UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002
OR
[ ] 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 1-11556
UNI-MARTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1311379
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
477 EAST BEAVER AVENUE, 16801-5690
STATE COLLEGE, PA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (814) 234-6000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, $.10 Par Value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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 the 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes _ No X
The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the registrant's most recently completed second fiscal
quarter: $12,325,401.
7,129,430 shares of Common Stock were outstanding at December 6, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement of the registrant for the
registrant's 2003 Annual Meeting of Stockholders, which definitive proxy
statement will be filed with the Securities and Exchange Commission not later
than 120 days after the registrant's fiscal year end of September 30, 2002, are
incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS.
COMPANY OVERVIEW
Uni-Marts, Inc. (the "Company" or "Uni-Marts") is an independent operator
of convenience stores and discount tobacco stores. All references in this report
to the Company include its consolidated subsidiaries. At September 30, 2002, the
Company operated 299 convenience stores and Choice Cigarette Discount Outlets
("Choice") in Pennsylvania, New York, Delaware, Maryland and Virginia, of which
239 stores sold gasoline. See "Business -- Merchandising and Marketing." Most of
the stores are located in small towns and rural locations. The Company grew
primarily through acquisitions with some new store construction. Many of the
acquired stores are located in urban and suburban areas and are generally leased
on a long-term basis.
In the fiscal year ended September 30, 2000, the Company purchased the
operating assets and business of Orloski Service Station, Inc. ("OSSI") for
$42.7 million. OSSI was the operator of a 43-store chain of convenience stores
and gasoline dispensing stations in northeastern Pennsylvania. The acquisition
included 39 owned facilities and eight leased locations. Two of the properties
are leased to third-party gasoline retailers and two sites were acquired for
development.
The Company currently purchases gasoline: (a) from Amoco, Exxon, Mobil and
Texaco for 77 locations; and (b) from other independent suppliers for 161
locations. Gasoline is sold at one additional location on a commission basis.
The size of the Company's stores generally ranges from approximately 1,200
to 3,300 square feet with newly constructed stores generally having over 3,000
square feet. The Company's largest location is 12,800 square feet in size.
Typically, the convenience stores offer a complete line of over 3,000 popular
consumer items. In addition, the Company offers products designed to increase
store traffic, such as made-to-order proprietary and branded fast foods, as well
as services including lottery tickets and automated teller machines ("ATMs").
The Company commenced its convenience store operations in 1972 and was
incorporated in Delaware in 1977. In 1986, the Company's shares were distributed
in a tax-free spin-off to the holders of the stock of Unico Corporation,
formerly the Company's parent.
The Company's executive offices are located at 477 East Beaver Avenue,
State College, PA 16801-5690, its phone number is (814) 234-6000, and the
website is www.uni-mart.com.
THE CONVENIENCE STORE INDUSTRY
The convenience store industry is a retail, service-oriented industry. It
is distinguished from other retail businesses by its emphasis on location and
convenience and a commitment to customers who need to purchase items quickly
during extended hours. Convenience stores feature a wide variety of items,
including groceries, dairy products, tobacco products, beverages, prepared and
self-service fast foods and health and beauty aids. In addition, many of the
stores sell gasoline on a self-service basis. The stores are generally designed
with customer parking and quick checkout procedures to maximize convenience, as
well as to encourage impulse buying of high margin items.
The convenience store industry is extremely fragmented and highly
competitive. Currently, many external forces are exerting pressure on owners of
independent and small convenience store chains such as volatile fuel prices,
margin pressures on gasoline and tobacco sales, and increasing competition. As a
result of these forces, there has been substantial consolidation in the
industry. In the past year, there has been an inordinate number of bankruptcy
proceedings among retailers in the convenience store
2
industry. The Company, like many other retailers, is facing intense competitive
pressures and liquidity issues. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Convenience stores compete not only with other convenience stores, but also
with gasoline distributors which have converted retail outlets to convenience
stores. To compete for a broader customer base, convenience stores are
increasing the variety and quality of their food service products, adding new
services and improving store layouts to attract new customers. Convenience store
operators are also continuing to focus on the improvement of gasoline dispensing
facilities and increased customer services. In addition, many convenience store
operators are remodeling existing sites and opening new locations.
STRATEGY
In fiscal year 2002, the Company continued to evaluate its strategies to
enhance its current operations. The Company's key strategies include the
following:
Emphasis on Merchandising and Marketing. The Company has attempted to
improve its category management capabilities to deliver appealing, high-quality,
reasonably-priced packaged products. Food service products are being developed
to lower employee involvement in preparation, ease customer efforts in selection
and reduce transaction time.
Upgrade Business Process Efficiency. The Company is in the process of
updating its business systems and technology as part of an effort to streamline
key business processes. Completion of this process is expected to allow more
effective and efficient store management and provide greater flexibility to
respond quickly to marketplace changes.
Ongoing Evaluation of Store Locations. The Company continues to evaluate
existing stores based on their historical contribution. The Company will
consider closing underperforming stores or investing in facility upgrades to
enhance their performance. The Company retained financial advisors in fiscal
year 2002 to evaluate operating strategies which included the potential
divestiture of certain store locations and non-operating assets. As a result of
its analysis with its financial advisors, the Company intends to intensify its
divestiture strategy. The financial advisors are currently working with the
Company and its lenders to assist in this divestiture program.
MERCHANDISING AND MARKETING
The Company's merchandising and marketing programs are designed to promote
convenience through store location, hours of operation, parking, customer
service, product selection and checkout procedures. Store hours are intended to
meet customer needs and the characteristics of the community in which each store
is located. Approximately 50% of the Company's convenience stores are open 24
hours per day, while the majority of the remaining stores are open from 5:00
a.m. to 12:30 a.m. To improve speed of service, most of the Company's products
and services are sold on a self-service basis.
Uni-Marts has a merchandising and marketing department which develops and
implements promotional and advertising programs, sometimes in conjunction with
suppliers. The Company utilizes an internet web site, radio, billboard and
newspaper advertising media to generate sales, increase customer traffic and
promote the Company's name and image.
Convenience Store Merchandise Sales. The Company's convenience stores
offer dry grocery items, health and beauty aids, newspapers and magazines, dairy
products, candy, frozen foods, beverages, tobacco products, fountain drinks and
freshly-ground coffee and cappuccino products. In recent years, the Company has
added new merchandise products such as prepared foods and
3
proprietary fast foods as part of an effort to increase sales volume and
customer traffic. In addition, the Company continues to add customer services,
such as ATMs, prepaid cellular telephones and telephone cards and lottery ticket
and money order sales, all of which are designed to increase customer traffic.
Many stores also offer a variety of prepared and self-service fast foods,
including freshly made sandwiches, roller grill items, pizzas, and thaw and
serve baked goods.
Convenience Store Gasoline Sales. Convenience store operations are
enhanced by self-service gasoline facilities, which the Company plans to include
in as many new locations as possible. Sales of gasoline products at the
Company's stores are affected by wholesale and retail price volatility,
competition and marketing decisions. At September 30, 2002, the Company had 239
locations offering gasoline, with 140 of these locations also offering kerosene
and 19 offering diesel fuel.
The Company offers Amoco gasoline at 34 locations, Exxon gasoline at 24
locations, Mobil gasoline at 11 locations, Texaco gasoline at 8 locations, Citgo
gasoline at one location, Sunoco gasoline at one location and Uni-Mart branded
gasoline at 159 locations. One additional location sells branded gasoline on a
commission basis.
Choice Cigarette Discount Outlets. During fiscal year 2002, the Company
converted three underperforming convenience store locations to discount tobacco
stores operating under the name of Choice Cigarette Discount Outlets. At
September 30, 2002, the Company operated 68 Choice stores, with 51 of these
locations offering gasoline. Other convenience store locations will be converted
to Choice stores if conditions warrant. The Company expects to sell gasoline at
these converted locations if gasoline was sold there prior to conversion.
COMPANY OPERATIONS
Store Management. Each Company-operated store is managed by a store
manager. All Company stores are divided into groups of approximately nine stores
by geographic area. Each group is managed by a store supervisor. A regional
manager is responsible for a number of groups and their group supervisors. The
regional managers report directly to the Senior Vice President of Operations.
Managers, supervisors and regional managers are compensated in part through
incentive programs which provide for quarterly bonuses based primarily on the
achievement of specific financial targets. The number of full-time and part-time
employees per store depends on the sales volume of the store and its hours of
operation.
Franchises. At September 30, 2002, the Company had four franchise stores
which operate under various franchise agreements. Under all franchise
agreements, the franchisee pays a royalty, which varies depending upon the
agreement and whether the Company or the franchisee owns the convenience
food-store equipment. The royalty is based on the store's merchandise sales
volume. As part of its services to three franchise locations, the Company
provides accounting services, merchandising and advertising assistance, store
layout and design guidance, supplier and product selection and ongoing
operational assistance. These franchisees are required to use the same internal
control systems that the Company uses for the stores it operates. The Company
does not provide these services for one franchise location. The Company has
periodically closed franchised stores and does not intend to grant new or extend
its franchise agreements and plans to sell its existing franchises back to the
current operator where possible.
Dealers. At September 30, 2002, the Company supplied gasoline to 18
dealers. Sales at these locations represented approximately 4% of the Company's
gasoline volume in fiscal year 2002.
4
SEASONALITY
The Company's business generally has been subject to seasonal influences
with higher sales in the third and fourth quarters of each fiscal year, since
customers tend to purchase more convenience items and gasoline during the warmer
months. Due to adverse weather conditions, merchandise sales for the second
fiscal quarter have generally been lower than other quarters. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality and Unaudited Quarterly Results."
DISTRIBUTION AND SUPPLY
All stores are scheduled to be serviced at least weekly by vendors. The
Company does not distribute products to its stores itself. The Company utilizes
a single wholesale distributor for most in-store merchandise, pursuant to a
three-year supply agreement that expires in April 2005. The Company believes
that it could replace this distributor with one or more other distributors.
Certain products, such as bakery items, dairy products, snacks, soft drinks,
magazines and perishable products, are distributed by wholesale route
salespeople. As part of the sale of its dairy operation, the Company entered
into a 10-year supply agreement that expires in March 2004 with the purchaser
which provides for the Company's purchase of dairy products sold at most of its
Pennsylvania stores. In fiscal year 1998, the Company entered into 10-year
gasoline supply agreements with Exxon and Mobil for stores that sell
approximately 26% of the Company's gasoline volume. In fiscal year 2000, the
Company entered into agreements with Amoco and Texaco as part of the purchase of
the OSSI stores. Sales at these branded locations represented approximately 25%
of the Company's gasoline volume in fiscal year 2002. Gasoline is purchased for
the remaining stores from various suppliers. Should a gasoline shortage occur,
the Company's sales of gasoline could be adversely affected.
MANAGEMENT CONTROLS AND INFORMATION SYSTEMS
In fiscal year 2000 the Company initiated a multi-year program to improve
the efficiency of its operational process and management controls through a
program of process reengineering and investment in information systems. These
systems are designed to improve the timeliness and accuracy of management
information, reduce paperwork and enhance pricing, inventory and cash controls.
At September 30, 2002, the Company had installed this back office system in 184
stores. The Company has budgeted $600,000 in fiscal year 2003 to expand the back
office system to most of the remaining stores. The Company utilizes its current
computer systems for inventory and accounting control, financial record-keeping
and management reporting, allowing management to monitor and evaluate store
operations. The Company's computer systems also are programmed to identify
variances from budgeted amounts by store on a monthly and year-to-date basis. In
addition, profit and loss statements by store compare the current year's results
for the month and year-to-date to the previous year's results.
Store managers are responsible for placing orders for grocery, tobacco,
frozen food and non-food items directly into the central computer system of the
Company's wholesale supplier. Order and receiving reports are reviewed by store
supervisors. Invoices are reviewed and compared to receiving reports by the
Company's accounting personnel and are paid centrally.
COMPETITION
The convenience store industry is highly competitive, fragmented and
regionalized. It is characterized by a few large companies, some medium-sized
companies and many small, independent companies. Several competitors are
substantially larger and have greater resources than the Company. The Company's
primary competitors include national chains such as A-Plus and 7-Eleven and
regional
5
chains such as Sheetz, WaWa, Turkey Hill and Co/Go. The Company also competes
with other convenience stores, small supermarkets, grocery stores and major and
independent gasoline distributors who have converted units to convenience
stores. Competition for merchandise sales is based primarily on location,
product selection, speed of service, quality and price.
Competition for gasoline sales is based on price, location and facilities.
The Company competes primarily with other convenience stores, self-service
gasoline stations operated by independent dealers and major oil companies, as
well as hypermarkets. The Company's competitive advantages for gasoline sales at
certain stores include location, pay-at-the pump, well-lit canopies and branded
and unbranded products. The Company faces intense competition in areas where
other retailers have newer stores and offer similar facilities as the Company.
In addition, gasoline retailers in some areas compete for market share through
aggressive pricing strategies that negatively impact the Company's ability to
maintain historical margins and volume.
