FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended AUGUST 4, 2001
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 0-12497
------------------------------
DAIRY MART CONVENIENCE STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2497894
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE DAIRY MART WAY, 300 EXECUTIVE PARKWAY WEST, HUDSON, OHIO 44236
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (330) 342-6600
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
SHARES OF COMMON STOCK OUTSTANDING DECEMBER 11, 2001 - 5,006,039
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ITEM 1. FINANCIAL STATEMENTS.
DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
FOR THE FISCAL FOR THE TWO FISCAL
QUARTER ENDED QUARTERS ENDED
---------------------- ----------------------
AUGUST 4, JULY 29, AUGUST 4, JULY 29,
2001 2000 2001 2000
--------- --------- --------- ---------
- ---------------------------------------------------------------------------------------------------------------------------
Revenues ........................................................... $ 179,082 $ 195,810 $ 340,819 $ 368,744
Cost of goods sold and expenses: ...................................
Cost of goods sold ............................................... 143,504 153,943 271,425 291,353
Operating and administrative expenses ............................ 38,584 38,414 76,009 76,151
Impairment charge ................................................ 14,824 - 14,824 -
Interest expense ................................................. 3,344 3,295 7,318 6,422
--------- --------- --------- ---------
200,256 195,652 369,576 373,926
--------- --------- --------- ---------
Income (loss) before income taxes .................................. (21,174) 158 (28,757) (5,182)
Benefit from (provision for) income taxes .......................... (98) (64) (248) 2,394
--------- --------- --------- ---------
Net income (loss) ................................................ $ (21,272) $ 94 $ (29,005) $ (2,788)
- ---------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share - Basic .................................. $ (4.25) $ 0.02 $ (5.80) $ (0.57)
Earnings (loss) per share - Diluted ................................ $ (4.25) $ 0.02 $ (5.80) $ (0.57)
The accompanying notes are an integral part of these financial statements.
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DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
AUGUST 4, 2001 FEBRUARY 3, 2001
- -------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash ................................................................. $ 5,893 $ 5,667
Short-term investments ............................................... 3,115 3,000
Accounts and notes receivable ........................................ 13,344 13,462
Inventory ............................................................ 26,092 24,424
Prepaid expenses and other current assets ............................ 4,055 3,612
--------- ---------
Total current assets .............................................. 52,499 50,165
Property and equipment, net .............................................. 106,523 111,448
Intangible assets, net ................................................... - 13,731
Other assets, net ........................................................ 14,223 15,373
--------- ---------
Total assets ............................................................. $ 173,245 $ 190,717
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations .......................... $ 135,162 $ 6,043
Accounts payable ..................................................... 48,127 44,361
Accrued expenses ..................................................... 16,165 15,835
Accrued interest ..................................................... 3,688 3,638
--------- ---------
Total current liabilities .......................................... 203,142 69,877
Long-term obligations, less current portion above ........................ - 129,557
Other liabilities ........................................................ 21,369 13,555
Stockholders' equity:
Common stock ......................................................... 70 70
Paid-in capital ...................................................... 32,427 32,416
Retained deficit ..................................................... (68,758) (39,753)
Treasury stock, at cost .............................................. (15,005) (15,005)
--------- ---------
Total stockholders' equity ........................................ (51,266) (22,272)
--------- ---------
Total liabilities and stockholders' equity ............................... $ 173,245 $ 190,717
- ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
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DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
FOR THE TWO FISCAL
QUARTERS ENDED
AUGUST 4, JULY 29,
2001 2000
---- ----
Cash flows from operating activities:
Net income (loss) ........................................ $(29,005) $ (2,788)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ............................ 7,573 7,132
Impairment charge ........................................ 14,824 -
Change in deferred income taxes .......................... - (2,691)
(Gain) loss on disposition of properties, net ............. 203 219
Net change in assets and liabilities:
Accounts and notes receivable .......................... 264 (84)
Inventory .............................................. (1,668) 5,484
Accounts payable ....................................... 3,766 (847)
Accrued interest ....................................... 50 518
Other assets and liabilities ........................... 6,905 (1,178)
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities .................... 2,912 5,765
- --------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of short-term investments ........................ (115) (2,727)
Purchase of property and equipment ........................ (2,870) (13,002)
Net proceeds from sale of property, equipment and
assets held for sale .................................... 848 4,816
- --------------------------------------------------------------------------------------------
Net cash (used in) investing activities ....................... (2,137) (10,913)
- --------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in revolving loan, net ........................... 1,285 1,680
Borrowings of long-term obligations ....................... 54 2,266
Repayment of long-term obligations ........................ (1,899) (1,491)
Issuance of common stock .................................. 11 185
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities ........... (549) 2,640
- --------------------------------------------------------------------------------------------
Increase (decrease) in cash ................................... 226 (2,508)
Cash at beginning of fiscal year ............................. 5,667 7,702
- --------------------------------------------------------------------------------------------
Cash at end of second fiscal quarter ......................... $ 5,893 $ 5,194
- --------------------------------------------------------------------------------------------
Supplemental disclosures:
Interest paid .............................................. $ 7,265 $ 7,054
Income taxes refunded ...................................... $ - $ -
The accompanying notes are an integral part of these financial statements.
