<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended JULY 29, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-12497
------------------------------
DAIRY MART CONVENIENCE STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2497894
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE DAIRY MART WAY, 300 EXECUTIVE PARKWAY WEST, HUDSON, OHIO 44236
(Address of principal executive offices)
Registrant's telephone number, including area code (330) 342-6600
-----------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
SHARES OF COMMON STOCK OUTSTANDING SEPTEMBER 6, 2000 - 4,979,813
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<PAGE> 2
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 FISCAL FOR THE TWO FISCAL
QUARTER ENDED QUARTERS ENDED
------------- --------------
JULY 29, JULY 31, JULY 29, JULY 31,
2000 1999 2000 1999
---- ---- ---- ----
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ................................ $ 195,810 $ 155,550 $ 368,744 $ 281,903
Cost of goods sold and expenses:
Cost of goods sold .................... 153,943 117,079 291,353 210,034
Operating and administrative expenses.. 38,414 33,560 76,151 63,914
Interest expense ...................... 3,295 2,697 6,422 5,546
--------- --------- --------- ---------
195,652 153,336 373,926 279,494
--------- --------- --------- ---------
Income (loss) before income taxes ....... 158 2,214 (5,182) 2,409
Benefit from (provision for) income
taxes ............................. (64) (1,058) 2,394 (1,155)
--------- --------- --------- ---------
Net income (loss) ..................... $ 94 $ 1,156 $ (2,788) $ 1,254
------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share - Basic ....... $ 0.02 $ 0.24 $ (0.57) $ 0.26
Earnings (loss) per share - Diluted ..... $ 0.02 $ 0.23 $ (0.57) $ 0.25
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 3
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
JULY 29, 2000 JANUARY 29, 2000
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash ...................................................... $ 5,194 $ 7,702
Short-term investments .................................... 2,882 155
Accounts and notes receivable ............................. 20,901 20,499
Inventory ................................................. 29,320 34,804
Prepaid expenses and other current assets ................. 2,113 1,704
Deferred income taxes ..................................... 1,636 2,393
--------- ---------
Total current assets ................................... 62,046 67,257
Assets held for sale .......................................... 1,646 2,392
Property and equipment, net ................................... 113,359 110,946
Intangible assets, net ........................................ 14,188 14,582
Other assets, net ............................................. 15,497 14,622
--------- ---------
Total assets .................................................. $ 206,736 $ 209,799
----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations ............... $ 3,403 $ 3,091
Accounts payable .......................................... 50,069 50,916
Accrued expenses .......................................... 9,193 11,651
Accrued interest .......................................... 4,008 3,490
--------- ---------
Total current liabilities ............................... 66,673 69,148
Long-term obligations, less current portion above ............. 122,295 120,044
Other liabilities ............................................. 13,502 13,738
Stockholders' equity:
Common stock .............................................. 70 69
Paid-in capital ........................................... 32,291 32,107
Retained deficit .......................................... (13,090) (10,302)
Treasury stock, at cost ................................... (15,005) (15,005)
--------- ---------
Total stockholders' equity ............................. 4,266 6,869
--------- ---------
Total liabilities and stockholders' equity .................... $ 206,736 $ 209,799
----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 4
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
FOR THE TWO FISCAL
QUARTERS ENDED
JULY 29, JULY 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .......................................... $ (2,788) $ 1,254
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization .............................. 7,132 5,716
Change in deferred income taxes ............................ (2,691) 1,155
(Gain) loss on disposition of properties, net .............. 219 (1,516)
Net change in assets and liabilities:
Accounts and notes receivable ............................ (84) (3,210)
Inventory ................................................ 5,484 (3,468)
Accounts payable ......................................... (847) 7,186
Accrued interest ......................................... 518 18
Other assets and liabilities ............................. (1,178) (257)
----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ...................... 5,765 6,878
----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of short-term investments .......................... (2,727) (421)
Purchase of property and equipment .......................... (13,002) (10,065)
Net proceeds from sale of property, equipment and
assets held for sale ...................................... 4,816 5,887
----------------------------------------------------------------------------------------------------------
Net cash used in investing activities .......................... (10,913) (4,599)
----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in revolving loan, net ............................. 1,680 100
Borrowings of long-term obligations ......................... 2,266 --
Repayment of long-term obligations .......................... (1,491) (3,380)
Issuance of common stock .................................... 185 28
----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities ............ 2,640 (3,252)
----------------------------------------------------------------------------------------------------------
Decrease in cash ............................................... (2,508) (973)
Cash at beginning of fiscal year ............................... 7,702 3,367
----------------------------------------------------------------------------------------------------------
Cash at end of second fiscal quarter ........................... $ 5,194 $ 2,394
----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 5
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 29, 2000
(Unaudited)
The unaudited consolidated financial statements for Dairy Mart Convenience
Stores, Inc. and Subsidiaries ("Dairy Mart" or the "Company") 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. These financial statements should 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 for the
fiscal year ended January 29, 2000.
