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FORM 10-K
UNITED STATES
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 FISCAL YEAR ENDED FEBRUARY 3, 2001
[ ]
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 (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)
(330) 342-6600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock (Par Value $.01) American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
As of April 27, 2001, 5,002,026 shares of Common Stock were outstanding, and the
aggregate market value of Common Stock outstanding of DAIRY MART CONVENIENCE
STORES, INC., held by nonaffiliates was approximately $15,682,931.
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PART I
ITEM 1. BUSINESS
BUSINESS OUTLOOK
This Form 10-K contains forward-looking statements within the meaning of the
"safe-harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include statements relating to the
Company's plans and objectives to complete a merger, implement business
segmentation and restructuring plans, upgrade and remodel store locations, build
new stores and increase gasoline sales, reduce the impact of under-performing
stores, sell or lease certain assets, the Company's availability of supplies of
gasoline, the estimated costs for environmental remediation, successful
implementation of tax planning strategies, 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 complete the merger or otherwise pursue the Company's alternative
business strategy, each 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 areas,
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, and general economic conditions. 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.
GENERAL
Dairy Mart Convenience Stores, Inc., and its subsidiaries (the "Company" or
"Dairy Mart") operate one of the nation's largest regional convenience store
chains. Founded in 1957, the Company operates or franchises 547 stores under the
"Dairy Mart" name in seven states located in the Midwest and Southeast, of which
103 stores are franchised.
Dairy Mart stores offer a wide range of products and services which cater to the
convenience needs of its customers, including gasoline, milk, ice cream,
groceries, beverages, snack foods, candy, deli products, publications, health
and beauty care aids, tobacco products, select highly consumable general
merchandise, lottery tickets, money orders and select customer focused services.
The stores are typically located in densely populated, suburban areas on sites
which are easily accessible to customers and provide ample parking. Dairy Mart
stores are generally free-standing structures which are well-lit and are
designed to encourage customers to purchase high profit margin products, such as
deli items, coffee, fountain drinks and other fast food items.
The Company is incorporated in Delaware and maintains its principal executive
offices at One Dairy Mart Way, 300 Executive Parkway West, Hudson, Ohio 44236.
The Company's telephone number is (330) 342-6600.
During fiscal year 1998, the Company sold 156 convenience store and retail
gasoline locations in Connecticut, Rhode Island, Massachusetts and New York to
the DB Companies, Inc., a Rhode Island-based convenience store operator and
gasoline wholesaler and retailer for approximately $39.1 million.
On March 15, 2001, in connection with a previously-disclosed review of the
Company's strategic alternatives, including a possible sale, the Company
executed a merger agreement (the "Merger Agreement") pursuant to which DM
Acquisition Corp. agreed to acquire the Company in a cash merger for $4.50 per
share. DM Acquisition Corp. is controlled by Robert B. Stein, Jr., the Chairman,
President and Chief Executive Officer of the Company. The Merger Agreement
provides that DM Acquisition Corp. will be merged with and into the Company and
that each share of the Company's Common Stock outstanding immediately prior to
the merger, other than those owned by Mr. Stein and his affiliates, will be
converted into the right to receive $4.50 per share in cash. The Company's board
of directors, based on the unanimous recommendation of a special committee of
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independent directors, has approved the transaction and recommended that the
Company's stockholders approve the transaction. In connection with the merger,
the Company will solicit its senior subordinated noteholders to exchange their
subordinated notes of the Company and receive, for each $10,000 in principal
amount of the old notes, $3,870 in principal amount of new notes of the Company,
$6,191.30 in cash and a warrant to purchase Common Stock of the Company that
will not become exercisable until after the merger is completed. The Company has
entered into an exchange and voting agreement pursuant to which holders of
approximately 70% of the senior subordinated notes have agreed to participate in
the exchange. The Merger Agreement is subject to customary conditions, including
completion of necessary financing arrangements and approval of holders of a
majority (excluding those shares held by persons who will have an interest in
the buyout entity) of the shares of the Company's Common Stock voting at a
special meeting. If the merger is completed, the Company will no longer be a
public company. There can be no assurance, however, that the Company or DM
Acquisition Corp. will be able to complete the merger.
In addition, the Company has reinitiated and modified a previously announced
comprehensive program to improve the Company's profitability and reduce debt
(the "Business Segmentation Plan"). Under the Business Segmentation Plan, the
Company will attempt to sell or otherwise close approximately 200 stores that do
not meet internal profitability criteria, reduce corporate and field overhead
and apply proceeds from the sale of stores to reduce outstanding borrowings.
However, as a result of experiencing further losses from operations, the Company
has modified and accelerated the portion of the Business Segmentation Plan that
relates to a reduction in corporate overhead. Under this modification, the
Company has commenced a business restructuring plan (the "Business Restructuring
Plan") pursuant to which certain general and administrative overhead costs have
been reduced in advance of those cost reductions which can only be achieved
after the underperforming stores are sold or closed. Accordingly, in the first
quarter of fiscal year 2002, approximately 30 executive, managerial and
administrative positions were eliminated. These staff reductions and associated
costs are expected to result in savings of approximately $3.0 million per year.
The Company has commenced implementing each of these plans and intends to
complete them whether or not the merger is completed. There can be no assurance,
however, that either of these plans will be successfully completed as
contemplated.
STORES
The Company's stores are generally located in suburban areas, and are situated
close to single-family homes and apartments to attract neighborhood shoppers.
Store location, design, lighting and layout are intended to cater to customers'
desire for fast and convenient access. 276 locations also sell gasoline, which
the Company believes is an important convenience for customers.
Shelving and displays, including refrigeration units, deli and other fast food
counters and displays, are designed to encourage customers to purchase high
profit margin products including impulse purchase items such as candy, fountain
drinks and ice cream novelties. All of the Company's stores also offer extended
hours for additional convenience, with over one-half of the stores open 24 hours
per day. A typical Dairy Mart store ranges between 2,400 and 3,800 square feet
and is a free-standing structure.
As of February 3, 2001, the Company operated and franchised retail convenience
stores in the following states:
NUMBER OF
STORES
---------
Ohio........................................................ 346
Kentucky.................................................... 113
Pennsylvania................................................ 30
Michigan.................................................... 29
Indiana..................................................... 19
Tennessee................................................... 8
North Carolina.............................................. 2
---
Total Stores................................................ 547
===
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The following table shows the number of Company and franchise stores that were
opened or acquired, closed or sold, and transferred between Company operated and
franchise operated, during the last three fiscal years:
FEBRUARY 3, 2001 JANUARY 29, 2000 JANUARY 30, 1999
------------------------------ ------------------------------ ------------------------------
COMPANY FRANCHISE COMPANY FRANCHISE COMPANY FRANCHISE
OPERATED OPERATED TOTAL OPERATED OPERATED TOTAL OPERATED OPERATED TOTAL
-------- --------- ----- -------- --------- ----- -------- --------- -----
At beginning of period.... 475 128 603 477 141 618 469 158 627
Opened or acquired........ 9 -- 9 18 -- 18 25 -- 25
Closed or sold............ (42) (23) (65) (25) (8) (33) (16) (18) (34)
Transferred (net)......... 2 (2) -- 5 (5) -- (1) 1 --
--- --- --- --- --- --- --- --- ---
End of period............. 444 103 547 475 128 603 477 141 618
=== === === === === === === === ===
UPGRADE AND REMODEL OF EXISTING STORE BASE AND CLOSING UNDERPERFORMING STORES
The Company has an ongoing program to upgrade and remodel the Company's retail
and gasoline locations to cater to the always-changing convenience needs of
today's customer. The program includes modernizing and re-imaging the store's
appearance, upgrading the gasoline facilities and installing modern
environmental protection equipment.
The Company evaluates the performance of each of its stores in order to
determine its contribution to the Company's overall profitability. Management
determines a minimum acceptable level of store performance required for a store
to be eligible for on-going capital expenditures and/or lease option renewal or
renegotiation. Accordingly, in fiscal year 2001, the Company closed 28 of its
retail facilities because of their inability to meet the Company's economic and
non-economic criteria for long-term stability and growth. An additional 37
stores were sold to independent operators in fiscal year 2001. Additional stores
may be closed during fiscal 2002 as part of the Business Segmentation Plan.
NEW STORES
A major component of the Company's growth strategy has been to build new stores
and increase sales. During the fourth quarter of fiscal year 2000, the Company
decided to slow the pace of its new store expansion program in light of current
market conditions, which caused, in part, the maturation process for new stores
to be longer than originally expected. The Company considers new stores to have
reached maturity when they are generating operating results which achieve an
acceptable rate of return on invested capital. Accordingly, during fiscal year
2001, the Company opened nine new stores, all of which offer gasoline through
modern facilities, including credit card readers in the gasoline dispensers. The
Company has put on hold additional new store development pending the outcome of
the previously-mentioned merger.
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TECHNOLOGICAL UPGRADE/RETAIL AUTOMATION IMPLEMENTATION
The table and discussion below summarizes the Company's plans with respect to
technology upgrades and retail automation initiatives:
ACTUAL/PROJECTED COMPLETION
-------------------------------------------
PHASE/INITIATIVE FY' 99 FY' 00 FY' 01 FY' 02
---------------- ------- ------- ------- -------
Phases I &
II:......... POS Rollout and
Implement Host Accounting System 100%
Phase III:.... Implement Store-Level Computer
Systems 50% 50%
Phase IV:..... Implement Centralized Automated
Pricebook 25% 25% 50%
Phase V:...... Implement Evolution Initiatives
* Payroll Time & Attendance 100%
* Automated Item Level Receiving 20% 80%
* Scanning for higher volume locations 10% 90%
Phase VI...... Item Level/Scanning Initiatives
* Pricebook Exception System 10% 90%
* Scanning for lower volume locations 50% 50%
* Item Sales Analysis System 10% 90%
* Shelf Tag Implementation 25% 75%
Phases one, two and three provided a new foundation for store accounting and
management reporting. The new host system is driven by the concept of
centralized store control. This allows for the collection and distribution of
more detailed and timely information from store operations and provides the
basis for the formation and implementation of improved merchandising strategies.
Phase four, the implementation of a centralized automated pricebook, allows for
the definition of market zones and the management of a retail pricing strategy
from the corporate office. The implementation of a centralized automated
pricebook is expected to improve retail margins through increased accuracy of
retail pricing and verification of agreed upon vendor costs. Additionally, the
pricebook is expected to save data entry time, reduce data entry errors and
provide greater control over store merchandise inventory.
Phase five is expected to produce labor savings at both the corporate
headquarters and the stores. Item level receiving is expected to allow the
Company to receive inventory more timely and accurately and create credit memos
in the event of an incorrect vendor cost. Scanning is expected to allow for a
reduction in overall inventory levels and better merchandising of the store
thereby increasing margins and reducing the overhead needed to price products.
Phase six is expected to produce labor savings at the store related to the Shelf
Tag Implementation for scanning stores because merchandise will no longer be
required to be individually price marked. Scanning in the lower volume stores
will achieve the same benefits as mentioned above. The Pricebook Exception
system allows for automated credit memos in the event that a vendor's pricebook
differs from the Company's. The Item Sales Analysis System will assist the
Company in evaluating item level product movement and improve purchasing
decisions.
GASOLINE OPERATIONS
Gasoline sales accounted for approximately 48% of total revenue in fiscal year
2001, 40% in fiscal year 2000 and 35% in fiscal year 1999. As of February 3,
2001, 276 stores sold gasoline.
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The Company's gasoline pricing strategy has historically been designed, in part,
to provide value to customers by offering the same quality gasoline offered by
major oil companies at prices which are generally below the prices of nationally
advertised brands and comparable to the prices of other convenience store
chains. The Company obtains its gasoline from major oil company suppliers and
believes that there are adequate supplies of fuel available from a number of
sources at competitive prices.
In an effort to provide name-brand recognition, the Company entered into a
long-term agreement with Chevron Products Company in August 1998, to sell
branded gasoline at some of its locations in Kentucky and Southern Indiana. The
Company finished conversion of these stores during the fourth quarter of fiscal
year 1999. As of February 3, 2001, 72 of the Company's locations sell Chevron
branded gasoline, primarily in Kentucky. Branding the Company's gasoline assets
has improved the overall quality of these assets and is considered important in
attracting new customers who prefer to purchase major-oil branded gasoline.
Branding also offers the Company access to the credit card base of the branding
partner, whose branded customers tend to purchase higher-octane fuels that carry
a higher gross profit margin.
Gasoline profit margins have a significant impact on the Company's income. These
profit margins could be adversely influenced by factors beyond the Company's
control, such as volatility in the wholesale gasoline market due to supply
interruptions. In addition, gasoline profit margins are continually influenced
by competition in each local market area. In fiscal year 2001, the Company's
operating results have been adversely impacted by higher wholesale gasoline
prices and competitive pressures which prevented the Company from fully
recovering these higher wholesale costs in the form of higher retail selling
prices.
PRODUCT SELECTION
All stores generally offer more than 3,000 core food and non-food convenience
items featuring well-known national brand names, as well as the Company's
private label products. Food items include a wide variety of products, including
canned foods and groceries, dairy products, beverages, snack items, candy, baked
goods and food service items, such as fountain soft drinks, coffee, cappuccino,
hot dogs, deli meats and deli sandwiches and similar foods. Non-food convenience
items include gasoline (at 276 stores), cigarettes, health and beauty aids,
publications, lottery tickets and money orders.
The Company has installed branded food service, which carries a relatively
higher gross profit margin, at 37 store locations, including 13 Mr. Heros(R), 13
Taco Bells(R) and eight Subways(R). The Company has entered into an agreement
with Restaurants Developers Corporation to develop Mr. Hero(R) quick-serve
restaurants in most of Ohio and all of Kentucky. Mr. Hero(R) sandwiches are
well-established regional brands with strong consumer recognition in
Northeastern Ohio. The Company opened six Mr. Hero(R) locations in fiscal year
2001. These branded food service offerings allow the Company to offer
competitive, high-quality food service and increase customer traffic providing
ancillary sales opportunities for gasoline and other convenience items. During
fiscal year 2001, the Company closed 14 quick-serve restaurants that failed to
meet performance criteria. The convenience store and gasoline operations in
these 14 locations continue to operate.
In recent years, the Company has altered the mix of products and services to
emphasize the sale of items carrying higher profit margins. Fast food items
carry higher profit margins and tend to lead to the purchase of other high
profit margin products and impulse items, including salty-snacks, candy and
beverages. Dairy Mart offers a number of private label products such as milk,
bakery products, juices, dips and cheeses that generally carry a higher gross
profit margin than the Company's average gross profit margin on comparable
brand-name products.
The Company signed an agreement with Coca-Cola USA Fountain in January 1999, to
exclusively sell Coca-Cola fountain products in the store's fountain centers. In
March 1999, the Company signed an agreement with Procter & Gamble to exclusively
sell Millstone brand coffee blends in Dairy Mart stores through February 2004.
Dairy Mart is the only convenience store chain in its markets selling Millstone
coffee.
In March 1999, the Company entered into a seven-year agreement to provide ATM
services at all of its locations. In an effort to build customer traffic and
sales, the ATM service was initially priced free to the customer. Effective
April 1, 2000, in an effort to improve the Company's overall profitability, the
Company began charging $.99 per
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transaction at most locations. Subsequently, the fee was increased to $1.50 per
transaction in September 2000. The Company believes that the current fee is
competitively priced.
FRANCHISE OPERATIONS
The Company franchises 103 stores. Franchise stores generally follow the same
operating policies as Company stores, and are subject to Company supervision
under franchise agreements. Company operated and franchise stores are of the
same basic store design and sell substantially the same products.
The Company offers two types of franchising arrangements: a "full" franchise and
a "limited" franchise. Under a full franchise agreement, the franchisee
purchases and owns both the merchandise inventory and the equipment located in
the store and leases or subleases the store from the Company. Under a limited
franchise agreement, the franchisee owns only the merchandise inventory while
the Company retains ownership of the store equipment. Franchise fees are higher
for limited franchisees. As of February 3, 2001, there were 38 full franchise
locations and 65 limited franchise locations.
INTERNATIONAL OPERATIONS
The Company conducts business outside the United States as a licensor or as a
consultant. The Company's agreements with convenience store operators in South
Korea and Malaysia expired during fiscal year 2001 and these agreements were not
renewed. In fiscal year 2000, the Company entered into a consulting arrangement
with a convenience store operator in Aruba. The Company does not consider the
revenue it receives under these agreements to be material to its revenues as a
whole.
ADVERTISING
To promote a uniform image for all stores, the Company designs and coordinates
advertising for most stores to complement its marketing strategy, which is
derived, in part, from market history and research. In-store, newspaper,
direct-mail, special promotions, outdoor billboard and radio advertising focus
on food service offerings and also feature certain specially priced items
designed to attract today's time-constrained consumers in search of convenience
related items, and typically include national brand items for which advertising
costs are often supplemented by the national brand vendor partners. Sales
promotions are generally established and maintained on a monthly basis.
COMPETITION AND OTHER EXTERNAL INFLUENCES
The convenience store and retail gasoline industries are highly competitive. The
number and type of competitors vary by location. The Company presently competes
with other convenience stores, large integrated gasoline service station
operators, supermarket chains, neighborhood grocery stores, independent gasoline
service stations, fast food operations and other similar retail outlets, some of
which are well recognized national or regional retail chains. The Company's
competitors generally have greater financial resources than the Company. Key
competitive factors include, among others, location, ease of access, store
management, product selection, pricing, hours of operation, store safety,
cleanliness, product promotions and marketing.
Weather conditions have a significant effect on the Company's sales, as
convenience store customers are more likely to go to stores to purchase
convenience goods and services, particularly higher profit margin items such as
fast food items, fountain drinks and other beverages, when weather conditions
are favorable. Accordingly, the Company's stores generally experience higher
revenues and profit margins during the warmer weather months, which fall within
the Company's second and third fiscal quarters.
EMPLOYEES
As of February 3, 2001, exclusive of franchisees and franchisees' employees, the
Company employed, on a full-time or part-time basis, approximately 3,900
employees. The Company has not experienced any work stoppages. There are no
collective bargaining agreements between the Company and any of its employees.
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ENVIRONMENTAL COMPLIANCE
The Company incurs ongoing costs to comply with federal, state and local
environmental laws and regulations, including costs for assessment, compliance,
remediation and certain capital expenditures relating to its gasoline
operations. These laws and regulations relate primarily to underground storage
tanks ("USTs"). The United States Environmental Protection Agency has
established standards for, among other things, (i) maintaining leak detection,
(ii) upgrading UST systems, (iii) taking corrective action in response to
releases, (iv) closing USTs to prevent future releases, (v) keeping appropriate
records and (vi) maintaining evidence of financial responsibility for taking
corrective action and compensating third parties for bodily injury and property
damage resulting from releases. A number of states in which the Company operates
also have adopted UST regulatory programs. The Company has retained an outside
third party to perform testing and remediation services for those of its stores
for which it is primarily responsible for performing environmental compliance
and remediation.
In the ordinary course of business, the Company periodically detects releases of
gasoline or other regulated substances from USTs it owns or operates. As part of
its program to manage USTs, the Company is involved in environmental assessment
and remediation activities with respect to releases of regulated substances from
its existing and previously operated retail gasoline facilities. The Company
accrues its estimate of all costs to be incurred for assessment and remediation
for known releases. These accruals are adjusted if and when new information
becomes known. Additionally, the Company records receivables based upon the
estimated reimbursement from various state environmental trust funds which have
provisions for sharing or reimbursing certain costs incurred by UST owners or
operators based upon compliance with the terms and conditions of such funds.
Because of the nature of such releases, the actual costs of assessment and
remediation activities may vary significantly from year to year. A more complete
discussion of environmental remediation liabilities is included in the Notes to
the Consolidated Financial Statements.
ITEM 2. PROPERTIES
The Company's stores are generally located in suburban areas, and are situated
close to single-family homes and apartments to attract neighborhood shoppers.
The stores are located in Ohio, Kentucky, Pennsylvania, Michigan, Indiana,
Tennessee, and North Carolina. A typical Dairy Mart store ranges between 2,400
and 3,800 square feet and is a free-standing structure.
Of the 547 stores in operation as of February 3, 2001, 75 were owned by the
Company and 472 were leased. In addition, the Company owns eight locations and
is the primary lessee for 27 locations not currently operated as Dairy Mart
stores. The Company's policy is to endeavor to lease or sublease these locations
to third parties. From time to time, the Company enters into sale-leaseback
transactions whereby the Company sells retail locations and leases such
locations back from the purchasers. The Company's corporate headquarters, a
47,000 square-foot facility in Hudson, Ohio, is leased from a third party. In
addition, the Company leases administrative offices for various regional
operations.
In fiscal year 2000, the Company sold its former corporate headquarters, a
77,000 square-foot building and a portion of the 88 acres of land on which the
building resides and the Company's former Northeast regional operating office
building and manufacturing and processing plant located in a 33,000 square foot
building.
ITEM 3. 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").
The action is entitled New England Dairies, Inc. v. Dairy Mart Convenience
Stores, Inc. and Dairy Mart, Inc., Civil Action No. 397CU00894 (U.S. District
Court for the State of Connecticut). This action was commenced on April 17,
1997, by New England Dairies, Inc. ("NED") alleging that the Company committed
an anticipatory breach of a supply agreement entered into between NED and the
Company on April 25, 1995 ("the Agreement"), when the Company entered into a
contract with a third party to sell all company-owned and franchised convenience
stores in New England, without requiring the third party purchaser to assume the
Agreement. NED's complaint alleges lost profits in the amount of $3.7 million.
The defendants are contesting the claims and, at this time, the Company is not
able to determine what the results of this litigation will
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be. Trial of this case was completed on December 7, 2000, and it is not known
when the judge will issue his ruling. The Company has recognized no provision
for any possible loss in the accompanying financial statements.
The Company was the plaintiff in an action commenced on April 20, 2000, entitled
Dairy Mart Convenience Stores, Inc. v. RLI Insurance Group and RLI Insurance
Company and RLI Corporation, Civil Action Number 5:00 CV 1043 (U.S. District
Court for the Northern District of Ohio, Eastern Division), brought against RLI
Insurance Group to recover $3.0 million under the Company's directors and
officers excess liability insurance policy for legal fees incurred in the course
of defending certain directors and officers of the Company in derivative
litigation of Dairy Mart Convenience Stores, Inc. The Company recorded the $3.0
million as a receivable. On November 28, 2000, the Company reached an agreement
in principle with RLI Insurance Group to settle the litigation for $1.8 million.
Accordingly, a reduction in accounts receivable and other costs related to this
settlement was recognized in the amount of $1.3 million during fiscal year 2001
and was included in general and administrative expenses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET INFORMATION FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company has not paid cash dividends during the last three fiscal years, and
pursuant to loan covenants contained in the Company's senior revolving credit
facility, as amended, is currently restricted from paying dividends and from
repurchasing its capital stock. As of February 9, 2000, the Company's former
Class A and Class B Common Stock were reclassified into a new, single class of
Common Stock. Under the terms of the reclassification, each share of the
Company's former Class A Common Stock was converted into one share of the new
Common Stock and each share of the former Class B Common Stock was converted
into 1.1 shares of the new Common Stock. The Company's Common Stock trades on
the American Stock Exchange under the symbol DMC. The table below sets forth the
high and low sales prices per share of the Dairy Mart Common Stock as quoted on
the American Stock Exchange during its fiscal year ended February 3, 2001.
HIGH LOW
---- ---
FISCAL YEAR ENDED FEBRUARY 3, 2001:
First Quarter............................................. 3 1/8 1 7/8
Second Quarter............................................ 4 5/8 2 1/4
Third Quarter............................................. 5 3/8 3 3/4
Fourth Quarter............................................ 5 1/4 2
The high and low sales price per share on Common Stock A from January 30, 2000
through February 9, 2000 was 3 3/8 and 3 1/4 respectively. The high and low
sales price per share on Common Stock B from January 30, 2000 through February
9, 2000 was 3 1/2 and 3 1/8 respectively.
The table below sets forth the high and low sales prices per share of the former
Class A and Class B Common Stock, as quoted on the American Stock Exchange for
its fiscal year ended January 29, 2000.
CLASS A CLASS B
COMMON COMMON
STOCK STOCK
----------- -----------
HIGH LOW HIGH LOW
---- --- ---- ---
FISCAL YEAR ENDED JANUARY 29, 2000:
First Quarter.................................. 4 2 3/4 3 3/4 2 3/4
Second Quarter................................. 4 3 1/2 4 3 3/8
Third Quarter.................................. 5 3/8 3 3/8 5 1/2 3 3/8
Fourth Quarter................................. 4 3/8 3 4 3/8 3 1/4
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There were approximately 2,200 holders of the Company's Common Stock as of April
27, 2001. Included in this number are shares held in nominee or street names.