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DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 4, 2001
(Unaudited)
The unaudited consolidated financial statements for Dairy Mart Convenience
Stores, Inc. and Subsidiaries ("Dairy Mart" or the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. The information
furnished reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented,
and which are of a normal, recurring nature. These financial statements should
be read in conjunction with the financial statements and the notes thereto
included in the Company's Form 10-K, filed with the Securities and Exchange
Commission for the fiscal year ended February 3, 2001.
The unaudited consolidated financial statements have been prepared assuming the
Company will continue as a going concern. The Company has experienced recurring
operating losses and reduced cash flows from operating activities, resulting in
working capital and stockholders' deficits at August 4, 2001. The Company was in
default of its Credit Facility and did not make its payment of a $250,000
amendment fee to its lenders under the Credit Facility that was due September 1,
2001. Additionally, the Company did not make an interest payment of
approximately $4.5 million that was due on September 17, 2001, on its 10 1/4%
Senior Subordinated Notes due in 2004.
The Company has filed a voluntary petition to reorganize under Chapter 11 of the
U.S. Bankruptcy Code, which is discussed in more detail in Note 9. The Chapter
11 filing also caused a default under substantially all of the Company's debt
agreements, including leases. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The unaudited consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and
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classification of assets or the amounts and classification of liabilities that
might result from the outcome of this uncertainty.
1. ACCOUNTING POLICIES
The financial statements included herein have been prepared in accordance with
the accounting policies described in Note 1 to the February 3, 2001 audited
consolidated financial statements included in the Company's Form 10-K. Certain
prior year amounts have been reclassified to conform to the presentation used
for the current year
2. CHANGES IN CAPITAL ACCOUNTS
An analysis of the capital stock accounts for the first two fiscal quarters
ended August 4, 2001 follows:
COMMON STOCK ISSUED PAID-IN CAPITAL IN
AT EXCESS OF
$.01 PAR VALUE AMOUNT PAR VALUE
----------- ----------- -----------
Balance February 3, 2001 7,059,205 $ 70,592 $32,415,803
Employee stock purchase plan 4,012 40 11,006
Stock options exercised - - -
Stock awards - - -
----------- ----------- -----------
Balance August 4, 2001 7,063,217 $ 70,632 $32,426,809
----------- ----------- -----------
As of August 4, 2001, there were 2,057,178 shares of Common Stock held as
treasury stock at an aggregate cost of $15,004,847 leaving 5,006,039 shares
outstanding.
3. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is based on the weighted average number of shares
outstanding, including the dilutive effect of stock options, if appropriate,
during each period. The weighted average number of shares used in the
calculation of basic earnings per share were 5,005,079 and 4,918,229 for the
second fiscal quarters ended August 4, 2001 and July 29, 2000, respectively, and
5,003,981 and 4,906,912 for the first two fiscal quarters ended August 4, 2001
and July 29, 2000, respectively. The weighted average number of shares used in
the calculation of diluted earnings per share were 5,005,079 and 5,138,783 for
the second fiscal quarters ended August 4, 2001 and July 29, 2000, respectively,
and 5,003,981 and 4,906,912 for the first two fiscal quarters ended August 4,
2001 and July 29, 2000, respectively.
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4. SEASONALITY
The results of operations for the first two fiscal quarters ended August 4, 2001
are not necessarily indicative of results to be expected for the full fiscal
year. The convenience store industry in Dairy Mart's marketing areas experiences
a higher percentage of revenues and profit margins during the summer months than
during the winter months. Historically, Dairy Mart has achieved more favorable
financial results in its second and third fiscal quarters, as compared to its
first and fourth fiscal quarters.
5. SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
The Company's payment obligations under the Series A and Series B Senior
Subordinated Notes (the "Notes") are guaranteed by certain of the Company's
subsidiaries ("Guarantor Subsidiaries"). The Notes are fully and unconditionally
guaranteed on an unsecured, senior subordinated, joint and several basis by each
of the Guarantor Subsidiaries. The following supplemental financial information
sets forth, on a consolidating basis, statements of operations, balance sheets
and cash flow information for Dairy Mart Convenience Stores, Inc. ("Parent
Company"), for the Guarantor Subsidiaries and for Financial Opportunities, Inc.
("FINOP"), the Company's non-guarantor subsidiary. Separate complete financial
statements of the respective Guarantor Subsidiaries would not provide additional
information which would be useful in assessing the financial condition of the
Guarantor Subsidiaries, and are omitted accordingly.
Investments in subsidiaries are accounted for by the Parent Company on the
equity method for purposes of the supplemental consolidating presentation.
Earnings of the subsidiaries are, therefore, reflected in the Parent Company's
investment accounts and earnings. The principal elimination entries eliminate
the Parent Company's investments in subsidiaries and inter-company balances and
transactions.