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, 2000 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 two fiscal quarters
ended July 29, 2000 follows:
<TABLE>
<CAPTION>
COMMON STOCK ISSUED PAID-IN CAPITAL IN
AT EXCESS OF
$.01 PAR VALUE AMOUNT PAR VALUE
-------------- ------ ---------
<S> <C> <C> <C>
Balance January 29, 2000 6,948,556 $69,477 $32,106,895
Employee stock purchase plan 12,935 129 32,761
Stock options exercised 11,875 119 34,256
Stock awards 43,000 430 117,820
--------- ------- -----------
Balance July 29, 2000 7,016,366 $70,155 $32,291,732
--------- ------- -----------
</TABLE>
As of July 29, 2000, there were 2,057,178 shares of Common Stock held as
treasury stock at an aggregate cost of $15,004,847 leaving 4,959,188 shares
outstanding.
-5-
<PAGE> 6
3. Earnings (Loss) Per Share
Earnings (loss) per share is based on the weighted average number of shares
outstanding, including the dilutive effect of stock options, if appropriate,
during each period. The weighted average number of shares used in the
calculation of basic earnings per share were 4,918,229 and 4,861,686 for the
second fiscal quarters ended July 29, 2000 and July 31, 1999, respectively, and
4,906,912 and 4,858,413 for the first two fiscal quarters ended July 29, 2000
and July 31, 1999, respectively. The weighted average number of shares used in
the calculation of diluted earnings per share were 5,138,783 and 4,946,245 for
the second fiscal quarters ended July 29, 2000 and July 31, 1999, respectively,
and 4,906,912 and 4,918,712 for the first two fiscal quarters ended July 29,
2000 and July 31, 1999, respectively.
4. Seasonality
The results of operations for the first two fiscal quarters ended July 29, 2000
are not necessarily indicative of results to be expected for the full fiscal
year. The convenience store industry in Dairy Mart's marketing areas experiences
a higher percentage of revenues and profit margins during the summer months than
during the winter months. Historically, Dairy Mart has achieved more favorable
financial results in its second and third fiscal quarters, as compared to its
first and fourth fiscal quarters.
5. Sale of Former Headquarters Facility
During the first quarter of fiscal year 2000, Dairy Mart sold its former
headquarters facility in Enfield, Connecticut for $5.3 million. As a result,
Dairy Mart recognized an $858,000 pre-tax gain on the sale. A portion of the
sale proceeds were used to repay in full a related mortgage of $2.5 million.
-6-
<PAGE> 7
6. Supplemental Consolidating Financial Information (unaudited)
The Company's payment obligations under the Series A and Series B Senior
Subordinated Notes (the "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 a consolidating basis, statements of operations, balance sheets
and cash flow information for Dairy Mart Convenience Stores, Inc. ("Parent
Company"), for the Guarantor Subsidiaries and for Financial Opportunities, Inc.
("FINOP"), 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 omitted accordingly.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method for purposes of the supplemental consolidating presentation.
Earnings of the subsidiaries are, therefore, reflected in the Parent Company's
investment accounts and earnings. The principal elimination entries eliminate
the Parent Company's investments in subsidiaries and inter-company balances and
transactions.
