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, 2001
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:
Name of each exchange
Title of each class 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. [_]
Aggregate market value of the voting stock which consists solely of shares
of common stock held by non-affiliates of the registrant as of December 5,
2001 computed by reference to the closing sale price of the registrant's
common stock on such date: $12,739,694.
7,072,546 shares of Common Stock were outstanding at December 5, 2001.
This Document Contains 45 Pages.
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,
2001, the Company operated 300 convenience stores and Choice Cigarette
Discount Outlets ("Choice") in Pennsylvania, New York, Delaware, Maryland and
Virginia, of which 237 stores sold gasoline. See "Business--Merchandising and
Marketing." Most of the stores are located in small towns and rural locations
where costs of operation are generally lower than in urban areas. The Company
grew primarily through acquisitions and 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 for 77 locations from Amoco,
Exxon, Mobil and Texaco and from other independent suppliers for 159
locations. Gasoline is sold at one 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 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 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
at 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 ample 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. Currently, there
are many external forces exerting pressure on owners of independent and small
convenience store chains such as volatile fuel
2
prices, margin pressures on gasoline and tobacco sales, and increasing
competition. As a result of these forces, there have been and continue to be
significant opportunities for consolidation in the industry.
Recent competitive trends across many retail sectors are having a positive
influence on the convenience store industry as it changes the typical
convenience store's merchandise mix in reaction to market conditions and
customer preferences. In addition, convenience stores compete not only with
other convenience stores, but 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 2001, 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 enhanced its
category maintenance 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. The Company also continues to expand
its proprietary food product lines.
Upgrade Business Process Efficiency. The Company is in the process of
updating its business systems and technology to streamline key business
processes. Completion of this process will 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 to corporate
profitability and will consider underperforming stores for closure or may
invest in facility upgrades to enhance their performance.
In addition, the Company is continuing its emphasis on customer
satisfaction, upgrading retail gasoline facilities and developing stores in
small towns and rural areas.
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 55% 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 alleviate checkout congestion, most of the
Company's products and services are sold on a self-service basis. Most Company
stores provide parking for customers.
Uni-Marts has a merchandising and marketing department, which develops and
implements promotional and advertising programs, sometimes in conjunction with
suppliers. In fiscal year 2001, the Company utilized television, radio,
billboard and newspaper advertising media to generate sales, increase customer
traffic and promote the Company's name and image. The Company maintains an
3
employee training program that emphasizes the importance of service to
customers and the development of merchandising and marketing skills for its
store managers and store personnel.
Convenience Store Merchandise Sales. The Company's 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
emphasized new merchandise products such as prepared foods and proprietary
fast foods to increase sales volume and customer traffic. In addition, the
Company continues to add customer services, such as ATMs, prepaid 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, nachos, and thaw and serve baked goods.
Convenience Store Gasoline Sales. Convenience store operations and
merchandise sales 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, 2001,
the Company had 237 locations offering gasoline, with 141 of these locations
also offering kerosene and 19 offering diesel fuel.
The Company offers Amoco gasoline at 35 locations, Exxon gasoline at 23
locations, Mobil gasoline at 11 locations, Texaco gasoline at 8 locations and
Uni-Mart branded gasoline at 159 locations. One location sells branded
gasoline on a commission basis.
Choice Cigarette Discount Outlets. During fiscal year 2001, the Company
converted 22 underperforming convenience store locations to discount tobacco
stores operating under the name of Choice Cigarette Discount Outlets. At
September 30, 2001, the Company operated 64 Choice stores, with 47 of these
locations offering gasoline. The Company expects to sell gasoline at these
converted locations if gasoline was sold there prior to conversion. Other
convenience store locations will be converted if conditions warrant. In
general, profitability has improved at locations converted to Choice stores
due to lower operating costs.
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 Vice President of
Operations, who oversees the day-to-day operations of the stores. Managers,
supervisors and regional managers are compensated in part through incentive
programs which provide for quarterly bonuses based primarily on 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, 2001, the Company had seven 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 six franchise locations, the Company provides
accounting services, merchandising and advertising assistance, store layout
and design guidance, supplier and product
4
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 franchises except in connection with acquisitions or in
other special circumstances.
Dealers. At September 30, 2001, the Company supplied gasoline to 19 dealers
on a commission basis. Sales at these locations represented approximately 5%
of the Company's gasoline volume in fiscal year 2001.