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Supplemental Consolidating Statement of Operations
for the Two Fiscal Quarters Ended August 4, 2001
(in thousands)
Parent Guarantor
Company Subsidiaries Finop Eliminations Consolidated
------- ------------ ----- ------------ ------------
Revenues ......................................... $ 79 $ 340,665 $ 75 $ - $ 340,819
Cost of goods sold and expenses:
Cost of goods sold ............................. - 271,425 - - 271,425
Operating and administrative expenses .......... 178 75,821 10 - 76,009
Impairment charge .............................. - 14,824 - - 14,824
Interest expense ............................... 7,188 12 118 - 7,318
-------------------------------------------------------------------------
7,366 362,082 128 - 369,576
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Income (loss) before income taxes
and equity in income (loss) of
consolidated subsidiaries ..................... (7,287) (21,417) (53) - (28,757)
Benefit from (provision for)
income taxes ................................. - (248) - - (248)
-------------------------------------------------------------------------
Income (loss) before equity in
income of consolidated subsidiaries .......... (7,287) (21,665) (53) - (29,005)
Equity in income (loss) of consolidated
subsidiaries ................................. (21,718) (53) - 21,771 -
-------------------------------------------------------------------------
Net income (loss) ........................... $ (29,005) $ (21,718) $ (53) $ 21,771 $ (29,005)
===============================================================================================================================
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Supplemental Consolidating Balance Sheet
as of August 4, 2001
(in thousands)
Parent Guarantor
Company Subsidiaries Finop Eliminations Consolidated
------- ------------ ----- ------------ ------------
ASSETS
Current assets:
Cash ........................................... $ 2,466 $ 3,422 $ 5 $ - $ 5,893
Short-term investments ......................... - 343 2,772 - 3,115
Accounts and notes receivable .................. - 12,558 786 - 13,344
Inventory ...................................... - 26,092 - - 26,092
Prepaid expenses and other
current assets ............................... 39 4,016 - - 4,055
Deferred income taxes .......................... - - - - -
-----------------------------------------------------------------------
Total current assets ......................... 2,505 46,431 3,563 - 52,499
Property and equipment, net ....................... - 106,523 - - 106,523
Intangible assets, net ............................ - - - - -
Other assets, net ................................. 1,690 11,894 639 - 14,223
Investment in and advances to
subsidiaries ................................... 92,728 1,001 901 (94,630) -
-----------------------------------------------------------------------
Total assets ...................................... $ 96,923 $ 165,849 $ 5,103 $ (94,630) $ 173,245
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations .................................. $ 117,506 $ 14,526 $ 3,130 $ - $ 135,162
Accounts payable ............................... 26,210 21,917 - - 48,127
Accrued expenses ............................... 856 15,309 - - 16,165
Accrued interest ............................... 3,617 - 71 - 3,688
-----------------------------------------------------------------------
Total current liabilities .................... 148,189 51,752 3,201 - 203,142
-----------------------------------------------------------------------
Long-term obligations, less
Current portion above .......................... - - - - -
Other liabilities ................................. - 21,369 - - 21,369
Stockholders' equity .............................. (51,266) 92,728 1,902 (94,630) (51,266)
-----------------------------------------------------------------------
Total liabilities and
stockholders' equity ........................... $ 96,923 $ 165,849 $ 5,103 $ (94,630) $ 173,245
================================================================================================================================
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Supplemental Consolidating Statement of Cash Flows
for the Two Fiscal Quarters Ended August 4, 2001
(in thousands)
Parent Guarantor
Company Subsidiaries Finop Eliminations Consolidated
------- ------------ ----- ------------ ------------
Net cash provided by (used in) operating
activities .......................................... $ 9,719 $ (6,815) $ 8 $ - $ 2,912
------------------------------------------------------------------
Cash flows from investing activities:
Purchase of and change in short-term
Investments ..................................... - (343) 228 - (115)
Purchase of property and equipment ................ - (2,870) - - (2,870)
Proceeds from sale of property,
Equipment and assets held for sale .............. - 848 - - 848
Investment in and advances to
subsidiaries .................................... (10,724) 11,382 (658) - -
------------------------------------------------------------------
Net cash provided by (used in)
investing activities ............................ (10,724) 9,017 (430) - (2,137)
------------------------------------------------------------------
Cash flows from financing activities:
Borrowings of long-term obligations ............... 54 - - - 54
Increase in revolving loan, net ................... 1,285 - - - 1,285
Repayment of long-term obligations ................ (1,600) (299) - - (1,899)
Issuance of common stock .......................... 11 - - - 11
------------------------------------------------------------------
Net cash provided by (used in)
financing activities .............................. (250) (299) - - (549)
------------------------------------------------------------------
Increase (decrease) in cash ......................... (1,255) 1,903 (422) - 226
Cash at beginning of fiscal year .................... 3,721 1,519 427 - 5,667
------------------------------------------------------------------
Cash at end of second fiscal quarter ................ $ 2,466 $ 3,422 $ 5 $ - $ 5,893
=============================================================================================================================
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Supplemental Consolidating Statement of Operations
for the Two Fiscal Quarters Ended July 29, 2000
(in thousands)
Parent Guarantor
Company Subsidiaries Finop Eliminations Consolidated
------- ------------ ----- ------------ ------------
Revenues .......................................... $ 171 $ 368,461 $ 112 $ - $ 368,744
Cost of goods sold and expenses:
Cost of goods sold .............................. - 291,353 - - 291,353
Operating and administrative expenses ........... 171 75,970 10 - 76,151
Interest expense ................................ 5,957 343 122 - 6,422
-------------------------------------------------------------------------
6,128 367,666 132 - 373,926
-------------------------------------------------------------------------
Income (loss) before income taxes
and equity in income (loss) of
