (1,613) - (4,581)
------------- ------------ ------------ ------------ ------------
Cash flows from financing activities:
Increase in revolving loan, net............. 100 - - - 100
Repayment of long-term obligations.......... (350) - (7) - (357)
Issuance of common stock.................... 24 - - - 24
------------- ------------ ------------ ------------ ------------
Net cash used in financing
activities................................... (226) - (7) - (233)
------------- ------------ ------------ ------------ ------------
Increase (decrease) in cash................... (190) 845 (1,597) - (942)
Cash at beginning of year..................... 1,739 7,871 3,044 - 12,654
------------- ------------ ------------ ------------ ------------
Cash at end of first fiscal quarter............ $ 1,549 $ 8,716 $ 1,447 $ - $ 11,712
============= ============ ============ ============= ============
</TABLE>
Supplemental Consolidating Statement of Operations
April 29, 1995
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues...................................... $ 48 $ 133,264 $ 130 $ - $ 133,442
Cost of goods sold and expenses:
Cost of goods sold......................... - 98,170 - - 98,170
Operating and administrative
expenses.................................. 102 33,374 4 - 33,480
Interest expense........................... 2,097 169 95 - 2,361
Equity earnings of subsidiaries............ (1,582) - - 1,582 -
------------- ------------ ------------ ------------ ------------
617 131,713 99 1,582 134,011
------------- ------------ ------------ ------------ ------------
Income (loss) before
income taxes............................ (569) 1,551 31 (1,582) (569)
Benefit from income taxes..................... 240 - - - 240
------------- ------------ ------------ ------------ ------------
Net income (loss)......................... $ (329) $ 1,551 $ 31 $ (1,582) $ (329)
============= ============ ============ ============ ============
</TABLE>
-9-
<PAGE>
Supplemental Consolidating Balance Sheets
February 3, 1996
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash..................................... $ 1,739 $ 7,871 $ 3,044 $ - $ 12,654
Short-term investment.................... - - - - -
Accounts and notes receivable............ - 9,081 671 - 9,752
Inventory................................ - 20,928 - - 20,928
Prepaid expenses and
other current assets.................... 60 3,394 - - 3,454
Deferred income taxes.................... 859 1,810 - - 2,669
------------- ------------ ------------ ------------ ------------
Total current assets.................. 2,658 43,084 3,715 - 49,457
------------- ------------ ------------ ------------ ------------
Assets Held For Sale........................ - 8,685 - - 8,685
Property and Equipment, net................. - 80,387 - - 80,387
Intangible Assets, net...................... - 17,277 - - 17,277
Other Assets, net........................... 2,442 4,352 2,338 - 9,132
Investment in and advances to
subsidiaries.............................. 119,309 1,650 275 (121,234) -
------------- ------------ ------------ ------------ ------------
Total assets................................ $ 124,409 $ 155,435 $ 6,328 $ (121,234) $ 164,938
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of
long-term obligations.................. $ 932 $ 491 $ 7 $ - $ 1,430
Accounts payable......................... 15,919 14,875 9 - 30,803
Accrued expenses......................... 2,211 12,220 6 - 14,437
Accrued interest......................... 3,236 - 119 - 3,355
------------- ------------ ------------ ------------ ------------
Total current liabilities............. 22,298 27,586 141 - 50,025
------------- ------------ ------------ ------------ ------------
Long-Term Obligations,
less current portion above................. 92,573 2,648 4,230 - 99,451
Other Liabilities........................... 330 5,892 32 - 6,254
Stockholders' Equity........................ 9,208 119,309 1,925 (121,234) 9,208
------------- ------------ ------------ ------------ ------------
Total liabilities and
stockholders' equity......................