-7-
<PAGE> 8
Supplemental Consolidating Statement of Operations
for the Two Fiscal Quarters Ended July 29, 2000
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------- ------------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .......................................... $ 171 $ 368,461 $ 112 $ -- $ 368,744
Cost of goods sold and expenses:
Cost of goods sold .............................. -- 291,353 -- -- 291,353
Operating and administrative expenses ........... 171 75,970 10 -- 76,151
Interest expense ................................ 5,957 343 122 -- 6,422
------------------------------------------------------------------------
6,128 367,666 132 -- 373,926
------------------------------------------------------------------------
Income (loss) before income taxes
and equity in income (loss) of
consolidated subsidiaries ...................... (5,957) 795 (20) -- (5,182)
Benefit from (provision for)
income taxes .................................. 2,740 (355) 9 -- 2,394
------------------------------------------------------------------------
Income (loss) before equity in
income of consolidated subsidiaries ........... (3,217) 440 (11) -- (2,788)
Equity in income (loss) of consolidated
subsidiaries .................................. 429 (11) -- (418) --
--------- --------- ----- --------- ---------
Net income (loss) ............................. $ (2,788) $ 429 $ (11) $ (418) $ (2,788)
===================================================================================================================================
</TABLE>
-8-
<PAGE> 9
Supplemental Consolidating Balance Sheet
as of July 29, 2000
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------- ------------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash ........................................... $ 2,617 $ 2,465 $ 112 $ -- $ 5,194
Short-term investments ......................... -- -- 2,882 -- 2,882
Accounts and notes receivable .................. 3,233 17,069 599 -- 20,901
Inventory ...................................... -- 29,320 -- -- 29,320
Prepaid expenses and other
current assets ............................... 32 2,081 -- -- 2,113
Deferred income taxes .......................... -- 1,636 -- -- 1,636
--------------------------------------------------------------------
Total current assets ......................... 5,882 52,571 3,593 -- 62,046
Assets held for sale .............................. -- 1,646 -- 1,646
Property and equipment, net ....................... -- 113,359 -- -- 113,359
Intangible assets, net ............................ -- 14,188 -- -- 14,188
Other assets, net ................................. 1,995 12,438 1,064 -- 15,497
Investment in and advances to
subsidiaries ................................... 137,859 1,350 566 (139,775) --
--------------------------------------------------------------------
Total assets ...................................... $145,736 $195,552 $5,223 $(139,775) $206,736
------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations .................................. $ 2,491 $ 912 $ -- $ -- $ 3,403
Accounts payable ............................... 30,018 20,051 -- -- 50,069
Accrued expenses ............................... 95 9,052 46 -- 9,193
Accrued interest ............................... 3,877 -- 131 -- 4,008
--------------------------------------------------------------------
Total current liabilities .................... 36,481 30,015 177 -- 66,673
--------------------------------------------------------------------
Long-term obligations, less
Current portion above .......................... 104,989 14,176 3,130 -- 122,295
Other liabilities ................................. -- 13,502 -- -- 13,502
Stockholders' equity .............................. 4,266 137,859 1,916 (139,775) 4,266
--------------------------------------------------------------------
Total liabilities and
stockholders' equity ........................... $145,736 $195,552 $5,223 $(139,775) $206,736
==============================================================================================================================
</TABLE>
-9-
<PAGE> 10
Supplemental Consolidating Statement of Cash Flows
for the Two Fiscal Quarters Ended July 29, 2000
(in thousands)
<TABLE>
<CAPTION>
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
------- ------------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash (used in) provided by operating
activities ................................. $ (126) $ 5,643 $ 248 $ -- $ 5,765
------------------------------------------------------------------
Cash flows from investing activities:
Purchase of and change in short-term