consolidated subsidiaries ...................... (5,957) 795 (20) - (5,182)
Benefit from (provision for)
income taxes .................................. 2,740 (355) 9 - 2,394
-------------------------------------------------------------------------
Income (loss) before equity in
income of consolidated subsidiaries ........... (3,217) 440 (11) - (2,788)
Equity in income (loss) of consolidated
subsidiaries .................................... 429 (11) - (418) -
-------------------------------------------------------------------------
Net income (loss) ............................. $ (2,788) $ 429 $ (11) $ (418) $ (2,788)
==================================================================================================================================
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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
=================================================================================================================================
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Supplemental Consolidating Statement of Cash Flows
for the Two Fiscal Quarters Ended July 29, 2000
(in thousands)
Parent Guarantor
Company Subsidiaries FINOP Eliminations Consolidated
------- ------------ ----- ------------ ------------
Net cash provided by (used in)
operating activities .............................. $ (126) $ 5,643 $ 248 $ - $ 5,765
-------------------------------------------------------------------
Cash flows from investing activities:
Decrease in short-term
investments ................................... - 155 (2,882) - (2,727)
Purchase of property and equipment .............. - (13,002) - - (13,002)
Net proceeds from sale of property,
equipment and assets held for sale ............ - 4,816 - - 4,816
Investment in and (advances to)
subsidiaries .................................. 771 (479) (292) - -
-------------------------------------------------------------------
Net cash provided by (used in)
investing activities ............................ 771 (8,510) (3,174) - (10,913)
-------------------------------------------------------------------
Cash flows from financing activities:
Borrowings of long-term obligations ............. - 1,680 - - 1,680
Increase in revolving loan, net ................. 2,266 - - - 2,266
Repayment of long-term obligations .............. (685) (806) - - (1,491)
Issuance of common stock ........................ 185 - - - 185
-------------------------------------------------------------------
Net cash provided by (used in)
financing activities .............................. 1,766 874 - - 2,640
-------------------------------------------------------------------
(Decrease) increase in cash ....................... 2,411 (1,993) (2,926) - (2,508)
Cash at beginning of fiscal year .................. 206 4,458 3,038 - 7,702
-------------------------------------------------------------------
Cash at end of second fiscal quarter .............. $ 2,617 $ 2,465 $ 112 $ - $ 5,194
============================================================================================================================
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6. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
On February 4, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities -- an amendment to FASB Statement
No. 133." These statements, which establish the accounting and financial
reporting requirements for derivative instruments, require companies to
recognize derivatives as either assets or liabilities on the balance sheet and
measure those instruments at fair value. The adoption of this standard did not
have a material impact on the Company's consolidated financial statements.
7. ACCOUNTING STANDARDS NOT YET ADOPTED
In July, 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." In August, 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," and, in October, 2001, the FASB issued SFAS No. 144,
"Accounting for Impairment or Disposal of Long-Lived Assets."
SFAS No. 141 requires all business combinations completed after June 30, 2001,
to be accounted for under the purchase method. This standard also establishes,
for all business combinations made after June 30, 2001, specific criteria for
the recognition of intangible assets separately from goodwill. SFAS No. 141 also
requires that the excess of the fair value of acquired assets over cost
(negative goodwill) be recognized immediately as an extraordinary gain, rather
than deferred and amortized. The Company will account for all future business
combinations under SFAS No. 141.
SFAS No. 142 addresses the accounting for goodwill and other intangible assets
after an acquisition. Goodwill and other intangibles that have indefinite lives
will no longer be amortized, but will be subject to annual impairment tests. All
other intangible assets will continue to be amortized over their estimated
useful lives, which is no longer limited to 40 years. The Company will adopt
this statement effective February 3, 2002, as required. The adoption should have
no impact on the Company as a result of the impairment charge recorded during
the second quarter as discussed in Note 8.
SFAS No. 143 provides accounting requirements for retirement obligations
associated with tangible long-lived assets, including: (i) the timing of
liability recognition; (ii) initial measurement of the liability; (iii)
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allocation of asset retirement cost to expense; (iv) subsequent measurement of
the liability; and (v) financial statement disclosures. SFAS No. 143 requires
that an asset retirement cost should be capitalized as part of the cost of the
related long-lived asset and subsequently allocated to expense using a
systematic and rational method. This standard becomes effective for fiscal years
beginning after June 15, 2002. The Company will adopt the Statement effective
February 2, 2003. The transition adjustment, if any, resulting from the adoption
of SFAS No. 143 will be reported as a cumulative effect of a change in
accounting principle. At this time, the Company has not yet determined what
impact, if any, the adoption of this Statement will have on either its financial
position or results of operations.
SFAS No. 144 addresses the financial accounting and reporting for the impairment
or disposal of long-lived assets. This statement supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of a segment of a business, as
previously defined in that Opinion. SFAS No. 144 provides a single accounting
model, based on the framework established in SFAS No. 121, for long-lived assets
to be disposed of by sale. Many of the provisions of SFAS No. 121 are retained,
however, SFAS No. 144 clarifies some of the implementation issues related to
SFAS No. 121. SFAS No. 144 also broadens the presentation of discontinued
operations to include more disposal transactions. This statement is effective
for fiscal years beginning after December 15, 2001, with early adoption
encouraged. The Company will adopt this statement no later than February 3,
2002. At this time, the Company has not yet determined what impact, if any, the
adoption of this Statement will have on either its financial position or results
of operations.