Seasonality
The Company's business generally has been subject to moderate 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 serviced at least weekly by vendors. The Company does not
distribute products to its stores itself. In order to minimize costs and
facilitate deliveries, the Company utilizes a single wholesale distributor for
most in-store merchandise, pursuant to a four-year supply agreement that
expires in July 2004. The Company believes that it could easily 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 in fiscal 1994, the Company entered into a 10-year
supply agreement with the purchaser which provides for the Company's purchase
of all 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 23% 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 24% of the Company's gasoline volume in
fiscal year 2001. 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, 2001, the Company had installed this back office
system in 91 stores. The Company has budgeted $0.6 million in fiscal year 2002
to expand the back office system to 150 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 are also programmed to identify variances from
5
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. The computer systems are designed to compare
current orders with historical order levels and to reject orders that appear
to be incorrect. Orders 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.
The Company believes that its existing and planned systems and controls can
accommodate significant expansion in the number of Company stores.
Competition
The convenience store industry is highly competitive, fragmented and
regionalized. It is characterized by a few large companies, some medium-sized
companies, such as the Company, 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 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 gasoline sales is based on price and location. The Company
competes primarily with self-service gasoline stations operated by independent
dealers and major oil companies in addition to other convenience stores.
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 2002, 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. The Company has adopted a program to ensure that new gasoline
installations comply with federal and state regulations and that existing
locations are upgraded if required under these regulations. Management
believes that the Company is currently in material compliance with all
applicable federal and state environmental laws and regulations.
6
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 40%, 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.
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, 2001, the Company had approximately 2,650 employees,
approximately 1,200 of whom were full-time. The Company believes that its
employee relations are good. 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, 2001:
Type of Square
Location Ownership Footage Use
-------- --------- ------- ---
State College, PA.... Leased 26,500 Administrative offices
State College, PA.... Owned 5,400 Administrative offices
Oak Hall, PA......... Leased 19,400 Storage facility
Pittsburgh, PA....... Leased 2,700 Regional office and storage facility
Camp Hill, PA........ Leased 3,700 Regional office and storage facility
Bradford, PA......... Leased 500 Regional office
Wilkes-Barre, PA..... Leased 10,900 Regional office
Wilkes-Barre, PA..... Leased 16,000 Maintenance warehouse
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 300 locations, 168 are owned by the Company, nine are
leased from affiliated parties and 123 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
7
is responsible for the payment of insurance, taxes and maintenance. Of the
leased locations, six are subleased to franchisees. The Company also owns two
gasoline service stations, which are leased to unaffiliated operators. As of
September 30, 2001, the Company had one store under construction.
The Company's store leases expire as follows:
Fiscal year of
lease expiration (1) Number of facilities
-------------------- --------------------
2002 8
2003 8
2004 8
2005 5
2006 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.
The Company has generally renewed its leases prior to their expiration.
Where renewals have not been available or the Company otherwise determines to
change location, the Company generally has been able to locate acceptable
alternative facilities.
The lease for the Company's administrative offices in State College,
Pennsylvania expires in December 2010.
Management considers all properties currently in use, owned or leased, to
be in good condition, well-maintained and suitable for current operations.
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 5, 2001, the Company had 7,072,546 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
------- ------- ------- -------
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
2000
Cash Dividends per share....................... $0.00 $0.00 $0.00 $0.00
Price Range:
High.......................................... $1.50 $4.13 $2.81 $2.31
Low........................................... $0.69 $0.75 $1.94 $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 G and H to
the Consolidated Financial Statements included in this report.
At December 5, 2001, the Company had approximately 346 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
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, 2001, 2000 and 1999, and as of September 30, 2001
and 2000, included elsewhere in this report. The data should be read in
conjunction with the financial statements, related notes and other financial
information included elsewhere in this report.