Investments ..................................... -- 155 (2,882) -- (2,727)
Purchase of property and equipment ................ -- (13,002) -- -- (13,002)
Proceeds from sale of property,
Equipment and assets held for sale .............. -- 4,816 -- -- 4,816
Investment in and advances to
subsidiaries .................................... 771 (479) (292) -- --
------------------------------------------------------------------
Net cash provided by (used in)
investing activities ............................ 771 (8,510) (3,174) -- (10,913)
------------------------------------------------------------------
Cash flows from financing activities:
Borrowings of long-term obligations ............... -- 1,680 -- -- 1,680
Increase in revolving loan, net ................... 2,266 -- -- -- 2,266
Repayment of long-term obligations ................ (685) (806) -- -- (1,491)
Issuance of common stock .......................... 185 -- -- -- 185
------------------------------------------------------------------
Net cash provided by
financing activities .............................. 1,766 874 -- -- 2,640
------------------------------------------------------------------
Increase (decrease) in cash ......................... 2,411 (1,993) (2,926) -- (2,508)
Cash at beginning of fiscal year .................... 206 4,458 3,038 -- 7,702
------------------------------------------------------------------
Cash at end of second fiscal quarter ................ $ 2,617 $ 2,465 $ 112 $ -- $ 5,194
=============================================================================================================================
</TABLE>
-10-
<PAGE> 11
Supplemental Consolidating Statement of Operations
for the Two Fiscal Quarters Ended July 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------- ------------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues .......................................... $ 116 $ 281,624 $ 163 $ -- $ 281,903
Cost of goods sold and expenses:
Cost of goods sold .............................. -- 210,034 -- -- 210,034
Operating and administrative expenses ........... 152 63,751 11 -- 63,914
Interest expense ................................ 4,981 453 112 -- 5,546
---------------------------------------------------------------------
5,133 274,238 123 -- 279,494
---------------------------------------------------------------------
Income (loss) before income taxes
and equity in income (loss) of
consolidated subsidiaries ...................... (5,017) 7,386 40 -- 2,409
Benefit from (provision for)
income taxes .................................. 2,508 (3,643) (20) -- (1,155)
---------------------------------------------------------------------
Income (loss) before equity in
income of consolidated subsidiaries ........... (2,509) 3,743 20 -- 1,254
Equity in income (loss) of consolidated
subsidiaries .................................... 3,763 20 -- (3,783) --
---------------------------------------------------------------------
Net income (loss) ............................. $ 1,254 $ 3,763 $ 20 $ (3,783) $ 1,254
==============================================================================================================================
</TABLE>
-11-
<PAGE> 12
Supplemental Consolidating Balance Sheet
As Of January 29, 2000
(In Thousands)
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------- ------------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash......................................... $ 206 $ 4,458 $3,038 $ -- $ 7,702
Short-term investments ....................... -- 155 -- -- 155
Accounts and notes receivable, net ........... 3,526 16,199 774 -- 20,499
Inventory .................................... -- 34,804 -- -- 34,804
Prepaid expenses and other
current assets .............................. 71 1,633 -- -- 1,704
Deferred income taxes ........................ -- 2,393 -- -- 2,393
------------------------------------------------------------------------
Total current assets ....................... 3,803 59,642 3,812 -- 67,257
Assets held for sale ............................ -- 2,392 -- -- 2,392
Property and equipment, net ..................... -- 110,946 -- -- 110,946
Intangible assets, net .......................... -- 14,582 -- -- 14,582
Other assets, net ............................... 1,820 11,735 1,067 -- 14,622
Investment in and advances to
subsidiaries ................................... 140,164 1,638 301 (142,103) --
------------------------------------------------------------------------
Total assets ............................... $145,787 $200,935 $5,180 $(142,103) $209,799