$ 124,409 $ 155,435 $ 6,328 $ (121,234) $ 164,938
============= ============ ============ ============ ============
</TABLE>
-10-
<PAGE>
Supplemental Consolidating Statement Cash Flows
April 29, 1995
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------------- ------------ ------------ ------------ ------------
(in thousand)
<S> <C> <C> <C> <C> <C>
Net cash (used) provided by operating
activities................................ $ (2,800) $ 6,159 $ 157 $ - $ 3,516
------------- ------------ ------------ ------------ ------------
Cash flow from investing activities
Purchase of and increase in short-term
investments.............................. - - (30) - (30)
Purchase of property and equipment........ - (3,703) - - (3,703)
Proceeds from sale of property,
equipment and assets held for sale....... - 9,300 - - 9,300
Investment in and advances to
subsidiaries............................. 8,202 (8,084) (118) - -
Proceeds from collection of
long-term receivables.................... - 40 - - 40
Decrease (increase) in intangibles
and other assets......................... (7) (85) (3) - (95)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
investing activities..................... 8,195 (2,532) (151) - 5,512
------------- ------------ ------------ ------------ ------------
Cash flows from financing activities:
Repayment of long-term obligations........ (255) (346) - - (601)
Issuance of common stock. 37 - - - 37
------------- ------------ ------------ ------------ ------------
Net cash used in financing activities...... (218) (346) - - (564)
------------- ------------ ------------ ------------ ------------
Increase in cash........................... 5,177 3,281 6 - 8,464
Cash at beginning of year.................. - 3,418 1,094 - 4,512
------------- ------------ ------------ ------------ ------------
Cash at end of first fiscal quarter........ $ 5,177 $ 6,699 $ 1,100 $ - $ 12,976
============= ============ ============ ============ ============
</TABLE>
-11-
<PAGE>
Dairy Mart Convenience Stores, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues
Revenues for the current year first fiscal quarter increased by $7.9
million from the prior year first fiscal quarter. A summary of revenues by
functional area for the comparative first fiscal quarter is as follows:
<TABLE>
<CAPTION>
FOR THE FIRST FISCAL
QUARTER ENDED
--------------------
May 4, April 29,
(in millions) 1996 1995
----------------------------------------------
<S> <C> <C>
Convenience stores $ 81.1 $ 79.0
Gasoline 59.6 53.8
Other 0.6 0.6
------ ------
Total $141.3 $133.4
====== ======
</TABLE>
Convenience store revenues increased $2.1 million, or 2.7%, in the
current year first fiscal quarter as compared to the prior year first fiscal
quarter due to an increase in comparable store sales of 2.3% partially offset by
a reduction of 65 underperforming stores. Although the reduction in stores
had a negative impact on revenues they did not have material adverse effect on
results of operations.
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 9.3 cents per gallon. Gasoline gallons
sold increased marginally in the current year first fiscal quarter as compared
to the corresponding period of the prior year despite the decrease in gasoline
facilities from 410 sites at the end of the first fiscal quarter of fiscal 1996
as compared to 376 sites at the end of the current year first fiscal quarter. On
a per location basis, comparable store gallons sold increased by 2.6% in the
current year first fiscal quarter as compared to the corresponding period of the
prior year. These gallonage increases were due to the further development of new
stores having a major gasoline presence and the remodeling and expansion of
gasoline facilities at certain existing locations.
-12-
<PAGE>
Gross Profits
Gross profits for the current year first fiscal quarter increased $0.9
million from the prior year first fiscal quarter. A summary of the gross
profits by functional area for the comparative first fiscal quarter is as
follows:
<TABLE>
<CAPTION>
FOR THE FIRST FISCAL
QUARTER ENDED
--------------------
May 4, April 29,
(in millions) 1996 1995
----------------------------------------------
<S> <C> <C>
Convenience stores $ 30.0 $ 29.6
Gasoline 5.6 5.1
Other 0.6 0.6
------ ------
Total $ 36.2 $ 35.3
====== ======
</TABLE>
Convenience store gross profits increased by $0.4 million in the
current year first fiscal quarter as compared to the prior year first fiscal
quarter due to increased marketing allowances and higher lottery commissions,
partially offset by the overall reduction in the number of stores, as described
above.
Gasoline gross profits increased by $0.5 million in the current year
first fiscal quarter as compared to the prior year first fiscal quarter
primarily due to an increase of 0.81 cents in gross margin per gallon.
Operating and Administrative Expenses
Operating and administrative expenses for the current year first
fiscal quarter increased $0.7 million from the prior year first fiscal quarter.