ITEM 6. SELECTED FINANCIAL DATA
FIVE FISCAL YEARS ENDED FEBRUARY 3, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
OPERATING RESULTS:
Revenues.............................. $723,671 $588,551 $481,598 $505,654 $585,746
Interest expense, net................. 14,183 11,583 10,806 10,612 10,877
Income (loss) before income taxes..... (24,073) (3,660) 175 (1,999) (2,529)
Net income (loss)..................... (29,451) (2,496) 25 (1,468) (1,836)
EARNINGS (LOSS) PER SHARE:
Net earnings (loss) per share-- basic
and diluted........................ (5.96) (.51) .01 (.31) (.41)
BALANCE SHEET DATA:
Property and equipment, net........... $111,448 $110,946 $ 98,829 $ 82,589 $ 89,448
Total assets.......................... 190,717 209,799 181,331 167,647 177,805
Long-term obligations(a).............. 135,600 123,135 108,507 96,448 110,428
Stockholders' equity (deficit)........ (22,272) 6,869 9,257 8,988 10,214
OTHER DATA:
Earnings before interest expense,
income taxes, depreciation and
amortization (EBITDA)(b)........... $ 5,023 $ 21,338 $ 21,079 $ 19,319 $ 20,092
- ---------------
(a) Long-term obligations include the current portion of long-term obligations.
(b) EBITDA is significant to the Company's calculations of its financial
covenants and is defined as earnings before interest expense, income taxes
and depreciation and amortization. EBITDA should not be viewed as a
substitute for, or in isolation from, Generally Accepted Accounting
Principles (GAAP) measurements such as net income (loss) or cash flow from
operations.
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FINANCIAL HIGHLIGHTS
FOR THE FISCAL YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000
AND JANUARY 30, 1999
(IN THOUSANDS, EXCEPT NUMBER OF LOCATIONS, GROSS PROFIT PER GALLON AND PER SHARE
DATA)
2001 2000 1999
-------- -------- --------
FINANCIAL DATA:
Revenues:
Merchandise sales........................................ $375,122 $353,545 $307,048
Gasoline sales........................................... 347,759 233,926 170,627
Other.................................................... 790 1,080 3,923
-------- -------- --------
Total revenues........................................... 723,671 588,551 481,598
-------- -------- --------
Net income (loss).......................................... $(29,451) $ (2,496) $ 25
-------- -------- --------
STORE DATA:
Company operated:
Gross profit............................................. $115,546 $111,664 $103,229
Average sales per store(1)............................ $ 794 $ 729 $ 647
Average gross profit per store(1)..................... $ 250 $ 236 $ 222
Number of stores at year end............................. 444 475 477
Franchise operated:
Franchise fees........................................... $ 9,085 $ 9,678 $ 10,255
Average sales per store(1)............................ $ 656 $ 642 $ 612
Average franchise fees per store(1)................... $ 80 $ 71 $ 68
Number of stores at year end............................. 103 128 141
Total stores:
Gross profit............................................. $124,631 $121,342 $113,484
Average sales per store(1)............................ $ 747 $ 689 $ 608
Average combined gross profit and franchise fees per
store(1)............................................ $ 217 $ 199 $ 185
Number of stores at year end............................. 547 603 618
GASOLINE DATA:
Gallons sold............................................. 238,054 202,648 169,916
Gross profit............................................. $ 22,260 $ 22,568 $ 20,085
Average gallons sold per location..................... 838 753 590
Gross profit per gallon.................................. $ .0935 $ .1114 $ .1182
Number of gasoline locations at year end................. 276 283 282
OTHER DATA:
Weighted-average number of shares in basic EPS........... 4,945 4,869 4,823
Book value per share(2).................................. $ (3.23) $ 1.02 $ 1.38
- ---------------
(1) The calculation of average sales per store, average gross profit per store,
average franchise fees per store and gasoline gallons per store is based on
a weighted-average number of stores open during fiscal years 2001, 2000 and
1999, respectively.
(2) The calculation uses total outstanding shares including the dilutive effect
of stock options, stock grants and stock warrants as of February 3, 2001,
January 29, 2000 and January 30,1999, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT DEVELOPMENTS
Since the end of the Company's fiscal year 2001, the Company has entered into
the Merger Agreement and commenced the initiation of a Business Restructuring
Plan and a Business Segmentation Plan. For a more
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complete discussion of the Merger Agreement, the Business Restructuring Plan and
the Business Segmentation Plan, see Item 1. Business--General.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
FOR THE FISCAL YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30,
1999
2001 2000 1999
------ ------ ------
Revenues.................................................... $723.7 $588.5 $481.6
Cost of goods sold and expenses:
Cost of goods sold........................................ 576.0 443.5 344.1
Operating and administrative expenses..................... 157.5 137.1 126.5
Interest expense, net..................................... 14.2 11.6 10.8
------ ------ ------
747.7 592.2 481.4
Income (loss) before income taxes........................... (24.1) (3.7) 0.2
Benefit (provision) from income taxes....................... (5.4) 1.2 (0.2)
------ ------ ------
Net income (loss)......................................... $(29.5) $ (2.5) $ 0.0
Income (loss) per share................................... $(5.96) $(0.51) $ 0.01
FISCAL YEAR 2001 RESULTS COMPARED TO FISCAL YEAR 2000 RESULTS:
Revenues
Revenues for fiscal year 2001 increased $135.2 million compared to fiscal year
2000. The Company's fiscal year ends on the Saturday closest to January 31.
There were 53 weeks included in the fiscal year ended February 3, 2001 and 52
weeks in the fiscal year ended January 29, 2000. A summary of revenues by
functional area is shown below:
2001 2000
------ ------
(IN MILLIONS)
Convenience stores.......................................... $375.2 $353.6
Gasoline.................................................... 347.7 233.9
Other....................................................... .8 1.0
------ ------
Total............................................. $723.7 $588.5
====== ======
Convenience store revenues increased $21.6 million, or 6.1%, in fiscal year 2001
compared to fiscal year 2000. This increase is the result of the inclusion of 53
weeks in fiscal year 2001, as described above, a 2.8% increase in comparable
Company-operated store sales and the opening of nine new stores during fiscal
year 2001, partially offset by the closure or sale of 65 under-performing
stores.
Gasoline revenues increased $113.8 million in fiscal year 2001 compared to
fiscal year 2000 as a result of the inclusion of 53 weeks in fiscal year 2001,
an increase in the average selling price of gasoline of 30.7 cents per gallon
and an increase in total gallons sold of 35.4 million, or 17.5%. The increase in
gallons sold is primarily a result of opening 27 convenience stores during
fiscal years 2000 and 2001, all of which have expanded gasoline facilities
resulting in substantially higher average gasoline sales than the Company's
older, less modern convenience stores that sell gasoline. Gallons of gasoline
sold for comparable stores that sell gasoline decreased 2.3% from fiscal year
2000 to fiscal year 2001.
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Gross Profit
Gross profit increased $2.7 million from fiscal year 2000 to fiscal year 2001. A
summary of gross profit by functional area is shown below:
2001 2000
------ ------
(IN MILLIONS)
Convenience Stores.......................................... $124.7 $121.4
Gasoline.................................................... 22.2 22.6
Other....................................................... .8 1.0
------ ------
Total..................................................... $147.7 $145.0
====== ======
Convenience store gross profits increased by $3.3 million in fiscal year 2001
compared to fiscal year 2000. The increase in store gross profit was a result of
the increase in convenience store sales, as described above, partially offset by
a decrease in overall convenience store gross profit margin. Convenience store
gross profit margin decreased from 34.3% in fiscal year 2000 to 33.2% in fiscal
year 2001. Convenience store gross profit margins decreased primarily because
cigarette sales increased relative to total sales and cigarette sales carry a
lower gross profit margin than merchandise sales in total. In addition, the
gross profit margin on cigarette sales decreased as a result of increases in
wholesale cigarette costs during fiscal year 2001.
Gasoline gross profits decreased $0.4 million in fiscal year 2001 compared to
fiscal year 2000. This decrease was primarily attributable to a 1.7 cent per
gallon decrease in gasoline gross profit partially offset by the increase in
gasoline gallons sold, described above. Gasoline gross profit was 9.4 cents per
gallon in fiscal year 2001 compared to 11.1 cents per gallon in fiscal year
2000. Average product cost per gallon increased 31% in fiscal year 2001 compared
to fiscal year 2000 as a result of increases in crude oil prices and wholesale
gasoline costs during fiscal year 2001. However, competitive pressures in the
Company's major market areas held the increase in the average retail price per
gallon to 27%. In addition, credit card fees paid by the Company increased $1.8
million, or 83%, during fiscal year 2001 as a result of the higher average
retail price of gasoline and the higher relative proportion of gasoline
purchases made using credit cards.
Operating and Administrative Expenses
Operating and administrative expenses increased $20.4 million in fiscal year
2001 compared to fiscal year 2000. A summary of operating and administrative
expenses is shown below:
2001 2000
------ ------
(IN MILLIONS)
Operating expenses.......................................... $124.9 $111.4
General & administrative expenses........................... 32.6 25.7
------ ------
Total..................................................... $157.5 $137.1
====== ======
The increase in operating expenses was primarily the result of an increase in
store wages, employee benefits, payroll taxes, advertising expense, depreciation
and store occupancy costs. Store labor costs have increased as a result of wage
rate increases required to attract store associates in a low unemployment
environment and highly competitive labor market. Advertising expenses were
increased to promote the Company's food service offerings. Depreciation and
store occupancy costs increased as a result of 27 new stores opened during
fiscal years 2000 and 2001.
General and administrative expenses increased as a result of (1) higher
liability and health insurance costs, (2) increases in costs incurred to sell or
close under-performing stores, (3) costs associated with corporate governance
activities, including the previously announced review of the Company's strategic
alternatives, and (4) a $1.3 million charge related to the settlement of a
lawsuit involving the recovery of costs associated with a previously settled
shareholder derivative action. The settlement is described more fully in the
Legal Proceedings section of this document.
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Interest Expense, Inflation and Taxes
Interest expense, net, was $14.2 million in fiscal year 2001 and $11.6 million
in fiscal year 2000. The increase was primarily attributable to an increase in
capital lease borrowings, an increase in the average outstanding balance of the
senior revolving credit facility and an increase in interest rates.
As noted in the analyses above, the Company experienced increases in the cost of
tobacco products, gasoline and wages during fiscal year 2001.
The effective tax rate for the Company was a provision of 22.3% for fiscal year
2001 and a benefit of 31.8% for fiscal year 2000. In fiscal year 2001, the
Company fully offset net deferred tax assets by recording a valuation allowance
of $4.8 million because of the uncertainty of realizing certain tax credits and
loss carryforwards in the future. The recording of the valuation allowance had
no impact on the Company's net cash provided by operating activities.
FISCAL YEAR 2000 RESULTS COMPARED TO FISCAL YEAR 1999 RESULTS:
Revenues
Revenues for fiscal year 2000 increased $106.9 million compared to fiscal year
1999. There were 52 weeks included in the fiscal years ended January 29, 2000
and January 30, 1999. A summary of revenues by functional area is shown below:
2000 1999
------ ------
(IN MILLIONS)
Convenience stores.......................................... $353.6 $307.1
Gasoline.................................................... 233.9 170.6
Other....................................................... 1.0 3.9
------ ------
Total..................................................... $588.5 $481.6
====== ======
Convenience store revenues increased $46.5 million, or 15.1%, in fiscal year
2000 compared to fiscal year 1999. This increase is the result of an 11.5%
increase in comparable Company-operated store sales and the opening of 18 new
stores during fiscal year 2000, partially offset by the closure or sale of 33
under-performing stores. Although the reduction in stores had a negative impact
on revenues, it did not have a material adverse effect on results of operations.
Gasoline revenues increased $63.3 million in fiscal year 2000 compared to fiscal
year 1999 as a result of an increase in total gallons sold of 32.7 million, or
19.3%, and an increase in the average selling price of gasoline of 14.5 cents
per gallon. The increase in gallons sold is primarily a result of opening 18
convenience stores during fiscal year 2000 all of which have expanded gasoline
facilities resulting in substantially higher average gasoline sales than the
Company's older, less modern convenience stores that sell gasoline. Gallons of
gasoline sold for comparable stores increased 4.9% from fiscal year 1999 to
fiscal year 2000.
Gross Profit
Gross profit increased $7.5 million from fiscal year 1999 to fiscal year 2000 A
summary of gross profit by functional area is shown below:
2000 1999
------ ------
(IN MILLIONS)
Convenience Stores.......................................... $121.4 $113.5
Gasoline.................................................... 22.6 20.1
Other....................................................... 1.0 3.9
------ ------
Total..................................................... $145.0 $137.5
====== ======
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Convenience store gross profit increased by $7.9 million in fiscal year 2000
compared to fiscal year 1999. The increase in store gross profit was a result of
the increase in convenience store sales, as described above, partially offset by
a decrease in overall convenience store gross profit margin. Convenience store
gross profit margin decreased from 36.9% in fiscal year 1999 to 34.3% in fiscal
year 2000. The decrease in margin was primarily the result of lower cigarette
margins due to increases in the wholesale cost of cigarettes. Additionally,
higher retail cigarette prices have increased carton sales, which are less
profitable than sales of individual packs.
Gasoline gross profit increased $2.5 million in fiscal year 2000 compared to
fiscal year 1999. This increase was primarily attributable to the increase in
gasoline gallons sold, as described above, partially offset by lower gross
profit per gallon. Gasoline gross profit was 11.4 cents per gallon in fiscal
year 2000 compared to 11.8 cents per gallon in fiscal year 1999. Gasoline gross
profit was negatively impacted by increases in crude oil prices and wholesale
gasoline costs in the fourth quarter of fiscal year 2000, and was substantially
lower than the gross profit experienced in the previous three quarters and
fiscal year when wholesale prices were considerably lower.
Other revenues and gross profit decreased $2.9 million in fiscal year 2000
compared to fiscal year 1999 primarily as a result of a $3.0 million one-time
fee recognized through the termination of a long-term ATM (automated teller
machine) agreement earned in fiscal year 1999. The Company's former partner in
the agreement agreed to the termination fee in lieu of its on-going payment
obligations under the agreement, which were approximately $130,000 per month.
Operating and Administrative Expenses
Operating and administrative expenses increased $10.6 million in fiscal year
2000 compared to fiscal year 1999. A summary of operating and administrative
expenses is shown below:
2000 1999
------ ------
(IN MILLIONS)
Operating expenses.......................................... $111.4 $100.2
General & administrative expenses........................... 25.7 26.3
------ ------
Total..................................................... $137.1 $126.5
====== ======
The increase in operating expenses was primarily the result of an increase in
store wages, employee benefits, payroll taxes, advertising expense, depreciation
and store occupancy costs. Store labor costs have increased as a result of wage
rate increases required to attract store associates in a low unemployment
environment and highly competitive labor market. Advertising expenses were
increased to promote the Company's food service offerings. Depreciation and
store occupancy costs increased as a result of the Company's new store expansion
program and additional capital expenditures to implement food service programs
and upgrade gasoline facilities.
The decrease in general and administrative expenses was primarily the result of
lower salary and wage costs and a net gain on the disposition of properties in
fiscal year 2000 compared to a net loss in fiscal year 1999 partially offset by
(1) $0.9 million of non-recurring expenses in fiscal year 2000 incurred in a
derivative litigation settlement and the reclassification of the Company's
former two classes of Common Stock into a new, single class of stock and (2)
$0.5 million of expenses in fiscal year 2000 related to costs incurred relative
to the Company's pursuit of a long-term gasoline supply and branding
relationship for its Ohio and Michigan markets.
Liquidity and Capital Resources
The Company has a $30.0 million senior revolving credit facility (the "Credit
Facility"). The Company can issue up to $15.0 million of letters of credit under
the facility. The facility is due and payable on September 15, 2002. As of
February 3, 2001, the Company had $24.3 million in outstanding revolving credit
loans and $5.2 million in outstanding letters of credit under the facility.
On October 28, 2000, the terms of the Credit Facility were amended to change
certain financial covenants for the fiscal third quarter and to require the
Company to (1) make a prepayment of $20.0 million of the outstanding revolving
loan amounts on or before March 15, 2001 and (2) to reduce annually the
outstanding revolving loan amounts to zero for 30 consecutive days during the
period from July 1 through September 30. The Company paid
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16
the participating lenders $300,000 in connection with entering into this
amendment to the Credit Facility. On March 14, 2001, the terms of the Credit
Facility were further amended to eliminate the requirement that the Company
prepay $20 million of the outstanding revolving loan amounts on or before March
15, 2001. The Company paid the participating lenders $500,000 in connection with
entering into this amendment to the Credit Facility. On May 7, 2001, the terms
of the Credit Facility were further amended to (1) waive any default or event of
default under the Credit Facility arising from any failure to comply with
financial ratio covenants; (2) amend financial ratio covenants for the four
quarters of fiscal year 2002; (3) eliminate the requirement to reduce annually
the outstanding revolving loan amounts to zero for 30 consecutive days during
the period from July 1 through September 30; and (4) change the maturity date
from April 30, 2003 to September 15, 2002. The Company paid the participating
lenders $750,000 in connection with entering into this amendment to the Credit
Facility and will be obligated to pay those lenders an additional $250,000 on
September 1, 2001, if the merger is not completed by that date.
The ability of the Company to be in compliance with certain financial ratio
covenants in the future is dependent upon the Company realizing improved
operating results from those reported for the fiscal year ended February 3,
2001. Accordingly, the Company has commenced implementing the Business
Restructuring Plan and the Business Segmentation Plan. The Company is also
seeking alternative sources of financing to repay its outstanding obligations
under the Credit Facility. These sources include the execution of long-term
vendor supply agreements that would involve the receipt by the Company of monies
due upon the execution of such agreements. During the first quarter of fiscal
year 2002, the Company executed a long-term vendor supply agreement and received
$8.7 million in cash in connection therewith. These proceeds were used to reduce
outstanding borrowings under the Credit Facility. And, as further discussed in
Item 1. Business--General, the Company is also seeking to consummate the merger
that would result in the sale of the Company in its entirety and a refinancing
of the Credit Facility. However, because the Merger Agreement is subject to
certain conditions, including completion of necessary financing arrangements and
stockholder approval, no assurances can be given that the merger will be
consummated.
If the merger is not completed and the Company is unable to successfully
implement the Business Restructuring Plan, the Business Segmentation Plan and
otherwise realize an improvement in operating results during fiscal year 2002,
the Company may not be in compliance with certain amended financial ratio
covenants as required by the Credit Facility. If the Company is not in
compliance with these certain financial ratio covenant requirements in the
future and the Credit Facility lenders do not waive these requirements or
otherwise amend the Credit Facility, the Company would be in default and the
Credit Facility lenders could cause repayment of the Credit Facility to be
accelerated in which case amounts outstanding under the Credit Facility would
become immediately due and payable. In addition, certain other indebtedness and
obligations of the Company, including the senior subordinated notes, certain
mortgage notes payable and certain operating leases, material to the Company's
operations, would become immediately due and payable upon an acceleration of the
Company's Credit Facility. The Company is not currently in default under any of
these arrangements.
Management anticipates that the cash flow from operations, the proceeds from the
sale of certain assets and the execution of long-term vendor supply agreements
will provide the Company with adequate liquidity to fund operations and meet its
ongoing debt service requirements.
Cash Provided By Operating Activities
During fiscal year 2001, net cash provided by operating activities was $0.3
million compared to $6.8 million in fiscal year 2000. The decrease in net cash
provided by operating activities for fiscal year 2001 compared to fiscal year
2000 was primarily the result of an increase in net loss and a decrease in
accounts payable, partially offset by a decrease in accounts receivable and
store inventory. The decrease in store inventory is the result of fewer stores
in operation and the Company's effort to reduce cigarette inventory on hand and
increase cigarette inventory turnover. Accounts receivable decreased primarily
as a result of the receipt of insurance related proceeds and the partial
write-off of insurance related accounts receivable in connection with a
derivative litigation settlement, the timing of receipt of rebates due from
trade vendors and a reduction in the number of franchise stores in operation and
corresponding accounts receivable from franchisees. The decrease in accounts
payable is a result of lower
16
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trade vendor payables in connection with reduced levels of inventory and lower
money order payables in connection with fewer stores in operation.
Capital Expenditures
The Company's capital expenditures, net of the proceeds from the sale of
property, equipment and assets held for sale, were $7.6 million lower in fiscal
year 2001 than in fiscal year 2000. In fiscal year 2001, the Company purchased
$17.4 million of property and equipment, primarily for the construction of nine
new stores that opened in fiscal year 2001. The Company has suspended its new
store expansion program and the related capital expenditures pending its ability
to consummate the merger. Management estimates that capital expenditures will be
required in the range of $2.0 million to $3.0 million annually to replace
existing property, plant and equipment that becomes obsolete and worn out in the
ordinary course of business.
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," that 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. For a related discussion on environmental liabilities, see
the Notes to the Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE MARKET RISK
The Company does not have any instruments that it believes would be materially
affected by any future interest rate changes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company and its subsidiaries and
notes thereto, appear on pages F1 through F28 of this Form 10-K. The required
Supplementary Data appears on page F30 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names, positions and ages of the directors and executive
officers of the Company as of April 27, 2001. Each executive officer will serve
until a successor is selected by the Board of Directors or until the earlier of
their resignation or removal.
NAME POSITION AGE
---- -------- ---
Albert T. Adams..................... Director 50
Frank W. Barrett.................... Director 61
J. Kermit Birchfield, Jr............ Director 61
John W. Everets..................... Director 54
William A. Foley.................... Director 53
Robert B. Stein Jr.................. Chairman of the Board, President and Chief
Executive Officer 43
Gregory G. Landry................... Vice Chairman and Chief Financial Officer 43
Alice R. Guiney..................... Vice President Human Resources 47
Susan D. Adams...................... Vice President Finance and Treasurer 43
Dale R. Valvo....................... Vice President Gasoline and Store Development 51
ALBERT T. ADAMS
Mr. Adams, a director since 1998, has been a partner with the law firm of Baker
& Hostetler LLP in Cleveland, Ohio, since 1984, and has been affiliated with the
firm since 1977. Mr. Adams is a director of American Industrial Properties REIT,
Associated Estates Realty Corporation, Boykin Lodging Company, Captec Net Lease
Realty, Inc. and Developers Diversified Realty Corporation.
FRANK W. BARRETT
Mr. Barrett, a director since 1983, has been Executive Vice President of Family
Bank, FSB, a subsidiary of Peoples Heritage Financial Group since 1994. Mr.
Barrett is a director of the Providence and Worcester Railroad, which provides
freight rail service in Connecticut, Massachusetts and Rhode Island.
J. KERMIT BIRCHFIELD, JR.
Mr. Birchfield, a director since 1996, has been the Chairman of the Board of
Displaytech, Inc., a manufacturer of high resolution miniature ferro-electric
liquid crystal displays since 1995. Mr. Birchfield is a director of HPSC, Inc.,
company that provides financing for the purchase of health care equipment,
Intermountain Gas Company, Inc., an Idaho public utility company, and the
Compass Group of Mutual Funds of MFS, Inc., a wholly owned subsidiary of Sun
Life of Canada, a registered mutual funds company.
JOHN W. EVERETS
Mr. Everets, a director since 1994, has been Chairman of the Board and Chief
Executive Officer of HPSC, Inc., a company that provides financing for health
care equipment since July 1993 and has been a director of HPSC, Inc. since 1983.
Mr. Everets is also a director of Eastern Company, a manufacturing company.
WILLIAM A. FOLEY
Mr. Foley, a director since 1999, has been the Chairman, President, Chief
Executive Officer and a director of LESCO, Inc., a manufacturer and direct
marketer of turf care products and equipment, since July 1993. Mr. Foley is also
a director of Libbey, Inc., a producer of glass products.
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ROBERT B. STEIN, JR.
Mr. Stein, a director since 1992, was elected President of the Company in
September 1994, Chief Executive Officer in June 1995 and Chairman of the Board
of Directors in December 1995. He joined the Company in 1983 and served in
various positions including Treasurer, General Manager of the Midwest Region,
and Executive Vice President-Operations and Marketing. Mr. Stein is also a
director of LESCO, Inc., a manufacturer and direct marketer of turf care
products and equipment.
GREGORY G. LANDRY
Mr. Landry, a director since 1991, has served as Chief Financial Officer of the
Company since August 1990, was named Executive Vice President of the Company in
April 1992, and Vice Chairman in April 2000. Mr. Landry joined the Company in
October 1985 and served in various financial positions, including Treasurer.
ALICE R. GUINEY
Ms. Guiney was named Vice President Human Resources in November 1996. From June
1992 through November 1996, Ms. Guiney directed corporate and field operational
disciplines of human resources for Sunglass Hut International, a retailer of
sunglasses.