8. IMPAIRMENT CHARGE
Management reviews long-lived assets and certain identifiable intangible assets
for impairment whenever circumstances indicate that the carrying account may not
be recoverable. As a result of the termination of the merger agreement with DM
Acquisition Corp., the Company recognized an impairment charge of $14.8 million
in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of." The impairment charge
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relates to goodwill and other intangible assets including franchise rights and
favorable leases.
9. SUBSEQUENT EVENT
On September 24, 2001, the Company and substantially all of its subsidiaries
filed voluntary petitions for protection under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the Southern District of New
York. Pursuant to the provisions of the Bankruptcy Code, all actions to collect
upon any of the Company's liabilities as of the petition date or to enforce
pre-petition date contractual obligations were automatically stayed. Absent
approval from the Bankruptcy Court, the Company is prohibited from paying
pre-petition obligations. However, on September 26, 2001, the Company received
interim approval of its Debtor-In-Possession (DIP) credit facility, and on
October 19, 2001, the Company received approval of its entire $46 million DIP
credit facility. As a result, the Company expects to continue to pay for
employee salaries and benefits, ongoing operations (including payments to
vendors) and other working capital needs. The accompanying financial statements
do not purport to reflect or provide for the consequences of the Company's
bankruptcy proceedings.
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DAIRY MART CONVENIENCE STORES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SIGNIFICANT EVENTS SINCE AUGUST 4, 2001
The following significant events have occurred since August 4, 2001. The Company
continued negotiations with its lenders under the Credit Facility and with new
lenders to refinance the Credit Facility. The Company also became aware that it
was in default under the Credit Facility due to its noncompliance with financial
ratio covenants when its financial statements for the period ending August 4,
2001 were prepared. On September 1, 2001, the Company did not make its payment
of a $250,000 amendment fee to its lenders under the Credit Facility that became
due in the event that the Company failed to consummate its merger with DM
Acquisition Corp. by September 1, 2001. On September 17, 2001, the Company did
not make an interest payment of approximately $4.5 million that was due on its
10 1/4% Senior Subordinated Notes due 2004.
On September 24, 2001, the Company and substantially all of its subsidiaries
filed voluntary petitions for protection under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the Southern District of New
York. Pursuant to the provisions of the Bankruptcy Code, all actions to collect
upon any of the Company's liabilities as of the petition date or to enforce
pre-petition date contractual obligations were automatically stayed. Absent
approval from the Bankruptcy Court, the Company is prohibited from paying
pre-petition obligations. However, on September 26, 2001, Dairy Mart received
interim approval of its Debtor-in-Possession (DIP) credit facility, and on
October 19, 2001, the Company received approval of its entire $46 million DIP
credit facility. As a result, the Company expects to continue to pay for
employee salaries and benefits, ongoing operations (including payments to
vendors) and other working capital needs. The accompanying consolidated
financial statements do not purport to reflect or provide for the consequences
of the Company's bankruptcy proceedings.
-17-
RESULTS OF OPERATIONS:
SECOND QUARTER FISCAL YEAR 2002 RESULTS COMPARED TO SECOND QUARTER FISCAL YEAR
2001 RESULTS
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE FISCAL FOR THE TWO FISCAL
QUARTER ENDED QUARTERS ENDED
------------------------- -------------------------
AUGUST 4, JULY 29, AUGUST 4, JULY 29,
2001 2000 2001 2000
--------- --------- --------- ---------
- ------------------------------------------------------------------------------------------------------------------------------
Revenues .................................................. $ 179,082 $ 195,810 $ 340,819 $ 368,744
Cost of goods sold and expenses:
Cost of goods sold ...................................... 143,504 153,943 271,425 291,353
Operating and administrative expenses ................... 38,584 38,414 76,009 76,151
Impairment charge ....................................... 14,824 - 14,824 -
Interest expense ........................................ 3,344 3,295 7,318 6,422
--------- --------- --------- ---------
200,256 195,652 369,576 373,926
--------- --------- --------- ---------
Income (loss) before income taxes ......................... (21,174) 158 (28,757) (5,182)
Benefit from (provision for) income taxes ................. (98) (64) (248) 2,394
--------- --------- --------- ---------
Net income (loss) ....................................... $ (21,272) $ 94 $ (29,005) $ (2,788)
- ------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share - Basic ......................... $ (4.25) $ 0.02 $ (5.80) $ (0.57)
Earnings (loss) per share - Diluted ....................... $ (4.25) $ 0.02 $ (5.80) $ (0.57)
-18-
REVENUES
Revenues for the second fiscal quarter decreased $16.7 million compared to the
same period for the prior fiscal year. Revenues for the first two fiscal
quarters decreased $27.9 million compared to the same period for the prior
fiscal year. A summary of revenues by functional area is shown below:
For the Second Fiscal For the Two Fiscal
Quarter Ended Quarters Ended
-------------------- --------------------
August 4, July 29, August 4, July 29,
2001 2000 2001 2000
-------- -------- -------- --------
(in millions)
Convenience Stores $ 96.2 $ 101.3 $ 180.8 $ 190.8
Gasoline 82.6 94.2 159.5 177.3
Other .3 .3 .5 .6
-------- -------- -------- --------
Total $ 179.1 $ 195.8 $ 340.8 $ 368.7
======== ======== ======== ========
Convenience store revenues decreased $5.1 million or 5.0%, for the second fiscal
quarter compared to the same period for the prior fiscal year. This decrease was
primarily due to a 2.3% decrease in comparable convenience store merchandise
sales and the sale, closure or franchising of twenty-four underperforming
company-operated stores during the four quarters ended August 4, 2001, partially
offset by the opening of two new stores during the same period.