A summary of expenses by functional area for the comparative first fiscal
quarter is as follows:
<TABLE>
<CAPTION>
FOR THE FIRST FISCAL
QUARTER ENDED
--------------------
May 4, April 29,
(in millions) 1996 1995
----------------------------------------------
<S> <C> <C>
Convenience stores $ 24.1 $ 23.7
Gasoline 3.6 3.0
Administrative and
Other 6.5 6.8
------ ------
Total $ 34.2 $ 33.5
====== ======
</TABLE>
Convenience store operating expenses increased $0.4 million in the
current year first fiscal quarter as compared to the prior year first fiscal
quarter due to higher labor and maintenance costs on a per store basis,
partially offset by the closure or sale of underperforming stores, as described
above. The increase
-13-
<PAGE>
in maintenance costs was primarily attributable to snow removal expenses caused
by severe weather conditions in certain geographic areas in which the Company
operates.
Gasoline operating expenses increased $0.6 million in the current year
first fiscal quarter as compared to the prior year first fiscal quarter due to
the operation of higher volume new or remodeled and expanded facilities, as
described above.
Administrative and other expenses decreased by $0.3 million in the
current year first fiscal quarter as compared to the corresponding period of the
prior year due to a reduced level of administrative support staff and a decrease
in the Company's workers' compensation and commercial liability insurance
expense attributable to improved specific claims experience.
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
borrowing associated with the issuance of $13.5 million principal amount of
10.25% senior subordinated notes (Series B) in December 1995.
The effective tax rate for the Company was a benefit of 40% and 42%
for the current year first fiscal quarter and for the prior year first fiscal
quarter, respectively. The Company provides for income taxes at the effective
rate expected to be incurred for the entire fiscal year.
-14-
<PAGE>
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 obligations. The current year
capital expenditures of the Company were primarily funded by the excess
operating cash flow and by the cash generated from the sale of certain assets.
In addition, the Company has a revolving line of credit available to address the
timing of certain working capital and capital expenditure disbursements.
Management believes that the cash flow from operations and the proceeds from the
sale of certain assets, supplemented by the availability of a revolving line of
credit, will provide the Company with adequate liquidity and the capital
necessary to achieve its expansion initiatives in its retail operations (see
Capital Expenditures).
Cash Provided by Operating Activities
During the current year first fiscal quarter, net cash generated by
operations was $0.4 million higher than the prior year first fiscal quarter as a
result of the net change in certain working capital and other balance sheet
accounts. The changes in working capital and other balance sheet accounts in
the current year first fiscal quarter were primarily related to accounts
payable, inventory and other assets and liabilities, net of the change in
deferred income taxes. The increase in accounts payable in the current year
first fiscal quarter was primarily due to the timing of payments to the issuers
of money orders, as described below. The cash flow generated from inventory
decreased due to a lower number of store closures or sales in the current year
first fiscal quarter as compared to the corresponding period of the prior year.
The decrease in other assets and liabilities, net of the change in deferred
income taxes, in the current year first fiscal quarter was due to the decrease
in various accrued expenses related primarily to lower legal and professional
fee accruals and workers' compensation and commercial liability insurance
reserves.
During the current year first fiscal quarter, the Company paid its trade
-15-
<PAGE>
payables in an average of 30 days, compared to 27 days for the fiscal year ended
February 3, 1996 and 26 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 remittance of such funds to the issuers
of the money orders. As of April 30, 1996, the Company changed its money order
issuer and due to the timing of the settlement with the former issuer, the
combined obligation to the issuers of the money orders was $12.4 million as of
May 4, 1996. As of February 3, 1996, the amount due to the former issuer of
money orders was $7.6 million. In May 1996, the Company settled its remittance
obligation with the former money order issuer, which resulted in the release of
an outstanding letter of credit in the amount of $7.5 million. The Company is
not required to issue a letter of credit to the new issuer of money orders.
Cash Used by Financing Activities
Cash used by financing activities decreased by $0.3 million in the current
year first fiscal quarter as compared to the corresponding period of the prior
year primarily due to lower debt service requirements.