SUSAN D. ADAMS
Ms. Adams was named Vice President Finance and Treasurer in November 1997. From
May 1997 through November 1997, Ms. Adams served as Assistant Treasurer for
DoubleTree Corporation, an owner and operator of hotels. From February 1986
through May 1997, she held various positions, including Assistant Treasurer,
with The Circle K Corporation, a convenience store operator and franchisor.
DALE R. VALVO
Mr. Valvo was named Vice President Gasoline and Store Development in February
1999. He joined the Company in April 1998 as Vice President Gasoline Operations.
From July 1990 through October 1998, Mr. Valvo was General Manager
Marketing-Southeast Business Unit for Fina Oil and Chemical Company, a
diversified oil company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on the Company's review of Forms 3, 4 and 5, all transactions occurring
during fiscal year 2001 which required the reporting of changes in beneficial
ownership of the Company's Common Stock were timely filed for all of the
Company's executive officers and directors, except the Forms 5 that were
inadvertently not filed by Messrs. Adams, Everets, and Foley in connection with
their election to defer the payment of their directors' fees in an account that
values that deferred compensation as if it were invested in the Common Stock of
the Company.
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ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
EXECUTIVE OFFICERS' COMPENSATION
The following table summarizes the compensation earned by or paid to the
Company's Chief Executive Officer and the Company's other five most highly
compensated executive officers who served during the 2001 fiscal year.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(A)
------------------------------------------ ------------
OTHER ANNUAL SECURITIES ALL OTHER
FISCAL COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (c) OPTIONS (d)
--------------------------- ------ -------- ------- ------------ ------------ ------------
Robert B. Stein, Jr............... 2001 $415,385 $68,750(b) $68,750 125,000 $7,298
Chairman of the Board, President 2000 391,346 50,000 1,611 -- 9,430
and Chief Executive Officer 1999 374,998 -- 45,983 183,750 10,270
Gregory G. Landry................. 2001 285,577 $52,000(b) 49,500 66,000 5,688
Vice Chairman and 2000 264,615 37,500 -- -- 9,220
Chief Financial Officer 1999 244,998 -- -- 105,000 10,009
J. Wayne Colley................... 2001 258,654 10,000 25,792 -- --
Executive Vice President and 2000 -- -- -- -- --
Chief Operating Officer 1999 -- -- -- -- --
Dale R. Valvo..................... 2001 153,173 -- 6,000 -- 4,336
Vice President 2000 133,750 10,000 6,000 7,500 550
Gasoline and Store Development 1999 89,216 -- 5,000 20,000 865
Alice R. Guiney................... 2001 143,135 -- 6,045 -- 4,051
Vice President 2000 129,904 10,000 2,265 7,500 550
Human Resources 1999 125,000 -- 1,508 -- 388
Susan D. Adams.................... 2001 142,789 -- 6,000 -- 3,799
Vice President 2000 129,904 10,000 6,000 7,500 550
Finance and Treasurer 1999 125,000 -- 45,193 -- 536
- ---------------
(a) The Company did not grant any stock appreciation rights nor make any
long-term incentive plan payments during fiscal years 2001, 2000 or 1999.
(b) Includes 25,000 shares and 18,000 shares granted to Mr. Stein and Mr.
Landry, respectively, on April 6, 2000, at fair market value of $2.75 per
share on that date.
(c) Other annual compensation for the following named executive officers
includes the following amounts paid on behalf of, or received by, each
officer: (i) In fiscal year 2001, Mr. Stein received $68,750 in tax
reimbursement relating to the award of 25,000 shares of Common Stock granted
to Mr. Stein. In fiscal year 2000, Mr. Stein received $894 for relocation
expense and $717 in tax reimbursement. In fiscal year 1999, Mr. Stein
received $27,731 for relocation expense and $18,252 in tax reimbursement;
(ii) In fiscal year 2001, Mr. Landry received $49,500 in tax reimbursement
relating to the award of 18,000 shares of Common Stock granted to Mr.
Landry; (iii) In fiscal year 2001, Mr. Colley received $25,231 in tax
reimbursement and $561 in automobile allowance. Mr. Colley's employment with
the Company began January 18, 2000; (iv) For Mr. Valvo the amounts represent
automobile allowances. Mr. Valvo has been employed by the Company since
April 1, 1998; (v) For Ms. Guiney the amounts represent automobile
allowances; (vi) In fiscal year 2001, Ms. Adams received $6,000 in
automobile allowance. In fiscal year 2000, Ms. Adams received $6,000 in
automobile allowance. In fiscal year 1999, Ms. Adams received $24,100 for
relocation expense, $14,093 in tax reimbursement, and $7,000 in automobile
allowance.
(d) Includes amounts contributed for the benefit of the Company's executive
officers to the Company's Non-Qualified deferred compensation plan,
qualified profit sharing plan and premiums paid by the Company for
split-dollar and life insurance for the benefit of certain executive
officers during the applicable years. Company contributions to the
Non-Qualified deferred compensation plan for fiscal year 2001 included
$4,231 for Mr. Stein, $3,385 for Mr. Landry, $4,076 for Mr. Valvo and $3,808
for Ms. Guiney, and $3,799
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for Ms. Adams. Company contributions to the qualified profit sharing plan
for each of the 2001, 2000, and 1999 fiscal years, respectively, included
$462, $550 and $388 for Mr. Stein, $0, $550 and $388, for Mr. Landry, $260,
$550 and $865 for Mr. Valvo, $243, $550 and $338 for Ms. Guiney, and $0,
$550 and $536 for Ms. Adams. Premiums paid on split-dollar and life
insurance for each of the 2001, 2000, and 1999 fiscal years, respectively,
included $2,606, $8,880 and $9,882 for Mr. Stein, and $2,303, $8,670 and
$9,621 for Mr. Landry.
LONG-TERM INCENTIVE AWARDS IN LAST FISCAL YEAR
The Company did not grant long-term incentive awards during the 2001 fiscal year
to any of the named executive officers listed in the Summary Compensation Table.
OPTIONS GRANTED IN LAST FISCAL YEAR
The table below provides certain information regarding stock options granted
during the Company's last fiscal year to the named executive officers listed in
the Summary Compensation Table above.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE OF FOR OPTION TERM
OPTIONS GRANTED TO BASE PRICE (c)
GRANTED EMPLOYEES IN PER SHARE EXPIRATION ----------------------
NAME (a) FISCAL YEAR (b) DATE 5% 10%
---- ---------- ------------ ----------- --------------- --------- ---------
Robert B. Stein
Jr................. 125,000 65.4 $2.75 4/5/10 $559,933 $891,599
Gregory G. Landry.... 66,000 34.6 $2.75 4/5/10 $295,644 $470,764
J. Wayne Colley...... -- -- -- -- -- --
Dale R. Valvo........ -- -- -- -- -- --
Alice R. Guiney...... -- -- -- -- -- --
Susan D. Adams....... -- -- -- -- -- --
- ---------------
(a) The options become fully exercisable over four years, with 25% of the
options vesting on each anniversary of the option grant date. All options
expire ten years from the date of grant, unless sooner terminated by, for
example, the failure to exercise an option, to the extent it is then
exercisable, before three months after termination of the optionee's
employment, except for termination in the case of death, in which case, the
option is exercisable within one year from the date of death by the
optionee's executor, administrator or personal representative, to the extent
it is then exercisable. If the merger is completed, these options will
become immediately exercisable. Messrs. Stein and Landry were also awarded
25,000 and 18,000 shares of stock, respectively, on the date the options
were granted.
(b) All options were granted at the exercise price per share equal to the fair
market value of the Company's Common Stock on the date of grant, as quoted
on the American Stock Exchange (AMEX).
(c) These amounts are based on hypothetical appreciation rates of 5% and 10% and
are not intended to forecast the actual future appreciation of the Company's
common shares. No gain to optionees is possible without an actual increase
in the price of the Company's common shares, which would benefit all of the
Company's stockholders. All calculations are based on a ten-year option
period compounding annually.
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AGGREGATED OPTION EXERCISES DURING 2001 FISCAL YEAR AND FISCAL YEAR 2001 YEAR
END OPTION VALUES
The table below sets forth information regarding stock options that were
exercised, if any, during the past fiscal year, and unexercised stock options
held as of February 3, 2001, by the executive officers listed in the Summary
Compensation Table above.
VALUE OF
NUMBER OF UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS AT
SHARES OPTIONS AT FISCAL
ACQUIRED FISCAL YEAR END YEAR END(1)
ON EXERCISE OF VALUE EXERCISABLE(E)/ EXERCISABLE(E)/
NAME OPTIONS REALIZED UNEXERCISABLE(U) UNEXERCISABLE(U)
---- ---------------- -------- ----------------------- -----------------------
Robert B. Stein, Jr.............. -- -- $249,375 (E) $12,431 (E)
216,875 (U) -- (U)
Gregory G. Landry................ -- -- 159,000 (E) 10,959 (E)
118,500 (U) -- (U)
J. Wayne Colley.................. -- -- 35,000 (E) -- (E)
85,000 (U) -- (U)
Dale R. Valvo.................... -- -- 11,875 (E) -- (E)
15,625 (U) -- (U)
Alice R. Guiney.................. -- -- 18,125 (E) -- (E)
9,375 (U) -- (U)
Susan D. Adams................... -- -- 16,875 (E) -- (E)
10,625 (U) -- (U)
- ---------------
(1) Values are calculated for options "in the money" by subtracting the exercise
price per share from the closing price per share of the Company's Common
Stock on February 3, 2001, which was $3.00. Certain of the executive
officers have options to purchase shares of Common Stock at exercise prices
greater than the fair market value of the applicable class of Common Stock
as of February 3, 2001. Such options are not "in the money" and, therefore,
their value is not disclosed above.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In March 1998, the Company adopted a Supplemental Executive Retirement Plan (the
"SERP") to provide additional retirement benefits, payable in a lump sum, to
certain executive officers. Currently, only Messrs. Stein and Landry participate
in the SERP. The SERP is an unfunded plan; however, the Company intends to use
the cash surrender value of key life insurance policies purchased by the Company
on the lives of Messrs. Stein and Landry to fund its obligations under the Plan.
Messrs. Stein and Landry have no claim or right to the proceeds of the cash
surrender value of the insurance policies that are payable upon their death. To
the extent they have an accrued vested benefit under the SERP, they will only
have a claim against the general assets of the Company. Messrs. Stein and Landry
are each 100% vested as of the end of fiscal year 2001.
The benefits under the SERP are payable in a lump sum, which reflects the annual
life benefit determined under the SERP, discounted to its present value. The
lump sum benefit is based on providing the participant the present value of an
annual annuity commencing at age 65 and payable through participant's death
equal to (a) 50% of the average of participant's three greatest years of
compensation during participant's last five years of service with the Company
multiplied by a percentage equal to the actual years of service credited through
retirement divided by the years of service the participant could have been
credited with through the age of 65, less (b) the actuarial equivalent value, as
determined under the SERP, of (i) half the participant's Social Security
benefits and (ii) all Company contributions or allocations on the participant's
behalf to or under any other deferred compensation or retirement-type plans,
such as the Company 401(k) matching contribution, plus deemed interest equal to
seven percent compounded annually, on such contributions or allocations. Stock
option grants and incentive stock awards are not considered under the SERP as
Company contributions or allocations under a retirement plan. The
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portion of the benefit that is based on the percentage of years of service
credited to the participant will accelerate to 100% upon (a) a change of control
that is not approved by two-thirds of the Board of Directors or (b) the Company
terminating the participant without "good cause."
The compensation covered under the SERP is generally the same compensation that
is covered in the Summary Compensation Table for Messrs. Stein and Landry,
except that compensation under the SERP does not include the Company 401(k)
match or compensation from any equity based compensation plan including stock
options and incentive stock awards.
If Messrs. Stein and Landry retired at age 65 and they both received annual
increases in their compensation each year through age 65, they would be entitled
to an accrued lump sum benefit of approximately $3,810,000 and $2,590,000
respectively, at age 65. If any excise taxes are due on such payments, the
payments will be grossed up to cover such taxes.
DIRECTORS' COMPENSATION
Each non-employee director is compensated at the rate of $12,000 per year plus
$1,000 for attendance at each meeting of the Board of Directors and for each
meeting of any committee, including the special committee formed in connection
with the merger, on which he serves, but non-employee directors are paid only
$500 for attending telephonic meetings (except for meetings of the special
committee, which remain at $1,000). Under the Directors' Deferred Compensation
Plan that was adopted in fiscal year 1999, a director's compensation is credited
to the director's account and, as elected by these directors, valued thereafter
as if the director had invested the deferred amount in the Company's Common
Stock. Messrs. Adams, Everets, and Foley deferred $17,000, $45,500 and $47,000,
respectively, in directors' fees pursuant to the plan during fiscal year 2001.
In February 2001, Messrs. Barrett, Everets, Birchfield, Foley and Adams each
received an automatic grant of options to purchase 3,500 shares of the Company's
Common Stock at $2.60 per share pursuant to the stock option plan for outside
directors. The Company's employees and officers who are also directors are not
paid any directors' fees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Company's Board of Directors
during the last fiscal year were Messrs. Adams, Barrett, Everets and Foley. Mr.
Adams is a partner of Baker & Hostetler LLP, which acts as the Company's general
outside legal counsel on a variety of matters. No member of the Compensation
Committee was at any time during fiscal year 2001, or at any other time, an
officer or employee of the Company. Mr. Foley is the Chairman, President, Chief
Executive Officer and Director of LESCO, Inc. Mr. Stein also serves as a
director of LESCO, Inc. No other executive officer of the Company serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.
EMPLOYMENT AND SEVERANCE AGREEMENTS
In January 2000, the Company entered into employment agreements with Messrs.
Stein, Landry and Colley. The employment agreements for Messrs. Stein and Landry
commenced on January 1, 2000, and are initially for three (3) year terms. The
employment agreement for Mr. Colley commenced on January 18, 2000, and is
initially for a term which shall terminate on December 31, 2002. Each of the
employment agreements provide that commencing on January 1, 2001, and each
January 1 thereafter, each term is automatically extended one additional year
such that the remaining unexpired term shall be three (3) years unless the
Company or the employee gives notice before December 31st of each year that it
or he does not desire to have the term extended. Under the employment
agreements, Messrs. Stein, Landry and Colley receive annual salaries that may be
increased, but may not be decreased. In addition, the employment agreements
provide that the Board of Directors, or a committee thereof, may award each
employee annual bonuses if performance criteria to be determined by the Board
are met.
Under the employment agreements, if the employee's employment is terminated for
any reason, other than by the Company without cause or by the employee for good
reason, or as a result of death or disability, then the employee will receive
his salary and bonus through the date of termination. If the employee dies or is
disabled, he
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will also receive any additional benefits that are provided under the Company's
death and disability programs in effect at the time of death or disability. In
addition, if an employee is disabled and there is no disability program in
effect or if an employee dies, then the employee's beneficiary will receive 100%
of the employee's annual salary plus an amount equal to the highest of the
aggregate bonus payments earned by the employee for any of the last three
12-month periods prior to the date of termination.
The employment agreements provide that if the employee's termination is by the
Company without cause or by the employee for good reason, and not as a result of
the employee's death or disability, the employee will receive his full salary
and bonus through the date of termination. The amount of the employee's bonus
will be the highest of the aggregate bonus payments earned by the employee for
any of the last three 12-month periods prior to the date of termination. The
agreement for Mr. Colley also provides that after such termination, Mr. Colley
will receive a severance payment equal to 100% of the sum of his then current
full base salary and annual bonus. The agreements for Messrs. Stein and Landry
also provide that after such termination, each of Messrs. Stein and Landry will
receive a severance payment equal to three times the sum of his then current
full base salary and annual bonus. If any payment in connection with the
termination of the employee's employment under the employment agreement would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"), then the Company will pay the employee an
additional payment equal to the amount of any excise tax the employee incurs as
a result of the employee's receipt of the additional payment.
Prior to the execution of the Merger Agreement, Mr. Landry indicated to Mr.
Stein that he intended to terminate his employment with the Company after the
merger. Based on these events and in connection with entering into the Merger
Agreement, Mr. Landry and the Company entered into a severance agreement, dated
March 15, 2001, to agree upon the obligations that will be due Mr. Landry
pursuant to the terms of his employment agreement and benefit plans when he
terminates his employment if the merger is consummated. Under the terms of the
severance agreement, Mr. Landry will be entitled to receive his accrued and
unpaid base salary through his termination date; an annual bonus of $136,500,
prorated from February 4, 2001 through his termination date; a cash payment of
$1,234,500 comprising three times the sum of his base salary of $275,000 plus
his bonus of $136,500; a possible cash payment estimated to be approximately
$998,000, representing a gross-up payment to cover excise taxes (and the income
tax resulting from the gross-up on the excise taxes) due and payable by him as a
result of the benefits being provided to him in connection with the severance
agreement and the merger; a cash payment of $354,375 if the merger is not
completed by July 13, 2001, and if he does not receive 78,750 shares of Dairy
Mart common stock immediately prior to the merger; title to the automobile that
he currently uses for commuting to and from work; health insurance benefits for
himself and his dependents until he becomes eligible for substantially
equivalent benefits from a subsequent employer for a period not to exceed three
years; two life insurance policies with an aggregate face value of $500,000 and
an aggregate accumulated cash surrender value of approximately $62,000; the
personal computer of Dairy Mart that he currently uses at his home; vested
retirement benefits of approximately $66,000 to which he is entitled under the
supplemental employment retirement plan of Dairy Mart; and legal fees he
incurred in connection with negotiating and preparing the severance agreement
that are estimated to be approximately $40,000.
Mr. Colley's employment was terminated effective March 30, 2001, in connection
with the Business Restructuring Plan. In connection with this plan, Mr. Colley
will receive severance payments totaling, in the aggregate, $250,000 to be paid
in equal biweekly installments through July 2001, then he will receive the
balance in a lump sum. In addition, options to purchase 100,000 shares of Common
Stock have become immediately exercisable.
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COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
OVERVIEW
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is composed entirely of outside directors. The Compensation
Committee, which consists of Messrs. Everets (Chairman), Adams, Barrett, and
Foley, is responsible for establishing and administering the Company's executive
compensation policies and the Company's stock option and other employee equity
plans. This report addresses the Company's compensation policies for the fiscal
year 2001 for executive officers and in particular for Mr. Stein in his capacity
as Chairman of the Board, President and Chief Executive Officer.
GENERAL COMPENSATION POLICY
The objectives of the Company's executive compensation program are to:
- Provide a competitive compensation package that will attract and retain
superior talent and reward performance;
- Support the achievement of desired Company performance; and
- Align the interests of executives with the long-term interests of
stockholders through award opportunities that can result in ownership of
shares of the Company's Common Stock, thereby encouraging the achievement
of superior results over an extended period.
EXECUTIVE OFFICER COMPENSATION PROGRAM
The Company's executive officer compensation program is composed primarily of:
(i) base salary, which is set on an annual basis; (ii) annual incentive bonuses,
which are based on the achievement of predetermined financial objectives of the
Company and individual objectives; (iii) discretionary bonuses, which are
granted under special circumstances; (iv) supplemental executive retirement plan
benefits; and (v) long-term incentive compensation in the form of periodic stock
option and restricted stock grants, with the objective of aligning the executive
officers' long-term interests with those of the stockholders and encouraging the
achievement of superior results over an extended period.
The Compensation Committee performs annual reviews of executive compensation,
during which the Compensation Committee reviews executive compensation packages
of the Company compared with available information on other national and
regional convenience store chains.
In considering compensation of the Company's executives, one of the factors the
Compensation Committee takes into account is the anticipated tax treatment to
the Company of various components of compensation. The Company does not believe
Section 162(m) of the Internal Revenue Code of 1986, as amended, which generally
disallows a tax deduction for certain compensation in excess of $1 million to
any of the executive officers appearing in the Summary Compensation Table above,
will have an effect on the Company. The Compensation Committee has considered
the requirements of Section 162(m) of the Code and its related regulations. It
is the Company's present policy to take reasonable measures to preserve the full
deductibility of substantially all executive compensation, to the extent
consistent with its other compensation objectives.
BASE SALARY
The Compensation Committee reviews base salary levels for the Company's
executive officers on an annual basis. In determining salaries, the Compensation
Committee takes into consideration individual experience and performance and
comparable compensation data available on other national and regional
convenience store chains. The Company seeks to set base salaries to be
competitive with compensation paid by comparable companies to persons with
similar experience.
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ANNUAL INCENTIVE BONUSES
The Compensation Committee determines the amount of annual cash bonuses based on
achievement of predetermined financial, operational and strategic objectives.
Giving greatest weight to the attainment of financial targets, specifically
pre-tax earnings and cash flow, the Company also awards bonuses based on various
operational and strategic objectives geared to specific management groups (i.e.,
financial, management, information systems, construction and marketing), and for
Mr. Stein individually.
LONG-TERM INCENTIVE COMPENSATION
Long-term incentive compensation, in the form of stock options and restricted
stock grants, allows the executive officers to share in any appreciation in the
value of the Company's Common Stock. The Compensation Committee believes that an
enhanced market value for the Company's shares of Common Stock should be a
primary objective of senior management, and that stock option and restricted
stock grant participation align executive officers' interests with those of the
stockholders. The amounts of the awards are designed to reward past performance
and create incentives to meet long-term objectives. In determining the amount of
each grant, the Compensation Committee takes into account the number of shares
held by the executive prior to the grant.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ("SERP")
The Company adopted the SERP to provide additional retirement benefits to
certain key executives. It is intended to attract and retain these executives.
The benefits primarily accrue under the SERP based on compensation paid to the
executive and the years of service the executive provides to the Company.
Currently only Messrs. Stein and Landry participate in the SERP. The Company
believes that these benefits are reasonable in relation to the executive
compensation practices of other companies.
NON-QUALIFIED COMPENSATION PLAN
In fiscal year 2000, the Company adopted a non-qualified compensation plan for
its "highly compensated employees," a group of which includes, but is not
limited to, the executive officers set forth in the Executive Officer's
Compensation table. Under the Company's 401(k) Savings and Profit Sharing Plan,
"highly compensated employees" are not able to receive the same tax deferred
savings and company match as the "non-highly compensated employees" are able to
receive. A purpose of the non-qualified plan is to permit the "highly
compensated employees" to receive the same level of Company match received by
the non-highly compensated employees under the Company's 401(k) plan. Another
purpose of the non-qualified plan is to permit the "highly compensated
employees" to increase their tax deferred savings above what they would
otherwise be permitted under the Company's 401(k) plan. There are certain risks
inherent in the non-qualified plan which are not present in the 401(k) plan.
Distributions under the plan, including deferral amounts, company match and
earnings are paid from the general assets of the Company and are required to be
distributed to the employee upon a termination of service prior to normal
retirement. Thus, the non-qualified plan participant might be forced to receive
deferred income earlier than anticipated, creating negative tax consequences. In
addition, non-qualified plan participants are general creditors of the Company
and are not secured in the same way as the 401(k) participant.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Stein, who holds the positions of Chairman of the Board, President and Chief
Executive Officer, was paid a base salary of $415,385 during the 53-week fiscal
year of 2001, which was based on the $400,000 base salary set by the
Compensation Committee in fiscal year 2000. During fiscal year 2000, in
consultation with outside consultants, the Compensation Committee re-evaluated
Mr. Stein's total compensation package. In connection with this reevaluation,
the Compensation Committee increased Mr. Stein's base salary to $400,000 per
year to a level comparable with compensation paid to executives with similar
responsibilities and by companies of similar size. Additionally, in connection
with that revaluation, the Company awarded Mr. Stein a discretionary cash bonus
of $50,000 that was paid to him in fiscal year 2000. Finally, in connection with
that revaluation, the Compensation Committee also recommended that Mr. Stein
should receive stock options to purchase 125,000 shares and receive a stock
grant of 25,000 shares, together with a tax reimbursement payment to cover the
federal
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and local income taxes of the stock grant, but because of the significance of
these awards, the Compensation Committee did not approve these awards. Instead,
the Compensation Committee chose to submit a recommendation for the approval of
these awards to the entire board of directors. These stock-based incentives were
not approved by the entire board, however, until April 2000 (which is part of
the Company's fiscal year 2001), but related to modifying Mr. Stein's entire
compensation package during fiscal year 2000. In setting Mr. Stein's
discretionary bonus and in making its recommendation with respect to the stock
based compensation, the Compensation Committee considered the following factors,
among others: comparable store sales increased, gallons of gasoline increased
based on comparable stores, store expansion continued at appropriate levels,
improved profitability for fiscal year 1999 and the Company was selected as the
number one convenience store chain in the country by Convenience Store Decisions
magazine.
Other than the stock-based compensation that related to fiscal year 2000, the
Compensation Committee did not award Mr. Stein any bonuses or long-term
compensation in fiscal year 2001.