---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations ............................... $ 2,008 $ 1,083 $ -- $ -- $ 3,091
Accounts payable ............................. 28,056 22,860 -- -- 50,916
Accrued expenses ............................. 119 11,493 39 -- 11,651
Accrued interest ............................. 3,417 1 72 -- 3,490
------------------------------------------------------------------------
Total current liabilities .................. 33,600 35,437 111 -- 69,148
Long-term obligations, less
current portion above .......................... 105,318 11,596 3,130 -- 120,044
Other liabilities ............................... -- 13,738 -- -- 13,738
Stockholders' equity ............................ 6,869 140,164 1,939 (142,103) 6,869
------------------------------------------------------------------------
Total liabilities and
stockholders' equity ........................... $145,787 $200,935 $5,180 $(142,103) $209,799
=================================================================================================================================
</TABLE>
-12-
<PAGE> 13
Supplemental Consolidating Statement of Cash Flows
for the Two Fiscal Quarters Ended July 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------- ------------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash (used in) provided by operating
activities ................................... $ (569) $ 7,312 $ 135 $ -- $ 6,878
------------------------------------------------------------------------
Cash flows from investing activities:
Decrease in short-term
investments .............................. -- (371) (50) -- (421)
Purchase of property and equipment ......... -- (10,065) -- -- (10,065)
Net proceeds from sale of property,
equipment and assets held for sale ....... -- 5,887 -- -- 5,887
Investment in and (advances to)
subsidiaries ............................. 3,259 (3,027) (232) -- --
------------------------------------------------------------------------
Net cash provided by (used in)
investing activities ....................... 3,259 (7,576) (282) -- (4,599)
------------------------------------------------------------------------
Cash flows from financing activities:
Increase in revolving loan, net ............ 100 -- -- -- 100
Repayment of long-term obligations ......... (3,273) (107) -- -- (3,380)
Issuance of common stock ................... 28 -- -- -- 28
------------------------------------------------------------------------
Net cash (used in) provided by
financing activities ......................... (3,145) (107) -- -- (3,252)
------------------------------------------------------------------------
(Decrease) increase in cash .................. (455) (371) (147) -- (973)
Cash at beginning of fiscal year ............. 519 2,848 -- -- 3,367
------------------------------------------------------------------------
Cash at end of second fiscal quarter ......... $ 64 $ 2,477 $(147) $ -- $ 2,394
==============================================================================================================================
</TABLE>
-13-
<PAGE> 14
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
SECOND QUARTER FISCAL YEAR 2001 RESULTS COMPARED TO SECOND QUARTER FISCAL YEAR
2000 RESULTS
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE TWO FISCAL
QUARTER ENDED QUARTERS ENDED
------------- --------------
JULY 29, JULY 31, JULY 29, JULY 31,
2000 1999 2000 1999
---- ---- ---- ----
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ............................... $ 195,810 $ 155,550 $ 368,744 $ 281,903
Cost of goods sold and expenses: .......
Cost of goods sold ................... 153,943 117,079 291,353 210,034
Operating and administrative expenses. 38,414 33,560 76,151 63,914
Interest expense ..................... 3,295 2,697 6,422 5,546
--------- --------- --------- ---------
195,652 153,336 373,926 279,494
--------- --------- --------- ---------
Income (loss) before income taxes ...... 158 2,214 (5,182) 2,409
Benefit from (provision for) income
taxes ............................. (64) (1,058) 2,394 (1,155)
--------- --------- --------- ---------
Net income (loss) .................... $ 94 $ 1,156 $ (2,788) $ 1,254
-----------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share - Basic ...... $ 0.02 $ 0.24 $ (0.57) $ 0.26
Earnings (loss) per share - Diluted .... $ 0.02 $ 0.23 $ (0.57) $ 0.25
</TABLE>
-14-
<PAGE> 15
REVENUES
Revenues for the first two fiscal quarters of the current year increased $86.8
million compared to the same period for the prior year. Revenues for the second
quarter increased $40.2 million compared to the same period for the prior year.