Convenience store revenues decreased $10.0 million, or 5.2%, for the first two
fiscal quarters compared to the same period for the prior fiscal year. This
decrease was primarily due to a 2.3% decrease in comparable convenience store
merchandise sales and the sale, closure, or franchising of underperforming
stores, as described above, partially offset by the opening of two new stores
during the same period.
Gasoline revenues decreased $11.6 million for the second fiscal quarter compared
to the same period for the prior fiscal year. This decrease was the result of a
4.4 million gallon decrease in the number of gallons sold in the second fiscal
quarter and a decrease in the average selling price of gasoline of 8.6 cents per
gallon in the second fiscal quarter, as compared to the same period for the
prior fiscal year.
Gasoline revenues decreased $17.8 million for the first two fiscal quarters
compared to the same period for the prior fiscal year. This decrease was
primarily the result of an 11.8 million gallon decrease in the number of gallons
sold in the first two fiscal quarters, which included a decrease of 7.7 million
gallons in comparable gasoline locations, and the sale or closure of ten
underperforming gasoline locations during the four quarters ended August 4,
2001, partially offset by the opening of two new gasoline locations during the
same period.
-19-
GROSS PROFIT
Gross profits decreased $6.3 million for the second fiscal quarter compared to
the same period for the prior fiscal year. Gross profits decreased $8.0 million
for the first two fiscal quarters compared to the same period for the prior
fiscal year. A summary of gross profits by functional area is shown below:
For the Second Fiscal For the Two Fiscal
Quarter Ended Quarters Ended
------------------ ------------------
August 4, July 29, August 4, July 29,
2001 2000 2001 2000
------- ------- ------- -------
(in millions)
Convenience Stores $ 31.1 $ 34.3 $ 59.2 $ 64.3
Gasoline 4.2 7.3 9.7 12.5
Other .3 .3 .5 .6
------- ------- ------- -------
Total $ 35.6 $ 41.9 $ 69.4 $ 77.4
======= ======= ======= =======
Convenience store gross profits decreased $3.2 million, or 9.3%, for the second
fiscal quarter compared to the same period for the prior fiscal year. This
decrease was primarily attributable to the decrease in convenience store
revenues, as described above, and an increase in the cost of dairy products,
partially offset by an increase in lottery commissions during the second fiscal
quarter, as compared to the same period of the prior fiscal year.
Convenience store gross profits decreased $5.1 million, or 7.9%, for the first
two fiscal quarters compared to the same period for the prior fiscal year. This
decrease was primarily attributable to the decrease in convenience store
revenues for the first two fiscal quarters, as described above, an increase in
the cost of dairy products, a $0.5 million decrease in franchise fees due to the
sale or closure of underperforming franchise locations, partially offset by
income generated from the implementation of an ATM surcharge during the prior
fiscal year.
Gasoline gross profits decreased $3.1 million for the second fiscal quarter
compared to the same period for the prior fiscal year. This decrease was
primarily attributable to competitive pressure in the gasoline markets served by
the Company, resulting in a reduction in the average gasoline profit margin of
4.6 cents per gallon, and the decrease in gasoline gallons sold described above,
as compared to the same period for the prior fiscal year.
Gasoline gross profits decreased $2.8 million for the first two fiscal quarters
compared to the same period for the prior fiscal year. This decrease was
primarily attributable to the reduction in gallons sold as described above, and
a 1.5 cent per gallon decrease in the average gasoline profit margin, as
compared to the same period for the prior fiscal year.
-20-
OPERATING EXPENSES, ADMINISTRATIVE EXPENSES, AND THE IMPAIRMENT CHARGE
Operating expenses, administrative expenses and the impairment charge increased
$15.0 million for the second fiscal quarter compared to the same period for the
prior fiscal year. Operating expenses, administrative expenses and the
impairment charge increased $14.6 million for the first two fiscal quarters
compared to the same period for the prior fiscal year. A summary of operating
expenses, administrative expenses and the impairment charge is shown below:
For the Second Fiscal For the Two Fiscal
Quarter Ended Quarters Ended
------------------- --------------------
August 4, July 29, August 4, July 29,
2001 2000 2001 2000
----- ----- ----- -----
(in millions)
Operating Expenses $30.8 $30.9 $59.8 $61.4
Impairment Charge 14.8 - 14.8 -
General & Administrative
Expenses 7.8 7.5 16.2 14.8
----- ----- ----- -----
Total $53.4 $38.4 $90.8 $76.2
===== ===== ===== =====
Operating expenses reflected little change for the second fiscal quarter, as
compared to the same period of the prior fiscal year. Savings realized from the
sale, closure or franchising of twenty-four underperforming stores, as described
above, were offset by increases in store labor costs, equipment depreciation,
and occupancy expenses.
Operating expenses decreased $1.6 million for the first two fiscal quarters
compared to the same period for the prior fiscal year. This decrease was
primarily attributed to store dispositions, as described above, and a $0.4
million reduction in store cash losses, partially offset by an increase in
equipment depreciation and occupancy expenses.