The Company competes for sales of cigarettes primarily with other
convenience stores, as well as other locations that offer mainly discounted
tobacco products.
ENVIRONMENTAL COMPLIANCE AND REGULATION
The Company's gasoline operations are subject to federal, state and local
environmental laws and regulations primarily relating to the underground storage
tanks. The United States Environmental Protection Agency (the "EPA") has
established standards for owners and operators of underground storage tanks
("USTs") relating to, among other things: (i) maintaining leak detection
systems; (ii) upgrading UST systems; (iii) implementing corrective action in
response to releases; (iv) closing out-of-use USTs to prevent future releases;
(v) maintaining appropriate records; and (vi) maintaining evidence of financial
responsibility for corrective action and compensating third parties for bodily
injury and property damage resulting from UST releases. All states in which the
Company operates also have adopted these regulatory programs.
The Company has spent substantial amounts of money in prior years to
upgrade its underground storage tanks to meet the applicable standards and
requirements. In fiscal year 2003, the Company does not expect expenditures to
maintain environmental compliance at its locations to have a material adverse
effect on the Company's financial position, results of operations or cash flows.
Management believes that the Company is currently in material compliance with
all applicable federal and state environmental laws and regulations.
GOVERNMENTAL REGULATION
In addition to the laws and regulations referred to under "Environmental
Compliance and Regulation," certain other aspects of the Company's business are
governed by federal, state and local statutes. As a franchisor, the Company is
also subject to federal and state laws governing franchising, which include,
among other matters, the commencement and termination of franchises.
A significant portion, approximately 44%, of the Company's merchandise
sales is derived from the sale of cigarettes at its locations. If the government
were to impose significant additional regulations or restrictions on the sale of
tobacco products, it could have a material adverse effect on the Company.
Management believes that the Company is currently in material compliance
with all applicable federal and state laws and regulations.
6
TRADEMARKS
The name "UNI-MART" and the Company's UNI-MART logo were registered with
the U.S. Patent and Trademark Office as of May 13, 1997, and are owned by and
licensed from Uni-Marts of America, Inc., a wholly-owned subsidiary of the
Company.
EMPLOYEES
As of September 30, 2002, the Company had approximately 2,500 employees,
approximately 1,350 of whom were full-time. None of the Company's employees are
covered by a collective bargaining agreement.
ITEM 2. PROPERTIES.
The following table sets forth certain information with respect to
administrative and storage facilities owned or leased by the Company as of
September 30, 2002:
TYPE OF LEASE SQUARE
LOCATION OWNERSHIP EXPIRATION FOOTAGE USE
-------- --------- ------------- ------- ---
State College, PA.... Leased December 2010 26,500 Administrative
offices
State College, PA.... Owned N/A 5,400 Administrative
offices
Oak Hall, PA......... Leased December 2004 19,400 Storage facility
Pittsburgh, PA....... Leased August 2009 2,700 Regional office and
storage facility
Camp Hill, PA........ Leased November 2003 3,700 Regional office and
storage facility
Bradford, PA......... Leased October 2002 500 Regional office(1)
Wilkes-Barre, PA..... Leased April 2005 10,900 Regional office
Wilkes-Barre, PA..... Leased June 2006 16,000 Maintenance
warehouse
---------------
(1) The office has been closed subsequent to September 30, 2002.
The Company's above-referenced leased administrative offices and storage
facility in State College and Oak Hall, Pennsylvania, respectively, are leased
from HFL Corporation. HFL Corporation is controlled by Henry D. Sahakian, the
Company's Chairman of the Board and Chief Executive Officer, and his brother,
Daniel D. Sahakian, a Director of the Company.
Of the Company's 299 store locations, 170 are owned by the Company, 12 are
leased from affiliated parties and 117 are leased from unaffiliated parties.
Most leases are for initial terms of five to ten years with renewal terms of
five years available at the Company's option. Under most leases, the Company is
responsible for the payment of insurance, taxes and maintenance. If a renewal
option is available and the property continues to be suited to the Company's
needs, the Company will generally renew its leases prior to expiration. Where
renewals are not available or the Company otherwise determines to change
location, the Company is generally able to locate acceptable alternative
facilities.
7
Of the leased locations, four are subleased to franchisees. The Company
also owns a gasoline service station, which is leased to an unaffiliated
operator. As of September 30, 2002, the Company had no stores under
construction.
The Company's store leases expire as follows:
FISCAL YEAR OF
LEASE EXPIRATION (1) NUMBER OF FACILITIES
-------------------- --------------------
2003 8
2004 9
2005 5
2006 4
2007 and later 103
---------------
(1) Most of the Company's leases have one or more renewal options at an agreed
upon rental or fair market rental at the end of their initial terms.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in litigation and other legal matters which have
arisen in the normal course of business. Although the ultimate results of these
matters are not currently determinable, management does not expect that they
will have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is listed on the American Stock Exchange under
the symbol "UNI." The transfer agent and registrar for shares of the Company's
Common Stock is Mellon Investor Services LLC, Ridgefield Park, New Jersey. As of
December 6, 2002, the Company had 7,129,430 shares of its Common Stock
outstanding.
Set forth below is a table which shows the high and low sale prices as
reflected on the American Stock Exchange and dividends paid on Common Stock for
each quarter in the two most recent fiscal years.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
2002
Cash Dividends per share........................... $0.00 $0.00 $0.00 $0.00
Price Range:
High............................................ $3.10 $3.20 $3.10 $2.64
Low............................................. $1.80 $1.59 $2.40 $1.18
2001
Cash Dividends per share........................... $0.00 $0.00 $0.00 $0.00
Price Range:
High............................................ $2.13 $2.30 $1.99 $2.99
Low............................................. $1.38 $1.50 $1.75 $1.75
In April 1997, the Company's Board of Directors elected to temporarily
suspend the quarterly dividends on its Common Stock. There can be no assurance
of future dividends because they are dependent not only on future earnings, but
also on the Company's capital requirements, loan covenants and financial
condition. Certain of the Company's debt agreements contain loan covenants that
restrict the payment of dividends without the lender's prior consent or require
the maintenance of minimum net worth levels. See Footnotes F and G to the
Consolidated Financial Statements included in this report.
At December 6, 2002, the Company had approximately 354 stockholders of
record of Common Stock. The Company believes that approximately 44 percent of
its Common Stock is held in street or nominee names.
9
EQUITY COMPENSATION PLAN INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth information concerning shares of Common
Stock that may be issued upon exercise of options under all equity compensation
plans as of September 30, 2002.
NUMBER OF SECURITIES NUMBER OF SECURITIES
TO BE ISSUED UPON WEIGHTED-AVERAGE REMAINING AVAILABLE
EXERCISE OF EXERCISE PRICE OF FOR FUTURE ISSUANCE
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, UNDER EQUITY
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COMPENSATION PLANS
------------- -------------------- -------------------- --------------------
Equity compensation plans approved
by security holders............... 1,220 $2.23 489
Equity compensation plans not
approved by security holders...... 0 0 0
----- ----- ---
Total............................... 1,220 $2.23 489
===== ===== ===
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ITEM 6. SELECTED FINANCIAL DATA.
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE, PER GALLON AND NUMBER OF STORES DATA)
The following table of selected consolidated financial data of the Company,
except for Operating Data, has been derived from the financial statements and
related notes of the Company which have been audited by Deloitte & Touche LLP,
Independent Auditors, as indicated in their report relating to the fiscal years
ended September 30, 2002, 2001 and 2000, and as of September 30, 2002 and 2001,
included elsewhere in this report. The data should be read in conjunction with
the financial statements, related notes, other financial information and
management's discussion and analysis included elsewhere in this report.
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
2002 2001 2000(1) 1999 1998
-------- -------- -------- -------- --------
STATEMENTS OF OPERATIONS DATA:
Sales and other income by the Company
and its franchisees:
Merchandise sales................. $226,030 $204,580 $172,209 $146,718 $154,097
Gasoline sales.................... 181,600 215,796 174,586 103,418 109,425
Other income...................... 1,871 1,890 1,909 2,170 2,847
-------- -------- -------- -------- --------
Total........................... 409,501 422,266 348,704 252,306 266,369
Cost of sales.......................... 320,776 332,003 272,754 185,285 194,704
-------- -------- -------- -------- --------
Gross profit........................... 88,725 90,263 75,950 67,021 71,665
Selling................................ 67,995 66,260 55,334 52,569 54,267
General and administrative............. 8,026 7,264 6,731 7,509 6,981
Depreciation and amortization.......... 8,257 8,140 6,652 5,968 6,388
Interest............................... 6,726 7,797 5,621 3,951 4,042
Provision for loss on disposal......... 0 0 0 0 0
Provision for asset impairment......... 0 54 160 208 352
-------- -------- -------- -------- --------
Earnings (loss) before income taxes and
extraordinary item................... (2,279) 748 1,452 (3,184) (365)
Income tax provision (benefit)......... (962) 297 572 (948) (237)
-------- -------- -------- -------- --------
Earnings (loss) before extraordinary
item................................. (1,317) 451 880 (2,236) (128)
Extraordinary item-loss from debt
extinguishment, net of income tax
benefit of $126...................... 0 0 0 0 (244)
-------- -------- -------- -------- --------
Net earnings (loss).................... $ (1,317) $ 451 $ 880 $ (2,236) $ (372)
======== ======== ======== ======== ========
Earnings (loss) per share before
extraordinary item................... $ (0.19) $ 0.06 $ 0.13 $ (0.32) $ (0.02)
Loss per share from extraordinary
item................................. 0.00 0.00 0.00 0.00 (0.03)
-------- -------- -------- -------- --------
Net earnings (loss) per share.......... $ (0.19) $ 0.06 $ 0.13 $ (0.32) $ (0.05)
======== ======== ======== ======== ========
Dividends per share.................... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
======== ======== ======== ======== ========
Weighted average shares outstanding.... 7,099 7,053 6,989 6,887 6,764
======== ======== ======== ======== ========
OPERATING DATA (RETAIL LOCATIONS ONLY):
Average, per store, for stores open two
full years:
Merchandise sales................. $ 744 $ 648 $ 606 $ 552 $ 492
Gasoline sales.................... $ 703 $ 770 $ 754 $ 520 $ 492
Gallons of gasoline sold.......... 672 618 635 623 566
Gross profit per gallon of gasoline.... $ 0.103 $ 0.128 $ 0.115 $ 0.103 $ 0.108
Total gallons of gasoline sold......... 174,976 174,160 144,924 122,130 123,144
11
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------
2002 2001 2000(1) 1999 1998
-------- -------- -------- -------- --------
STORE INFORMATION:
Company-operated stores................ 295 293 291 246 265
Franchisee-operated stores............. 4 7 7 10 11
Locations with self-service gasoline... 239 237 237 194 206
BALANCE SHEET DATA:
Working capital........................ $ 1,743 $ 7,195 $ 3,500 $ (541) $ 1,590
Total assets........................... 145,145 148,630 144,238 88,475 95,009
Long-term obligations.................. 72,126 81,273 75,006 34,141 34,322
Stockholders' equity................... 28,317 29,493 28,968 27,946 30,040
SUPPLEMENTARY FINANCIAL DATA:
EBITDA(2).............................. $ 12,704 $ 16,685 $ 13,725 $ 6,735 $ 9,821
Cash flow from operating
activities(3)........................ 7,242 523 14,344 763 9,339
---------------
(1) In April 2000, the Company purchased the operating assets and business of
OSSI, consisting of 43 convenience stores and gasoline dispensing stations.
(2) EBITDA is defined as earnings before interest expense, income taxes, and
depreciation and amortization expense. EBITDA does not purport to represent
net income or net cash provided by operating activities, as those terms are
defined under generally accepted accounting principles, and should not be
considered as an alternative to those measurements as an indicator of our
performance. Also, the above presentation of EBITDA may not be comparable to
similarly titled measures of other companies.
(3) Cash flow from operating activities represents net cash provided by
operating activities as presented in our consolidated statement of cash
flows which is included in Item 8 of this Annual Report on Form 10-K.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RISKS THAT COULD AFFECT FUTURE RESULTS
A number of the matters and subject areas discussed in this Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this report that are not historical or current
facts, including statements regarding the Company's plans and strategies or
future financial performance, deal with potential future circumstances and
developments. These forward-looking statements frequently can be identified by
the use of terminology such as "believes," "expects," "may," "will," "should" or
"anticipates" (or the negative or other variations thereof) or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
Although the Company believes that its expectations are based on reasonable
assumptions within the bounds of its knowledge, investors and prospective
investors are cautioned that such statements are only projections and that
actual events or results may differ materially from those expressed in any such
forward-looking statements. In addition to other factors described elsewhere in
this report, our actual consolidated quarterly or annual operating results have
been affected in the past, or could be affected in the future, by factors,
including, without limitation, general economic, business and market conditions;
environmental, tax and tobacco legislation or regulation; volatility of gasoline
prices, margins and supplies; competition and ability to maintain merchandising
margins; the ability to consummate the Company's divestiture program; the
ability to renegotiate the Company's revolving credit agreement; the sufficiency
of cash balances, cash from operations and cash from asset sales to meet future
cash obligations; volume of customer traffic; weather conditions; labor costs;
and the level of capital expenditures.