THE COMPENSATION COMMITTEE:
John W. Everets, Chairman
Albert T. Adams
Frank W. Barrett
William A. Foley
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the amount of the Company's common shares beneficially
owned as of April 27, 2001, by: (i) the Company's directors; (ii) each other
person who is known by the Company to own beneficially more than 5% of the
Company's outstanding common shares; (iii) the named executive officers listed
in the Summary Compensation Table; and (iv) all directors and executive officers
as a group.
This information is furnished in accordance with the SEC regulations relating to
any persons known by the Company to be the beneficial owners of 5% or more of
Common Stock. In preparing the following table, the Company has relied on
information filed by such persons with the SEC, and in some cases, other
information provided to the Company by such persons.
AMOUNT AND
NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP OUTSTANDING SHARES
------------------- ----------------- ------------------
DM Associates Limited Partnership......................... 702,617(1) 14.1%
300 Executive Parkway West
Hudson, Ohio 44236
New DM Management Associates I............................ 702,617(1) 14.1%
300 Executive Parkway West
Hudson, Ohio 44236
Robert B. Stein, Jr....................................... 1,076,368(1)(6) 20.4%
300 Executive Parkway West
Hudson, Ohio 44236
Gregory G. Landry......................................... 912,992(1)(7) 17.6%
300 Executive Parkway West
Hudson, Ohio 44236
Triumph-Connecticut Limited Partnership................... 827,221(2) 14.2%
28 State Street, 37th Floor
Boston, Massachusetts 02109
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AMOUNT AND
NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP OUTSTANDING SHARES
------------------- ----------------- ------------------
The IDS Mutual Fund Group................................. 378,903(3) 7.0%
25614 AXP Financial Center
Minneapolis, Minnesota 55474
American International Group, Inc......................... 388,811(4) 7.2%
70 Pine Street
New York, New York 10005
William L. Musser, Jr..................................... 327,550(5) 6.5%
and New Frontier Capital, L.P.
919 Third Avenue
New York, New York 10022
Albert T. Adams........................................... 13,750(8) (*)
3200 National City Center
1900 E. 9th Street
Cleveland, Ohio 44114
Frank W. Barrett.......................................... 27,500(9) (*)
1441 Main Street
Springfield, Massachusetts 01101
J. Kermit Birchfield, Jr.................................. 30,325(10) (*)
Cranberry Hill
33 Way Road
Gloucester, Massachusetts 01930
John W. Everets........................................... 32,625(11) (*)
60 State Street
Boston, Massachusetts 02109
William A. Foley.......................................... 2,750(12) (*)
20005 Lake Road
Rocky River, Ohio 44116
J. Wayne Colley........................................... 105,000(13) 2.1%
4837 Arbour Green
Bath, Ohio 44333
Dale R. Valvo............................................. 18,950(14) (*)
300 Executive Parkway West
Hudson, Ohio 44236
Alice R. Guiney........................................... 20,549(15) (*)
300 Executive Parkway West
Hudson, Ohio 44236
Susan D. Adams............................................ 21,750(16) (*)
300 Executive Parkway West
Hudson, Ohio 44236
All directors and executive officers as a group (11
persons)................................................ 1,484,942(17) 26.5%
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(*) Owns less than 1% of the issued and outstanding shares of Common Stock.
(1) DM Associates Limited Partnership ("DM Associates") is the owner of record
of 702,617 shares of Common Stock of the Company, representing approximately
14.1% of the issued and outstanding shares of Common Stock. The general
partner of DM Associates is New DM Management Associates I ("DM
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Management I"), which is a general partnership. The general partners of DM
Management I are Robert B. Stein, Jr. and Gregory G. Landry, each of whom
owns 50% of the partnership interest of DM Management I.
As the sole general partner of DM Associates, DM Management I has the power
to vote and dispose of the 702,617 shares of Common Stock owned by DM
Associates, subject to the required consent of a class of limited partners
of DM Associates for sales of more than 396,000 shares. The partnership
agreement of DM Management I provides that a majority of the partnership
interests of DM Management I is required to vote the shares of Common Stock
owned by DM Associates.
As the managing general partner of DM Management I, Mr. Stein has sole
dispositive power with respect to the 702,617 shares owned by DM
Associates, subject to the limitation described above. As general partners
of DM Management I, Messrs. Stein and Landry share voting power with
respect to the 702,617 shares owned by DM Associates.
(2) Triumph-Connecticut Limited Partnership ("Triumph"), Triumph's general
partner, Triumph-Connecticut Capital Advisors, Limited Partnership
("TCCALP"), and TCCALP's general partners, Triumph-Capital Group, Inc.,
Fredrick W. McCarthy, Fredrick S. Moseley, IV, E. Mark Noonan, Thomas W.
Janes, John M. Chapman and Richard J. Williams, reported on a Schedule 13D
filed with the SEC their shared beneficial ownership of currently
exercisable warrants to purchase an aggregate of 826,221 shares of Common
Stock.
(3) The IDS Mutual Fund Group, through nominees, holds currently exercisable
warrants to purchase an aggregate of 378,903 shares of Common Stock. If the
378,903 shares underlying the warrants were issued, they would represent
approximately 7.0% of the total number of issued and outstanding shares of
the Company's Common Stock.
(4) American International Group, Inc. and its affiliates hold currently
exercisable warrants to purchase an aggregate of 388,811 shares of Common
Stock. If the 388,811 shares underlying the warrants were issued, they would
represent approximately 7.2% of the total number of issued and outstanding
shares of the Company's Common Stock.
(5) New Frontier Capital, L.P., and William L. Musser, Jr., in his capacity as
General Partner, reported on a Form 13F filed with the SEC its beneficial
ownership, as an investment advisor, of 327,550 shares of Common Stock.
(6) Includes 280,625 shares of Common Stock issuable to Mr. Stein within 60
days of April 27, 2001, pursuant to employee stock options and grants. Mr.
Stein also has the power to dispose of 4,001 shares held in his 401(k)
account that are included above.
(7) Includes 175,500 shares of Common Stock issuable to Mr. Landry within 60
days of April 27, 2001, pursuant to employee stock options and grants.
(8) Includes 8,750 shares of Common Stock that Mr. Adams is, or within 60 days
of April 27, 2001, will be, entitled to purchase upon the exercise of stock
options.
(9) Includes 23,125 shares of Common Stock that Mr. Barrett is, or within 60
days of April 27, 2001, will be, entitled to purchase upon the exercise of
stock options.
(10) Includes 17,125 shares of Common Stock that Mr. Birchfield is, or within 60
days of April 27, 2001, will be, entitled to purchase upon the exercise of
stock options.
(11) Includes 20,625 shares of Common Stock that Mr. Everets is, or within 60
days of April 27, 2001, will be, entitled to purchase upon the exercise of
stock options.
(12) Includes 1,750 shares of Common Stock that Mr. Foley is, or within 60 days
of April 27, 2001, will be, entitled to purchase upon the exercise of stock
options.
(13) Includes 100,000 shares of Common Stock that Mr. Colley is, or within 60
days of April 27, 2001, will be, entitled to purchase upon the exercise of
stock options.
(14) Includes 18,750 shares of Common Stock that Mr. Valvo is, or within 60 days
of April 27, 2001, will be, entitled to purchase upon the exercise of stock
options.
(15) Includes 20,000 shares of Common Stock that Ms. Guiney is, or within 60
days of April 27, 2001, will be, entitled to purchase upon the exercise of
stock options.
29
30
(16) Includes 18,750 shares of Common Stock that Ms. Adams is, or within 60 days
of April 27, 2001, will be, entitled to purchase upon the exercise of stock
options.
(17) Includes exercisable, within 60 days of April 27, 2001, stock options
granted to all directors and executive officers of the Company to purchase
610,000 shares of Common Stock.
ARRANGEMENTS INVOLVING CHANGES IN CONTROL
If the merger is consummated, Mr. Stein will control the Company. The Company's
existing stockholders, except Mr. Stein and his affiliates, will receive $4.50
per share in cash. In connection with entering into the Merger Agreement, Mr.
Stein, DM Associates, DM Management I and DM Acquisition Corp. entered into a
voting agreement pursuant to which they agreed to vote any shares of Dairy Mart
Common Stock that they beneficially owned in favor of the merger and the Merger
Agreement and agreed to refrain from voting in favor of any other proposals to
sell Dairy Mart.
30
31
PERFORMANCE GRAPH
The Performance Graph set forth below compares the performance of the Common
Stock over the past five years with (i) the cumulative total return on the
American Stock Exchange Stock Market (the "AMEX") and (ii) a peer group index
consisting of AMEX Stocks Standard Industry Codes 5410-5419 (grocery stores)
("Peer Group Index").
The figures presented assume the reinvestment of all dividends into shares of
Common Stock on the dividend payment date and that $100 was invested in Common
Stock and in the AMEX Stock Market Index (U.S. Companies) and Peer Group Index
on February 2, 1996, and held through February 2, 2001 (the end of the Company's
most recent fiscal year).
COMPARISON OF FIVE--YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
DAIRY MART CONVENIENCE STORES, INC.
PRODUCED ON 04/05/2001 INCLUDING DATA TO 02/02/2001
AMEX STOCKS (SIC 5410-
DAIRY MART CONVENIENCE AMEX STOCK MARKET (US 5419 US COMPANIES)
STORES, INC. COMPANIES) GROCERY STORES
---------------------- --------------------- ----------------------
01/27/1995 100 100 100
01/28/1995 100 103.158 105.173
03/29/1995 95.082 104.036 106.21
04/28/1995 111.475 107.132 118.197
05/26/1999 137.705 110.025 126.375
06/29/1995 131.148 111.889 126.219
07/28/1995 124.59 118.206 138.954
08/29/1995 160.656 119.474 134.115
09/29/1995 147.541 124.182 140.457
10/27/1995 157.377 118.095 142.623
11/29/1995 177.049 121.758 150.96
12/29/1995 147.541 125.203 142.232
02/02/1996 147.541 124.996 148.334
02/29/1996 157.377 127.376 149.494
03/29/1996 157.377 128.552 150.273
04/29/1996 144.262 133.56 144.986
05/29/1996 157.377 136.903 155.637
06/28/1996 154.098 129.779 163.77
07/29/1996 157.377 118.882 151.949
08/29/1996 157.377 123.469 155.522
09/27/1996 131.148 125.916 157.299
10/29/1996 131.148 123.198 153.112
11/29/1996 129.508 129.147 154.862
12/27/1996 114.754 127.204 159.402
01/31/1997 150.82 130.168 152.503
02/28/1997 137.705 132.558 150.742
03/27/1997 124.59 128.23 149.759
04/29/1997 121.312 121.444 150.892
05/29/1997 157.377 134.166 152.936
06/27/1997 152.459 138.78 157.629
07/29/1997 160.656 143.687 152.515
08/29/1997 147.541 146.882 151.975
09/29/1997 144.262 158.127 153.745
10/29/1997 127.869 152.997 142.832
11/28/1997 118.033 153.073 158.019
12/29/1997 129.508 154.957 156.797
01/30/1998 109.836 156.313 152.388
02/27/1998 114.754 165.951 171.051
03/27/1998 111.476 174.412 179.57
04/29/1998 98.361 176.772 172.334
05/29/1998 111.476 170.269 203.976
06/29/1998 101.639 174.213 203.011
07/29/1998 101.64 172.401 204.165
08/28/1998 93.443 148.085 201.449
09/29/1998 98.361 149.872 202.832
10/29/1998 91.803 153.745 203.569
11/27/1998 114.754 163.192 213.842
12/29/1998 100 166.243 199.447
01/29/1999 91.803 178.304 200.26
02/26/1999 88.525 174.388 186.476
03/29/1999 98.361 176.431 185.283
04/29/1999 95.082 189.567 162.945
05/28/1999 101.64 192.534 169.671
06/29/1999 98.361 191.56 164.811
07/29/1999 95.082 193.147 192.913
08/27/1999 140.984 190.013 197.934
09/29/1999 98.361 189.235 182.432
10/29/1999 85.246 191.509 158.438
11/29/1999 114.754 204.639 156.841
12/29/1999 88.525 212.388 145.462
01/28/2000 85.246 211.448 152.485
02/02/1996 01/31/1997 01/30/1998 01/29/1999 01/28/2000 02/02/2001
CRSP TOTAL RETURNS INDEX FOR: ---------- ---------- ---------- ---------- ---------- ----------
Dairy Mart Convenience Stores, Inc....... 100.0 98.3 72.4 59.6 55.3 51.1
AMEX Stock Market (US Companies)......... 100.0 104.2 125.3 142.8 173.8 175.8
AMEX Stocks (SIC 5410-5419 US Companies)
Grocery Stores......................... 100.0 102.8 102.7 135.0 102.8 92.1
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading day,
the preceding trading day is used.
D. The index level for all series was set to $100.0 on 02/02/1996.
31
32
1/2/98 84.473 126.997 107.04
1/5/98 84.473 126.754 108.298
1/6/98 83.048 126.182 105.838
1/7/98 81.27 126.284 106.456
1/8/98 84.121 125.269 107.279
1/9/98 83.399 121.827 102.324
1/12/98 82.696 121.578 104.962
1/13/98 80.205 123.599 105.347
1/14/98 81.27 124.095 105.588
1/15/98 80.214 123.559 105.029
1/16/98 80.918 124.865 107.088
1/20/98 80.918 126.753 107.255
1/21/98 82.344 125.876 106.598
1/22/98 80.566 125.304 106.577
1/23/98 80.918 124.435 105.817
1/26/98 80.918 124.171 107.066
1/27/98 78.076 124.848 105.873
1/28/98 77.715 124.973 104.961
1/29/98 73.104 125.611 105.643
1/30/98 72.391 125.253 102.733
2/2/98 73.808 125.727 105.824
2/3/98 73.808 125.743 104.911
2/4/98 72.391 126.394 104.206
2/5/98 74.53 126.928 104.223
2/6/98 74.53 127.597 105.974
2/9/98 75.233 127.736 105.592
2/10/98 76.659 128.846 108.274
2/11/98 78.789 128.559 110.479
2/12/98 78.437 128.913 108.93
2/13/98 73.808 129.383 110.401
2/17/98 74.53 129.214 110.042
2/18/98 75.956 129.363 113
2/19/98 75.956 129.336 112.667
2/20/98 73.104 129.564 112.775
2/23/98 66.697 129.764 113.705
2/24/98 65.994 129.384 113.098
2/25/98 68.123 130.33 115.225
2/26/98 73.104 131.938 114.18
2/27/98 74.53 132.978 115.315
3/2/98 75.956 133.803 116.469
3/3/98 73.826 133.655 119.455
3/4/98 73.826 133.807 118.165
3/5/98 73.826 132.661 116.195
3/6/98 73.826 134.481 118.531
3/9/98 72.4 133.635 118.086
3/10/98 74.178 134.642 120.078
3/11/98 76.307 134.926 121.456
3/12/98 77.02 134.998 122.778
3/13/98 75.956 135.461 123.37
3/16/98 75.243 136.276 123.331
3/17/98 73.474 136.483 121.918
3/18/98 73.826 137.437 123.011
3/19/98 74.548 138.278 121.22
3/20/98 73.122 138.423 120.25
3/23/98 71.697 139.344 121.695
3/24/98 70.271 140.193 122.576
3/25/98 73.122 139.635 120.778
3/26/98 73.113 139.914 122.246
3/27/98 72.049 139.66 121.058
3/30/98 73.104 139.49 121.209
3/31/98 74.53 140.754 123.147
4/1/98 75.233 141.331 124.816
4/2/98 74.521 142.242 126.121
4/3/98 73.808 142.151 126.801
4/6/98 72.382 141.249 124.561
4/7/98 72.4 139.864 122.191
4/8/98 72.4 140.243 122.706
4/9/98 71.688 141.089 122.805
4/13/98 68.845 140.666 123.701
4/14/98 68.845 140.973 123.41
4/15/98 68.845 141.54 124.561
4/16/98 69.549 140.711 123.18
4/17/98 69.549 141.804 125.34
4/20/98 67.419 142.655 123.235
4/21/98 66.716 143.065 120.058
4/22/98 65.29 143.666 118.765
4/23/98 65.994 142.205 117.051
4/24/98 65.994 141.107 114.813
4/27/98 63.864 138.524 113.186
4/28/98 65.994 139.62 113.151
4/29/98 65.994 141.679 116.179
4/30/98 65.994 142.589 119.022
5/1/98 65.308 143.293 119.248
5/4/98 65.66 142.974 119.064
5/5/98 65.308 142.381 119.611
5/6/98 65.308 141.911 119.837
5/7/98 65.308 141.769 119.952
5/8/98 63.883 142.048 121.664
5/11/98 64.957 141.849 121.857
5/12/98 65.308 141.663 122.46
5/13/98 68.845 141.875 122.412
5/14/98 70.993 141.553 122.975
5/15/98 70.271 140.89 121.044
5/18/98 73.474 139.938 121.229
5/19/98 72.4 140.129 136.422
5/20/98 73.465 140.201 136.49
5/21/98 74.53 140.235 136.97
5/22/98 74.53 139.39 137.367
5/26/98 76.307 137.418 137.159
5/27/98 74.53 135.247 136.895
5/28/98 71.678 136.183 136.912
5/29/98 73.104 136.494 137.511
6/1/98 71.672 135.448 137.491
6/2/98 70.59 135.182 137.392
6/3/98 68.827 134.95 137.536
6/4/98 68.111 135.938 137.324
6/5/98 68.46 136.751 137.767
6/8/98 68.827 136.882 137.837
6/9/98 69.543 137.131 137.313
6/10/98 68.129 136.195 137.434
6/11/98 70.276 134.847 137.601
6/12/98 70.276 134.307 137.434
6/15/98 69.561 132.075 137.443
6/16/98 68.147 133.162 137.265
6/17/98 68.147 134.175 137.301
6/18/98 68.147 133.57 137.664
6/19/98 68.496 134.239 137.542
6/22/98 66.715 134.136 137.75
6/23/98 66.366 134.918 137.574
6/24/98 69.579 137.078 137.889
6/25/98 70.974 138.08 137.13
6/26/98 68.129 139.021 137.29
6/29/98 67.413 139.668 136.861
6/30/98 68.827 140.101 136.874
7/1/98 68.845 140.353 136.876
7/2/98 68.845 140.08 137.196
7/6/98 68.845 140.685 137.371
7/7/98 69.525 141.126 137.126
7/8/98 68.809 141.484 137.389
7/9/98 69.543 141.485 137.516
7/10/98 68.827 142.264 137.447
7/13/98 67.413 142.379 137.337
7/14/98 68.845 142.571 137.295
7/15/98 65.999 142.2 136.806
7/16/98 66.733 142.369 136.606
7/17/98 67.082 143.071 137.552
7/20/98 67.082 143.957 137.119
7/21/98 68.147 142.904 137.045
7/22/98 68.147 143.035 137.026
7/23/98 70.276 140.315 136.994
7/24/98 67.413 140.012 136.927
7/27/98 66.715 139.249 136.941
7/28/98 66.715 137.775 136.819
7/29/98 66.715 138.219 137.639
7/30/98 66.715 139.611 137.595
7/31/98 64.55 138.11 137.005
8/3/98 65.284 136.458 137.416
8/4/98 62.456 132.495 136.927
8/5/98 62.456 131.192 137.224
8/6/98 59.593 132.877 137.25
8/7/98 62.456 134.048 137.17
8/10/98 62.456 133.358 136.99
8/11/98 59.593 129.461 137.245
8/12/98 65.319 131.209 137.138
8/13/98 65.319 131.123 137.425
8/14/98 66.751 130.003 137.749
8/17/98 66.733 130.246 137.749
8/18/98 66.751 131.602 137.261
8/19/98 66.035 130.512 136.723
8/20/98 66.035 130.071 136.653
8/21/98 66.035 127.765 136.055
8/24/98 63.888 127.323 136.43
8/25/98 63.888 126.765 136.369
8/26/98 64.621 124.396 136.313
8/27/98 60.327 120.086 135.598
8/28/98 61.042 118.761 135.807
8/31/98 56.801 110.833 135.124
9/1/98 56.801 116.786 135.836
9/2/98 55.369 117.707 135.478
9/3/98 53.24 116.134 134.697
9/4/98 52.506 115.909 134.87
9/8/98 56.801 120.651 136.214
9/9/98 56.085 118.439 135.595
9/10/98 54.671 116.791 135.794
9/11/98 53.973 118.27 135.726
9/14/98 56.103 119.44 135.473
9/15/98 63.19 120.482 135.935
9/16/98 64.621 121.734 136.06
9/17/98 62.492 120.286 136.44
9/18/98 60.344 121.72 135.849
9/21/98 60.344 121.907 135.988
9/22/98 61.776 122.741 136.237
9/23/98 61.06 124.904 136.604
9/24/98 61.776 123.493 136.696
9/25/98 62.125 123.101 136.89
9/28/98 62.841 123.112 136.689
9/29/98 63.19 120.16 136.74
9/30/98 63.19 119.156 136.562
10/1/98 59.279 116.729 136.841
10/2/98 59.627 116.623 136.655
10/5/98 60.364 113.347 136.232
10/6/98 57.497 113.47 136.338
10/7/98 53.975 111.429 136.107
10/8/98 52.542 107.217 136.038
10/9/98 53.975 109.695 136.22
10/12/98 53.975 110.994 136.412
10/13/98 48.283 110.361 136.387
10/14/98 52.542 111.754 136.45
10/15/98 53.975 114.911 136.273
10/16/98 53.975 116.061 136.527
10/19/98 53.975 116.673 136.829
10/20/98 55.408 118.781 137.013
10/21/98 56.125 119.569 136.985
10/22/98 53.975 121.446 137.307
10/23/98 54.692 121.347 137.296
10/26/98 54.672 122.678 137.549
10/27/98 54.672 121.931 137.153
10/28/98 56.105 122.312 137.198
10/29/98 57.538 123.251 137.237
10/30/98 60.364 124.777 137.275
11/2/98 58.951 126.977 136.237
11/3/98 58.234 128.33 136.93
11/4/98 59.668 128.393 136.852
11/5/98 61.06 128.632 137.503
11/6/98 59.627 129.369 137.77
11/9/98 62.493 128.297 138.501
11/10/98 62.493 127.997 139.516
11/11/98 61.06 127.751 139.973
11/12/98 61.06 128.241 142.479
11/13/98 66.016 128.731 142.799
11/16/98 63.19 128.931 139.762
11/17/98 65.36 129.086 141.182
11/18/98 64.623 129.305 142.567
11/19/98 64.971 130.446 139.274
11/20/98 67.101 130.902 140.95
11/23/98 64.623 130.575 140.192
11/24/98 66.056 129.603 140.942
11/25/98 69.619 130.465 141.54
11/27/98 73.141 130.835 144.162
11/30/98 73.837 129.275 143.415
12/1/98 74.186 129.148 140.122
12/2/98 72.056 128.998 139.126
12/3/98 67.449 127.543 133.97
12/4/98 66.384 128.749 137.406