An impairment charge of $14.8 million was recorded during the second fiscal
quarter. This impairment charge is described in greater detail in Note 8 of the
Notes to Consolidated Financial Statements.
General and administrative expenses increased $0.3 million for the second fiscal
quarter, as compared to the same period of the prior fiscal year. Savings
realized from a decrease in labor costs of $0.7 million was offset by an
increase in corporate governance costs.
General and administrative expenses increased $1.4 million for the first two
fiscal quarters compared to the same period for the prior fiscal year. This
increase was primarily attributable to severance and related costs associated
with a reduction in corporate headquarter positions and corporate governance
costs, partially offset by a decrease in wages and store closing costs.
-21-
INTEREST EXPENSE, INFLATION AND TAXES
Interest expense reflected little change for the second fiscal quarter compared
to the same period for the prior fiscal year. Interest expense increased $0.9
million for the first two fiscal quarters compared to the same period for the
prior fiscal year. The increase for the second fiscal quarter and the first two
fiscal quarters, as compared to the same periods for the prior fiscal year, was
primarily attributable to an increase in the average outstanding balance of the
revolving credit facility and in increase in bank fees, partially offset by a
decrease in interest rates.
Inflation did not have a material effect on the Company's revenues, gross
profit, and operating and administrative expenses in the second quarter and
first two quarters of fiscal 2002 and 2001.
The Company did not record a tax benefit in the current year second quarter and
the current year first two fiscal quarters because of the uncertainty as to its
ability to utilize current operating losses to offset potential future income
tax liabilities. The Company recorded a tax benefit at the effective rate of 42%
for the second quarter and 46% for the first two quarters of fiscal year 2001.
The effective rate was higher than the statutory rate because of the
nondeductible amortization of acquired assets.
LIQUIDITY AND CAPITAL RESOURCES
As of August 4, 2001, the Company had a $30.0 million Credit Facility, under
which it could issue up to $15.0 million of letters of credit. The facility is
due and payable on September 15, 2002. As of August 4, 2001, the Company had
$25.6 million in outstanding revolving credit loans and $4.4 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 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 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 thirty 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 was obligated to pay those lenders an additional $250,000 on September 1,
2001, if the merger was not completed by that date. Also, on September 17, 2001,
the Company had an interest payment of approximately $4.5 million due on its
10.25% Senior Subordinated Notes due 2004. As set forth in the Notes to the
Consolidated Financial Statements, the $250,000 due on
-22-
September 1, 2001, and the $4.5 million due on September 17, 2001, were not paid
when due.
As discussed in Part I of the Company's Form 10-Q filed with the Securities and
Exchange Commission for the fiscal quarter ended May 5, 2001, the ability of the
Company to be in compliance with certain financial covenants in the future, make
payments under its Credit Facility and to its senior subordinated note holders
and to continue to operate as a going concern was dependent upon: consummation
of the proposed merger between the Company and DM Acquisition Corp, which was
expected to result in the refinancing of the Credit Facility and the Company's
senior subordinated notes; the Company's success in implementing its Business
Restructuring Plan and Business Segmentation Plans; and the ability of the
Company to find alternative sources of financing to repay its outstanding
obligations under the Credit Facility including its ability to execute long-term
vendor supply agreements that would provide the Company with monies upon the
execution of such agreements.
On July 30, 2001, the merger agreement between the Company and DM Acquisition
Corp. was terminated. If the merger had been consummated as planned, the Company
expected to refinance the Credit Facility and senior subordinated notes, and the
Company expected that this refinancing would have addressed many of the
short-term and long-term liquidity problems faced by the Company. In connection
with the termination of the merger agreement, Mr. Stein resigned as Chairman of
the Board, Chief Executive Officer and President of the Company.
As a result of the termination of the merger agreement, the Business
Restructuring Plan and Business Segmentation Plan were put on hold, so that the
Company could commence negotiations with its lenders under the Credit Facility.
The Company also began negotiations to refinance its Credit Facility. As a
result of the termination of the merger agreement, negotiations for several
long-term vendor supply agreements were also discontinued, since such agreements
were negotiated with the expectation of the consummation of the merger. As a
result of the previously discussed conditions, there is substantial doubt about
the Company's ability to continue as a going concern.
CASH FLOW FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $2.9 million in the first two
quarters of the current fiscal year compared to $5.8 million in the same period
of the prior year. This change was primarily the result of a reduction in other
assets net of other liabilities and an increase in accounts payable, partially
offset by an increase in inventory.
CASH USED BY INVESTING ACTIVITIES
Net cash used in investing activities was $2.1 million in the first two quarters
of the current fiscal year compared to $10.9 million in the same period of the
prior year. The decrease in cash used was primarily the result of decreased
purchases of short-term investments, property and equipment and lower proceeds
from the sale of property, equipment and assets held for sale.
-23-
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Net cash used in financing activities was $.5 million for the first two quarters
of the current fiscal year compared to net cash provided by financing activities
of $2.6 million for the same period of the prior year. The decrease in cash
provided by financing activities was primarily the result of lower borrowings
under the Company's revolving credit facility and fixed asset financing and
increased debt repayments in the first two fiscal quarters of the current year.