OVERVIEW
Matters discussed below should be read in conjunction with "Statements of
Operations Data" and "Operating Data (Retail Locations Only)" on the preceding
pages.
The Company's revenues are derived primarily from sales of merchandise and
gasoline at its convenience and discount tobacco stores. Total merchandise sales
increased by 10.5% in fiscal year 2002 as compared to fiscal year 2001. Average
annual merchandise sales for stores open two full years increased to $744,000 in
fiscal year 2002 from $648,000 in fiscal year 2001 and $606,000 in fiscal year
2000. This increase is primarily due to higher comparable store sales and
increases in tobacco prices. On average, cigarette sales represented
approximately 44% of total merchandise sales in each of the last three fiscal
years. There has been volatility in selling prices as a result of competition
among cigarette manufacturers. Since the Company expects this trend to continue,
it has sought to increase sales of other merchandise at its convenience stores
to mitigate the volatility.
Total gasoline sales decreased by 15.8% in fiscal year 2002 as compared to
fiscal year 2001. The average price per gallon of gasoline sold in fiscal year
2002 declined by 20.1 cents per gallon, or 16.2%, compared to fiscal year 2001.
Gross profits on gasoline gallons sold during fiscal year 2002 were 2.5 cents
per gallon lower, a decline of 19.5%, in comparison to fiscal year 2001. Average
gallons of gasoline sold at the Company's stores open two full years were
672,000 gallons in fiscal year 2002 compared to 618,000 gallons in fiscal year
2001 and 635,000 gallons in fiscal year 2000.
The Company sells gasoline at 239 locations, including one location where
gasoline is sold on a commission basis. The Company purchases petroleum from a
variety of competing sources. Branded gasoline is purchased under supply
agreements for 77 locations and branded and unbranded gasoline is purchased from
various sources for 161 locations. Gasoline margins have historically been
volatile and
13
there can be no assurance that the Company's gasoline margins will be maintained
or enhanced by purchasing from these sources.
In the last twelve months, the Company continued its store evaluation and
strategic initiative program by converting convenience store locations to Choice
Cigarette Discount Outlets ("Choice") and opening or closing stores as
conditions warranted. During that period, three convenience stores were
converted to Choice stores, one franchise store was converted to a corporate
store, one franchise store was sold and two convenience stores and one Choice
store were closed. The Company also constructed one convenience store and two
Choice stores during this period. The Company intends to pursue its conversion
and divestiture program to improve financial performance.
As previously announced, in April 2002 the Company hired financial advisors
to assist the Company in the exploration and evaluation of all of its strategic
alternatives to enhance stockholder value. As a result of its analysis with its
financial advisors, the Company intends to intensify its divestiture strategy.
The financial advisors are currently working with the Company to negotiate with
its debt holders in this divestiture program. If the disposition of assets is
successful and is in excess of certain amounts, the Company's executive officers
will be eligible to receive bonuses pursuant to a Transaction Success Bonus Plan
adopted by the Company. The aggregate amount of such bonuses will be based upon
the total consideration received for such assets.
If the Company is unsuccessful in consummating its accelerated disposition
strategy, whether due to lack of cooperation from its lenders or otherwise, the
Company could encounter liquidity problems during fiscal year 2003. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
14
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain
expense items to total revenues. It should be noted that the primary factors
influencing the percentage relationship of cost of sales to revenues are the
volatility of gasoline prices and gross profits, and the number of stores
selling gasoline. On a percentage basis, the gross profit on gasoline sales is
significantly less than the gross profit on merchandise sold in the convenience
stores.
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------
2002 2001 2000
------- ------- -------
Revenues:
Merchandise sales......................................... 55.2% 48.5% 49.4%
Gasoline sales............................................ 44.3 51.1 50.1
Other income.............................................. 0.5 0.4 0.5
----- ----- -----
Total revenues.................................... 100.0 100.0 100.0
Cost of sales............................................... 78.3 78.6 78.2
----- ----- -----
Gross profit:
Merchandise (as a percentage of merchandise sales)........ 30.4 32.3 33.3
Gasoline (as a percentage of gasoline sales).............. 9.9 10.3 9.5
Total gross profit................................ 21.7 21.4 21.8
Costs and expenses:
Selling................................................... 16.6 15.7 15.9
General and administrative................................ 2.0 1.7 1.9
Depreciation and amortization............................. 2.0 1.9 1.9
Interest.................................................. 1.6 1.9 1.6
Provision for asset impairment............................ 0.0 0.0 0.0
----- ----- -----
Total expenses.................................... 22.2 21.2 21.3
----- ----- -----
Earnings (loss) before income taxes......................... (0.5) 0.2 0.5
Income tax provision (benefit).............................. (0.2) 0.1 0.2
----- ----- -----
Net earnings (loss)......................................... (0.3)% 0.1% 0.3%
===== ===== =====
FISCAL YEAR 2002 COMPARED TO FISCAL YEAR 2001
At September 30, 2002, the Company operated 299 stores which were comprised
of 231 Uni-Mart convenience stores and 68 Choice Cigarette Discount Outlets. Of
these locations, four were franchised and 239 offered self-service gasoline.
Total revenues in fiscal year 2002 were $409.5 million, a decline of $12.8
million, or 3.0%, compared to total revenues of $422.3 million in fiscal year
2001. This decline is the net result of a $34.2 million decline in gasoline
sales, offset by a $21.4 million increase in merchandise sales. Merchandise
sales increased to $226.0 million, or 10.5%, from $204.6 million in fiscal year
2001. The Company had one less store in operation in fiscal year 2002 compared
to fiscal year 2001. Higher comparable store sales levels, as well as
contributions from higher retail cigarette prices in the fourth quarter of
fiscal year 2002 contributed to the merchandise sales growth. Gasoline sales
declined to $181.6 million, or 15.8%, from $215.8 million in fiscal year 2001
primarily due to a 20.1 cent per gallon, or 16.2%, decline in the average retail
price per gallon of petroleum sold at the Company's locations, primarily in the
first three quarters of fiscal year 2002. At comparable stores, merchandise
sales increased by 6.1%, while gasoline gallons sold declined by 2.7% from
fiscal year 2001 levels. Other income in fiscal year 2002 was relatively the
same as fiscal year 2001.
15
Gross profits on merchandise sales increased by $2.8 million, or 4.2%, to
$68.8 million in fiscal year 2002 compared to $66.0 million in fiscal year 2001,
despite a 1.8% decline in the merchandise gross profit rate for the comparable
periods.
Gross profits on gasoline sales declined by $4.3 million, or 19.2%, to
$18.0 million in the current fiscal year compared to $22.3 million in fiscal
year 2001. Gross profit per gallon sold declined by 2.5 cents per gallon, or
19.5%, in fiscal year 2002. Instability of the petroleum wholesale markets and
increased retail competition resulted in lower gasoline gross profit margins
during the Company's current reporting period when compared to the same period
in fiscal 2001. The decline in gasoline gross profit levels was offset slightly
by an increase of 816,000 gallons of petroleum sold at the Company's locations
due to the operation of two additional gasoline locations in fiscal year 2002.
Selling, general and administrative, and depreciation and amortization
expenses increased $2.6 million in fiscal year 2002, while interest expense
declined when compared to fiscal year 2001. Selling expenses increased by $1.7
million, or 2.6%, to $68.0 million compared to $66.3 million in fiscal year 2001
due to additional operating leases for new stores and store improvements, as
well as higher insurance reserves. General and administrative expense increased
to $8.0 million, from $7.3 million in fiscal year 2001. This increase of
$762,000, or 10.5%, is primarily due to increased legal and professional and
audit fees. These increased fees relate primarily to changes in corporate
governance and corporate securities adopted at the Annual Meeting of
Stockholders in February 2002, as well as the hiring of financial advisors in
April 2002 and higher audit fees. Higher salary levels also affected the general
and administrative expense category. Depreciation and amortization expense
increased in fiscal year 2002 to $8.3 million from $8.1 million in fiscal year
2001 due to depreciation of new equipment for store improvements. Lower
borrowing levels and lower interest rates resulted in a $1.1 million, or 13.7%,
decline in interest expense in fiscal year 2002 to $6.7 million from $7.8
million in the prior fiscal year. The Company recorded a $54,000 provision for
asset impairment in fiscal year 2001.
Losses before income taxes were $2.3 million in fiscal year 2002 compared
to a pre-tax profit of $748,000 in fiscal year 2001. The Company received a
benefit for income taxes in fiscal year 2002 of $962,000 compared to a provision
for income taxes of $297,000 in the prior fiscal year. In 2002, Pennsylvania
extended the net operating loss ("NOL") carryforward from 10 to 20 years which
resulted in a higher effective tax benefit for the current fiscal year. Net
losses were $1.3 million, or $0.19 per share, in fiscal year 2002, compared to a
net earnings of $451,000, or $0.06 per share, in fiscal year 2001.
FISCAL YEAR 2001 COMPARED TO FISCAL YEAR 2000
At September 30, 2001, the Company operated 300 stores, including seven
franchised locations and 237 locations with self-service gasoline. During fiscal
year 2001, the Company constructed four stores, acquired one store, reopened one
store and closed four underperforming stores.
Total revenues in fiscal year 2001 were $422.3 million, an increase of
$73.6 million, or 21.1%, from $348.7 million in fiscal year 2000. The 43 stores
acquired from OSSI in April 2000 were operated by the Company for a full year in
fiscal year 2001 and only five months in fiscal year 2000, contributing to the
revenues growth.
Merchandise sales in fiscal year 2001 were $204.6 million, an increase of
$32.4 million, or 18.8%, over merchandise sales of $172.2 million in fiscal year
2000. This increase resulted primarily from the full year's operation in fiscal
year 2001 of the stores acquired in April 2000 and a 3.3% increase in
merchandise sales at comparable stores.
16
Gasoline sales increased by $41.2 million, or 23.6%, to $215.8 million in
fiscal year 2001 from $174.6 million in fiscal year 2000. Approximately 85% of
this increase was the result of the sale of an additional 29.2 million gallons
by the Company in fiscal year 2001 due to the April 2000 acquisition. The
balance of this increase was due to a $0.03 increase in the average price per
gallon sold at the Company's stores, partially offset by a 1.7% decline in
gasoline gallons sold at comparable stores.
Gross profits on merchandise sales increased by $8.6 million, or 15.1%,
from $57.4 million in fiscal year 2000 to $66.0 million in fiscal year 2001, due
to higher sales volume in fiscal year 2001.
Gasoline gross profits in fiscal year 2001 were $22.3 million compared to
gasoline gross profits in fiscal year 2000 of $16.6 million. The increase of
$5.7 million, or 34.2%, was the result of increased sales of 29.2 million
gallons and higher gross profits per gallon of gasoline sold.
Selling expenses in fiscal year 2001 increased by $10.9 million, or 19.7%,
from $55.3 million in fiscal year 2000 to $66.2 million in fiscal year 2001.
This increase was primarily due to a full year's operation of the stores
acquired in April 2000. General and administrative expense increased from $6.7
million in fiscal year 2000 to $7.3 million in fiscal year 2001. This increase
of $533,000, or 7.9%, was the result of higher staffing levels, salary increases
and incentive programs. Depreciation and amortization expense increased by $1.5
million, or 22.4%, due primarily to a full year's depreciation and amortization
of the assets acquired in April 2000 as well as depreciation of new stores
constructed in the last year. Interest expense increased by $2.2 million, or
38.7%, due to increased borrowings as well as a full year's interest in fiscal
year 2001 on debt incurred in April 2000 for acquisition financing. The Company
recorded a $54,000 provision for asset impairment in fiscal year 2001 compared
to $160,000 in fiscal year 2000.
Earnings before income taxes were $748,000 in fiscal year 2001 compared to
$1,452,000 in fiscal year 2000. Income taxes were $297,000 in the current fiscal
year compared to $572,000 in the prior fiscal year. Net earnings in fiscal year
2001 were $451,000, or $0.06 per share, compared to net earnings in fiscal year
2000 of $880,000, or $0.13 per share.
17
SEASONALITY AND UNAUDITED QUARTERLY RESULTS
The Company's business generally has been subject to seasonal influences
with higher sales in the third and fourth quarters of each fiscal year, since
customers tend to purchase more convenience items, such as ice, beverages and
fast food, and more gasoline during the warmer months. Due to adverse weather
conditions, merchandise sales for the second fiscal quarter generally have been
lower than other quarters. In addition, because of price volatility, gasoline
profit margins fluctuate significantly throughout the year.