During the current year first fiscal quarter, the Company entered into a
new senior revolving credit facility. Under the terms of the new $30.0 million
senior revolving credit facility, the Company has initially available up to
$20.0 million in aggregate extensions of credit with $15.0 million available for
the issuance of letters of credit. The Company may utilize the new revolving
credit facility as needed for working capital and general corporate purposes.
As of May 4, 1996, the Company had $0.1 million outstanding on the revolving
credit facility and had $14.0 million in outstanding letters of credit, which
amount was subsequently reduced by the $7.5 million letter of credit previously
provided to the issuer of money orders, as described above.
Cash Used by Investing Activities
Net cash used by investing activities increased by $10.1 million in the
current year first fiscal quarter as compared to the corresponding period of the
prior year due to reduced cash flows generated from the sale of certain assets,
-16-
<PAGE>
including the sale and leaseback of existing store properties. In addition, the
Company's investing activities were increased due to the purchase in the current
year first fiscal quarter of a U.S. Treasury Bill.
Capital Expenditures
The Company anticipates spending approximately $25 million for capital
expenditures in fiscal 1997 by purchasing store and gasoline equipment for new
stores, remodeling approximately 40 to 50 existing stores, installing fast food
concepts, such as Taco Bell(R), Subway(R) and Pizza Hut(R) in the new and
remodeled stores, installing store automation in a number of locations,
significantly upgrading certain gasoline locations to provide credit card
readers at the pump, improve outdoor lighting and to meet current environmental
standards (see "Environmental Responsibility"). These capital expenditures will
be funded primarily by cash generated from operations and from cash generated by
the disposition of assets held for sale as of May 4, 1996, supplemented by the
availability of the Company's senior revolving line of credit. The Company
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 May 4, 1996, the
Company had recorded an accrual of $1,650,000 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 May 4, 1996, the Company has
recorded a net state trust fund reimbursement receivable of $1,056,000
(representing a gross receivable of $1,638,000 less an allowance of $582,000).
Although there are no assurances as to the timing, the Company believes that it
is probable that reimbursements from state environmental trust funds will be
received within one to four years from the payment of the reimbursable
assessment and remediation
-17-
<PAGE>
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 $10.0 to $12.0 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.
-18-
<PAGE>
PART II
Other Information
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.) 8-K Reports:
During the first quarter of fiscal 1997, the Company filed no reports on
Form 8-K.
<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.
/s/ Gregory G. Landry
-----------------------------------
Date: June 18, 1996 Gregory G. Landry
Executive Vice President
Chief Financial Officer
<PAGE>
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 (LOSS) PER SHARE
FOR THE FIRST FISCAL
QUARTER ENDED
---------------------
<TABLE>
<CAPTION>
May 4, April 29,
1996 1995
---------- ---------
<S> <C> <C>
Net earnings (loss)................. $ (393) $ (329)
---------- ---------
Weighted average shares............. 5,591 5,564
Dilutive options.................... - -
Effect of DM Associates stock....... (1,220) -
---------- ---------
Total shares for EPS purposes....... $ 4,371 $ 5,564
- ------------------------------- ---------- ---------
Net income (loss) per share......... $ (0.09) $ (0.06)
===========================================================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<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-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> MAY-04-1996
<CASH> 11,712
<SECURITIES> 1,514
<RECEIVABLES> 11,588
<ALLOWANCES> 1,530
<INVENTORY> 20,675
<CURRENT-ASSETS> 49,198
<PP&E> 120,039
<DEPRECIATION> 39,230
<TOTAL-ASSETS> 164,125
<CURRENT-LIABILITIES> 50,717
<BONDS> 99,143
0
0
<COMMON> 63
<OTHER-SE> 8,839
<TOTAL-LIABILITY-AND-EQUITY> 164,125
<SALES> 0
<TOTAL-REVENUES> 141,328
<CGS> 105,082
<TOTAL-COSTS> 139,233
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,748
<INCOME-PRETAX> (653)
<INCOME-TAX> 260
<INCOME-CONTINUING> (393)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (393)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