12/7/98 67.449 130.063 135.927
12/8/98 67.449 130.573 136.107
12/9/98 66.752 130.795 132.36
12/10/98 65.319 130.33 141.221
12/11/98 67.449 129.27 135.194
12/14/98 66.016 126.946 133.034
12/15/98 63.538 126.685 133.108
12/16/98 63.19 127.331 131.343
12/17/98 61.06 127.674 131.975
12/18/98 58.931 128.044 134.79
12/21/98 66.036 128.822 135.5
12/22/98 65.319 129.509 136.89
12/23/98 58.931 131.69 137.159
12/24/98 58.931 132.105 134.47
12/28/98 62.493 131.847 134.077
12/29/98 63.906 133.288 134.458
12/30/98 58.89 133.657 132.506
12/31/98 60.364 136.813 134.007
1/4/99 60.364 135.83 134.342
1/5/99 59.674 137.477 139.347
1/6/99 58.985 139.025 141.025
1/7/99 60.364 139.313 138.101
1/8/99 58.924 139.729 138.87
1/11/99 60.364 139.396 138.476
1/12/99 63.933 137.924 135.783
1/13/99 62.493 138.403 136.682
1/14/99 61.053 138.349 136.146
1/15/99 58.985 140.46 133.303
1/19/99 60.334 140.572 135.848
1/20/99 61.053 141.941 135.811
1/21/99 57.485 139.974 133.405
1/22/99 56.045 140.262 134.211
1/25/99 59.614 140.649 136.583
1/26/99 59.614 140.676 136.73
1/27/99 58.924 140.736 132.926
1/28/99 59.614 142.461 134.216
1/29/99 59.614 142.844 135.006
2/1/99 58.174 142.115 132.885
2/2/99 59.269 141.883 134.732
2/3/99 57.485 142.69 132.199
2/4/99 57.485 141.037 130.434
2/5/99 58.924 140.679 130.825
2/8/99 60.334 140.157 129.346
2/9/99 66.751 138.13 131.929
2/10/99 65.342 137.208 132.84
2/11/99 64.967 139.361 131.293
2/12/99 60.303 138.514 128.774
2/16/99 60.303 138.551 129.211
2/17/99 60.303 137.17 130.098
2/18/99 60.303 137.387 130.925
2/19/99 60.303 138.303 132.232
2/22/99 60.648 140.141 130.931
2/23/99 60.303 140.392 130.278
2/24/99 60.303 139.243 129.494
2/25/99 58.864 139.023 128.821
2/26/99 58.864 139.742 125.713
3/1/99 57.424 139.652 125.599
3/2/99 58.144 139.635 126.431
3/3/99 58.113 138.735 126.888
3/4/99 59.898 139.518 127.561
3/5/99 58.113 140.689 124.373
3/8/99 53.916 141.654 125.421
3/9/99 53.571 141.575 125.827
3/10/99 52.476 142.061 126.187
3/11/99 51.787 143.398 125.682
3/12/99 51.787 142.965 124.054
3/15/99 51.097 143.051 125.392
3/16/99 51.097 142.138 124.986
3/17/99 51.097 141.504 126.003
3/18/99 51.097 141.504 125.77
3/19/99 50.753 140.285 125.677
3/22/99 55.416 140.952 125.692
3/23/99 56.106 137.943 125.733
3/24/99 56.106 138.259 127.825
3/25/99 60.364 140.084 129.342
3/26/99 62.179 141.378 124.546
3/29/99 61.803 141.74 124.909
3/30/99 61.084 140.731 123.964
3/31/99 48.968 140.034 118.268
4/1/99 54.666 140.362 115.963
4/5/99 49.719 142.4 114.581
4/6/99 52.537 141.641 114.132
4/7/99 49.313 142.368 113.249
4/8/99 49.313 143.372 111.863
4/9/99 51.097 144.199 108.816
4/12/99 46.839 145.676 107.55
4/13/99 50.408 145.769 109.079
4/14/99 49.719 145.271 109.53
4/15/99 49.719 145.38 111.202
4/16/99 49.688 145.955 110.721
4/19/99 51.848 143.567 110.928
4/20/99 50.408 144.333 106.439
4/21/99 51.128 147.241 112.472
4/22/99 49.343 148.91 107.909
4/23/99 49.688 150.998 111.005
4/26/99 50.408 151.878 110.124
4/27/99 58.864 152.076 108.567
4/28/99 59.614 151.79 110.441
4/29/99 60.364 151.572 109.85
4/30/99 61.773 151.683 109.567
5/3/99 60.303 153.304 109.015
5/4/99 61.398 153.006 108.81
5/5/99 61.743 153.064 110.235
5/6/99 59.958 152.951 110.086
5/7/99 59.614 153.28 107.39
5/10/99 59.614 153.404 110.266
5/11/99 58.174 154.428 113.502
5/12/99 57.485 156.596 114.058
5/13/99 65.251 156.955 115.739
5/14/99 63.466 154.672 112.921
5/17/99 60.993 153.977 111.937
5/18/99 62.493 153.819 110.952
5/19/99 63.182 154.647 112.762
5/20/99 64.592 155.352 113.417
5/21/99 62.432 155.832 112.277
5/24/99 60.648 154.119 115.406
5/25/99 63.872 152.665 116.045
5/26/99 63.152 153.469 117.663
5/27/99 63.182 152.077 115.061
5/28/99 64.622 153.467 114.384
6/1/99 66.079 152.835 113.29
6/2/99 64.622 151.789 112.336
6/3/99 62.437 152.536 111.698
6/4/99 63.836 153.765 110.73
6/7/99 65.293 153.561 112.484
6/8/99 63.836 152.677 110.885
6/9/99 61.651 152.985 110.339
6/10/99 63.165 151.83 112.688
6/11/99 64.508 150.749 113.326
6/14/99 65.293 149.855 112.609
6/15/99 65.964 150.122 110.977
6/16/99 64.172 150.664 113.035
6/17/99 64.508 151.585 113.399
6/18/99 63.779 151.679 113.053
6/21/99 61.594 151.495 112.221
6/22/99 60.923 151.222 112.547
6/23/99 60.587 152.279 108.064
6/24/99 60.309 151.569 105.856
6/25/99 62.494 151.539 111.034
6/28/99 61.709 152.456 109.783
6/29/99 63.165 153.571 111.108
6/30/99 63.165 157.754 111.992
7/1/99 62.031 157.126 110.578
7/2/99 64.962 158.408 111.14
7/6/99 63.024 158.724 108.566
7/7/99 64.49 158.114 110.355
7/8/99 67.42 159.342 113.369
7/9/99 65.955 160.294 115.047
7/12/99 66.688 160.8 112.936
7/13/99 67.089 161.248 112.811
7/14/99 66.357 161.04 113.393
7/15/99 65.624 162.554 111.757
7/16/99 66.758 161.828 112.818
7/19/99 66.758 161.641 109.425
7/20/99 60.235 158.949 118.945
7/21/99 63.165 159.759 122.74
7/22/99 63.165 158.049 126.897
7/23/99 63.165 157.459 128.402
7/26/99 61.7 155.804 130.548
7/27/99 62.397 156.475 129.956
7/28/99 61.7 156.013 129.509
7/29/99 62.693 154.764 130.053
7/30/99 62.764 155.11 130.454
8/2/99 60.305 154.457 124.369
8/3/99 62.433 153.39 129.2
8/4/99 62.101 152.132 133.501
8/5/99 62.834 152.289 136.021
8/6/99 62.362 152.273 134.376
8/9/99 63.828 152.095 138.93
8/10/99 63.828 150.472 142.603
8/11/99 68.083 151.6 142.828
8/12/99 66.286 152.128 138.12
8/13/99 65.955 153.206 140.625
8/16/99 72.338 152.702 144.913
8/17/99 74.465 153.082 143.67
8/18/99 76.593 152.908 144.049
8/19/99 78.39 152.998 141.845
8/20/99 84.11 153.299 138.459
8/23/99 91.486 154.691 137.666
8/24/99 83.307 154.329 136.279
8/25/99 88.696 154.058 134.953
8/26/99 90.683 153.357 132.242
8/27/99 90.824 152.844 133.438
8/30/99 90.824 151.4 132.867
8/31/99 89.027 151.408 133.184
9/1/99 87.562 152.761 133.561
9/2/99 85.766 152.097 134.388
9/3/99 86.097 154.441 134.329
9/7/99 86.428 155.555 133.995
9/8/99 86.498 155.247 134.288
9/9/99 85.836 157.393 134.803
9/10/99 84.3 157.965 134.073
9/13/99 83.638 157.346 137.141
9/14/99 82.976 156.669 137.24
9/15/99 82.976 155.64 133.367
9/16/99 83.307 154.569 133.789
9/17/99 81.51 155.645 131.594
9/20/99 79.383 155.537 131.485
9/21/99 79.383 153.877 130.828
9/22/99 77.255 153.929 131.342
9/23/99 72.197 152.128 130.324
9/24/99 68.745 151.418 126.581
9/27/99 70.21 152.157 127.213
9/28/99 68.745 151.149 128.687
9/29/99 64.49 152.077 122.987
9/30/99 57.445 153.601 105.876
10/1/99 59.572 153.354 114.535
10/4/99 64.975 154.202 118.473
10/5/99 65.796 153.254 117.302
10/6/99 64.891 154.317 119.448
10/7/99 66.039 153.605 116.697
10/8/99 65.955 153.362 115.79
10/11/99 65.302 155.331 117.193
10/12/99 64.565 154.825 115.719
10/13/99 63.828 153.422 116.866
10/14/99 62.027 152.727 116.187
10/15/99 62.353 150.475 117.987
10/18/99 64.565 148.815 118.081
10/19/99 64.238 149.562 118.456
10/20/99 63.911 151.652 115.956
10/21/99 63.174 151.62 113.25
10/22/99 61.373 153.026 111.825
10/25/99 60.553 152.806 109.582
10/26/99 58.425 151.969 109.004
10/27/99 58.752 151.836 106.361
10/28/99 59.489 153.835 105.768
10/29/99 56.624 154.98 106.811
11/1/99 59.899 155.114 103.663
11/2/99 63.174 154.803 109.513
11/3/99 61.863 155.273 110.237
11/4/99 67.429 156.491 105.566
11/5/99 67.429 156.862 105.142
11/8/99 70.21 158.122 107.702
11/9/99 67.429 158.299 105.207
11/10/99 67.429 159.862 105.042
11/11/99 66.692 160.529 101.154
11/12/99 68.736 161.911 103.101
11/15/99 68.82 164.009 100.883
11/16/99 68.531 164.218 101.462
11/17/99 67.999 163.957 100.018
11/18/99 68.409 165.014 99.569
11/19/99 70.864 165.848 101.862
11/22/99 74.465 165.98 103.133
11/23/99 74.465 163.863 104.692
11/24/99 73.812 165.238 101.126
11/26/99 74.139 166.216 108.552
11/29/99 73.812 166.576 105.735
11/30/99 71.684 165.858 104.528
12/1/99 73.645 166.76 106.595
12/2/99 69.39 167.291 103.087
12/3/99 67.915 168.271 102.739
12/6/99 65.871 168.013 102.528
12/7/99 59.238 167.472 101.857
12/8/99 60.385 167.258 100.64
12/9/99 62.186 166.13 100.765
12/10/99 63.007 166.311 101.299
12/13/99 62.027 166.921 99.407
12/14/99 62.68 166.305 99.266
12/15/99 63.417 168.086 100.547
12/16/99 60.226 168.105 98.749
12/17/99 58.752 167.755 99.407
12/20/99 54.329 168.761 99.871
12/21/99 58.425 170.633 101.138
12/22/99 59.899 170.651 101.543
12/23/99 63.501 171.592 101.93
12/27/99 61.373 171.333 102.313
12/28/99 58.919 171.783 100.24
12/29/99 57.445 175.645 98.064
12/30/99 57.118 176.954 97.234
12/31/99 57.771 179.86 97.278
33
1/3/00 61.059 177.604 97.767
1/4/00 57.771 170.953 97.804
1/5/00 58.19 171.074 97.483
1/6/00 60.413 169.57 99.948
1/7/00 61.19 173.61 99.705
1/10/00 62.027 177.491 100.312
1/11/00 60.222 173.992 99.085
1/12/00 60.545 171.762 99.718
1/13/00 59.576 175.009 101.026
1/14/00 60.64 176.085 99.706
1/18/00 58.835 179.217 98.473
1/19/00 58.094 180.687 98.777
1/20/00 56.612 181.644 100.08
1/21/00 59.576 184.085 99.649
1/24/00 58.835 182.037 103.518
1/25/00 56.612 182.866 102.571
1/26/00 55.966 182.057 103.389
1/27/00 55.321 176.716 102.609
1/28/00 55.321 173.792 102.798
1/31/00 54.676 174.586 99.607
2/1/00 55.966 176.244 103.212
2/2/00 56.707 177.09 100.395
2/3/00 56.612 179.462 102.284
2/4/00 55.5 179.659 102.133
2/7/00 58.094 180.882 104.878
2/8/00 57.449 183.372 105.067
2/9/00 57.449 181.065 105.777
2/10/00 57.449 183.896 105.433
2/11/00 57.449 182.328 104.742
2/14/00 55.321 183.161 104.176
2/15/00 55.321 183.764 104.866
2/16/00 55.321 185.288 105.152
2/17/00 51.065 188.338 104.328
2/18/00 54.257 185.317 103.877
2/22/00 53.193 185.648 103.679
2/23/00 52.129 188.186 100.635
2/24/00 52.129 189.176 104.69
2/25/00 52.129 188.413 104.863
2/28/00 51.065 188.978 105.125
2/29/00 48.938 192.324 102.926
3/1/00 53.193 196.334 105.526
3/2/00 53.193 197.737 102.74
3/3/00 51.065 200.456 107.672
3/6/00 51.065 201.246 102.429
3/7/00 48.938 200.425 103.15
3/8/00 44.682 200.609 102.169
3/9/00 42.555 203.003 100.336
3/10/00 45.746 203.571 102.143
3/13/00 45.746 200.98 97.789
3/14/00 44.682 197.196 97.979
3/15/00 44.682 194.743 97.481
3/16/00 42.555 199.646 97.24
3/17/00 42.555 200.804 100.549
3/20/00 41.491 198.048 104.937
3/21/00 42.555 198.733 110.662
3/22/00 47.874 200.933 108.031
3/23/00 46.81 202.924 111.382
3/24/00 48.938 203.029 115.223
3/27/00 51.065 201.419 115.397
3/28/00 50.002 199.913 113.772
3/29/00 50.002 197.694 107.23
3/30/00 48.938 195.377 110.023
3/31/00 48.938 198.554 109.64
4/3/00 46.81 195.046 107.21
4/4/00 46.81 189.589 108.605
4/5/00 46.81 190.018 108.102
4/6/00 44.682 193.43 106.12
4/7/00 46.81 195.688 111.545
4/10/00 45.746 191.175 112.889
4/11/00 46.81 189.09 113.589
4/12/00 46.81 184.049 116.316
4/13/00 47.874 181.745 118.433
4/14/00 36.171 171.016 106.745
4/17/00 31.916 171.409 105.974
4/18/00 34.044 177.525 107.587
4/19/00 34.044 178.333 106.44
4/20/00 44.682 178.346 111.35
4/24/00 38.299 175.11 103.98
4/25/00 40.427 180.009 109.67
4/26/00 41.491 179.523 110.186
4/27/00 53.193 180.543 115.666
4/28/00 48.938 182.932 114.949
5/1/00 42.555 185.923 113.631
5/2/00 46.81 182.972 114.679
5/3/00 46.81 179.885 115.13
5/4/00 44.682 182.025 114.546
5/5/00 40.427 184.471 113.76
5/8/00 38.299 182.347 112.858
5/9/00 38.299 181.641 111.392
5/10/00 38.299 176.692 115.586
5/11/00 42.555 180.07 113.904
5/12/00 63.832 181.473 124.673
5/15/00 72.343 183.833 127.404
5/16/00 70.215 185.024 127.901
5/17/00 71.279 184.685 128.101
5/18/00 65.96 183.076 131.113
5/19/00 65.96 179.438 131.679
5/22/00 78.726 176.521 134.876
5/23/00 72.343 174.099 126.819
5/24/00 69.151 175.442 124.388
5/25/00 73.407 173.574 127.151
5/26/00 75.534 173.505 128.434
5/30/00 74.47 178.571 127.219
5/31/00 72.343 179.731 123.063
6/1/00 81.918 182.087 128.316
6/2/00 82.981 185.321 131.595
6/5/00 85.109 184.68 132.913
6/6/00 81.918 185.024 131.033
6/7/00 85.109 185.592 133.173
6/8/00 85.109 186.395 130.26
6/9/00 82.981 187.355 127.97
6/12/00 80.854 185.734 127.879
6/13/00 78.726 187.432 126.039
6/14/00 77.662 186.772 124.766
6/15/00 79.79 186.902 125.424
6/16/00 84.045 186.692 127.938
6/19/00 80.854 188.297 126.821
6/20/00 80.854 187.886 129.118
6/21/00 74.47 187.896 127.051
6/22/00 68.087 185.769 125.942
6/23/00 74.47 184.78 128.979
6/26/00 76.598 185.904 128.585
6/27/00 74.47 185.63 127.781
6/28/00 76.598 186.371 127.119
6/29/00 78.726 186.974 129.31
6/30/00 72.343 186.386 127.55
7/3/00 70.215 188.467 127.181
7/5/00 76.598 184.861 127.181
7/6/00 76.598 186.625 126.497
7/7/00 76.598 188.725 127.646
7/10/00 76.598 188.4 126.583
7/11/00 78.726 191.108 133.827
7/12/00 79.79 192.458 133.868
7/13/00 85.109 192.013 131.3
7/14/00 82.981 193.449 132.809
7/17/00 85.109 193.035 134.452
7/18/00 85.109 192.144 131.955
7/19/00 87.237 190.321 133.89
7/20/00 89.365 192.495 134.078
7/21/00 86.173 189.964 135.264
7/24/00 85.109 187.176 135.177
7/25/00 87.237 186.279 136.927
7/26/00 86.173 187.499 135.035
7/27/00 86.173 185.813 135.143
7/28/00 86.173 182.599 134.415
7/31/00 87.237 184.656 133.396
8/1/00 93.62 185.839 136.293
8/2/00 93.62 186.179 134.973
8/3/00 98.939 186.314 134.988
8/4/00 97.875 186.23 128.325
8/7/00 95.748 187.112 125.613
8/8/00 95.748 187.658 125.571
8/9/00 95.748 186.115 125.142
8/10/00 92.556 185.908 124.583
8/11/00 89.365 187.836 126.333
8/14/00 90.428 189.769 125.935
8/15/00 97.875 186.542 126.086
8/16/00 93.62 185.689 127.558
8/17/00 92.556 187.646 124.968
8/18/00 90.428 187.558 124.823
8/21/00 89.365 188.064 122.19
8/22/00 87.237 188.293 123.501
8/23/00 89.365 188.511 121.349
8/24/00 89.365 189.903 121.705
8/25/00 92.556 190.448 120.977
8/28/00 88.301 190.72 119.618
8/29/00 87.237 191.036 124.608
8/30/00 89.365 191.467 125.362
8/31/00 91.492 194.092 124.841
9/1/00 91.492 195.403 126.631
9/5/00 89.365 193.945 123.851
9/6/00 86.173 194.762 120.247
9/7/00 91.492 195.954 122.364
9/8/00 89.365 194.651 121.149
9/11/00 85.109 194.291 119.274
9/12/00 87.237 193.946 120.995
9/13/00 89.365 193.767 121.91
9/14/00 86.173 194.601 119.603
9/15/00 86.173 194.294 117.342
9/18/00 86.173 190.752 117.772
9/19/00 85.109 190.564 116.586
9/20/00 88.301 188.258 118.643
9/21/00 89.365 186.255 118.908
9/22/00 89.365 187.318 122.018
9/25/00 91.492 187.608 119.022
9/26/00 86.173 186.579 117.547
9/27/00 88.301 187.257 117.441
9/28/00 86.173 190.692 116.933
9/29/00 85.109 190.227 114.778
10/2/00 87.237 187.916 112.244
10/3/00 89.365 185.474 116.781
10/4/00 91.492 186.163 117.559
10/5/00 90.428 186.162 115.911
10/6/00 89.365 183.39 116.901
10/9/00 92.556 183.061 117.417
10/10/00 89.365 181.252 114.522
10/11/00 86.173 179.09 113.535
10/12/00 89.365 176.124 115.036
10/13/00 87.237 179.611 115.362
10/16/00 85.109 179.375 114.703
10/17/00 65.96 175.913 107.932
10/18/00 74.47 175.988 110.905
10/19/00 78.726 180.493 114.149
10/20/00 76.598 182.12 111.307
10/23/00 74.47 182.313 109.33
10/24/00 72.343 179.987 108.266
10/25/00 70.215 175.621 109.44
10/26/00 63.832 176.834 106.952
10/27/00 68.087 177.131 108.313
10/30/00 76.598 177.406 108.489
10/31/00 72.343 180.873 105.424
11/1/00 70.215 180.796 107.586
11/2/00 71.279 181.891 102.973
11/3/00 76.598 182.564 101.487
11/6/00 84.045 182.111 103.32
11/7/00 85.109 183.199 105.952
11/8/00 85.109 180.929 106.766
11/9/00 85.109 179.412 106.338
11/10/00 80.854 175.655 105.021
11/13/00 80.854 172.304 104.775
11/14/00 76.598 176.347 101.821
11/15/00 76.598 177.743 103.106
11/16/00 80.854 174.611 103.489
11/17/00 80.854 173.007 103.574
11/20/00 72.343 169.482 99.573
11/21/00 74.47 170.026 102.242
11/22/00 72.343 166.194 100.428
11/24/00 74.47 169.993 102.2
11/27/00 74.47 170.561 103.484
11/28/00 67.023 168.13 100.709
11/29/00 62.768 166.107 99.092
11/30/00 67.023 163.18 95.251
12/1/00 69.151 164.4 96.586
12/4/00 64.896 164.015 93.856
12/5/00 61.704 168.894 92.645
12/6/00 57.449 167.267 91.456
12/7/00 67.023 165.923 92.242
12/8/00 68.087 169.53 94.232
12/11/00 65.96 174.482 94.045
12/12/00 64.896 172.417 95.507
12/13/00 57.449 171.003 90.934
12/14/00 61.704 167.703 97.158
12/15/00 60.64 165.373 95.156
12/18/00 57.449 167.57 94.127
12/19/00 53.193 165.522 89.23
12/20/00 48.938 159.577 84.803
12/21/00 35.108 159.548 77.156
12/22/00 34.044 163.468 77.497
12/26/00 34.044 165.387 81.591
12/27/00 34.044 166.277 82.575
12/28/00 36.171 168.718 82.72
12/29/00 59.576 168.629 88.59
1/2/01 55.321 164.247 85.994
1/3/01 59.576 168.941 88.908
1/4/01 57.449 167.581 87.266
1/5/01 59.576 164.273 89.289
1/8/01 59.576 164.51 88.565
1/9/01 57.449 165.237 88.579
1/10/01 59.576 168.99 88.309
1/11/01 57.449 171.169 87.171
1/12/01 56.385 172.085 90.497
1/16/01 59.576 174.329 91.33
1/17/01 55.321 174.076 88.713
1/18/01 51.065 173.992 86.649
1/19/01 52.129 172.86 87.304
1/22/01 51.065 173.304 87.119
1/23/01 51.065 175.724 87.48
1/24/01 51.065 176.963 88.484
1/25/01 46.81 177.053 90.347
1/26/01 48.938 177.812 91.869
1/29/01 46.81 179.545 92.963
1/30/01 37.448 180.442 87.694
1/31/01 44.257 178.746 90.114
2/1/01 45.959 178.635 89.854
2/2/01 51.065 175.811 92.121
34
ITEM 13. CERTAIN TRANSACTIONS
Stock Owned by DM Associates
DM Associates Limited Partnership ("DM Associates") is the owner of record of
702,617 shares of Common Stock of the Company, representing approximately 14.4%
of the issued and outstanding shares of Common Stock. The general partner of DM
Associates is New DM Management Associates I, which is a general partnership.
The general partners of New DM Management Associates I are Robert B. Stein, Jr.,
a Director and the Chairman of the Board, Chief Executive Officer and President
of the Company, and Gregory G. Landry, a Director and the Vice Chairman and
Chief Financial Officer of the Company.
As the sole general partner of DM Associates, DM Management I has the power to
vote and dispose of the 702,617 shares of Common Stock owned by DM Associates,
subject to the required consent of a class of limited partners of DM Associates
for sales of more than 396,000 shares. The partnership agreement of DM
Management I provides that a majority of the partnership interests of DM
Management I is required to vote the shares of Common Stock owned by DM
Associates.
As the managing general partner of DM Management I, Mr. Stein has sole
dispositive power with respect to the 702,617 shares owned by DM Associates,
subject to the limitation described above. As general partners of DM Management
I, Messrs. Stein and Landry share voting power with respect to the 702,617
shares owned by DM Associates.
OUTSIDE COUNSEL
Albert T. Adams, one of the Company's directors, is a partner of Baker &
Hostetler LLP, which acts as the Company's general outside legal counsel on a
variety of matters. The Company expects that Baker & Hostetler will continue to
provide legal services in that capacity in fiscal year 2002.
IT SERVICES AGREEMENT
On May 1, 2001, the Company renewed an IT Services Agreement with EmpowerWare,
Inc. EmpowerWare, Inc. is a Connecticut-based company specializing in financial
and retail accounting software. It is owned by Scott Stein, the former Vice
President Management Information Systems of the Company and the brother of Mr.
Stein. For a monthly fee of approximately $49,875 (plus expenses) EmpowerWare,
Inc. provides relationship management, project management and administration,
software upgrades, production support and other services. The term of the
Agreement is from May 1, 2001 to April 30, 2004, unless otherwise terminated or
extended in accordance with its terms. The Company believes that the fees
payable to EmpowerWare, Inc. are on terms no less favorable than would be
available in an arm's-length transaction with any other vendor.
MERGER AGREEMENT
If the merger, contemplated by the Merger Agreement, is consummated, Mr. Stein
and his affiliates will control the Company. The Company's existing
stockholders, except Mr. Stein and his affiliates, including DM Associates, will
receive $4.50 per share in cash. In connection with entering into the Merger
Agreement, Mr. Stein, DM Associates, DM Management I and DM Acquisition Corp.
entered into a voting agreement pursuant to which they agreed to vote any shares
of the Company's Common Stock that they beneficially owned in favor of the
merger and the Merger Agreement and agreed to refrain from voting in favor of
any other proposals to sell the Company.