FISCAL YEAR 2002 FISCAL YEAR 2001
QUARTER ENDED QUARTER ENDED
---------------------------------------- -----------------------------------------
JAN. 3, APRIL 4, JULY 4, SEP. 30, JAN. 4, APRIL 5, JULY 5, SEP. 30,
2002 2002 2002 2002 2001 2001 2001 2001
------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Merchandise sales..... $56,254 $52,575 $ 58,075 $ 59,126 $ 50,482 $47,119 $ 53,734 $ 53,245
Gasoline sales........ 42,295 39,150 50,240 49,915 58,459 49,242 58,088 50,007
Other income.......... 440 469 465 497 677 392 442 379
------- ------- -------- -------- -------- ------- -------- --------
Total revenues...... 98,989 92,194 108,780 109,538 109,618 96,753 112,264 103,631
Cost of sales........... 76,093 71,229 86,036 87,418 86,351 76,420 88,434 80,798
------- ------- -------- -------- -------- ------- -------- --------
Gross profit............ 22,896 20,965 22,744 22,120 23,267 20,333 23,830 22,833
Costs and expenses:
Selling............... 16,955 16,903 17,068 17,069 16,695 16,376 16,827 16,362
General &
administrative...... 1,902 2,141 2,123 1,860 1,871 1,736 2,021 1,636
Depreciation &
amortization........ 2,058 2,071 2,070 2,058 1,977 2,031 2,056 2,076
Interest.............. 1,815 1,594 1,684 1,633 1,936 2,048 1,952 1,861
Provision for asset
impairment.......... 0 0 0 0 0 0 24 30
------- ------- -------- -------- -------- ------- -------- --------
Earnings (loss) before
income taxes.......... 166 (1,744) (201) (500) 788 (1,858) 950 868
Income tax provision
(benefit)............. 56 (605) (56) (357) 268 (632) 323 338
------- ------- -------- -------- -------- ------- -------- --------
Net earnings (loss)..... $ 110 $(1,139) $ (145) $ (143) $ 520 $(1,226) $ 627 $ 530
======= ======= ======== ======== ======== ======= ======== ========
Net earnings (loss)
per share............. $ 0.02 $ (0.16) $ (0.02) $ (0.02) $ 0.07 $ (0.17) $ 0.09 $ 0.08
======= ======= ======== ======== ======== ======= ======== ========
Weighted average shares
outstanding........... 7,070 7,095 7,112 7,119 7,036 7,049 7,062 7,065
======= ======= ======== ======== ======== ======= ======== ========
LIQUIDITY AND CAPITAL RESOURCES
Most of the Company's sales are for cash and its inventory turns over
rapidly. As a result, the Company's daily operations generally do not require
large amounts of working capital. From time to time, the Company utilizes
portions of its cash to acquire and construct new stores and renovate existing
locations.
As of September 30, 2002, the Company amended its revolving credit
agreement to revise covenants relating to interest and fixed-charge coverage
ratios for the fourth quarter of fiscal year 2002 and the first quarter of
fiscal year 2003. The Company and the bank are currently evaluating revisions to
the fixed-charge coverage covenant and interest coverage covenant for the
second, third and fourth quarters of fiscal year 2003 that will be consistent
with the Company's strategic course. While the bank has indicated that it
intends to negotiate revisions to the credit agreement, in good faith, that may
be necessary, there can be no assurance that such revisions will be agreed to or
that the Company will be in compliance with the existing or amended covenants
under the agreement during fiscal year 2003. At September 30, 2002, $4.1 million
was available for borrowing under this agreement. See Footnote F to
18
the Consolidated Financial Statements included in this report for additional
information regarding the revolving credit.
Capital requirements for debt service and capital leases for fiscal year
2003 are approximately $9.2 million, which includes $5.9 million in revolving
credit that has been classified as current pending renegotiation of the
covenants. The Company anticipates capital expenditures in fiscal year 2003 of
$2.0 million, funded from cash flows from operations. These capital expenditures
include replacement of store equipment and gasoline-dispensing equipment and
upgrading of the Company's data processing systems.
Operating lease commitments for fiscal year 2003 are approximately $6.2
million. These commitments for fiscal years 2004, 2005, 2006 and 2007 are
approximately $6.1 million, $4.4 million, $3.2 million, and $3.0 million,
respectively.
Management believes that cash from operations, available credit facilities
and asset sales will be sufficient to meet the Company's obligations for the
foreseeable future. In the event that the Company is unable to amend covenants
under its revolving credit agreement or cannot consummate proposed asset sales,
there is a risk that the Company will not be able to meet future cash
obligations. There can be no assurance that the Company's lenders will cooperate
with the Company's efforts to pay down debt through the divestiture of assets.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of the Company's financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues, and expenses, and related disclosure
of contingent assets and liabilities. On an on-going basis, the Company
evaluates its estimates, including those related to self-insured liabilities,
impairment and income taxes. The Company bases its estimates on historical
experience, current and anticipated business conditions, the condition of the
financial markets, and various other assumptions that are believed to be
reasonable under existing conditions. Actual results may differ from these
estimates.
The Company believes that the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
consolidated financial statements:
Self-insurance liabilities -- The Company records estimates for
self-insured worker's compensation and general liability insurance coverage.
Should a greater amount of claims occur compared to what was estimated, or costs
increase beyond what was anticipated, reserves recorded may not be sufficient,
and additional expense may be recorded.
Impairment -- The Company evaluates long-lived assets, including stores,
for impairment quarterly, or whenever events or changes in circumstances
indicate that the assets may not be recoverable. The impairment is measured by
calculating the estimated future cash flows expected to be generated by the
store, and comparing this amount to the carrying value of the store's assets.
Cash flows are calculated utilizing individual store forecasts and total company
projections for the remaining estimated lease lives of the stores being
analyzed. Should actual results differ from those forecasted and projected, the
Company may be subject to future impairment charges related to these facilities.
During fiscal year 2003, the Company is required to adopt Statement of
Financial Accounting Standards ("SFAS") Nos. 142 and 144. SFAS No. 142 requires
that assets with indefinite lives not be amortized but tested annually for
impairment and provides specific guidance for such testing. SFAS
19
No. 144 provides additional guidance for impairment testing and determination of
when an asset is considered to be for sale. At this time, the Company has not
determined the impact these standards will have on its financial statements, but
believes the adoption of SFAS No. 142 will result in a material write-off of
goodwill. Goodwill at September 30, 2002 was $5,857,000.
Income taxes -- The Company currently has net operating loss ("NOL")
carryforwards that can be utilized to offset future income for federal and state
tax purposes. These NOLs generate a significant deferred tax asset. However, the
Company has recorded a valuation allowance against this deferred tax asset as it
has determined that it is more likely than not that it will not be able to fully
utilize the NOLs. Should the Company's assumptions regarding the utilization of
these NOLs change, it may reduce some or all of this valuation allowance, which
would result in the recording of an income tax benefit.
IMPACT OF INFLATION
The Company believes that inflation has not had a material effect on its
results of operations in recent years. Generally, increases in the Company's
cost of merchandise can be quickly reflected in higher prices of goods sold.
However, any upward movement of gasoline costs may have short-term negative
effects on profit margins, since the Company's ability to raise gasoline prices
can be limited due to competition from other self-service gasoline outlets. In
addition, fluctuation of gasoline prices can limit the ability of the Company to
maintain stable gross margins.
20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company uses its revolving credit facility and its mortgage and
equipment loans to finance a significant portion of its operations. These
on-balance sheet financial instruments, to the extent they provide for variable
rates of interest, expose the Company to interest rate risk resulting from
changes in the LIBOR or prime rate.
To the extent that the Company's financial instruments expose the Company
to interest rate risk, they are presented in the table below. The table presents
principal cash flows and related interest rates by year of maturity for the
Company's revolving credit facility, mortgage loans and equipment loans at
September 30, 2002.
The carrying amounts of cash and short-term debt approximate fair value.
The Company estimates the fair value of its long-term, fixed-rate debt generally
using discounted cash flow analysis based on the Company's current borrowing
rates for debt with similar maturities. The Company estimates fair value of its
long-term, variable rate debt based on current notes offered for similar debt
with similar security, terms and maturity (dollar amounts in thousands).
FISCAL YEAR OF MATURITY TOTAL FAIR
---------------------------------------------- DUE AT VALUE AT
2003 2004 2005 2006 2007 THEREAFTER MATURITY 9/30/02
------ ------ ------ ------ ------ ---------- -------- --------
INTEREST-RATE SENSITIVE
ASSETS:
Noninterest-bearing
checking accounts........ $3,633 $ 0 $ 0 $ 0 $ 0 $ 0 $ 3,633 $ 3,633
Interest-bearing checking
accounts................. $2,868 $ 0 $ 0 $ 0 $ 0 $ 0 $ 2,868 $ 2,868
Average interest rate...... 1.55% 1.55% --
------ ------ ------ ------ ------ ------- ------- -------
Total.................. $6,501 $ 6,501 $ 6,501
Total average interest
rate................. 0.68% 0.68% --
INTEREST-RATE SENSITIVE
LIABILITIES:
Variable-rate borrowings... $7,830 $2,010 $2,131 $2,258 $2,392 $23,741 $40,362 $40,362
Average interest rate...... 5.57% 5.54% 5.54% 5.54% 5.54% 5.54% 5.54% --
Fixed-rate borrowings...... $1,249 $1,250 $1,386 $1,536 $1,700 $33,508 $40,629 $42,719
Average interest rate...... 9.34% 9.34% 9.34% 9.34% 9.34% 9.34% 9.34% --
------ ------ ------ ------ ------ ------- ------- -------
Total.................. $9,079 $3,260 $3,517 $3,794 $4,092 $57,249 $80,991 $83,081
Total average interest
rate................. 7.46% 7.62% 7.65% 7.68% 7.72% 7.77% 7.67% --
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Uni-Marts, Inc.