CAPITAL EXPENDITURES
As discussed in the Company's 10-K filed with the Securities and Exchange
Commission for fiscal year 2001, the Company estimated its capital expenditures
would be in the range of $2 million to $3 million annually to replace existing
property, plant and equipment that becomes obsolete and worn-out in the
ordinary course of business. As a result of the short and long-term liquidity
issues faced by the Company throughout fiscal year 2002, the Company has
continued to defer new store openings and related capital expenditures. Any
additional capital expenditures are expected to be paid with proceeds from the
DIP Facility.
ENVIRONMENTAL RESPONSIBILITY
The Company's financial statements are prepared in conformity with the American
Institute of Certified Public Accountants' Statement of Position ("SOP") No.
96-1, "Environmental Remediation Liabilities," which provides guidance on
specific accounting issues that are present in the recognition, measurement and
disclosure of environmental remediation liabilities. The Company accrues its
estimate of all costs to be incurred for assessment and remediation with respect
to release of regulated substances from existing and previously operated retail
gasoline facilities.
BUSINESS OUTLOOK
This Form 10-Q contains forward-looking statements within the meaning of the
"safe-harbor" provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are generally identified by the words
"anticipate", "believe", "expect", "plan", "intend", "should", "estimate", and
similar expressions. These forward-looking statements include statements
relating to the Company's plans and objectives to upgrade and remodel store
locations, to implement its Business Segmentation Plan and Business
Restructuring Plan, to file bankruptcy proceedings under Chapter 11 of the U.S.
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of New York, to pay its employee salaries and benefits, to pay for its ongoing
operations (including payments to vendors) and other working capital needs, to
build new stores, to sell or lease certain assets, to explore strategic
alternatives, including the merger of the Company, as well as the availability
of supplies of gasoline, the estimated costs for environmental remediation and
-24-
the sufficiency of the Company's liquidity and the availability of capital. Such
statements are based on management's current expectations and are subject to a
number of factors and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements. Such factors
and uncertainties include, but are not limited to, the availability of financing
and additional capital to fund the Company's business strategy on acceptable
terms, if at all, the future profitability of the Company, the ability of the
Company to reorganize itself and successfully emerge from its Chapter 11
bankruptcy, perceptions of the Company by the Company's customers and vendors
regarding the Company's bankruptcy filing and their willingness to continue to
do business with the Company after its bankruptcy, the Company's ability to
negotiate and enter into lease, acquisition and supply agreements on acceptable
terms, competition and pricing in the Company's market area, volatility in the
wholesale gasoline market due to supply interruptions, modifications of
environmental regulatory requirements, detection of unanticipated environmental
conditions, the timing of reimbursements from state environmental trust funds,
the Company's ability to manage its long-term indebtedness, weather conditions,
the favorable resolution of certain pending and future litigation, general
economic conditions and other factors disclosed in this Form 10-Q and the
Company's other filings with the Securities and Exchange Commission. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company does not have any instruments that it believes would be materially
affected by any future interest rate changes.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
The Company is a defendant in an action brought by a former supplier of certain
dairy products to convenience stores formerly owned by the Company in
Massachusetts, Rhode Island, Connecticut, and New York ("New England Stores").
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 be. The trial of this
case to the court was completed on December 7, 2000. The court has not yet
rendered a decision. The Company has recognized no provision for any possible
loss in the accompanying financial statements. As a result of the Company's
bankruptcy, this litigation was automatically stayed pending the result of the
bankruptcy or further action of the bankruptcy court. On October 12, 2001,
however, the United States Bankruptcy Court for the Southern District of New
York granted relief from the automatic stay solely to permit a final decision
and the entry of judgment. In the event a judgment is entered against
-25-
the Company, such judgment would be treated as a pre-petition claim against the
Company.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
As of August 4, 2001, the Company was in default under its Credit Facility for
failing to comply with certain financial ratio covenants under the amended
Credit Facility. The Company also did not make payment of a $250,000 amendment
fee to its lenders under the Credit Facility. The Company also did not make an
interest payment of approximately $4.5 million that was due September 17, 2001,
according to its 10 1/4% Senior Subordinated Notes due 2004; however, pursuant
to the terms of the senior subordinated notes, the Company had thirty days to
cure such default. On September 24, 2001, which was prior to the expiration of
the thirty day period, the Company and substantially all of its subsidiaries
filed voluntary petitions for protection under Chapter 11 of the U.S. Bankruptcy
Code in the United States Bankruptcy Court for the Southern District of New
York. On October 19, 2001, the Company received approval of a $46 million
Debtor-in-Possession credit facility, and the Company paid off its former Credit
Facility with proceeds from the new credit facility. As of the date of its
bankruptcy filing, the Company had an outstanding balance (including interest)
of approximately $93.7 million on its senior subordinated notes.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits:
Exhibit (11) - Statement re Computation of Per-Share Earnings.
b) Reports on Form 8-K:
On December 18, 2001, the Company filed a Current Report on
Form 8-K, under Item 3, disclosing the filing by Dairy Mart
Convenience Stores, Inc. and substantially all of its
subsidiaries for protection under Chapter 11 of the U.S.
Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of New York on September 24, 2001.
-26-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
DAIRY MART CONVENIENCE STORES, INC.
DATE: December 18, 2001 /s/ Gregory G. Landry
--------------------------------------
Gregory G. Landry
President &
Chief Executive Officer
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