SEVERANCE AGREEMENTS AND OTHER PAYMENTS
Ms. Adams and Mr. Valvo's employment with the Company will be terminated
effective May 11, 2001 and May 25, 2001, respectively, in connection with the
Business Restructuring Plan. In connection with the Business Restructuring Plan,
Ms. Adams, Vice President Finance of the Company, and Mr. Valvo, Vice President
Gasoline and Store Development of the Company, will receive severance payments
of $140,000 and $150,000, respectively, which will be payable as a salary
continuation. In addition, Ms. Adams and Mr. Valvo will be entitled to exercise
their options until August 31, 2001.
32
35
NEGOTIATIONS TO PURCHASE CERTAIN STORES
Pursuant to the Business Segmentation Plan, Mr. Stein and Ms. Adams have had
preliminary discussions concerning the possibility of Ms. Adams purchasing
stores from the Company that have been identified as stores to be sold pursuant
to the Business Segmentation Plan. If an agreement were reached, the terms would
be negotiated by the Company's financial advisor retained to sell stores that do
not fit within Dairy Mart's existing portfolio structure. Furthermore, the
stores would only be sold to Ms. Adams if the Company believed it was receiving
the same amount of consideration for those stores that it could receive in an
arm's-length transaction.
33
36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following are filed as part of this Form 10-K:
(1) Financial Statements:
For a listing of financial statements, which are filed as part of this
Form 10-K, see Page [46].
(2) Financial Statement Schedules:
Report of Independent Public Accountants
Consolidated Statements of Operations for the three years ended February
3, 2001, January 29, 2000 and January 30, 1999.
Consolidated Balance Sheets as of February 3, 2001 and January 29, 2000.
Consolidated Statements of Stockholders' Equity for the Fiscal Years
Ended February 3, 2001, January 29, 2000 and January 30, 1999.
Consolidated Statements of Cash Flows for the Fiscal Years Ended
February 3, 2001, January 29, 2000 and January 30, 1999.
Notes to Consolidated Financial Statements for the Fiscal Years Ended
February 3, 2001, January 29, 2000 and January 30, 1999.
Schedule II--Valuation Accounts
All other schedules are omitted because they are not applicable, not required,
or because the required information is included in the Consolidated Financial
Statements or notes thereto.
(3) Exhibits:
EXHIBIT
NUMBER:
(2.1) Agreement and Plan of Merger, dated as of March 15, 2001,
between DM Acquisition Corp. and Dairy Mart Convenience
Stores, Inc. is filed herewith.
(3.1) The Company's Restated Certificate of Incorporation, as
amended, was filed as Exhibit 3.1 to the Company's 10-K for
the fiscal year ended January 29, 2000, and is incorporated
herein by reference.
(3.2) The Company's Amended and Restated Bylaws were filed as
Exhibit 3.2 to the Company's Form 10-Q for the fiscal
quarter ended November 2, 1996, and are incorporated herein
by reference.
(4.1) The Company's Restated Certificate of Incorporation, as
amended, and Certificate of Designation is filed as Exhibit
3.1 hereto.
(4.2) Amended and Restated Bylaws are filed as Exhibit 3.2 hereto.
(4.3(a)) Amended and Restated Rights Agreement, as amended, dated as
of February 8, 2000, between the Company and the American
Stock Transfer and Trust Company, as Rights Agent, including
form of Rights Certificate, is filed as Exhibit 10.22(a)
hereto.
(4.3(b)) First Amendment to the Amended and Restated Rights
Agreement, dated as of February 8, 2000, by and between
Dairy Mart Convenience Stores, Inc. and American Stock
Transfer & Trust Company, as Rights Agent, is filed as
Exhibit 10.22(b) hereto.
(4.4) Those instruments filed as Exhibit 4.1 of the Company's
Registration Statement on Form S-1 (Registration No. 33-639)
dated November 5, 1985, which are incorporated herein by
reference.
34
37
EXHIBIT
NUMBER:
(4.5) Amended and Restated Indenture, dated as of December 1,
1995, by and among the Company, Certain Subsidiaries of the
Company, as Guarantors, and First Bank National Association,
as Trustee, was filed as Exhibit 4.1 to the Company's Form
10-Q for the fiscal quarter ended October 28, 1995, and is
incorporated herein by reference.
(4.6) The instruments defining the rights of the holders of the
Company's Warrants include the Form of Stock Purchase
Warrants are filed as Exhibits 10.12 and 10.13 hereto.
(4.7) Note Purchase Agreement, dated as of December 1, 1995,
between the Company and the Purchasers listed in the
Schedule of Purchasers therein, relating to 10 1/4% Senior
Subordinated Notes (Series B) due March 15, 2004, is filed
as Exhibit 10.11 hereto.
(4.8) Registration Rights Agreement, dated December 1, 1995, by
and among the Company and the Holders of (i) 10 1/4% Senior
Subordinated Notes (Series B) of the Company, due March 15,
2004, and (ii) Warrants to Purchase 1,715,000 shares of
Common Stock, par value $.01 per share, of the Company is
filed as Exhibit 10.14 hereto.
(10.1(a)) Credit Agreement, dated as of December 28, 1999, among the
Company, the Banks from time to time parties thereto and
Citizens Bank of Connecticut, as agent, and related
schedules was filed as Exhibit 10.1 to the Company's Form
10-K for the fiscal quarter ended January 29, 2000, and is
incorporated herein by reference.
(10.1(b)) First Amendment to the Credit Agreement, dated January 28,
2000, between the Company and Citizens Bank of Connecticut,
as agent for the Banks from time to time parties to the
Company's Amended and Restated Credit Agreement, was filed
as Exhibit 10.1 to the Company's Form 10-K for the fiscal
year ended January 29, 2000, and is incorporated herein by
reference.
(10.1(c)) Second Amendment to the Credit Agreement, dated July 28,
2000, between the Company and Citizens Bank of Connecticut,
as agent for the Banks from time to time parties to the
Company's Amended and Restated Credit Agreement, was filed
as Exhibit 10.1.1 to the Company's Form 10-Q for the fiscal
quarter ended July 29, 2000, and is incorporated herein by
reference.
(10.1(d)) Third Amendment to the Credit Agreement, dated October 27,
2000, between the Company and Citizens Bank of Connecticut,
as agent for the Banks from time to time parties to the
Company's Amended and Restated Credit Agreement, was filed
as Exhibit 10.1.1 to the Company's Form 10-Q for the fiscal
quarter ended October 28, 2000, and is incorporated herein
by reference.
(10.1(e)) Fourth Amendment to the Credit Agreement, dated March 14,
2001, between the Company and Citizens Bank of Connecticut,
as agent for the Banks from time to time parties to the
Company's Amended and Restated Credit Agreement, was filed
as Exhibit 10(a) to the Company's Form 8-K for the March 14,
2001 event and is incorporated herein by reference.
(10.1(f)) Fifth Amendment to the Credit Agreement, dated May 7, 2001,
between the Company and Citizens Bank of Connecticut, as
agent for the Banks from time to time parties to the
Company's Amended and Restated Credit Agreement is filed
herewith.
(10.2) Asset Purchase Agreement, dated March 6, 1997, among Dairy
Mart Convenience Stores, Inc. and DB Companies, Inc. was
filed as Exhibit 2.1 to the Company's Form 8-K for the June
21, 1997 event and is incorporated herein by reference.
(10.3) Closing Agreement, dated June 19, 1997, between Dairy Mart
Convenience Stores, Inc. and DB Companies, Inc. was filed as
Exhibit 2.2 to the Company's Form 8-K for the June 21, 1997
event and is incorporated herein by reference.
35
38
EXHIBIT
NUMBER:
(10.4) 1990 Stock Option Plan was filed as Exhibit 10.6 to the
Company's Form 10-K for the fiscal year ended January 30,
1999 and is incorporated herein by reference.
(10.5) Amended and Restated 1995 Stock Option and Incentive Award
Plan was filed as Exhibit A to the Company's 1998 Annual
Proxy Statement filed on Schedule 14A on May 29, 1998 and is
incorporated herein by reference.
(10.6) 1995 Stock Option Plan for Outside Directors was filed as
Exhibit 10.6 to the Company's Form 10-K for the fiscal year
ended January 28, 1995, and is incorporated herein by
reference.
(10.7) Employment Agreement between the Company and Robert B.
Stein, Jr., dated January 1, 2000, was filed as Exhibit 10.7
to the Company's Form 10-K for the fiscal year ended January
29, 2000, and is incorporated herein by reference.
(10.8) Employment Agreement between the Company and Gregory G.
Landry, dated January 1, 2000, was filed as Exhibit 10.8 to
the Company's Form 10-K for the fiscal year ended January
29, 2000, and is incorporated herein by reference.
(10.9) Severance Agreement, dated March 15, 2001, between the
Company and Gregory G. Landry, is filed herewith.
(10.10) Settlement Agreement, dated January 27, 1995, between the
Company and Frank Colaccino was filed as Exhibit 10.10 to
the Company's January 28, 1995 Form 10-K and is incorporated
herein by reference.
(10.11) Note Purchase Agreement, dated as of December 1, 1995,
between the Company and the Purchasers listed in the
Schedule of Purchasers therein, relating to 10 1/4% Senior
Subordinated Notes (Series B) due March 15, 2004, was filed
as Exhibit 10.1 to the Company's Form 10-Q for the fiscal
quarter ended October 28, 1995, and is incorporated herein
by reference.
(10.12) Form of Stock Purchase Warrant to Subscribe for and Purchase
Shares of Common Stock of the Company (Initially Exercisable
for an Aggregate of 1,215,000 Shares of Common Stock) was
filed as Exhibit 10.1 to the Company's Form 10-Q for the
fiscal quarter ended October 28, 1995, and is incorporated
herein by reference.
(10.13) Form of Stock Purchase Warrant to Subscribe for and Purchase
Shares of Common Stock of the Company (Initially Exercisable
for an Aggregate of 500,000 Shares of Common Stock) was
filed as Exhibit 10.3 to the Company's Form 10-Q for the
fiscal quarter ended October 28, 1995, and is incorporated
herein by reference.
(10.14) Registration Rights Agreement, dated December 1, 1995, by
and among the Company and the Holders of (i) 10 1/4% Senior
Subordinated Notes (Series B) of the Company, due March 15,
2004, and (ii) Warrants to Purchase 1,715,000 shares of
Common Stock, par value $.01 per share, of the Company was
filed as Exhibit 10.4 to the Company's Form 10-Q for the
fiscal quarter ended October 28, 1995, and is incorporated
herein by reference.
(10.15) Agreement, dated as of October 30, 1995, among the Company,
Charles Nirenberg, FCN Properties Corporation and The
Nirenberg Family Charitable Foundation, Inc. was filed as
Exhibit 10.1 to the Company's Form 8-K/A Amendment No. 1 for
the October 30, 1995, event and is incorporated herein by
reference.
(10.16) Modification Agreement, dated as of December 1, 1995, by and
among the Company, Charles Nirenberg, FCN Properties
Corporation, The Nirenberg Foundation, Inc., formerly known
as the Nirenberg Family Charitable Foundation, Inc., Robert
B. Stein, Jr., and Gregory G. Landry was filed as Exhibit
10.6 to the Company's Form 10-Q for the fiscal quarter ended
October 28, 1995 and is incorporated herein by reference.
36
39
EXHIBIT
NUMBER:
(10.17) Amended and Restated Letter Agreement, dated December 1,
1995, to Mitchell J. Kupperman from the Company, Robert B.
Stein, Jr., and Gregory G. Landry was filed as Exhibit 10.7
to the Company's Form 10-Q for the fiscal quarter ended
October 28, 1995 and is incorporated herein by reference.
(10.18) DM Associates Limited Partnership Agreement, dated March 12,
1992 is filed herewith.
(10.19) First Amendment to Partnership Agreement of DM Associates
Limited Partnership, dated as of September 8, 1994, was
filed as Exhibit F to the Company's Schedule 13D, Amendment
No. 4, dated January 27, 1995, by DM Associates Limited
Partnership, New DM Management Associates I, New DM
Management Associates II, Charles Nirenberg, Robert B.
Stein, Jr., Gregory G. Landry, Mitchell J. Kupperman and
Frank Colaccino and is incorporated herein by reference.
(10.20) Partnership Agreement of New DM Management Associates I,
dated as of September 8, 1994, was filed as Exhibit G to the
Company's Schedule 13D, Amendment No. 4, dated January 27,
1995, by DM Associates Limited Partnership, New DM
Management Associates I, New DM Management Associates II,
Charles Nirenberg, Robert B. Stein, Jr., Gregory G. Landry,
Mitchell J. Kupperman and Frank Colaccino and is
incorporated herein by reference.
(10.21) First Amendment to Partnership Agreement of New DM
Management Associates I, dated as of December 1, 1995,
between Robert B. Stein, Jr., Gregory G. Landry and Mitchell
J. Kupperman was filed as Exhibit 10.10 to the Company's
Form 10-Q for the fiscal quarter ended October 28, 1995, and
is incorporated herein by reference.
(10.22(a)) Amended and Restated Rights Agreement, as amended, dated as
of February 8, 2000, between the Company and the American
Stock Transfer and Trust Company, as Rights Agent, including
form of Rights Certificate, was filed as Exhibit 5 to the
Company's Form 8-A/A Amendment No. 2 to Form 8-A for the
February 9, 2000 event and is incorporated herein by
reference.
(10.22(b)) First Amendment to the Amended and Restated Rights
Agreement, dated as of February 8, 2000, by and between
Dairy Mart Convenience Stores, Inc. and American Stock
Transfer & Trust Company, as Rights Agent, is filed
herewith.
(10.23) Third Amendment to Partnership Agreement of New DM
Management Associate I, dated as of December 12, 1997, was
filed as Exhibit 1 to the Company's Form 8-K for the
December 12, 1997 event and is incorporated herein by
reference.
(10.24) Dairy Mart Convenience Stores, Inc. Supplemental Executive
Retirement Plan was filed as Exhibit 10.26 to the Company's
Form 10-K for the fiscal year ended January 30, 1999, and is
incorporated herein by reference.
(10.25) Director's Deferred Compensation Plan was filed as Exhibit
10.27 to the Company's Form 10-K for the fiscal year ended
January 30, 1999, and is incorporated herein by reference.
(10.26) Employment Agreement between the Company and J. Wayne
Colley, dated January 18, 2000, was filed as Exhibit 10.25
to the Company's Form 10-K for the fiscal year ended January
29, 2000, and is incorporated herein by reference.
(10.27) Supplement to Employment Agreement, dated April 20, 2001,
between the Company and J. Wayne Colley is filed herewith.
(10.28) Nonqualified Deferred Compensation Plan, dated January 1,
2000, was filed as Exhibit 10.26 to the Company's Form 10-K
for the fiscal year ended January 29, 2000, and is
incorporated herein by reference.
37
40
EXHIBIT
NUMBER:
(10.29) Change of Control Agreement, dated June 20, 2000, between
the Company and Certain Employees of the Company identified
therein, is filed herewith.
(10.30) Agreement, dated May 21, 2000, between the Committee of
Concerned Dairy Mart Shareholders and Frank Colaccino and
the Company was filed as Exhibit 10(a) to the Company's Form
8-K for the May 21, 2000 event and is incorporated herein by
reference.
(10.31) Exchange and Voting Agreement by and among the Company and
the Noteholders listed therein, dated March 15, 2001, is
filed herewith.
(18.1) Preferability letter of Arthur Andersen LLP regarding change
in accounting policy relating to the change in inventory
valuation methods filed as Exhibit 18.1 to the Company's
Form 10-K for the fiscal year ended January 30, 1999, and is
incorporated herein by reference.
(21) Subsidiaries of the Company is filed herewith.
(23) Consent of Arthur Andersen LLP to the incorporation of their
reports included in this Form 10-K, for the fiscal year
ended February 3, 2001, into the Company's previously filed
Registration Statements on Forms S-8 is filed herewith.
(99) NONE
(b) Reports on Form 8-K:
NONE.
No Financial Statements were filed with any of the Current Reports.
(c) See (a)(3) above.
(d) See (a)(2) above.
38
41
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Dated: May 7, 2001 DAIRY MART CONVENIENCE STORES, INC.
By /s/ ROBERT B. STEIN, JR.
------------------------------------
Robert B. Stein, Jr.
President, Chief Executive Officer
and Chairman of the Board of
Directors
By /s/ GREGORY G. LANDRY
------------------------------------
Gregory G. Landry
Vice Chairman and Chief Financial
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATE INDICATED.
NAME TITLE DATE
---- ----- ----
/s/ ROBERT B. STEIN, JR. President, Chief Executive Officer,
- ------------------------------------------------ Chairman of the Board (Principal Executive Dated: May 7,
Robert B. Stein, Jr. Officer) and Director 2001
/s/ GREGORY G. LANDRY Vice Chairman, Chief Financial Officer,
- ------------------------------------------------ (Principal Financial and Accounting Dated: May 7,
Gregory G. Landry Officer) and Director 2001
/s/ ALBERT T. ADAMS Director
- ------------------------------------------------ Dated: May 7,
Albert T. Adams 2001
/s/ FRANK W. BARRETT Director
- ------------------------------------------------ Dated: May 7,
Frank W. Barrett 2001
/s/ J. KERMIT BIRCHFIELD, JR. Director
- ------------------------------------------------ Dated: May 7,
J. Kermit Birchfield, Jr. 2001
/s/ JOHN W. EVERETS Director
- ------------------------------------------------ Dated: May 7,
John W. Everets 2001
/s/ WILLIAM A. FOLEY Director
- ------------------------------------------------ Dated: May 7,
William A. Foley 2001
39
42
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-K
PAGE
---------
Report of Independent Public Accountants on Consolidated
Financial Statements...................................... F-2
Consolidated Statements of Operations for the Fiscal Years
Ended February 3, 2001, January 29, 2000 and January
30,1999................................................... F-3
Consolidated Balance Sheets as of February 3, 2001 and
January 29, 2000.......................................... F-4
Consolidated Statements of Stockholders' Equity for the
Fiscal Years Ended February 3, 2001, January 29, 2000 and
January 30, 1999.......................................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years
Ended February 3, 2001, January 29, 2000 and January 30,
1999...................................................... F-6
Notes to Consolidated Financial Statements for the Fiscal
Years Ended February 3, 2001, January 29, 2000 and January
30, 1999.................................................. F-7
Report of Independent Public Accountants on Schedule II..... F-29
Schedule II................................................. F-30
F-1
43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of Dairy Mart Convenience Stores,
Inc.:
We have audited the accompanying consolidated balance sheets of Dairy Mart
Convenience Stores, Inc. (a Delaware corporation) and Subsidiaries as of
February 3, 2001 and January 29, 2000, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended February 3, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Dairy
Mart Convenience Stores, Inc. and Subsidiaries as of February 3, 2001, and
January 29, 2000, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended February 3, 2001, in
conformity with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
--------------------------------------
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
May 7, 2001
F-2
44
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND
JANUARY 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001 2000 1999
-------- -------- --------
Revenues (including excise taxes of $42,054, $34,865 and
$31,265, respectively).................................... $723,671 $588,551 $481,598
Cost of goods sold and expenses:
Cost of goods sold........................................ 576,042 443,559 344,079
Operating and administrative expenses..................... 157,519 137,069 126,538
Interest expense, net..................................... 14,183 11,583 10,806
-------- -------- --------
747,744 592,211 481,423
-------- -------- --------
Income (loss) before income taxes......................... (24,073) (3,660) 175
Benefit (provision) from income taxes..................... (5,378) 1,164 (150)
-------- -------- --------
Net income (loss)......................................... $(29,451) $ (2,496) $ 25
======== ======== ========
Earnings (loss) per share, basic and diluted................ $ (5.96) $ (.51) $ .01
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
45
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 3, 2001 AND JANUARY 29, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2001 2000
-------- --------
ASSETS
Current assets:
Cash...................................................... $ 5,667 $ 7,702
Short-term investments.................................... 3,000 155
Accounts and notes receivable, net........................ 13,462 20,499
Inventory................................................. 24,424 34,804
Prepaid expenses and other current assets................. 3,612 1,704
Deferred income taxes..................................... -- 2,393
-------- --------
Total current assets.............................. 50,165 67,257
Property and equipment, net................................. 111,448 113,338
Intangible assets, net...................................... 13,731 14,582
Other assets, net........................................... 15,373 14,622
-------- --------
Total assets........................................... $190,717 $209,799
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations............... $ 6,043 $ 3,091
Accounts payable.......................................... 44,361 50,916
Accrued expenses.......................................... 15,835 11,651
Accrued interest.......................................... 3,638 3,490
-------- --------
Total current liabilities.............................. 69,877 69,148
-------- --------
Long-term obligations, less current portion above........... 129,557 120,044
Other liabilities........................................... 13,555 13,738
Commitments and contingencies (Notes 6, 7, 12)
Stockholders' equity:
Preferred stock (serial), par value $.01, 1,000 shares
authorized, no shares issued........................... -- --
Common stock, par value $.01, 30,000 shares authorized,
7,059 and 6,949 issued................................. 70 69
Paid-in capital........................................... 32,416 32,107
Retained deficit.......................................... (39,753) (10,302)
Treasury stock, at cost................................... (15,005) (15,005)
-------- --------
Total stockholders' (deficit) equity................... (22,272) 6,869
-------- --------
Total liabilities and stockholders' deficit............... $190,717 $209,799
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
46
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND
JANUARY 30, 1999
(IN THOUSANDS)
COMMON STOCK TREASURY STOCK
------------------------------------- -----------------
RETAINED
COMMON PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
------ ------ ------- --------- ------ --------
Balance January 31, 1998............. 6,831 $68 $31,756 $ (7,831) 2,058 $(15,005)
Issuance of Common Stock........... 78 1 243 -- -- --
Net income......................... -- -- -- 25 -- --
----- --- ------- -------- ----- --------
Balance January 30, 1999............. 6,909 69 31,999 (7,806) 2,058 (15,005)
Issuance of Common Stock........... 40 -- 108 -- -- --
Net loss........................... -- -- -- (2,496) -- --
----- --- ------- -------- ----- --------
Balance January 29, 2000............. 6,949 69 32,107 (10,302) 2,058 (15,005)
Issuance of Common Stock........... 110 1 309 -- -- --
Net loss........................... -- -- -- (29,451) -- --
----- --- ------- -------- ----- --------
Balance February 3, 2001............. 7,059 $70 $32,416 $(39,753) 2,058 $(15,005)
===== === ======= ======== ===== ========
The accompanying notes are an integral part of these consolidate financial
statements.
F-5
47
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED FEBRUARY 3, 2001, JANUARY 29, 2000 AND
JANUARY 30, 1999
(IN THOUSANDS)
2001 2000 1999
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(29,451) $ (2,496) $ 25
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 15,142 13,576 10,252
Deferred income taxes..................................... 4,760 (1,420) 127
(Gain) loss on dispositions of properties, net............ 550 (577) 710
Net changes in assets and liabilities:
Accounts and notes receivable............................. 3,982 (4,679) 1,506
Inventory................................................. 10,380 (10,511) (3,205)
Accounts payable.......................................... (6,555) 15,231 4,388
Accrued interest.......................................... 148 (223) 146
Other assets and liabilities, net......................... 1,357 (2,086) (2,048)
-------- -------- --------
Net cash provided by operating activities................. 313 6,815 11,901
-------- -------- --------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Purchase of short-term investments........................ (2,845) -- --
Proceeds from sale of short-term investments.............. -- 2,569 905
Purchase of property & equipment.......................... (17,398) (41,878) (52,398)
Proceeds from sale of property and equipment.............. 5,350 22,254 30,760
-------- -------- --------
Net cash (used for) investing activities.................. (14,893) (17,055) (20,733)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving loan, net......................... 10,030 4,096 10,200
Borrowings of long-term obligations....................... 5,607 14,882 --
Repayment of long-term obligations........................ (3,402) (4,511) (2,051)
Issuance of Common Stock.................................. 310 108 244
-------- -------- --------
Net cash provided by financing activities................... 12,545 14,575 8,393
-------- -------- --------
Increase (decrease) in cash................................. (2,035) 4,335 (439)
Cash at beginning of year................................... 7,702 3,367 3,806
-------- -------- --------
Cash at end of year......................................... $ 5,667 $ 7,702 $ 3,367
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash (paid) refunded during the year --
Interest............................................... $(14,035) $(11,806) $(10,661)
Income taxes refunded, net............................. 139 119 381
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
48
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 3, 2001, JANUARY 29, 2000 AND JANUARY 30,1999
1. SIGNIFICANT ACCOUNTING POLICIES:
Corporate Organization and Consolidation -- The accompanying financial
statements include the accounts of Dairy Mart Convenience Stores, Inc. and its
Subsidiaries (the Company). All intercompany transactions have been eliminated.