State College, Pennsylvania
We have audited the accompanying consolidated balance sheets of Uni-Marts,
Inc. and subsidiaries (the "Company") as of September 30, 2002 and 2001, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Uni-Marts, Inc. and
subsidiaries as of September 30, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2002, in conformity with accounting principles generally accepted
in the United States of America.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 1, 2002
22
UNI-MARTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30,
-------------------
2002 2001
-------- --------
ASSETS
Current Assets:
Cash...................................................... $ 6,501 $ 5,075
Accounts receivable -- less allowances of $126 and $225... 8,324 7,305
Inventories............................................... 20,859 18,471
Prepaid and current deferred taxes........................ 1,494 1,672
Property and equipment held for sale...................... 1,098 3,137
Prepaid expenses and other................................ 1,137 1,265
-------- --------
Total Current Assets.............................. 39,413 36,925
Net Property, Equipment and Improvements.................... 98,037 103,488
Loan Due from Officer....................................... 360 420
Intangible Assets........................................... 6,235 6,689
Other Assets................................................ 1,100 1,108
-------- --------
Total Assets...................................... $145,145 $148,630
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 17,811 $ 16,239
Gas taxes payable......................................... 3,460 3,360
Accrued expenses.......................................... 7,207 6,820
Revolving credit.......................................... 5,867 0
Current maturities of long-term debt...................... 3,212 2,920
Current obligations under capital leases.................. 113 391
-------- --------
Total Current Liabilities......................... 37,670 29,730
Long-Term Debt, less current maturities..................... 71,912 80,912
Obligations Under Capital Leases, less current maturities... 214 361
Deferred Taxes.............................................. 1,797 2,917
Deferred Income and Other Liabilities....................... 5,235 5,217
Commitments and Contingencies
Stockholders' Equity:
Preferred Stock, par value $1.00 a share:
Authorized 100,000 shares
Issued none............................................ 0 0
Common Stock, par value $.10 a share:
Authorized 16,000,000 shares
Issued 7,420,859 and 7,388,083 shares, respectively.... 742 739
Additional paid-in capital................................ 23,803 23,833
Retained earnings......................................... 5,661 6,978
-------- --------
30,206 31,550
Less treasury stock, at cost -- 291,429 and 323,275 shares
of Common Stock, respectively.......................... (1,889) (2,057)
-------- --------
28,317 29,493
-------- --------
Total Liabilities and Stockholders' Equity........ $145,145 $148,630
======== ========
See notes to consolidated financial statements
23
UNI-MARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED SEPTEMBER 30,
------------------------------
2002 2001 2000
-------- -------- --------
REVENUES:
Merchandise sales......................................... $226,030 $204,580 $172,209
Gasoline sales............................................ 181,600 215,796 174,586
Other income.............................................. 1,871 1,890 1,909
-------- -------- --------
409,501 422,266 348,704
-------- -------- --------
COSTS AND EXPENSES:
Cost of sales............................................. 320,776 332,003 272,754
Selling................................................... 67,995 66,260 55,334
General and administrative................................ 8,026 7,264 6,731
Depreciation and amortization............................. 8,257 8,140 6,652
Interest.................................................. 6,726 7,797 5,621
Provision for asset impairment............................ 0 54 160
-------- -------- --------
411,780 421,518 347,252
-------- -------- --------
Earnings (loss) before income taxes......................... (2,279) 748 1,452
Income tax provision (benefit).............................. (962) 297 572
-------- -------- --------
Net earnings (loss)......................................... $ (1,317) $ 451 $ 880
======== ======== ========
Basic earnings (loss) per share............................. $ (0.19) $ 0.06 $ 0.13
======== ======== ========
Diluted earnings (loss) per share........................... $ (0.19) $ 0.06 $ 0.13
======== ======== ========
Weighted average number of common shares outstanding........ 7,099 7,053 6,989
======== ======== ========
Weighted average number of common shares outstanding
assuming dilution......................................... 7,099 7,093 7,021
======== ======== ========
See notes to consolidated financial statements
24
UNI-MARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
COMMON STOCK
AUTHORIZED 16,000,000
SHARES ADDITIONAL TREASURY STOCK
---------------------- PAID-IN RETAINED -----------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
----------- -------- ---------- -------- ------- -------
BALANCE -- OCTOBER 1, 1999.............. 7,327,088 $733 $24,030 $ 5,647 400,962 $(2,464)
Issuance of common stock.............. 34,035 3 (214) (67,248) 353
Net earnings.......................... 880
--------- ---- ------- ------- ------- -------
BALANCE -- SEPTEMBER 30, 2000........... 7,361,123 736 23,816 6,527 333,714 (2,111)
Issuance of common stock.............. 26,960 3 17 (10,439) 54
Net earnings.......................... 451
--------- ---- ------- ------- ------- -------
BALANCE -- SEPTEMBER 30, 2001........... 7,388,083 739 23,833 6,978 323,275 (2,057)
Issuance of common stock.............. 32,776 3 (30) (31,846) 168
Net loss.............................. (1,317)
--------- ---- ------- ------- ------- -------
BALANCE -- SEPTEMBER 30, 2002........... 7,420,859 $742 $23,803 $ 5,661 291,429 $(1,889)
========= ==== ======= ======= ======= =======
See notes to consolidated financial statements
25
UNI-MARTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED SEPTEMBER 30,
---------------------------------
2002 2001 2000
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others................... $ 410,392 $ 418,400 $ 348,513
Cash paid to suppliers and employees...................... (396,579) (410,275) (329,222)
Dividends and interest received........................... 45 77 108
Interest paid (net of capitalized interest of $0, $287 and
$32)................................................... (6,637) (7,527) (5,100)
Income taxes received (paid).............................. 21 (152) 45
--------- --------- ---------
Net Cash Provided by Operating Activities............ 7,242 523 14,344
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business................................... 0 0 (42,745)
Receipts from sale of capital assets...................... 559 394 993
Purchase of property, equipment and improvements.......... (2,868) (10,402) (7,036)
Note receivable from officer.............................. 60 60 60
Cash advanced for intangible and other assets............. (177) (207) (191)
Cash received for intangible and other assets............. 69 66 633
--------- --------- ---------
Net Cash Used in Investing Activities................ (2,357) (10,089) (48,286)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on revolving credit agreement....... 109 4,615 (656)
Additional long-term borrowings........................... 0 5,197 42,238
Principal payments on debt................................ (3,599) (3,065) (1,710)
Proceeds from issuance of common stock.................... 31 12 8
--------- --------- ---------
Net Cash (Used in) Provided by Financing
Activities........................................ (3,459) 6,759 39,880
--------- --------- ---------
Net Increase (Decrease) in Cash............................. 1,426 (2,807) 5,938
Cash at Beginning of Year................................... 5,075 7,882 1,944
--------- --------- ---------
Cash at End of Year......................................... $ 6,501 $ 5,075 $ 7,882
========= ========= =========
RECONCILIATION OF NET EARNINGS (LOSS) TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net Earnings (Loss)......................................... $ (1,317) $ 451 $ 880
Adjustments to Reconcile Net Earnings (Loss) to Net Cash
Provided by Operating Activities:
Depreciation and amortization............................. 8,257 8,140 6,652
Provision for asset impairment............................ 0 54 160
Loss on sale of capital assets and other.................. 354 405 197
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable.................................. (1,046) (1,050) (3,574)
Inventories.......................................... (2,388) (2,235) (4,498)
Prepaid expenses and other........................... 2,248 (2,334) 24
Increase (decrease) in:
Accounts payable and accrued expenses................ 2,058 (2,201) 10,455
Deferred income taxes and other liabilities.......... (924) (707) 4,048
--------- --------- ---------
Total Adjustments to Net Earnings (Loss).................. 8,559 72 13,464
--------- --------- ---------
Net Cash Provided by Operating Activities................... $ 7,242 $ 523 $ 14,344
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING ACTIVITY:
Liabilities Assumed in Acquisition.......................... $ 0 $ 0 $ 2,500
Fixed Assets Acquired Under Capital Leases.................. $ 0 $ 0 $ 426
See notes to consolidated financial statements
26
UNI-MARTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2002, 2001 AND 2000
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company is an independent operator of convenience stores and discount
tobacco stores located in Pennsylvania, New York, Delaware, Maryland and
Virginia.
(1) Principles of Consolidation -- The consolidated financial statements
include the accounts of Uni-Marts, Inc. and its wholly-owned
subsidiaries (the "Company"). All material intercompany balances and
transactions have been eliminated.
(2) Future Operations -- The Company continues to evaluate existing stores
based on their historical contribution. The Company will consider
closing underperforming stores or investing in facility upgrades to
enhance their performance. The Company retained financial advisors in
fiscal year 2002 to evaluate operating strategies which included the
potential divestiture of certain store locations and non-operating
assets. As a result of its analysis with its financial advisors, the
Company intends to intensify its divestiture strategy. The financial
advisors are currently working with the Company and its lenders to
assist in this divestiture program.
Management believes that cash from operations, available credit
facilities and asset sales will be sufficient to meet the Company's
obligations for the foreseeable future. In the event that the Company
is unable to amend covenants under its revolving credit agreement (See
Note F) or cannot consummate proposed asset sales, there is a risk that
the Company will not be able to meet future cash obligations. There can
be no assurance that the Company's lenders will cooperate with the
Company's efforts to pay down debt through the divestiture of assets.
(3) Inventories -- The Company values its merchandise inventories at the
lower of cost (first-in, first-out method) or market, as determined by
the retail inventory method. Gasoline inventories are valued at the
lower of cost (first-in, first-out method) or market (See Note B).
(4) Property, Equipment and Improvements -- Depreciation and amortization
are calculated using the straight-line method over the useful lives of
the related assets. Amortization of improvements to leased properties
is based on the remaining terms of the leases or the estimated useful
lives of such improvements, whichever is shorter. Interest costs
incurred on borrowed funds during the period of construction of capital
assets are capitalized as a component of the cost of acquiring those
assets.
(5) Asset Impairment -- Long-lived assets and certain identifiable
intangibles are reviewed for impairment quarterly, or whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability is assessed based on the
future cash flows expected to result from the use of the asset and its
eventual disposition. If the sum of the undiscounted cash flows is less
than the carrying value of the asset, an impairment loss is recognized.
Any impairment loss, if indicated, is measured as the amount by which
the carrying amount of the asset exceeds the estimated fair value of
the asset.
27
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(6) Self-Insurance Reserves -- The Company assumes the risks for general
liability and workers' compensation insurance exposures up to certain
loss thresholds set forth in separate insurance contracts. The Company
has established self-insurance reserves for these risks, which are
recorded on a present value basis using a risk-free discount rate of
5.0% (2002) and 5.0% (2001), using actuarial valuations provided by an
independent company. At September 30, 2002 and 2001, the Company had
self-insurance reserves totaling $2,800,800 and $2,719,600,
respectively. These reserves are included in accrued expenses in the
Company's consolidated balance sheets.
(7) Income Taxes -- The Company recognizes deferred tax assets and
liabilities for temporary differences between the financial statement
and tax basis of assets and liabilities using enacted tax rates.
(8) Earnings Per Share -- Earnings per share are calculated based on the
weighted-average number of shares of common stock outstanding. Diluted
earnings per share were calculated in fiscal years 2001 and 2000.
Although there were potentially dilutive stock options for 1,219,833
shares outstanding in fiscal year 2002, they were not included as the
effect was anti-dilutive because the exercise price exceeded the market
price.
(9) Advertising Costs -- The Company expenses advertising costs in the
period in which they are incurred. The Company incurred advertising
costs of $783,200, $841,800 and $1,228,000 in fiscal years 2002, 2001
and 2000, respectively.
(10) Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from
those estimates and assumptions.
(11) Segment Disclosures -- The Company has only one reportable segment.
(12) Changes In Securities -- On February 6, 2002, the Company adopted a
shareholder rights plan and declared a dividend distribution of one
Common Stock Purchase Right on each outstanding share of its common
stock. Pursuant to the rights plan, the Company distributed to all
shareholders of record on February 19, 2002, as a dividend on each
outstanding share of common stock, a right to purchase two-thirds of a
share of common stock for a purchase price of $10.67. The rights,
however, are exercisable (subject to limited grandfathering provisions
for certain shareholders who currently beneficially own more than 15%
of the Company's stock) only if: (1) a person or group acquires 15% or
more of the Company's common stock, other than through an offer for all
shares of the common stock at a price and on terms determined by the
Board of Directors to be fair to all shareholders, or (2) a person or
group commences a tender or exchange offer for 15% or more of the
Company's common stock. If the rights become exercisable, the rights
will be modified automatically to entitle the rightholders (other than
the acquiring person or group) to purchase shares of the Company's
common stock at a 50% discount from the then market value. In addition,
if the Company is acquired in a merger or other transaction after such
person or group has acquired a 15% common stock interest, the
rightholders (other than such person or group) will be entitled to
purchase shares of common stock of the surviving company at the same
discount from market value. Initially, the rights are represented by
Uni-Marts stock certificates. Should the rights become exercisable, the
Company will issue separate rights certificates to all holders. Uni-
28
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Marts can redeem the rights at any time before (but not after) a person
or group has acquired 15% or more of the Company's common stock as
described above. If not redeemed prior to January 31, 2012, the rights
will expire on that date. Terms of the Shareholder Rights Plan are set
forth in a Rights Agreement dated as of February 6, 2002 between the
Company and Mellon Investor Services LLC, as Rights Agent, which was
filed as an exhibit to an amendment to the Registration Statement on
Form 8-A pursuant to which the Company's common stock, par value $0.10,
is registered under the Securities Exchange Act of 1934.
(13) Recent Accounting Pronouncements -- In June 2001, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 142 and, in August 2001, issued SFAS
No. 144. SFAS No. 142, "Goodwill and Other Intangible Assets," requires
that such assets with indefinite lives not be amortized but be tested
annually for impairment and provides specific guidance for such
testing. This statement also requires disclosure of information
regarding goodwill and other assets that was previously not required.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," provides additional guidance for impairment testing and
determination of when an asset is considered to be for sale. The
Company is not required to adopt these accounting standards until
fiscal year 2003, but believes the adoption of SFAS No. 142 will result
in a material write-off of goodwill.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 rescinds SFAS No. 4, "Reporting
Gains and Losses from Extinguishment of Debt," and an amendment of that
Statement, and SFAS No. 64, "Accounting for Leases," to eliminate an
inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-
leaseback transactions. SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed
conditions. Adoption of SFAS No. 145 is not expected to have a material
impact on the Company's financial statements.
In June of 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 requires
companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Previous accounting guidance
was provided by EITF No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146
replaces EITF No. 94-3 and is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. At this time,
the Company has not determined the impact this standard will have on
the Company's financial statements.
29
B. INVENTORIES:
The following is a summary of inventories at September 30:
2002 2001
------- -------
(IN THOUSANDS)
Merchandise............................................... $17,758 $15,636
Gasoline.................................................. 3,101 2,835
------- -------
$20,859 $18,471
======= =======
C. PROPERTY AND EQUIPMENT HELD FOR SALE:
Property and equipment held for sale is carried at the lower of cost or net
realizable value and are classified as current assets because the Company
expects them to be sold within the next fiscal year. The properties are
undeveloped land, rental properties, store equipment and closed convenience
stores. Leases that were pending in fiscal year 2001 were completed in the first
quarter of fiscal year 2002.
D. PROPERTY, EQUIPMENT AND IMPROVEMENTS -- AT COST (IN THOUSANDS):
ESTIMATED
ACCUMULATED NET BOOK LIFE IN
COST DEPRECIATION VALUE YEARS
-------- ------------ -------- ---------
SEPTEMBER 30, 2002:
Land............................................. $ 22,629 $ 0 $ 22,629
Buildings........................................ 74,610 22,247 52,363 29-35
Machinery and equipment.......................... 45,184 28,040 17,144 3-10
Machinery and equipment.......................... 6,902 4,117 2,785 11-20
Capitalized property and equipment leases........ 1,141 742 399 5-25
Leasehold improvements........................... 11,352 8,661 2,691 1-10
Leasehold improvements........................... 433 407 26 11-20
-------- ------- --------
$162,251 $64,214 $ 98,037
======== ======= ========
SEPTEMBER 30, 2001:
Land............................................. $ 22,791 $ 0 $ 22,791
Buildings........................................ 73,903 19,552 54,351 29-35
Machinery and equipment.......................... 45,280 26,288 18,992 3-10
Machinery and equipment.......................... 6,881 3,700 3,181 11-20
Capitalized property and equipment leases........ 1,797 914 883 5-25
Leasehold improvements........................... 11,242 8,329 2,913 1-10
Leasehold improvements........................... 433 383 50 11-20
Construction in progress......................... 327 0 327
-------- ------- --------
$162,654 $59,166 $103,488
======== ======= ========
Depreciation expense in fiscal years 2002, 2001 and 2000 was $7,795,300,
$7,677,100 and $6,306,600, respectively, including the amortization of
capitalized property and equipment leases.