A summary of revenues by functional area is shown below:
<TABLE>
<CAPTION>
For the Second Fiscal For the Two Fiscal
Quarter Ended Quarters Ended
-------------------------- -------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
-------- --------- -------- --------
(in millions)
<S> <C> <C> <C> <C>
Convenience Stores $ 101.3 $ 96.7 $ 190.8 $ 175.9
Gasoline 94.2 58.7 177.3 105.5
Other .3 .2 .6 .5
-------- -------- -------- --------
Total $ 195.8 $ 155.6 $ 368.7 $ 281.9
======== ======== ======== ========
</TABLE>
Convenience store revenues increased $14.9 million or 8.5% in the current year
first two quarters compared to the prior year first two quarters and convenience
store revenues increased $4.6 million, or 4.8% in the current year second
quarter. This increase was the result of a 5.5% increase in comparable corporate
store merchandise sales in the current year first two quarters compared to the
prior year first two quarters, a 1.5% increase in comparable convenience store
merchandise sales in the current year second quarter as compared to the prior
year second quarter, and the opening of nineteen new stores during the prior
four quarters, partially offset by the closure and/or sale of sixty-one under
performing stores during the same period.
Gasoline revenues increased $71.8 million in the current year first two quarters
compared to the prior year as a result of an increase of 20.7 million gallons of
gasoline sold and a 41.4 cents per gallon increase in the average retail selling
price of gasoline. Gasoline revenues increased $35.5 million in the current year
second quarter compared to the prior year as a result of an increase of 8.0
million gallons of gasoline sold and a 44.0 cents per gallon increase in the
average retail selling price of gasoline.
-15-
<PAGE> 16
GROSS PROFIT
Gross profit increased $5.7 million for the first two quarters and $3.4 million
for the second quarter. A summary of gross profit by functional area is shown
below:
<TABLE>
<CAPTION>
For the Second Fiscal For the Two Fiscal
Quarter Ended Quarters Ended
------------------------- -------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
------- -------- ------- --------
(in millions)
<S> <C> <C> <C> <C>
Convenience Stores $ 34.3 $ 32.9 $ 64.5 $ 60.6
Gasoline 7.3 5.4 12.5 10.8
Other .3 .2 .6 .5
------- ------- ------- -------
Total $ 41.9 $ 38.5 $ 77.6 $ 71.9
======= ======= ======= =======
</TABLE>
Convenience store gross profits increased by $3.9 million or 6.4% for the
current year first two quarters compared to the prior year, and by $1.4 million
or 4.2% in the current year second quarter. The increase was attributable to the
increase in convenience store sales, as described above. The convenience store
gross profit margin percentage decreased during the current year first two
quarters compared to the prior year. This decrease was primarily attributable to
an increase in the wholesale cost of cigarettes.
Gasoline gross profits increased $1.7 million for the current year first two
quarters compared to the prior year first two quarters and increased $1.9
million in the current year second quarter. The increase for the current year
first two quarters was primarily attributable to an increase in gallons sold, as
described above. The increase for the current year second quarter was primarily
attributable to an increase in gallons sold, as described above, and a 1.93
cents per gallon increase in the gasoline gross profit margin as compared to the
same period of the prior year.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses increased $12.3 million for the current
year first two quarters compared to the prior year first two quarters, and
increased $4.8 million in the current year second quarter. A summary of
operating and administrative expenses is shown below:
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<TABLE>
<CAPTION>
For the Second Fiscal For the Two Fiscal
Quarter Ended Quarters Ended
----------------------- ------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
------- ------- ------- -------
(in millions)
<S> <C> <C> <C> <C>
Operating Expenses $ 30.9 $ 27.7 $ 61.4 $ 53.6
General & Administrative
Expenses 7.5 5.9 14.8 10.3
------- ------- ------- -------
Total $ 38.4 $ 33.6 $ 76.2 $ 63.9
======= ======= ======= =======
</TABLE>
Operating expenses increased as a result of higher store wages, equipment rental
expenses and occupancy costs. General and administrative expenses were higher
due to increased costs for wages, employee benefits and commercial insurance. In
addition, both operating and general and administrative expenses were impacted
by costs associated with the closing or selling of 61 non-strategic or
underperforming stores during the first two quarters of the current year. The
prior year first two quarters results include a pre-tax gain of $1.3 million
recognized on the sale of certain assets. The prior year first two quarters
expenses of $63.9 million are net of the $1.3 million gain.