Nature of the Business -- The Company owns, operates and franchises convenience
retail stores, a number of which also sell gasoline. The convenience stores are
primarily located in 7 states in the Midwest and the Southeast United States.
The stores offer a wide range of products including gasoline, groceries, dairy
products, snack foods, tobacco products, lottery tickets, beverages, general
merchandise, health and beauty aids and deli products.
Fiscal Year -- The Company's fiscal year ends on the Saturday closest to January
31. There were 53 weeks included in the fiscal year ended February 3, 2001 and
52 weeks in the fiscal years ended January 29, 2000 and January 30,1999.
Use of Estimates in the Preparation of Financial Statements -- The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Short-term Investments -- As of February 3, 2001, the Company's short-term
investments consisted of U.S. Treasury Bills having original maturities of less
than one year. As of January 29, 2000, the Company's short-term investments
consisted of over-night investment securities. As of February 3, 2001 and
January 29, 2000, the fair values of the short-term investments approximated
cost.
Inventory -- The Company's inventory is stated at the lower of first-in,
first-out (FIFO) cost or market.
Property, Equipment, and Depreciation -- Property is stated at cost and is
depreciated on the straight-line basis for financial reporting purposes over the
following estimated useful lives:
Buildings................................................... 30-40 years
Equipment................................................... 5-30 years
Leasehold improvements...................................... 31 years.
Repair and maintenance costs are expensed as incurred.
Long-lived Assets -- Impairment of long-lived assets is recognized when events
or changes in circumstances indicate that the carrying amount of the asset, or
related group of assets, may not be recoverable. Measurement of the amount of
the impairment may be based on market values of similar assets or estimated
discounted future cash flows resulting from use and ultimate disposition of the
asset. Management has determined that there has been no material impairment to
any long-lived assets as of February 3, 2001.
Self Insurance Reserves -- The Company is self-insured for certain property,
liability, accident and health insurance risks, and establishes reserves for
estimated outstanding claims based on its historical claims experience and
reviews by third-party loss reserves specialists. The Company has purchased
insurance coverage for losses that may occur above certain levels. As of
February 3, 2001 and January 29, 2000, the Company had established reserves for
these risks of $1,604,000 and $1,843,000, respectively, which are recorded on a
present value basis using a risk-free rate of return to discount the liability.
The ultimate amount of these liabilities could differ from these estimates. At
February 3, 2001 and January 29, 2000, the risk-free rates of return were 5.19%
and 6.65%, respectively.
F-7
49
Fair Value of Financial Instruments -- The Company has disclosed the fair value,
related carrying value and method of determining fair value for the following
financial instruments in the accompanying notes as referenced: short-term
investments (see Note 1), accounts and notes receivable (see Note 2) and
long-term obligations (see Note 6).
Revenue Recognition -- The Company recognizes revenues as earned, including
franchise revenues and interest income. Franchise revenues represent a
percentage of franchise store sales remitted to the Company on a weekly or
monthly basis in exchange for the Company providing merchandising, advertising,
store audit, and other operating and administrative support services, as well as
revenues derived from initial fees and the gain on sale of store assets to
franchisees. Franchise revenues were $9,085,000, $9,678,000 and $10,255,000 for
the fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999,
respectively.
Store Preopening and Closing Costs -- Consistent with the requirements of the
American Institute of Certified Public Accountants' Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-Up Activities," expenditures of a
non-capital nature associated with opening a new store are expensed as incurred.
At the time the decision is made to close a store, estimated unrecoverable costs
are charged to expense. Such costs include the net book value of abandoned
fixtures, equipment, leasehold improvements and a provision for the present
value of future lease obligations, less the present value of estimated future
sub-rental income.
Earnings (Loss) per Share -- Earnings (loss) per share have been calculated
based on the weighted average number of shares of Common Stock outstanding and
the effect of stock options, if dilutive, during each year. The weighted-average
number of shares used in the calculation of basic earnings (loss) per share is
4,945,207, 4,868,664 and 4,823,154 for the fiscal years ended February 3, 2001,
January 29, 2000 and January 30, 1999, respectively. Dilutive earnings per share
has not been presented as the Company's basic and dilutive earnings per share
are equal for fiscal years 2001, 2000 and 1999.
New Authoritative Accounting Pronouncements -- In June 1998, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities" as amended by SFAS 138. This Statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires companies to recognize all derivatives on the balance sheet as assets
and liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for as either other
comprehensive income or in current period income depending on the use of the
derivative and whether it qualifies for hedge accounting. The Company adopted
this Statement on February 4, 2001 and it did not have any effect on the
Company's financial statements.
Reclassifications -- Certain amounts in the prior periods' Consolidated
Financial Statements have been reclassified to conform to the presentation used
for the current period.
2. ACCOUNTS AND NOTES RECEIVABLE:
A summary of accounts and notes receivable as of February 3, 2001 and January
29, 2000 is as follows:
2001 2000
------- -------
(IN THOUSANDS)
Franchise accounts receivable............................... $ 3,386 $ 3,338
Franchise notes receivable.................................. 1,140 1,729
Marketing allowances........................................ 5,358 8,374
Other receivables........................................... 15,492 15,679
------- -------
25,376 29,120
Less allowance for doubtful accounts and notes receivable... (2,301) (2,063)
------- -------
Net accounts and notes receivable........................... 23,075 27,057
Less noncurrent notes receivable (included in other
assets)................................................... (9,613) (6,558)
------- -------
Current accounts and notes receivable....................... $13,462 $20,499
======= =======
F-8
50
The carrying amount of current accounts and notes receivable approximates fair
value because of the short maturity of those receivables. The fair value of the
Company's noncurrent notes receivable is estimated by discounting the future
cash flows using the rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. As of
February 3, 2001 and January 29, 2000, management has determined the fair values
of the noncurrent notes receivable approximate their carrying values.
3. PROPERTY AND EQUIPMENT:
A summary of property and equipment as of February 3, 2001 and January 29, 2000
is as follows:
2001 2000
-------- --------
(IN THOUSANDS)
Land and improvements....................................... $ 5,171 $ 5,543
Building and leasehold improvements......................... 47,556 44,581
Equipment................................................... 120,943 118,889
Assets under capital leases................................. 4,558 5,331
-------- --------
178,228 174,344
Less accumulated depreciation and amortization.............. (66,780) (61,006)
-------- --------
Property and equipment, net................................. $111,448 $113,388
======== ========
4. INTANGIBLE ASSETS:
A summary of intangibles as of February 3, 2001 and January 29, 2000 is as
follows:
2001 2000
-------- -------
(IN THOUSANDS)
Goodwill.................................................... $ 13,907 $13,907
Franchise and operating rights.............................. 10,104 10,104
-------- -------
24,011 24,011
Less accumulated amortization............................... (10,280) (9,429)
-------- -------
Intangible assets, net...................................... $ 13,731 $14,582
======== =======
Goodwill represents the excess of cost over fair value of net assets purchased
and is being amortized on a straight-line basis over a period of 40 years.
Franchise and operating rights represent the value of franchise relationships
purchased in connection with past acquisitions and are being amortized on a
straight-line basis over 30 years. The Company assesses the recoverability of
these intangibles by determining whether the amortization of the goodwill and
franchise and operating rights over the remaining lives can be recovered through
projected future cash flows on an undiscounted basis.
Management has determined that there has been no material impairment to goodwill
or franchise and operating rights as of February 3, 2001.
5. ACCRUED EXPENSES:
A summary of accrued expenses as of February 3, 2001 and January 29, 2000 is as
follows:
2001 2000
------- -------
(IN THOUSANDS)
Accrued salaries and wages.................................. $ 3,804 $ 4,274
Accrued environmental assessment and remediation............ 4,434 2,390
Other accrued expenses...................................... 7,597 4,987
------- -------
Total accrued expenses...................................... $15,835 $11,651
======= =======
F-9
51
6. LONG-TERM OBLIGATIONS:
The Company had the following long-term obligations as of February 3, 2001 and
January 29, 2000:
JAN. 29
FEBRUARY 3, 2001 2000
INTEREST MATURITY ------------------------------------- --------
RATE (FISCAL YR.) CURRENT LONG-TERM TOTAL TOTAL
------------ ------------ ------- ---------------- -------- --------
(IN THOUSANDS)
Senior subordinated notes (Series A
Notes)................................. 10.25% 2005 $ -- $ 75,000 $ 75,000 $ 75,000
Senior subordinated notes (Series B
Notes) net of original issue discount
of $772................................ 10.25% 2005 -- 12,728 12,728 12,498
Senior revolving credit facility......... Various 2003 -- 24,326 24,326 14,296
Real estate mortgage notes payable....... 9.84%-10.95% 2007-2021 171 7,163 7,334 5,241
Small Business Administration
debentures............................. 6.875%-8.33% 2002-2006 2,420 710 3,130 3,130
Equipment financing...................... 8.5%-11.81% 2003-2009 3,452 9,630 13,082 12,970
------ -------- -------- --------
$6,043 $129,557 $135,600 $123,135
====== ======== ======== ========
In March 1994, the Company issued $75,000,000 principal amount of 10.25% senior
subordinated notes (the "Series A Notes") due March 15, 2004. The proceeds
received from the sale of the Series A Notes, net of offering costs of
$2,298,000, were used to repay the entire outstanding indebtedness under the
then existing bank term loan and bank revolving loan and to redeem in full the
Company's 14.25% subordinated debentures due November, 2000. In December 1995,
the Company issued an additional $13,500,000 principal amount of 10.25% senior
subordinated notes (the "Series B Notes") due March 15, 2004.
In conjunction with the issuance of the Series B Notes, the Company issued to
the purchasers of the Series B Notes warrants to purchase 1,215,000 shares of
Common Stock of the Company. In addition, the Company issued to the holders of
the Series A Notes warrants to purchase 500,000 shares of Common Stock of the
Company. The warrants may be exercised any time until December 1, 2001. The
initial exercise price of the warrants was $6.95 per share, which was adjusted
in December 1996, to $5.45 per share. Due to the anti-dilution provisions of the
warrants and the Company's reclassification of former Class A and Class B Common
Stock into a new, single class of Common Stock, the number of warrants increased
to 1,852,249 and the exercise price of the warrants was adjusted to $5.05 per
share. The exercise price may be adjusted further based upon the occurrence of
various events, including stock dividends and issuance of Common Stock by the
Company for a per share price less than the exercise price of the warrants or
less than the current market value of the Company's Common Stock.
The Series A and Series B Notes (collectively, the "Notes") are redeemable, at
the option of the Company, beginning March 15, 1999 at rates starting at 104.75%
of the principal amount reduced annually through March 15, 2002, at which time
they become redeemable at 100% of the principal amount. The terms of the Notes
may restrict, among other things, the payment of dividends and other
distributions, investments, the repurchase of capital stock and the making of
certain other restricted payments by the Company and its subsidiaries, the
incurrence of additional indebtedness and new operating lease obligations by the
Company or any of its subsidiaries, and certain mergers, consolidations and
dispositions of assets. Additionally, according to the terms of the Notes, if a
change of control occurs, as defined, each holder of the Notes will have the
right to require the Company to repurchase such holder's Notes at 101% of the
principal amount thereof. The original issue discount amortization related to
the Series B Notes of $230,080, $160,980 and $153,904 is included in interest
expense for the fiscal years ended February 3, 2001, January 29, 2000 and
January 30, 1999, respectively.
The Company is party to a $30,000,000 secured revolving credit facility (the
"Credit Facility"), of which up to $15,000,000 may be available for the issuance
of letters of credit. The outstanding balance is due and payable on September
15, 2002. Interest on revolving credit loans is computed at an applicable margin
over the agent bank's base rate or the LIBOR rate, at the option of the Company.
The applicable margin, if any, is based upon the ratio of consolidated
indebtedness to consolidated EBITDA, as defined below. The credit agreement also
provides for a commitment fee of 1/2% on any unused portion of the Credit
Facility. Among other restrictions, the credit agreement contains financial
covenants relating to specified levels of: indebtedness (reduced by an amount
equal to cash and store properties held for sale/leaseback as defined in the
credit agreement) to earnings before interest
F-10
52
expense, taxes, depreciation and amortization (EBITDA); EBITDA to interest
expense; EBITDA plus rent, less taxes paid in cash to interest expense, rent
expense and principal payments required to be made on indebtedness. The Credit
Facility was further amended on May 7, 2001 amended to (1) waive any default or
event of default under the Credit Facility arising from any failure to comply
with financial covenants as of February 3, 2001 and (2) amend the financial
covenants for the four quarters of fiscal year 2002. The ability of the Company
to be in compliance with certain financial covenants in the future is dependent
upon the Company realizing improved operating results from those reported for
the fiscal year ended February 3, 2001. In connection with the Credit Facility,
the Company granted a security interest in substantially all of its non-real
estate assets and pledged as collateral the shares of capital stock of certain
subsidiary corporations of the Company.
The Company is limited in the amount of cash dividends that it may pay and the
amount of capital stock and subordinated indebtedness that it may repurchase by
applicable covenants contained in the Credit Facility and Notes. As of February
3, 2001, taking into account such limitations, the Company would not have been
able to pay cash dividends.
In fiscal year 2001, the Company entered into capital lease agreements of $3.7
million for equipment and $2.2 million in real estate mortgages that were used
to support new store development. In fiscal year 2000, the Company entered into
capital lease agreements of $9.8 million for equipment and $5.0 million in real
estate mortgages that were used to support new store development.
As of February 3, 2001 and January 29, 2000, respectively, management has
determined that the fair values of the real estate mortgage notes payable, Small
Business Administration debentures, equipment financing and capital leases,
approximated their respective carrying amounts. Fair values of obligations are
based on rates available to the Company for debt with similar terms and
maturities. As of February 3, 2001 and January 29, 2000 the fair value of the
Series A and Series B Notes, approximated 47% and 80%, respectively, of their
carrying amount. The fair value of the Notes was based on quoted market prices
as of February 3, 2001 and January 29, 2000, respectively. The revolving Credit
Facility is a variable rate loan, and thus, the fair value approximates the
carrying amount as of February 3, 2001.
As of February 3, 2001, maturities on long-term obligations, shown gross of
original issue discount of $772 for the next five years and thereafter, are as
follows:
FISCAL YEAR
----------- (IN THOUSANDS)
2002........................................................ $ 6,043
2003........................................................ 4,487
2004........................................................ 28,843
2005........................................................ 89,195
2006........................................................ 477
Thereafter.................................................. 7,327
--------
$136,372
========
7. OPERATING LEASES:
The Company leases operating properties, including store locations and office
space, under various lease agreements expiring through fiscal year 2020. Certain
of these locations are sublet to the Company's franchisees. The future minimum
lease payments related to these properties are included in the following
summary.
F-11
53
A summary of future minimum lease payments net of subleases as of February 3,
2001 is as follows:
NET
OPERATING
FISCAL YEAR LEASES
----------- --------------
(IN THOUSANDS)
2002........................................................ $ 15,567
2003........................................................ 13,158
2004........................................................ 10,565
2005........................................................ 9,499
2006........................................................ 8,215
Thereafter.................................................. 57,795
--------
$114,799
========
Rental expense for all operating leases was as follows:
2001 2000 1999
------- ------- -------
(IN THOUSANDS)
Leases...................................................... $20,268 $16,691 $13,746
Less subleases.............................................. 1,293 1,592 1,999
------- ------- -------
Net......................................................... $18,975 $15,099 $11,747
======= ======= =======
8. FEDERAL AND STATE INCOME TAXES:
The (provision) benefit from income taxes for the fiscal years ended February 3,
2001, January 29, 2000 and January 30,1999 was as follows:
2001 2000 1999
------- ------ -----
(IN THOUSANDS)
Current provision
Federal................................................... $ -- $ (102) $ (23)
State and Local........................................... (618) (249) --
------- ------ -----
Total current provision........................... (618) (351) (23)
------- ------ -----
Deferred (provision) benefit
Federal................................................... (4,760) 1,299 (103)
State and Local........................................... -- 216 (24)
------- ------ -----
Total deferred (provision) benefit................ (4,760) 1,515 (127)
------- ------ -----
Total (provision) benefit......................... $(5,378) $1,164 $(150)
======= ====== =====
The Company is subject to minimum state taxes in excess of statutory state
income taxes in many of the states in which it operates. A reconciliation of the
difference between the statutory federal income tax rate and the effective
income tax rate follows:
PERCENT OF PRETAX
INCOME (LOSS)
--------------------
2001 2000 1999
---- ---- ----
Statutory federal income tax rate........................... (34%) (34%) 34%
Increase (decrease) from:
State income tax net of federal tax effect................ 3 (1) 14
Nondeductible expenses and amortization of acquired
assets................................................. -- 3 38
Change in valuation allowance............................. 53 -- --
--- --- --
Effective income tax rate................................. 22% (32%) 86%
F-12
54
The Company recognizes deferred tax assets and liabilities based on differences
between the financial reporting and tax basis of assets and liabilities using
the enacted tax rates and laws that are expected to be in effect when the
differences are expected to be recovered. The Company provides a valuation
allowance for deferred taxes for which it does not consider realization of such
assets to be more likely than not. Significant deferred tax assets (liabilities)
as of February 3, 2001 and January 29, 2000 were as follows:
2001 2000
-------- --------
(IN THOUSANDS)
Capitalized leases.......................................... $ 350 $ 442
Depreciation and amortization............................... (16,833) (14,814)
Vacation accrual............................................ 297 296
Reserve for asset valuations................................ 905 838
Insurance reserves not deductible for tax purposes.......... 273 740
Income deferred for financial statement purposes............ 3,557 3,828
Reserve for closed stores and renovations................... 297 221
Environmental reserves...................................... (805) (503)
Tax credits and net operating loss carryforwards............ 26,760 13,921
Other....................................................... (49) --
Valuation allowance......................................... (14,752) (209)
-------- --------
Net deferred tax asset...................................... $ 0 $ 4,760
======== ========
At February 3, 2001, the Company's net deferred tax assets are fully offset by a
valuation allowance. For financial reporting purposes in fiscal year 2001, the
Company recorded a valuation allowance because of the uncertainty of realizing
certain tax credits and loss carryforwards in the future. Realization of the net
operating loss carryforwards and tax credits as of January 29, 2000 were
dependent on the successful implementation of tax-planning strategies prior to
the expiration of the operating loss carryforwards. Although realization was not
assured, management believed it was more likely than not that the deferred tax
asset would be realized at January 29, 2000.
As of February 3, 2001, the Company had alternative minimum tax credits
aggregating $256,000 which carryforward indefinitely. For federal income tax
purposes, these credits can be used in the future to the extent that the
Company's regular tax liability exceeds its liability calculated under the
alternative minimum tax method. In addition, the Company had $1,914,000 of
targeted jobs credit carryforwards that expire, if unused, during fiscal years
2007 to 2011 and $338,000 of foreign tax credit carryforwards that expire, if
unused, in fiscal years 2002 to 2006. The Company and its subsidiaries file a
consolidated federal income tax return but generally file separate state income
tax returns. As of February 3, 2001, the Company had a capital loss carryforward
of $1,610,000 that will expire in fiscal year 2003. As of February 3, 2001, the
Company had regular federal income tax net operating loss carryforwards of
$57,007,000 which expire, if unused, during fiscal years 2011 to 2020 and net
operating loss carryforwards for state income tax purposes of $68,897,000 which
expire, if unused, during fiscal years 2002 to 2015.
9. CAPITAL STOCK:
In January 1996, a Stock Rights Plan ("SRP") was adopted by the Company. Under
the SRP, each holder of Common Stock received a dividend of one Preferred Stock
Purchase Right (the "Rights"). The Rights are to purchase one one-hundredth
(1/100) of a share of Series A Junior Preferred Stock at a price of $30 subject
to certain adjustments. The Rights are exercisable under certain circumstances,
and expire on January 19, 2006.
In June 1986, the stockholders approved an Employee Stock Purchase Plan. The
plan, as amended in September, 1996, provides that employees may purchase
quarterly, through payroll deductions, up to 1,000 shares of Common Stock at 85%
of the market value. Of the original 1,250,000 shares provided for under this
plan, 963,005 shares remained available for issuance as of February 3, 2001.
As of February 3, 2001, January 29, 2000 and January 30,1999, the Company held
2,058,000 shares of Common Stock as treasury stock.
F-13
55
10. STOCK OPTION PLANS AND GRANTS
In general, the Company's stock option plans provide for the granting of options
to purchase the Company's shares at the market price of such shares as of the
option grant date. The options generally have a ten year term and vest and
become exercisable on a pro rata basis over four years.
In fiscal year 1996, and subsequently amended in fiscal year 1998, the Company
adopted a Stock Option and Incentive Award Plan ("Award Plan") and a
non-qualified Stock Option Plan for Outside Directors ("Outside Directors
Plan"). The Award Plan provides for the granting of stock awards and options to
employees up to a total of 1,150,000 shares of Common Stock. In fiscal years
2001, 2000 and 1999, the Company granted incentive stock options of 191,000,
246,000, and 271,844, respectively. As of February 3, 2001, the Company had
available for grant under the Award Plan options to purchase 185,531 shares of
Common Stock after considering the lapse of options previously granted. The
Outside Directors Plan provides for the initial grant of an option to purchase
3,500 shares of the Company's Common Stock to each non-employee director and an
annual grant of an option to purchase 3,500 shares. The maximum number of shares
reserved for issuance under this plan, as amended, is 150,000. The Company
granted 21,000 and 24,500 non-qualified stock options in fiscal years 2001 and
2000, respectively. As of February 3, 2001 the Company had available for grant
under the Outside Directors Plan options to purchase 24,000 shares of Common
Stock, after considering lapses.
During fiscal year 2001 the Company awarded, pursuant to the Award Plan, stock
grants consisting of an aggregate of 43,000 shares of the Company's Common
Stock. Compensation expense in the amount of $236,500 was recorded with respect
to the shares awarded in fiscal year 2001. No shares were awarded in fiscal year
2000 or 1999.
The Company adopted Stock Option Plans in 1985 and 1990 providing for the
granting of options to employees up to an aggregate of 226,875 shares of the
former Class B Common Stock and 750,000 shares of the former Class A Common
Stock. The Company granted incentive stock options pursuant to these Plans
totaling 61,906 in fiscal year 1999. No options were granted from these plans in
fiscal year 2001 or 2000. As of February 3, 2001 no further options are
available for grant under either plan.
In addition to the stock options granted under the above plans, the Company
granted 15,000 non-qualified stock options in fiscal year 1999, which are not
part of a specific plan. The Company did not grant any stock options that are
not part of a specific plan in fiscal years 2001 and 2000.
Pro forma information regarding net loss and loss per share required by SFAS No.
123, "Accounting for Stock-Based Compensation," has been determined as if the
Company had accounted for its employee stock options under the fair value method
of that statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
2001 2000 1999
----- ----- -----
Risk-free interest rates.................................... 6.38% 6.94% 5.73%
Expected dividend yield..................................... --% --% --%
Expected volatility......................................... 43.06% 38.09% 40.12%
Expected life in years...................................... 9.50 9.50 9.50
For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
2001 2000 1999
-------- ------- ------
Net income (loss):
As reported............................................... $(29,451) $(2,496) $ 25
Pro forma................................................. $(30,934) $(2,545) $ (243)
Net income (loss) per share:
As reported............................................... $ (5.96) $ (0.51) $ 0.01
Pro forma................................................. $ (6.26) $ (0.52) $(0.05)
F-14
56
The pro forma effect on net loss for fiscal years 2001, 2000 and 1999 is not
representative of the pro forma effect on net income (loss) in future years
because it does not take into consideration pro forma compensation expense
related to grants made prior to fiscal year 1996.
A summary of the Company's stock option activity and related information for the
fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999, is
as follows:
WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
-------------- ----------------
(IN THOUSANDS)
Outstanding as of January 31, 1998.......................... 667 $3.95
Granted..................................................... 402 4.03
Exercised................................................... (53) 2.80
Forfeited................................................... (75) 5.03
-----
Outstanding as of January 30,1999........................... 941 3.96
Granted..................................................... 271 3.21
Exercised................................................... (21) 2.75
Forfeited................................................... (73) 4.34
-----
Outstanding as of January 29, 2000.......................... 1,118 3.78
Granted..................................................... 229 2.78
Exercised................................................... (49) 2.86
Forfeited................................................... (109) 3.71
-----
Outstanding as of February 3, 2001.......................... 1,189 3.55
=====
The weighted-average fair values of stock options granted during fiscal years
2001, 2000 and 1999 were $1.76, $1.93 and $4.20, respectively
The following table summarizes information about the Company's stock options
outstanding as of February 3, 2001:
WEIGHTED WEIGHTED-AVERAGE
AVERAGE REMAINING
GRANT OPTIONS OPTIONS EXERCISE CONTRACTUAL
PRICE RANGE OUTSTANDING EXERCISABLE PRICE LIFE (YEARS)
----------- ----------- ----------- -------- ----------------
$2.75 to $3.28............................... 452,613 221,863 $2.85 7.1
$3.44 to $4.60............................... 658,137 394,262 3.85 6.7
$5.13 to $5.88............................... 78,000 71,750 5.68 5.4
--------- -------
Total.............................. 1,188,750 687,875
========= =======
11. EMPLOYEE BENEFIT PLANS:
The Company provides benefits to qualified employees through a defined
contribution profit sharing plan. Contributions under this plan are made
annually in amounts determined by the Company's Board of Directors. No
discretionary contributions to this plan were made in fiscal years 2001, 2000
and 1999.