30
E. INTANGIBLE AND OTHER ASSETS:
Intangible and other assets consist of the following (in thousands):
USEFUL
ACCUMULATED NET BOOK LIVES IN
COST AMORTIZATION VALUE YEARS
------- ------------ -------- --------
FOR THE YEAR ENDED SEPTEMBER 30, 2002:
Goodwill.............................................. $ 8,874 $3,017 $5,857 13-40
Lease acquisition cost................................ 315 251 64 12-25
Noncompete agreements................................. 250 121 129 5
Other intangibles..................................... 197 12 185 15-16
------- ------ ------
Total intangibles................................... 9,636 3,401 6,235
Other assets.......................................... 1,100 0 1,100
------- ------ ------
$10,736 $3,401 $7,335
======= ====== ======
FOR THE YEAR ENDED SEPTEMBER 30, 2001:
Goodwill.............................................. $ 8,874 $2,628 $6,246 13-40
Lease acquisition cost................................ 315 232 83 12-25
Noncompete agreements................................. 250 71 179 5
Other intangibles..................................... 190 9 181 15-16
------- ------ ------
Total intangibles................................... 9,629 2,940 6,689
Other assets.......................................... 1,108 0 1,108
------- ------ ------
$10,737 $2,940 $7,797
======= ====== ======
Goodwill represents the excess of cost over the fair value of net assets
acquired in business combinations and is amortized on a straight-line basis.
Effective October 1, 2002, with the adoption of SFAS No. 142, the Company will
no longer amortize goodwill. Lease acquisition costs are the bargain element of
acquired leases and are being amortized on a straight-line basis over the
related lease terms. Amortization expense was $461,800 (2002), $462,600 (2001)
and $345,800 (2000).
F. REVOLVING CREDIT AGREEMENT:
On April 20, 2000, the Company executed a 3-year secured $10.0 million revolving
loan agreement (the "Agreement") with $3.5 million available for letters of
credit. Provisions of the Agreement require the maintenance of certain covenants
relating to minimum tangible net worth, interest and fixed-charge coverage
ratios, as measured on a quarterly basis. In addition, the Agreement places
limitations on capital expenditures, additional debt and payment of dividends.
In the second quarter of fiscal year 2001, the Agreement was amended to increase
the total credit line to $13.0 million, with $3.5 million available for letters
of credit, and to amend certain financial covenants. During the first quarter of
fiscal year 2002, the Agreement was amended to extend the maturity date to April
20, 2004, to amend certain covenants and to provide an additional $2.0 million
for borrowing on a seasonal basis for the months January through April. As of
September 30, 2002, the Agreement was amended to revise covenants relating to
fixed-charge coverage covenant and interest coverage covenant ratios for the
fourth quarter of fiscal year 2002 and the first quarter of fiscal year 2003.
The Company was in compliance with these covenants as of September 30, 2002. The
Company and the bank are currently evaluating revisions to the fixed-charge
coverage covenant and interest coverage covenant levels for the second, third
and fourth quarters of fiscal year 2003 that will be consistent with the
Company's strategic course. While the bank has given indications that it intends
to renegotiate, in good faith, revisions to the credit agreement that may be
necessary, there can be no assurance that such revisions will be agreed to or
that the Company will be in compliance with the existing or amended covenants
31
F. REVOLVING CREDIT AGREEMENT (CONTINUED):
under the Agreement during fiscal year 2003. Borrowings of $5.9 million and
letters of credit of $3.0 million were outstanding at September 30, 2002. The
$5.9 million borrowing has been classified as a current liability since the
interest and fixed-charge coverage ratios have been amended only through the
first quarter of fiscal year 2003. This facility bears interest at the Company's
option based on a rate of either prime plus 1.0% or LIBOR plus 3.0%. The
interest rate at September 30, 2002 was 5.75%. The Agreement is collateralized
by substantially all of the Company's inventories, receivables, other personal
property and selected real properties. The net book value of these selected real
properties at September 30, 2002 was $2.5 million.
G. LONG-TERM DEBT:
SEPTEMBER 30,
-----------------
2002 2001
------- -------
(IN THOUSANDS)
Mortgage Loan. Principal and interest will be paid in 192
remaining monthly installments. At September 30, 2002, the
coupon rate was 9.08% and the effective interest rate was
9.78%, net of unamortized fees of $1,204,119 ($1,329,757
in 2001).................................................. $31,568 $32,331
Mortgage Loan. Principal and interest will be paid in 212
remaining monthly installments. The loan bears interest at
LIBOR plus 3.75%. At September 30, 2002, the coupon rate
was 5.54% and the effective interest rate was 6.04%, net
of unamortized fees of $364,952 ($403,779 in 2001)........ 20,423 21,249
Mortgage Loan. Principal and interest will be paid in 212
remaining monthly installments. At September 30, 2002, the
coupon rate was 10.39% and the effective interest rate was
10.70%, net of unamortized fees of $114,683 ($124,901 in
2001)..................................................... 6,502 6,628
Mortgage Loans. Principal and interest are paid in monthly
installments. The loans expire in 2009, 2010, 2020 and
2021. Interest ranges from the prime rate to LIBOR plus
3.75%. At September 30, 2002, the blended coupon rate was
6.39% and the effective interest rate was 6.80%, net of
unamortized fees of $144,626 ($151,688 in 2001)........... 7,202 7,496
Revolving Credit Agreement. Interest is paid monthly. The
interest rate at September 30, 2002 was 5.75%. (See Note
F)........................................................ 5,867 5,758
Equipment Loans. Principal and interest will be paid in
monthly installments. The loans expire in 2010 and 2011
and bear interest at LIBOR plus 3.75%. At September 30,
2002, the blended coupon rate was 5.54% and the effective
interest rate was 5.98%, net of unamortized fees of
$135,213 ($174,996 in 2001)............................... 8,506 9,375
Equipment Loan. Principal and interest will be paid in 94
remaining monthly installments. The loan expires in 2010.
At September 30, 2002, the coupon rate was 10.73% and the
effective interest rate was 11.19%, net of unamortized
fees of $13,776 ($17,124 in 2001)......................... 923 995
------- -------
80,991 83,832
Less current maturities..................................... 9,079 2,920
------- -------
$71,912 $80,912
======= =======
The mortgage loans are collateralized by $68,586,900 of property, at net book
value, and the equipment loans are collateralized by $5,108,000 of equipment, at
net book value.
32
G. LONG-TERM DEBT (CONTINUED):
Aggregate maturities of long-term debt (net of loan fee amortization) during the
next five years are as follows (in thousands):
September 30,
2003................................................... $ 9,079
2004................................................... 3,260
2005................................................... 3,517
2006................................................... 3,794
2007................................................... 4,092
Thereafter............................................. 57,249
-------
$80,991
=======
In April and September 2000, the Company, through special purpose consolidated
entities with GE Capital Franchise Finance Corporation, (formerly Franchise
Finance Corporation of America), ("FFCA") completed 20-year mortgage loans
totaling $32.5 million and 10-year equipment loans totaling $11.0 million to
finance the purchase of assets from Orloski Service Station, Inc. ("OSSI"). In
fiscal year 2001, the Company completed a 20-year mortgage loan totaling $3.5
million and a 10-year equipment loan to finance the construction of one
additional store location with FFCA.
The loan agreements with FFCA require the maintenance of certain minimum
covenant levels. As of September 30, 2002, the Company was not in compliance
with one covenant relating to fixed charge coverage in one of its FFCA loan
pools. In December 2002, the Company intends to make an additional principal
payment of approximately $110,000 to bring the loan pool into compliance.
H. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash and short-term debt approximate fair value. The
Company estimates the fair value of its long-term, fixed-rate debt generally
using discounted cash flow analysis based on the Company's current borrowing
rates for debt with similar maturities. The Company estimates the fair value of
its long-term, variable-rate debt based on current rates offered for similar
debt with similar security, terms and maturity.
Fair value of capital lease obligations is estimated based on current rates
offered to the Company for similar debt.
The estimated fair values of the Company's financial instrument liabilities are
as follows (in thousands):
SEPTEMBER 30, 2002 SEPTEMBER 30, 2001
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
Long-term debt......................... $80,991 $83,081 $83,832 $89,667
Obligations under capital leases....... 327 341 752 797
33
I. DEFERRED INCOME AND OTHER LIABILITIES:
The Company generally records revenues when products are sold or services
rendered. In certain instances, the Company receives advance payments for
purchase commitments or other services and records revenue from such payments in
accordance with the terms of the related contractual arrangements.
Deferred income and other liabilities includes the following:
SEPTEMBER 30,
---------------
2002 2001
------ ------
(IN THOUSANDS)
Deferred income............................................. $5,170 $5,064
Deferred compensation....................................... 0 82
Other noncurrent liabilities................................ 65 71
------ ------
$5,235 $5,217
====== ======
J. COMMITMENTS AND CONTINGENCIES:
(1) Leases -- The Company leases its corporate headquarters, 129 of its store
locations and certain equipment. Future minimum lease payments under capital
leases and noncancellable operating leases with initial or remaining terms
in excess of one year at September 30, 2002 are shown below. Some of the
leases provide for additional rentals when sales exceed a specified amount
and contain variable renewal options and escalation clauses. Rental income
in connection with the leases of certain properties is also provided. Such
rental income was $849,900 in 2002, $876,300 in 2001 and $811,900 in 2000.
CAPITAL OPERATING RENTAL
LEASES LEASES INCOME
------- --------- ------
(IN THOUSANDS)
2003.............................................. $146 $ 6,161 $ 736
2004.............................................. 140 6,139 519
2005.............................................. 31 4,391 418
2006.............................................. 31 3,167 239
2007.............................................. 31 2,961 177
Thereafter........................................ 22 7,956 306
---- ------- ------
Total future minimum lease payments..... 401 $30,775 $2,395
======= ======
Less amount representing interest................. 74
----
Present value of future payments.................. 327
Less current maturities........................... 113
----
$214
====
Rental expense under operating leases was as follows:
YEAR ENDED SEPTEMBER 30,
------------------------
2002 2001 2000
------ ------ ------
(IN THOUSANDS)
Minimum rentals................................... $7,099 $5,287 $4,481
Contingent rentals................................ 92 39 47
------ ------ ------
$7,191 $5,326 $4,528
====== ====== ======
34
J. COMMITMENTS AND CONTINGENCIES (CONTINUED):
(2) Change of Control Agreements -- The Company has change of control agreements
with its three executive officers pursuant to which each executive officer
will receive remuneration of 2.99 times his base compensation if his
employment is terminated due to a change of control as defined in the
agreements. Remuneration which might be payable under these agreements has
not been accrued in the consolidated financial statements as a change of
control has not occurred.
(3) Pursuant to ten-year agreements with four gasoline suppliers, the Company
receives from the suppliers partial funding of the cost of the aboveground
gasoline equipment and rebates for the purchase of gasoline. As of September
30, 2002, the total funding subject to these arrangements is $7,038,500. If
the Company terminates these agreements before the expiration of the ten
years, part of this funding, in addition to the funding previously made to
OSSI, must be repaid to the suppliers. The expiration dates range from 2003
to 2008.
(4) Litigation -- The Company is involved in litigation and other legal matters
which have arisen in the normal course of business. Although the ultimate
results of these matters are not currently determinable, management does not
expect that they will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
K. INCOME TAXES:
The provision for income taxes includes the following:
YEAR ENDED
SEPTEMBER 30,
-------------------
2002 2001 2000
----- ---- ----
(IN THOUSANDS)
Current tax expense (credit):
Federal........................................... $ 0 $ 0 $ 0
State............................................. 6 2 2
----- ---- ----
6 2 2
----- ---- ----
Deferred tax expense (credit):
Federal........................................... (632) 388 550
State............................................. (336) (93) 20
----- ---- ----
(968) 295 570
----- ---- ----
$(962) $297 $572
===== ==== ====
35
K. INCOME TAXES (CONTINUED):
Deferred tax liabilities (assets) are comprised of the following at September
30:
2002 2001 2000
------- ------- -------
(IN THOUSANDS)
Depreciation..................................... $ 7,174 $ 7,361 $ 6,743
------- ------- -------
Gross deferred tax liabilities................... 7,174 7,361 6,743
------- ------- -------
Insurance reserves............................... (1,132) (1,100) (1,128)
Change in accounting method...................... 0 0 (222)
Capital leases................................... 7 60 (9)
Deferred compensation............................ 0 (33) (12)
Deferred income.................................. (1,119) (1,078) (1,365)
Net operating loss carryforward.................. (4,249) (3,440) (2,516)
Other............................................ (332) (450) (400)
------- ------- -------
Gross deferred tax assets........................ (6,825) (6,041) (5,652)
Less valuation allowance......................... 48 45 25
------- ------- -------
Net deferred tax assets.......................... (6,777) (5,996) (5,627)
------- ------- -------
$ 397 $ 1,365 $ 1,116
======= ======= =======
The financial statements include noncurrent deferred tax liabilities of
$1,796,900 and $2,916,900 in 2002 and 2001, respectively, and current deferred
tax assets of $1,400,300 and $1,552,000 which are included in prepaid and
current deferred taxes.