INTEREST EXPENSE, INFLATION AND TAXES
Interest expense increased $.9 million for the current year first two quarters
compared to the prior year first two quarters, and increased $.6 million in the
current year second quarter as a result of increased interest rates and higher
average borrowings under the revolving credit facility and capital leases.
Inflation did not have a material effect on the Company's revenues, gross
profit, and operating and administrative expenses in the first two quarters of
fiscal 2001 and 2000 other than the increases in the cost of cigarettes,
gasoline and wages in fiscal year 2001, as identified above.
The effective tax rate for the Company was a benefit of 46% and a provision of
48% for the first two quarters of fiscal years 2001 and 2000, respectively. The
effective tax rates are higher than the statutory rates due to nondeductible
amortization of acquired assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $30.0 million senior revolving credit facility available to
address the seasonality of operations and the timing of capital expenditures and
certain working capital disbursements. The Company can issue up to $15.0 million
of letters of credit under the facility. The facility is due and payable on
April 30, 2003. As of July 29, 2000, the Company had $16.6 million in
outstanding revolving credit loans and had $5.4 million in outstanding letters
of credit under the facility.
At July 29, 2000, the Company had $31.6 million available under forward
commitments that provide real estate sale/leaseback or mortgage financing on a
long-term basis to fund the real estate acquisitions associated with its new
store development program. The Company accounts for these real estate
transactions as either operating leases or mortgages.
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The capital expenditures of the Company are generally funded by the excess
operating cash flow available after debt service, the proceeds from the sale of
property, equipment and assets held for sale and other forms of long-term asset
financing or leasing including sale/leaseback transactions.
CASH FLOW FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $5.8 million in the current year
first two fiscal quarters compared to $6.9 million in the same period of the
prior year. This change was primarily the result of decreased earnings of the
Company and an increase in deferred taxes, offset by reductions in inventory and
accounts and notes receivable.
CASH USED BY INVESTING ACTIVITIES
Net cash used in investing activities was $10.9 million in the current year
first two fiscal quarters compared to $4.6 million in the same period of the
prior year. The increase in cash used was primarily the result of increased
purchases of short-term investments, property and equipment and lower proceeds
from the sale of property, equipment and assets held for sale.
CASH PROVIDED BY FINANCING ACTIVITIES
Net cash provided by financing activities was $2.6 million for the current year
first two quarters compared to net cash used of $3.3 million for the same period
of the prior year. The increase was primarily the result of higher borrowings
under the Company's revolving credit facility and fixed asset financing and
lowered debt repayments in the first two fiscal quarters of the current year.
Prior year debt repayments included repayment of a mortgage obligation on the
Company's former headquarters facility.
CAPITAL EXPENDITURES
The Company had previously disclosed that it anticipated spending approximately
$15.3 million, net of sale leaseback transactions, for capital expenditures in
fiscal year 2001 by purchasing store and gasoline equipment for up to 15 new
stores, remodeling a certain number of existing store and gasoline locations,
and implementing or upgrading office and store technology. During the first two
quarters of the current fiscal year, the Company opened 7 new locations. In May,
2000 the Company announced that it retained an investment banker to explore all
the Company's strategic alternatives, including the possible sale of the
Company. As a result, the Company expects that the balance of the new store
openings and related capital expenditures will be deferred pending the results
of this evaluation of strategic alternatives.
ENVIRONMENTAL RESPONSIBILITY
The Company's financial statements are prepared in conformity with the American
Institute of Certified Public Accountants' Statement of Position ("SOP") No.
96-1, "Environmental Remediation Liabilities," which provides guidance on
specific accounting issues that are present in the recognition, measurement and
disclosure of environmental remediation liabilities. The Company accrues its
estimate of all costs to be incurred for assessment and remediation with respect
to release of regulated substances from existing and previously operated retail
gasoline facilities.
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<PAGE> 19
SIGNIFICANT EVENTS
In May, 2000, the Company retained Morgan Keegan & Company, Inc. to explore all
the Company's strategic alternatives, including the possible sale of the
Company. Management makes no representations as to the likely outcome of any
strategic alternatives.