Effective January 1, 1993, the profit sharing plan was amended pursuant to
section 401(k) of the Internal Revenue Code enabling eligible employees to
contribute up to 15% of their annual compensation to the plan, with the Company
matching 50% of such contributions during fiscal years 2001 and 2000 and 25%
during fiscal year 1999, up to 6% of the employees' annual compensation.
Matching contributions from the Company for fiscal years 2001, 2000 and 1999
were $311,000, $320,000 and $252,000, respectively. The Company does not offer
any additional post retirement and post-employment benefits to its employees.
In March 1998, the Company adopted a Supplemental Executive Retirement Plan (the
"SERP") to provide additional retirement benefits, payable in a lump sum, to
certain executive officers. The SERP is an unfunded plan; however, the Company
intends to use the cash surrender value of key life insurance policies purchased
by the Company to fund its obligations under the plan. As of February 3, 2001
and January 29, 2000, cash surrender
F-15
57
values of $431,203 and $284,847, respectively, were recorded as assets on the
accompanying Consolidated Balance Sheets. As of February 3, 2001 and January 29,
2000 plan obligations of $232,882 and $182,590, respectively, were recorded as
liabilities on the accompanying Consolidated Balance Sheets.
12. COMMITMENTS AND CONTINGENCIES:
As of February 3, 2001, the Company was contingently liable for outstanding
letters of credit amounting to $5,227,650.
The Company has certain environmental contingencies related to the ongoing costs
to comply with federal, state and local environmental laws and regulations,
including costs for assessment, compliance, remediation and certain capital
expenditures related to its gasoline operations. In the ordinary course of
business, the Company is involved in environmental assessment and remediation
activities with respect to releases of regulated substances from existing and
previously operated retail gasoline facilities. The Company accrues its estimate
of all costs to be incurred for assessment and remediation for known releases.
In February 1997, the Company adopted SOP No. 96-1, "Environmental Remediation
Liabilities," which provides guidance on specific accounting issues related to
the recognition, measurement and disclosure of environmental remediation
liabilities. These accruals are adjusted if and when new information becomes
known. Due to the nature of such releases, the actual costs of assessment and
remediation may vary significantly from year to year. As of February 3, 2001 and
January 29, 2000, the Company had recorded an accrual of $8,707,000 and
$6,045,000, respectively, for such costs. 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 funds.
As of February 3, 2001 and January 29, 2000, the Company had recorded a
reimbursement receivable of $10,575,000 and $7,286,000, respectively. For the
fiscal years ended February 3, 2001, January 29, 2000 and January 30, 1999, the
Company recorded a provision for environmental expenses of $656,000, $474,000,
and $98,000, respectively. At 14 locations, the Company either sold the location
or removed the UST's at the unsold locations during fiscal year 2000. The
Company remains responsible for specific known remediation requirements at these
locations. These locations are included in the Company's remediation accrual as
of February 3, 2001.
The Company is party to an agreement, through September 2005, which provides for
the wholesale supply of various grocery items. Under the supply agreement, the
Company is obligated to purchase annually a minimum amount of merchandise.
Management believes that the annual purchase level is readily achievable over
the term of the agreement. Prices to be charged by the supplier must be
competitive.
In fiscal year 1999, the Company entered into a long-term supply and branding
agreement with Chevron Products Company to brand certain high-volume retail
gasoline locations. The agreement obligates the Company to purchase a minimum
volume of gasoline over a ten-year period. Management believes that the purchase
volume is readily achievable over the term of the agreement. In addition, the
agreement provides for the Company to be reimbursed for costs incurred in the
conversion of equipment and display facilities.
In January 1999, the Company entered into an agreement with Coca-Cola USA
Fountain to exclusively sell Coca-Cola fountain products in the Company's
fountain centers. The agreement requires the purchase of a minimum quantity of
fountain syrups. Management expects to meet the required level of purchases.
In March 1999, the Company signed an agreement with Procter & Gamble. The
agreement calls for the Company to exclusively sell Millstone brand coffee
blends through February 2004. The agreement requires the purchase of a minimum
quantity of coffee. Management expects to meet the required level of purchases.
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").
The action is entitled New England Dairies, Inc. v. Dairy Mart Convenience
Stores, Inc. and Dairy Mart, Inc., Civil Action No. 397CU00894 (U.S. District
Court for the State of Connecticut). This action was commenced on April 17,
1997, by New England Dairies, Inc. ("NED") alleging that the Company committed
an anticipatory breach of a supply agreement entered into between NED and the
Company on April 25, 1995 ("the Agreement"), when the Company entered into a
contract with a third party to sell all company-owned and franchised convenience
stores in New England, without requiring the third party purchaser
F-16
58
to assume the Agreement. NED's complaint alleges lost profits in the amount of
$3.7 million. 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 of this case was completed on December 7, 2000, and it is not known when
the judge will issue his ruling. The Company has recognized no provision for any
possible loss in the accompanying financial statements.
The Company was the plaintiff in an action commenced on April 20, 2000 entitled
Dairy Mart Convenience Stores, Inc. v. RLI Insurance Group and RLI Insurance
Company and RLI Corporation, Civil Action Number 5:00 CV 1043 (U.S. District
Court for the Northern District of Ohio, Eastern Division), brought against RLI
Insurance Group to recover $3.0 million under the Company's directors and
officers excess liability insurance policy for legal fees incurred in the course
of defending certain directors and officers of the Company in derivative
litigation of Dairy Mart Convenience Stores, Inc.. The Company previously
recorded the $3.0 million as a receivable. On November 28, 2000, the Company
reached an agreement in principle with RLI Insurance Group to settle the
litigation for $1.8 million. Accordingly, a reduction in accounts receivable and
other costs related to this settlement was recognized in the amount of $1.3
million during fiscal year 2001 and was included in general and administrative
expenses.
In the ordinary course of business, the Company is party to various other
actions which the Company believes are routine in nature and incidental to the
operation of its business. The Company believes that the outcome of the
proceedings to which the Company currently is party will not have a material
adverse effect upon its future results of operations or financial condition.
13. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION:
The Company's payment obligations under 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 statements of cash flows for the Company ("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.
Investment in subsidiaries is 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 intercompany balances and
transactions.
F-17
59
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 3, 2001
(IN THOUSANDS)
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ----- ------------ ------------
Revenues (including excise taxes of
$42,054).......................... $ 220 $723,229 $222 $ -- $723,671
Cost of goods sold and expenses:
Cost of goods sold................ -- 576,042 -- -- 576,042
Operating and administrative
expenses....................... 352 157,146 21 -- 157,519
Interest expense.................. 13,408 533 242 -- 14,183
-------- -------- ---- ------- --------
13,760 733,721 263 -- 747,744
-------- -------- ---- ------- --------
Income (loss) before income taxes
and equity in income of
consolidated subsidiaries...... (13,540) (10,492) (41) -- (24,073)
Benefit (provision) from income
taxes............................. 6,228 (11,625) 19 -- (5,378)
-------- -------- ---- ------- --------
Income (loss) before equity in
income of consolidated
subsidiaries................... (7,312) (22,117) (22) -- (29,451)
Equity in income of consolidated
subsidiaries...................... (22,139) (22) -- 22,161 --
-------- -------- ---- ------- --------
Net income (loss)................. $(29,451) $(22,139) $(22) $22,161 $(29,451)
======== ======== ==== ======= ========
F-18
60
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
AS OF FEBRUARY 3, 2001
(IN THOUSANDS)
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ------ ------------ ------------
ASSETS
Current assets:
Cash............................. $ 3,721 $ 1,519 $ 427 $ -- $ 5,667
Short-term investments........... -- -- 3,000 -- 3,000
Accounts and notes receivable,
net........................... 60 12,546 856 -- 13,462
Inventory........................ -- 24,424 -- -- 24,424
Prepaid expenses and other
current assets................ 66 3,546 -- -- 3,612
Deferred income taxes............ -- -- -- --
-------- -------- ------ --------- --------
Total current assets........ 3,847 42,035 4,283 -- 50,165
-------- -------- ------ --------- --------
Property and equipment, net........ -- 111,448 -- -- 111,448
Intangible assets, net............. -- 13,731 -- -- 13,731
Other assets, net.................. 1,809 12,921 643 -- 15,373
Investment in and advances to
subsidiaries..................... 118,966 1,699 244 (120,909) --
-------- -------- ------ --------- --------
Total assets................ $124,622 $181,834 $5,170 $(120,909) $190,717
======== ======== ====== ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current maturities of long-term
obligations................... $ 5,230 $ 813 $ -- $ -- $ 6,043
Accounts payable................. 25,544 18,817 -- -- 44,361
Accrued expenses................. 599 15,213 23 -- 15,835
Accrued interest................. 3,564 -- 74 -- 3,638
-------- -------- ------ --------- --------
Total current liabilities... 34,937 34,843 97 -- 69,877
-------- -------- ------ --------- --------
Long-term obligations, less current
portion above.................... 111,957 14,470 3,130 -- 129,557
Other liabilities.................. -- 13,555 -- -- 13,555
Stockholders' equity............... (22,272) 118,966 1,943 (120,909) (22,272)
-------- -------- ------ --------- --------
Total liabilities and
stockholders' equity..... $124,622 $181,834 $5,170 $(120,909) $190,717
======== ======== ====== ========= ========
F-19
61
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED FEBRUARY 3, 2001
(IN THOUSANDS)
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ------- ------------ ------------
Net cash provided by (used in)
operating activities................ $(13,310) $13,291 $ 332 $-- $ 313
Cash flows from investing activities:
Purchase of and change in short-term
investments...................... -- 155 (3,000) -- (2,845)
Purchase of property and
equipment........................ -- (17,398) -- -- (17,398)
Proceeds from sale of property,
equipment and assets held for
sale............................. -- 5,350 -- -- 5,350
Investment in and advances to
subsidiaries..................... 8,515 (8,572) 57 -- --
Increase in long-term notes
receivable....................... -- -- -- -- --
Proceeds from collection of
long-term notes receivable....... -- -- -- -- --
Decrease in intangibles and other
assets........................... -- -- -- -- --
-------- ------- ------- --- --------
Net cash used in investing
activities.......................... 8,515 (20,465) (2,943) -- (14,893)
-------- ------- ------- --- --------
Borrowings of long term
obligations...................... -- 5,607 -- -- 5,607
Increase in revolving loan, net..... 10,030 -- -- -- 10,030
Repayment of long-term
obligations...................... (2,030) (1,372) -- -- (3,402)
Issuance of Common Stock............ 310 -- -- 310
-------- ------- ------- --- --------
Net cash used in financing
activities.......................... 8,310 4,235 -- -- 12,545
-------- ------- ------- --- --------
Decrease in cash...................... 3,515 (2,939) (2,611) -- (2,035)
Cash at beginning of year............. 206 4,458 3,038 -- 7,702
-------- ------- ------- --- --------
Cash at end of year................... $ 3,721 $ 1,519 $ 427 $-- $ 5,667
======== ======= ======= === ========
Supplemental disclosures:
Cash (paid) refunded during the
year --
Interest............................ $(13,264) $ (529) $ (242) -- $(14,035)
Income taxes refunded............... 139 -- -- -- 139
F-20
62
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 29, 2000
(IN THOUSANDS)
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ----- ------------ ------------
Revenues (including excise taxes
of $34,865)..................... $ 444 $ 587,766 $341 $ -- $588,551
Cost of goods sold and expenses:
Cost of goods sold.............. -- 443,559 -- -- 443,559
Operating and administrative
expenses..................... 297 136,750 22 -- 137,069
Interest expense................ 9,848 1,492 243 -- 11,583
-------- ------------ ---- ------- --------
10,145 581,801 265 -- 592,211
-------- ------------ ---- ------- --------
Income (loss) before income
taxes and equity in income
(loss) of consolidated
subsidiaries................. (9,701) 5,965 76 -- (3,660)
Benefit (provision) from income
taxes........................... (769) 1,963 (30) -- 1,164
-------- ------------ ---- ------- --------
Income (loss) before equity in
income(loss) of consolidated
subsidiaries................. (10,470) 7,928 46 -- (2,496)
Equity in income of consolidated
subsidiaries.................... 7,974 46 -- (8,020) --
-------- ------------ ---- ------- --------
Net income (loss)............ $ (2,496) $ 7,974 $ 46 $(8,020) $ (2,496)
======== ============ ==== ======= ========
F-21
63
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
AS OF JANUARY 29, 2000
(IN THOUSANDS)
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ------ ------------ ------------
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
-------- -------- ------ --------- --------
Property and equipment, net........ -- 113,338 -- -- 113,338
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
======== ======== ====== ========= ========
F-22
64
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 29, 2000
(IN THOUSANDS)
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ------ ------------ ------------
Net cash provided by (used in)
operating activities................ $ (3,746) $10,141 $ 420 $ -- $ 6,815
Cash flows from investing activities:
Purchase of and change in short-term
investments...................... -- (14) 2,583 -- 2,569
Purchase of property and
equipment........................ (1,859) (40,019) -- -- (41,878)
Proceeds from sale of property,
equipment and assets held for
sale............................. -- 22,254 -- -- 22,254
Investment in and advances to
subsidiaries..................... 2,575 (2,610) 35 -- --
-------- ------- ------ ------- --------
Net cash (used in) provided by
investing activities................ 716 (20,389) 2,618 -- (17,055)
-------- ------- ------ ------- --------
Cash flows from financing activities:
Borrowings on revolving loan, net... 4,096 -- -- -- 4,096
Borrowings of long-term
obligations...................... 1,859 13,023 -- -- 14,882
Repayment of long-term
obligations...................... (3,346) (1,165) -- (4,511)
Issuance of Common Stock............ 108 -- -- -- 108
-------- ------- ------ ------- --------
Net cash provided by (used in)
financing activities................ 2,717 11,858 -- -- 14,575
-------- ------- ------ ------- --------
Increase (decrease) in cash........... (313) 1,610 3,038 -- 4,335
Cash at beginning of year............. 519 2,848 -- -- 3,367
-------- ------- ------ ------- --------
Cash at end of year................... $ 206 $ 4,458 $3,038 $ -- $ 7,702
======== ======= ====== ======= ========
Supplemental disclosures:
Cash (paid) refunded during the
year --
Interest............................ $(10,070) $(1,493) $ (243) -- $(11,806)
Income taxes refunded............... 119 -- -- -- 119
F-23
65
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 30, 1999
(IN THOUSANDS)
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ----- ------------ ------------
Revenues (including excise taxes of
$31,265).............................. $ 155 $481,021 $422 $ -- $ 481,598
Cost of goods sold and expenses:
Cost of goods sold.................... -- 344,079 -- -- 344,079
Operating and administrative
expenses........................... 276 126,240 22 -- 126,538
Interest expense...................... 9,749 752 305 -- 10,806
-------- -------- ----- ------- ---------
10,025 471,071 327 -- 481,423
-------- -------- ----- ------- ---------
Income (loss) before income taxes and
equity in income of consolidated
subsidiaries....................... (9,870) 9,950 95 -- 175
Benefit (provision) from income taxes... 4,342 (4,454) (38) -- (150)
-------- -------- ----- ------- ---------
Income (loss) before equity in income
of consolidated subsidiaries....... (5,528) 5,496 57 -- 25
Equity in income of consolidated
subsidiaries.......................... 5,553 57 -- (5,610) --
-------- -------- ----- ------- ---------
Net income............................ $ 25 $ 5,553 $ 57 $(5,610) $ 25
======== ======== ===== ======= =========
F-24
66
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
AS OF JANUARY 30, 1999
(IN THOUSANDS)
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ------ ------------ ------------
ASSETS
Current assets:
Cash................................. $ 519 $ 2,848 $ -- $ -- $ 3,367
Short-term investments............... 138 3 2,583 -- 2,724
Accounts and notes receivable, net... 1,327 13,093 1,121 -- 15,541
Inventory............................ -- 24,293 -- -- 24,293
Prepaid expenses and other current
assets............................ -- 2,324 -- -- 2,324
Deferred income taxes................ -- 1,520 -- -- 1,520
-------- -------- ------ --------- --------
Total current assets......... 1,984 44,081 3,704 -- 49,769
-------- -------- ------ --------- --------
Property and equipment, net............ -- 105,156 -- -- 105,156
Intangible assets, net................. -- 15,452 -- -- 15,452
Other assets, net...................... 1,689 11,271 1,134 (3,140) 10,954
Investment in and advances to
subsidiaries......................... 140,880 1,602 290 (142,772) --
-------- -------- ------ --------- --------
Total assets................. $144,553 $177,562 $5,128 $(145,912) $181,331
======== ======== ====== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations....................... $ 3,807 $ 249 $ -- $ -- $ 4,056
Accounts payable..................... 23,776 11,885 24 -- 35,685
Accrued expenses..................... 183 15,186 9 -- 15,378
Accrued income taxes................. 2,593 -- -- (2,593) --
Accrued interest..................... 3,641 (1) 73 -- 3,713
-------- -------- ------ --------- --------
Total current liabilities.... 34,000 27,319 106 (2,593) 58,832
-------- -------- ------ --------- --------
Long-term obligations, less current
portion above........................ 100,749 572 3,130 -- 104,451
Other liabilities...................... 547 8,791 -- (547) 8,791
Stockholders' equity................... 9,257 140,880 1,892 (142,772) 9,257
-------- -------- ------ --------- --------
Total liabilities and
stockholders' equity....... $144,553 $177,562 $5,128 $(145,912) $181,331
======== ======== ====== ========= ========
F-25
67
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JANUARY 30, 1999
(IN THOUSANDS)
PARENT GUARANTOR
COMPANY SUBSIDIARIES FINOP ELIMINATIONS CONSOLIDATED
-------- ------------ ------- ------------ ------------
Net cash provided by (used in)
operating activities................ $ 6,773 $ 5,055 $ 73 $-- $ 11,901
Cash flows from investing activities:
Purchase of and change in short-term
investments...................... (138) -- 1,043 -- 905
Purchase of property and
equipment........................ -- (52,398) -- -- (52,398)
Proceeds from sale of property,
equipment and assets held for
sale............................. -- 30,760 -- -- 30,760
Investment in and advances to
subsidiaries..................... (15,909) 15,909 -- -- --
-------- -------- ------- --- --------
Net cash (used in) provided by
investing activities................ (16,047) (5,729) 1,043 -- (20,733)
-------- -------- ------- --- --------
Cash flows from financing activities:
Increase in revolving loan, net..... 10,200 -- -- -- 10,200
Repayment of long-term
obligations...................... (651) (300) (1,100) (2,051)
Payment of dividend................. -- 250 (250) -- --
Issuance of Common Stock............ 244 -- -- -- 244
-------- -------- ------- --- --------
Net cash provided by (used in)
financing activities................ 9,793 (50) (1,350) -- 8,393
-------- -------- ------- --- --------
Increase (decrease) in cash........... 519 (724) (234) -- (439)
Cash at beginning of year............. -- 3,572 234 -- 3,806
-------- -------- ------- --- --------
Cash at end of year................... $ 519 $ 2,848 $ -- $-- $ 3,367
======== ======== ======= === ========
Supplemental disclosures:
Cash (paid) refunded during the year -
Interest............................ $ (9,876) $ (435) $ (350) -- $(10,661)
Income taxes refunded............... 381 -- -- -- 381
F-26
68
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
14. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
Quarterly financial information is as follows:
FISCAL QUARTER ENDED
-----------------------
APRIL 29, JULY 29, OCTOBER 28, FEBRUARY 3,
FISCAL YEAR ENDED FEBRUARY 3, 2001 2000 2000 2000 2001
---------------------------------- --------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues...................................... $172,934 $195,810 $180,723 $174,204
Gross profit.................................. 35,523 41,867 36,447 33,792
Net income (loss)............................. (2,881) 94 (4,148) (22,516)
Basic earnings (loss) per share............... (.60) (.02) (.83) (4.51)
Diluted earnings (loss) per share............. (.60) (.02) (.83) (4.51)
FISCAL QUARTER ENDED
--------------------------------------------------
MAY 1, JULY 31, OCTOBER 30, JANUARY 29,
FISCAL YEAR ENDED JANUARY 29, 2000 1999 1999 1999 2000
---------------------------------- -------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues...................................... $126,262 $155,550 $156,424 $150,285
Gross profit.................................. 33,339 38,471 38,286 34,896
Net income (loss)............................. 95 1,158 511 (4,260)
Basic earnings (loss) per share(1)............ 0.02 0.24 0.11 (0.88)
Diluted earnings (loss) per share(1).......... 0.02 0.23 0.10 (0.88)
- ---------------
(1) Earnings per share amounts for each quarter are required to be computed
independently. As a result, their sum does not equal the total year earnings
per share for diluted earnings per share in fiscal years 2001 and 2000.
15. OPERATING SEGMENT
The Company operates in one segment based on the criteria established by SFAS
131. That segment is the operating and franchising of convenience food stores.
Revenues from external customers are derived primarily from three major
categories -- merchandise, gasoline and food service. The Company's merchandise
sales are comprised of groceries, beverages, beer/wine, tobacco products, dairy
products, candy/snacks, non-food merchandise and services. Services include
lottery, ATMs and money orders. Food service sales are comprised of fountain,
coffee, fresh made sandwiches, deli products and branded quick serve restaurant
sales such as Mr. Hero(R), Taco Bell(R), and Subway(R).
The Company does not rely on any major customers as a source of revenue.
Excluding license royalties, the Company's operations are concentrated in seven
states in the Midwest and Southeastern part of the United States.
16. SUBSEQUENT EVENTS
On March 15, 2001, the Company executed a merger agreement (the "Merger
Agreement") pursuant to which DM Acquisition Corp. agreed to acquire the Company
in a cash merger for $4.50 per share. DM Acquisition Corp. is controlled by
Robert B. Stein, Jr., the Chairman, President and Chief Executive Officer of the
Company. The Merger Agreement provides that DM Acquisition Corp. will be merged
with and into the Company and that each share of the Company's Common Stock
outstanding immediately prior to the merger, other than those owned by Mr. Stein
and his affiliates, will be converted into the right to receive $4.50 per share
in cash. The Company's board of directors, based on the unanimous recommendation
of a special committee of independent directors, has approved the transaction
and recommended that the Company's stockholders approve the transaction. In
connection with the merger, the Company will solicit its senior subordinated
noteholders to
F-27
69
exchange their subordinated notes of the Company and receive, for each $10,000
in principal amount of the old notes, $3,870 in principal amount of new notes of
the Company, $6,191.30 in cash and a warrant to purchase Common Stock of the
Company, which will not be exercisable until after the completion of the merger.
The Company has entered into an exchange and voting agreement pursuant to which
holders of approximately 70% of the senior subordinated notes have agreed to
participate in the exchange. The Merger Agreement is subject to customary
conditions, including completion of necessary financing arrangements and
approval of holders of a majority (excluding those shares held by persons who
will have an interest in the buyout entity) of the shares of the Company's
Common Stock voting at a special meeting. If the merger is completed, the
Company will no longer be a public company. There can be no assurance, however,
that the Company or DM Acquisition Corp. will be able to complete the merger.
F-28
70
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and the Board of Directors of Dairy Mart Convenience Stores,
Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Dairy Mart Convenience
Stores, Inc. and subsidiaries (the Company) included in this Form 10-K and have
issued our report thereon dated May 3, 2001. Our audit was made for the purpose
of forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the accompanying index is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
-------------------------------------------
ARTHUR ANDERSEN LLP
Cleveland, Ohio
May 7, 2001
F-29
71
SCHEDULE II
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
VALUATION ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
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ADDITIONS DEDUCTIONS
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BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER AND ACCOUNTS END OF
DESCRIPTION PERIOD EXPENSES RECOVERIES WRITTEN-OFF PERIOD
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Reserve for Doubtful Accounts:
Fiscal Year Ended January 30, 1999... 2,240,638 421,905 -- (588,436) 2,074,107
Fiscal Year Ended January 29, 2000... 2,074,107 262,101 -- (272,869) 2,063,339
Fiscal Year Ended February 3, 2001... 2,063,339 832,284 -- (594,289) 2,301,334
F-30