As of September 30, 2002, the Company had available state and federal net
operating loss carryforwards of $9,520,900 which expire in fiscal years 2018
through 2022.
A reconciliation of the provision for income taxes to an amount determined by
application of the statutory federal income tax rate follows:
YEAR ENDED
SEPTEMBER 30,
-------------------
2002 2001 2000
----- ---- ----
(IN THOUSANDS)
Statutory rate......................................... $(775) $254 $494
Increase (decrease) resulting from:
Tax credits....................................... (38) 45 1
Nondeductible items............................... 67 66 61
State taxes (net)................................. (218) (60) 15
Other (net)....................................... 2 (8) 1
----- ---- ----
Tax provision (benefit)................................ $(962) $297 $572
===== ==== ====
L. RELATED PARTY TRANSACTIONS:
During fiscal year 1997, the Company granted a loan of $800,000 to an officer of
the Company. In January 1999, the interest rate on the loan changed to the
brokerage call rate plus 0.5% (4.0% at September 30, 2002). The loan requires
payments of $60,000 plus interest on November 1, 1999, 2000, 2001, 2002 and
2003. The next payment is due November 1, 2003. A final payment of $300,000 is
due on November 1, 2004. The loan is collateralized by 303,397 shares of the
Company's Common Stock. The balance of this loan at September 30, 2002 was
$360,000.
36
L. RELATED PARTY TRANSACTIONS (CONTINUED)
Certain directors and officers of the Company are also directors, officers or
controlling shareholders of other entities from which the Company leases its
corporate headquarters and various store and other locations under agreements
classified as operating leases. In addition, the Company leases store locations
from entities controlled by, or from persons related to, certain directors and
officers of the Company. The following is a summary of significant transactions
with these entities:
(1) The Company leases its corporate headquarters and various store and
other locations under agreements classified as operating leases.
Aggregate rentals in connection with all such leases were $1,255,500
(2002), $698,800 (2001) and $624,500 (2000).
(2) The Company charges an affiliate for general and administrative
services provided. Such charges amounted to $11,200 (2002), $11,200
(2001) and $11,500 (2000).
During fiscal years 2002, 2001 and 2000, the Company made payments of $79,300,
$79,200 and $80,100, respectively, to a director of the Company for consulting
fees and reimbursement of expenses.
M. RETIREMENT SAVINGS AND INCENTIVE PLAN:
The Company has a contributory retirement savings plan covering all employees
meeting minimum age and service requirements. The Company will match one-half of
employee contributions up to 3% of the employee's compensation. The Company's
contributions are invested in the Company's Common Stock. The Board of Directors
may elect to make additional contributions to be allocated among all eligible
employees in accordance with provisions of the plan. The retirement savings plan
expense, which is funded currently, was $98,400 (2002), $108,300 (2001) and
$98,100 (2000).
N. DEFERRED COMPENSATION PLAN:
The Company had a nonqualified deferred compensation plan which was terminated
in January 2002 and the assets distributed to the beneficiaries. The deferred
compensation plan permitted key executives to elect annually (via individual
contracts) to defer a portion of their compensation until their retirement,
death or disability. The Company made a 50% matching contribution not exceeding
$5,000 annually per executive. The deferred compensation expense was $13,200,
$16,200 and $27,900 for the years ended September 30, 2002, 2001 and 2000,
respectively.
The Company had recorded the liabilities for the deferred compensation plan in
the consolidated balance sheets because such liabilities belonged to the Company
rather than to any plan or trust. The liabilities of $0 and $81,800 at September
30, 2002 and 2001, respectively, included employee deferrals, accrued earnings
and matching contributions of the Company. The liability amount was included in
deferred income and other liabilities.
O. EQUITY COMPENSATION PLANS:
The Company has an Equity Compensation Plan, pursuant to which no additional
stock options may be granted, and a 1996 Equity Compensation Plan, which became
effective November 1, 1996. The Company has reserved 43,750 shares of common
stock which can be issued upon exercise of outstanding stock options in
accordance with the terms of the Equity Compensation Plan and 1,664,637 shares
of common stock which can be issued upon exercise of outstanding options or
options that may be granted in the future in accordance with the terms of the
1996 Equity Compensation Plan.
Both the Equity Compensation Plan and the 1996 Equity Compensation Plan are
collectively discussed as the "Plans" on the following page.
37
O. EQUITY COMPENSATION PLANS (CONTINUED):
A committee of the Board of Directors has authority to administer the Plans, and
the committee may grant qualified and nonqualified incentive stock options to
employees of the Company, including officers, whether or not they are directors.
The Plans also provide that all nonemployee directors will receive annual
nonqualified stock option grants for 2,000 shares of common stock plus 500
shares for each full year the director has served as a member of the board, up
to a maximum of 4,000 shares per grant, on the date of each annual meeting.
These options generally have a vesting period of one year. In addition, newly
appointed or elected nonemployee directors receive an initial grant for 5,000
shares. Nonemployee directors will also receive grants of stock equal in value
to and in lieu of two-thirds of the retainer due to such director. The Company
granted options to purchase 30,000, 32,500 and 33,000 shares of common stock to
nonemployee directors under the Plans during fiscal years 2002, 2001 and 2000,
respectively. The Company also issued 15,680, 19,850 and 27,775 shares of common
stock to nonemployee directors during fiscal years 2002, 2001 and 2000,
respectively, as part of their annual retainer.
The exercise price of all options granted under the Plans may not be less than
the fair market value of the common stock on the date of grant, and the maximum
allowable term of each option is ten years. For qualified stock options granted
to any person who holds more than 10% of the voting power of the outstanding
stock, the exercise price may not be less than 110% of the fair market value,
and the maximum allowable term is five years. Options granted under the Plans
generally have vesting periods of up to three years.
Information regarding outstanding options is presented below. All options
outstanding are exercisable according to their vesting schedule.
Outstanding Options for Shares of Common Stock (in thousands, except per share
data) are as follows:
WEIGHTED AVERAGE
WEIGHTED AVERAGE REMAINING
OUTSTANDING EXERCISE EXERCISE PRICE CONTRACTUAL
OPTIONS PRICE PER SHARE PER SHARE LIFE
----------- --------------- ---------------- ----------------
Balance, October 1, 1999........... 576 $1.38 to $8.50 $5.03
Granted............................ 304 $1.13 to $2.31 $1.96
Canceled........................... (152) $1.50 to $7.00 $3.68
-----
Balance, September 30, 2000........ 728 $1.13 to $8.50 $4.36
Granted............................ 258 $1.81 to $2.42 $2.21
Canceled........................... (41) $2.00 to $7.70 $4.33
-----
Balance, September 30, 2001........ 945 $1.13 to $8.50 $2.81
Granted............................ 494 $1.40 to $2.55 $1.72
Exercised.......................... (10) $1.38 to $2.00 $1.60
Canceled........................... (209) $1.38 to $7.00 $3.70
-----
Balance, September 30, 2002........ 1,220
=====
1,141 $1.13 to $3.75 $1.97 8.6 years
47 $3.76 to $6.13 $5.36 3.2 years
32 $6.14 to $8.50 $6.87 3.5 years
-----
1,220 $1.13 to $8.50 $2.23 7.7 years
=====
Exercisable at September 30,
2002............................. 530 $1.13 to $8.50 $2.72
=====
Balance of Shares Reserved for
Grant at September 30, 2002...... 489
=====
38
O. EQUITY COMPENSATION PLANS (CONTINUED):
The weighted average fair value of the stock options granted during fiscal years
2002, 2001 and 2000 were $1.21, $1.84 and $1.54, respectively. The fair value of
each stock option granted is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in the years ended September 30, (dollars in
thousands):
2002 2001 2000
---- ---- ----
Risk-free interest rate................................. 3.6% 4.6% 5.8%
Expected volatility..................................... 62.3% 86.0% 69.6%
Expected life in years.................................. 9.0 9.0 9.0
Contractual life in years............................... 10.0 10.0 10.0
Fair value of options granted........................... $599 $475 $469
The Company accounts for the Plans in accordance with Accounting Principles
Board Opinion No. 25, under which no compensation cost has been recognized for
stock option awards. Had compensation cost for the Plans been determined in
accordance with Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (SFAS No. 123), the Company's pro forma net
earnings (loss) and earnings (loss) per share for the fiscal years ended
September 30, 2002, 2001 and 2000 would have been as follows (in thousands,
except per share data):
2002 2001 2000
------- ----- -----
Net earnings (loss):
As reported................................... $(1,317) $ 451 $ 880
Pro forma..................................... $(1,432) $ 441 $ 867
Basic earnings (loss) per share:
As reported................................... $ (0.19) $0.06 $0.13
Pro forma..................................... $ (0.20) $0.06 $0.12
Diluted earnings (loss) per share:
As reported................................... $ (0.19) $0.06 $0.13
Pro forma..................................... $ (0.20) $0.06 $0.12
P. EMPLOYEE STOCK PURCHASE PLAN:
In February 1999, the Company's stockholders approved a stock purchase plan.
Under the stock purchase plan, eligible employees may purchase common stock in
quarterly offering periods through payroll deductions of up to 25% of
compensation. The price per share is 90% of the average market price throughout
the quarter but not less than 90% of the lower of the market price at the
beginning or end of the market period. The stock purchase plan provides for
purchases by employees of up to an aggregate of 500,000 shares. During fiscal
years 2002, 2001 and 2000, employees purchased 6,763, 7,110 and 6,260 shares,
respectively, pursuant to the stock purchase plan.
39
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- ------- -------- --------
YEAR ENDED SEPTEMBER 30, 2002
Revenues............................................ $ 98,989 $92,194 $108,780 $109,538
Gross Profits....................................... 22,896 20,965 22,744 22,120
Net Earnings (Loss)................................. $ 110 $(1,139) $ (145) $ (143)
======== ======= ======== ========
Net Earnings (Loss) Per Share....................... $ 0.02 $ (0.16) $ (0.02) $ (0.02)
======== ======= ======== ========
YEAR ENDED SEPTEMBER 30, 2001
Revenues............................................ $109,618 $96,753 $112,264 $103,631
Gross Profits....................................... 23,267 20,333 23,830 22,833
Net Earnings (Loss)................................. $ 520 $(1,226) $ 627 $ 530
======== ======= ======== ========
Net Earnings (Loss) Per Share....................... $ 0.07 $ (0.17) $ 0.09 $ 0.08
======== ======= ======== ========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
In accordance with Instruction G(3), the information called for by Items
10, 11, 12 and 13 is incorporated by reference from the Registrant's Definitive
Proxy Statement pursuant to Regulation 14A, to be filed with the Commission not
later than 120 days after September 30, 2002, the end of the fiscal year covered
by this report.
40
PART IV
ITEM 14. CONTROLS AND PROCEDURES.
CEO and CFO Certifications. Appearing immediately following the Signatures
section of this Annual Report are two certifications, one by each of our Chief
Executive Officer and our Chief Financial Officer (the "Section 302
Certifications"). This Item 14 of our Annual Report contains information
concerning the evaluation of the Company's disclosure controls and procedures
and matters regarding our internal controls that are referred to in the Section
302 Certifications. This information should be read in conjunction with the
Section 302 Certifications for a more complete understanding of the topics
presented.
Evaluation of the Company's Disclosure Controls and Procedures. The
Securities and Exchange Commission (the "SEC") requires that within 90 days
prior to the filing of this Annual Report on Form 10-K, the CEO and the CFO
evaluate the effectiveness of the design and operation of the Company's
"disclosure controls and procedures" and report their conclusions on the
effectiveness of the design and operation of the Company's disclosure controls
and procedures in this report.
"Disclosure controls and procedures" mean the controls and other procedures
that are designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934 (the
"Exchange Act"), such as this Annual Report, is recorded, processed, summarized
and reported within the time periods specified in the rules and forms
promulgated by the Securities and Exchange Commission (the "SEC"). Disclosure
controls and procedures are also designed with the objective of ensuring that
such information is accumulated and communicated to our management, including
the CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure.
Evaluation of the Company's Internal Controls. The SEC also requires that
the CEO and CFO certify certain matters regarding the Company's "internal
controls."
"Internal controls" mean our procedures which are designed with the
objective of providing reasonable assurance that (1) our transactions are
properly authorized; (2) our assets are safeguarded against unauthorized or
improper use; and (3) our transactions are properly recorded and reported, all
to permit the preparation of our financial statements in conformity with
generally accepted accounting principles. Our internal controls are evaluated
quarterly by the Company.
Among the matters our CEO and CFO must certify in the Section 302
Certifications are whether all "significant deficiencies" or "material
weaknesses" in the Company's internal controls have been disclosed to the
Company's auditors and the audit committee of the Company's Board of Directors.