BUSINESS OUTLOOK
This Form 10-Q contains forward-looking statements within the meaning of the
"safe-harbor" provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are generally identified by the words
"anticipate", "believe", "expect", "plan", "intend", "should", "estimate", and
similar expressions. These forward-looking statements include statements
relating to the Company's plans and objectives to upgrade and remodel store
locations, to build new stores, to sell or lease certain assets, to explore
strategic alternatives, including the possible sale of the Company, as well as
the availability of supplies of gasoline, the estimated costs for environmental
remediation and the sufficiency of the Company's liquidity and the availability
of capital. Such statements are based on management's current expectations and
are subject to a number of factors and uncertainties that could cause actual
results to differ materially from those described in the forward-looking
statements. Such factors and uncertainties include, but are not limited to, the
availability of financing and additional capital to fund the Company's business
strategy on acceptable terms, if at all, the future profitability of the
Company, the availability of desirable store locations, the Company's ability to
negotiate and enter into lease, acquisition and supply agreements on acceptable
terms, competition and pricing in the Company's market area, volatility in the
wholesale gasoline market due to supply interruptions, modifications of
environmental regulatory requirements, detection of unanticipated environmental
conditions, the timing of reimbursements from state environmental trust funds,
the Company's ability to manage its long-term indebtedness, weather conditions,
the favorable resolution of certain pending and future litigation, general
economic conditions and other factors disclosed in this Form 10-Q and the
Company's other filings with the Securities and Exchange Commission. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
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<PAGE> 20
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any instruments that it believes would be materially
affected by any future interest rate changes.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a defendant in an action brought by a former supplier of certain
dairy products to convenience stores formerly owned by the Company in
Massachusetts, Rhode Island, Connecticut, and New York ("New England Stores")
entitled New England Dairies, Inc. v. Dairy Mart Convenience Stores, Inc. and
Dairy Mart, Inc., Civil Action No. 397CU00894 (US District Court, CT). The
defendants are contesting the claims and, at this time, the Company is not able
to determine what the results of this litigation will be. Trial is currently
expected to take place in October of calendar year 2000. The Company has
recognized no provision for any possible loss in the accompanying financial
statements. The action is more fully described in the Company's Form 10-K for
the fiscal year ended January 29, 2000 as filed with the Securities and Exchange
Commission.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held at the Sheraton
Suites in Cuyahoga Falls, Ohio, on May 25, 2000. At the Annual Meeting the
Company's shareholders elected the following persons, nominated by the Company's
Nominating Committee, by the votes indicated:
Dairy Mart Nominees For Withheld
------------------- --- --------
Albert T. Adams 2,643,611 8,979
Frank W. Barrett 2,643,611 8,979
J. Kermit Birchfield, Jr. 2,643,611 8,979
John W. Everts 2,643,611 8,979
William A. Foley 2,643,611 8,979
Thomas W. Janes 2,643,611 8,979
Gregory G. Landry 2,643,611 8,979
Robert B. Stein, Jr. 2,643,611 8,979
The Company has previously disclosed the terms of a settlement relating to a
proxy contest led by Frank Colaccino in a Current Report filed with the
Securities and Exchange Commission on Form 8-K on May 24, 2000.
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<PAGE> 21
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits:
1. Exhibit (10.1.1) - Second Amendment to Credit
Agreement, dated as of July 28, 2000 among the
Company, the Banks from time to time parties hereto
and Citizens Bank of Connecticut, as agent is filed
herewith.
2. Exhibit (11) - Statement re Computation of Per-Share Earnings.
3. Exhibit (27) - Financial Data Schedule.
Submitted in electronic format only.
b) 8-K Reports:
On May 24, 2000, the Company filed a Current Report on Form 8-K,
under Item 5, disclosing the terms of a settlement with the Committee
of Concerned Dairy Mart Shareholders that settled a proxy contest
initiated by Frank Colaccino.
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<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DAIRY MART CONVENIENCE STORES, INC.
DATE: September 12, 2000 /s/ Gregory G. Landry
-----------------------
Gregory G. Landry
Vice Chairman and
Chief Financial Officer
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