In the professional auditing literature, "significant deficiencies" are referred
to as "reportable conditions"; these are control issues that could have a
significant adverse effect on an entity's ability to record, process, summarize
and report financial data in the financial statements. A "material weakness" is
defined in the auditing literature as a particularly serious reportable
condition where the design or operation of one or more internal control
components does not reduce to a relatively low level the risk that misstatements
caused by error or fraud may occur in amounts that would be material in relation
to the financial statements and not be detected within a timely period by
employees in the normal course of performing their assigned functions.
Limitations on the Effectiveness of Controls. The Company's management,
including the CEO and CFO, does not expect that our disclosure controls and
procedures or our internal controls will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, as opposed to absolute, assurance that the objectives of the control
system are
41
met. Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within an entity have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
CEO/CFO Conclusions about the Effectiveness of the Disclosure Controls and
Procedures. Based upon their evaluation of the disclosure controls and
procedures, our CEO and CFO have concluded that, subject to the limitations
noted above, our disclosure controls and procedures are effective to provide
reasonable assurance that material information relating to the Company and its
consolidated subsidiaries is made known to management, including the CEO and
CFO, on a timely basis.
Changes in Internal Controls. There were no significant changes to our
internal controls or in other factors that could significantly affect our
internal controls, subsequent to the date of our last evaluation of our internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(A) FINANCIAL STATEMENTS AND SCHEDULES
The Financial Statements listed below are filed as part of this Annual Report on
Form 10-K.
(1) Financial Statements
PAGE(S)
-------
Report of Deloitte & Touche LLP, Independent Auditors....... 22
Consolidated Balance Sheets -- September 30, 2002 and
2001...................................................... 23
Consolidated Statements of Operations for the years ended
September 30, 2002, 2001 and 2000......................... 24
Consolidated Statements of Stockholders' Equity for the
years ended September 30, 2002, 2001 and 2000............. 25
Consolidated Statements of Cash Flows for the years ended
September 30, 2002, 2001 and 2000......................... 26
Notes to Consolidated Financial Statements.................. 27-39
Supplementary Financial Information -- Selected Quarterly
Financial Data (Unaudited)................................ 40
42
(2) Financial Statement Schedules
The following financial statement schedule should be read in conjunction with
the financial statements and notes thereto included in this report. Schedules
not included below have been omitted because they are not applicable or required
or because the required information is not material or is included in the
financial statements or notes thereto.
The following schedule for the years ended September 30, 2002, 2001 and 2000 is
included in this report:
PAGE
----
Schedule II -- Valuation and Qualifying Accounts............ 49
(B) REPORTS ON FORM 8-K
Uni-Marts, Inc. filed no reports on Form 8-K with the Securities and Exchange
Commission during the last quarter of the fiscal year ended September 30, 2002.
(C) EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of the
Company (Filed as Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the period ended April 4, 2002, File
No. 0-15164, and incorporated herein by reference thereto).
3.2 Amended and Restated By-Laws of the Company (Filed as
Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q
for the period ended April 4, 2002, File No. 0-15164, and
incorporated herein by reference thereto).
4.1 Form of the Company's Common Stock Certificate (Filed as
Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q
for the period ended April 1, 1993, File No. 1-11556, and
incorporated herein by reference thereto).
4.2 Rights Agreement (Filed as Exhibit 4(ii) to the Company's
Registration Statement on Form 8-A/A, filed February 14,
2002, File No. 1-11556, and incorporated herein by reference
thereto).
10.1 Uni-Marts, Inc. Amended and Restated Equity Compensation
Plan (Filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended March 30, 1995 and
incorporated herein by reference thereto).
10.2 Amendment 1998-1 to the Uni-Marts, Inc. Equity Compensation
Plan (Filed as Exhibit 10.10 to the Annual Report of
Uni-Marts, Inc. on Form 10-K for the year ended September
30, 1998 and incorporated herein by reference thereto).
10.3 Uni-Marts, Inc. Retirement Savings & Incentive Plan (Filed
as Exhibit 4.2 to the Company's Registration Statement on
Form S-8, File No. 33-9807, filed on July 10, 1991 and
incorporated herein by reference thereto).
10.4 Amendments 2001-1, 2001-2, and 2001-3 to the Uni-Marts, Inc.
Retirement Savings & Incentive Plan dated December 7, 2001
(Filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the period ended January 3, 2002 and
incorporated herein by reference thereto.)
10.5 Uni-Marts, Inc. Deferred Compensation Plan (Filed as Exhibit
10.8 to the Annual Report of Uni-Marts, Inc. on Form 10-K
for the year ended September 30, 1990, File No. 0-15164, and
incorporated herein by reference thereto).
43
10.6 Uni-Marts, Inc. 1996 Equity Compensation Plan (Filed as
Exhibit A to the Company's Definitive Proxy Statement for
the February 22, 1996 Annual Meeting of Stockholders and
incorporated herein by reference thereto).
10.7 Amendment 2001-1 to the Uni-Marts, Inc. 1996 Equity
Compensation Plan (Filed as Appendix A to the Company's
Definitive Proxy Statement for the February 21, 2002 Annual
Meeting of Stockholders and incorporated herein by reference
thereto).
10.8 Uni-Marts, Inc. Employee Stock Purchase Plan (Filed as
Exhibit A to the Company's Definitive Proxy Statement for
the February 25, 1999 Annual Meeting of Stockholders and
incorporated herein by reference thereto).
10.9 Form of Indemnification Agreement between Uni-Marts, Inc.
and each of its Directors (Filed as Exhibit A to the
Company's Definitive Proxy Statement for the February 25,
1988 Annual Meeting of Stockholders, File No. 0-15164, and
incorporated herein by reference thereto).
10.10 Composite copy of Change of Control Agreement between
Uni-Marts, Inc. and its executive officers dated March 13,
2002. The Senior Vice President, Operations is also a party
to a Change of Control Agreement with the Company dated
March 13, 2002 which is substantially identical to the
agreement between the Company and each of its executive
officers. (Filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the period ended April 4, 2002 and
incorporated herein by reference thereto).
10.11 Composite copy of Change of Control Agreement between the
Company and its Senior Vice President, Facilities
Development and its Senior Vice President, Budgeting and
Planning dated May 28, 2002 (Filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period ended
July 4, 2002 and incorporated herein by reference thereto).
10.12 Amended and Restated Note between Henry D. Sahakian and
Uni-Marts, Inc. dated January 25, 1999 (Filed as Exhibit
10.10 to the Company's Quarterly Report on Form 10-Q for the
period ended April 1, 1999 and incorporated herein by
reference thereto).
10.13 Loan Agreement between FFCA Acquisition Corporation and
Uni-Marts, Inc. dated June 30, 1998 (Filed as Exhibit 10.10
to the Company's Quarterly Report on Form 10-Q for the
period ended July 2, 1998 and incorporated herein by
reference thereto).
10.14 Loan Agreement between FFCA Acquisition Corporation and Uni
Realty of Wilkes Barre, L.P. dated April 21, 2000 (Filed as
Exhibit 20.1 to the Company's Form 8-K filed on May 8, 2000
and incorporated herein by reference thereto).
10.15 Loan Agreement between FFCA Funding Corporation and Uni
Realty of Luzerne, L.P. dated April 21, 2000 (Filed as
Exhibit 20.2 to the Company's Form 8-K filed on May 8, 2000
and incorporated herein by reference thereto).
10.16 Equipment Loan Agreement between FFCA Acquisition
Corporation and Uni-Marts, Inc. dated April 21, 2000 (Filed
as Exhibit 20.3 to the Company's Form 8-K filed on May 8,
2000 and incorporated herein by reference thereto).
10.17 Equipment Loan Agreement between FFCA Funding Corporation
and Uni-Marts, Inc. dated April 21, 2000 (Filed as Exhibit
20.4 to the Company's Form 8-K filed on May 8, 2000 and
incorporated herein by reference thereto).
10.18 Revolving Credit Loan Agreement between Provident Bank and
Uni-Marts, Inc. dated April 20, 2000 (Filed as Exhibit 10.15
to the Company's Quarterly Report on Form 10-Q for the
period ended June 29, 2000 and incorporated herein by
reference thereto).
44
10.19 Amendment to the Revolving Credit Loan Agreement between
Provident Bank and Uni-Marts, Inc. dated January 16, 2001
(Filed as Exhibit 10.17 to the Company's Quarterly Report on
Form 10-Q for the period ended April 5, 2001 and
incorporated herein by reference thereto).
10.20 Amendment to the Revolving Credit Loan Agreement between
Provident Bank and Uni-Marts, Inc. dated March 31, 2001
(Filed as Exhibit 10.18 to the Company's Quarterly Report on
Form 10-Q for the period ended April 5, 2001 and
incorporated herein by reference thereto).
10.21 Third Amendment to the Revolving Credit Loan Agreement
between Provident Bank and Uni-Marts, Inc. dated December
21, 2001 (Filed as Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the period ended January 3, 2002 and
incorporated herein by reference thereto).
10.22 Fourth Amendment to the Revolving Credit Loan Agreement
between Provident Bank and Uni-Marts, Inc. dated September
30, 2002.
10.23 Amended and Restated Transaction Success Bonus Plan dated
October 11, 2002.
11 Statement regarding computation of per share earnings
(loss).
21 Subsidiaries of the registrant.
23 Consent of Deloitte & Touche LLP.
99.1 Report on Form 11-K.
99.2 Section 906 Certification of the Chief Executive Officer.
99.3 Section 906 Certification of the Chief Financial Officer.
(D) SCHEDULES
The schedules listed in Item 14(A) are filed as part of this Annual Report on
Form 10-K.
45
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.
UNI-MARTS, INC.
(Registrant)
By: /s/ HENRY D. SAHAKIAN
------------------------------------
Henry D. Sahakian
Chairman of the Board
(Principal Executive Officer)
By: /s/ N. GREGORY PETRICK
------------------------------------
N. Gregory Petrick
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
(Principal Financial Officer)
Dated: December 20, 2002
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:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ HENRY D. SAHAKIAN Chairman of the Board December 20, 2002
-----------------------------------
Henry D. Sahakian
/s/ M. MICHAEL ARJMAND Director December 20, 2002
-----------------------------------
M. Michael Arjmand
/s/ HERBERT C. GRAVES Director December 20, 2002
-----------------------------------
Herbert C. Graves
/s/ STEPHEN B. KRUMHOLZ Director December 20, 2002
-----------------------------------
Stephen B. Krumholz
/s/ JACK G. NAJARIAN Director December 20, 2002
-----------------------------------
Jack G. Najarian
/s/ FRANK R. ORLOSKI, SR. Director December 20, 2002
-----------------------------------
Frank R. Orloski, Sr.
/s/ ANTHONY S. REGENSBURG Director December 20, 2002
-----------------------------------
Anthony S. Regensburg
/s/ DANIEL D. SAHAKIAN Director December 20, 2002
-----------------------------------
Daniel D. Sahakian
/s/ GEROLD C. SHEA Director December 20, 2002
-----------------------------------
Gerold C. Shea
46
CERTIFICATION
I, Henry D. Sahakian, certify that:
1. I have reviewed this annual report on Form 10-K of Uni-Marts, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ HENRY D. SAHAKIAN
--------------------------------------
Henry D. Sahakian
Chief Executive Officer
Date: December 20, 2002
47
CERTIFICATION
I, N. Gregory Petrick, certify that:
1. I have reviewed this annual report on Form 10-K of Uni-Marts, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ N. GREGORY PETRICK
--------------------------------------
N. Gregory Petrick
Chief Financial Officer
Date: December 20, 2002
48
UNI-MARTS, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS -- DEDUCTIONS -- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE(1) PERIOD
----------- ---------- ---------- ----------- --------------- ----------
YEAR ENDED SEPTEMBER 30, 2002:
Allowance for doubtful accounts.... $225 $11 $ 0 $(110) $126
==== === === ===== ====
YEAR ENDED SEPTEMBER 30, 2001:
Allowance for doubtful accounts.... $226 $35 $ 0 $ (36) $225
==== === === ===== ====
YEAR ENDED SEPTEMBER 30, 2000:
Allowance for doubtful accounts.... $288 $51 $ 0 $(113) $226
==== === === ===== ====
---------------
(1) Specific account or note receivable written off to allowance.
49
UNI-MARTS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
NUMBER DESCRIPTION
------ ------------------------------------------------------------
10.22 Fourth Amendment to the Revolving Credit Loan Agreement
between Provident Bank and Uni-Marts, Inc. dated September
30, 2002.
10.23 Amended and Restated Transaction Success Bonus Plan dated
October 11, 2002.
11 Statement regarding computation of per share earnings (loss)
for the years ended September 30, 2002, 2001 and 2000.
21 Subsidiaries of the registrant.
23 Consent of Deloitte & Touche LLP.
99.1 Report on Form 11-K.
99.2 Section 906 Certification of the Chief Executive Officer.
99.3 Section 906 Certification of the Chief Financial Officer.
50