Fiscal Year Ended September 30,
----------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Statements of Operations Data:
Sales and other income by the
Company and its franchisees:
Merchandise sales........... $204,580 $172,209 $146,718 $154,097 $188,936
Gasoline sales.............. 215,796 174,586 103,418 109,425 160,701
Other income................ 1,890 1,909 2,170 2,847 2,563
-------- -------- -------- -------- --------
Total...................... 422,266 348,704 252,306 266,369 352,200
Cost of sales................. 332,003 272,754 185,285 194,704 267,325
-------- -------- -------- -------- --------
Gross profit.................. 90,263 75,950 67,021 71,665 84,875
Selling....................... 66,260 55,334 52,569 54,267 69,271
General and administrative.... 7,264 6,731 7,509 6,981 8,181
Depreciation and
amortization................. 8,140 6,652 5,968 6,388 7,339
Interest...................... 7,797 5,621 3,951 4,042 4,234
Provision for loss on
disposal..................... 0 0 0 0 1,625
Provision for asset
impairment................... 54 160 208 352 1,063
-------- -------- -------- -------- --------
Earnings (loss) before income
taxes, extraordinary item and
cumulative effect of
accounting change............ 748 1,452 (3,184) (365) (6,838)
Income tax provision
(benefit).................... 297 572 (948) (237) (2,262)
-------- -------- -------- -------- --------
Earnings (loss) before
extraordinary item and
cumulative effect of
accounting change............ 451 880 (2,236) (128) (4,576)
Extraordinary item-loss from
debt extinguishment, net of
income tax benefit of $126... 0 0 0 (244) 0
Cumulative effect of
accounting change, net of
income tax benefit of $726... 0 0 0 0 (1,468)
-------- -------- -------- -------- --------
Net earnings (loss)........... $ 451 $ 880 $ (2,236) $ (372) $ (6,044)
======== ======== ======== ======== ========
10
ITEM 6. SELECTED FINANCIAL DATA (Continued)
Fiscal Year Ended September 30,
----------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Earnings (loss) per share
before extraordinary item and
cumulative effect of
accounting change............ $ 0.06 $ 0.13 $ (0.32) $ (0.02) $ (0.69)
Loss per share from
extraordinary item........... 0.00 0.00 0.00 (0.03) 0.00
Loss per share from cumulative
effect of accounting change.. 0.00 0.00 0.00 0.00 (0.22)
-------- -------- -------- -------- --------
Net earnings (loss) per
share........................ $ 0.06 $ 0.13 $ (0.32) $ (0.05) $ (0.91)
======== ======== ======== ======== ========
Dividends per share........... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.06
======== ======== ======== ======== ========
Weighted average shares
outstanding.................. 7,053 6,989 6,887 6,764 6,642
======== ======== ======== ======== ========
Operating Data (Retail
Locations Only):
Average, per store, for stores
open two full years:
Merchandise sales............ $ 648 $ 606 $ 552 $ 492 $ 474
Gasoline sales............... $ 770 $ 754 $ 520 $ 492 $ 526
Gallons of gasoline sold..... 618 635 623 566 496
Gross profit per gallon of
gasoline..................... $ 0.128 $ 0.115 $ 0.103 $ 0.108 $ 0.112
Total gallons of gasoline
sold......................... 174,160 144,924 122,130 123,144 150,005
Store Information:
Company-operated stores....... 293 291 246 265 369
Franchisee-operated stores.... 7 7 10 11 32
Locations with self-service
gasoline..................... 237 237 194 206 299
Balance Sheet Data:
Working capital............... $ 7,229 $ 3,500 $ (541) $ 1,590 $ 727
Total assets.................. 148,631 144,238 88,475 95,009 113,594
Long-term obligations......... 81,273 75,006 34,141 34,322 40,386
Stockholders' equity.......... 29,493 28,968 27,946 30,040 29,547
Supplementary Financial Data:
EBITDA/1/ .................... $ 16,685 $ 13,725 $ 6,735 $ 9,821 $ 3,267
Cash flow from operating
activities/2/ ............... 523 14,344 763 9,339 7,645
--------
(1) 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.
(2) 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.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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. These revenues
increased substantially in fiscal years 2001 and 2000 in comparison to fiscal
year 1999 due to the April 2000 acquisition of 43 convenience stores in
northeastern Pennsylvania and significant increases in the average price per
gallon of gasoline sold. The average price per gallon of gasoline sold in
fiscal year 2001 was 3% higher than in fiscal year 2000. The average price per
gallon of gasoline sold in fiscal year 2000 was 44% higher than in fiscal year
1999. Also, average annual merchandise sales for stores open two full years
increased to $648,000 in fiscal year 2001 from $606,000 in fiscal year 2000
and $552,000 in fiscal year 1999. Average gallons of gasoline sold at the
Company's stores open two full years were 618,000 gallons in fiscal year 2001
compared to 635,000 gallons in fiscal year 2000 and 623,000 gallons in fiscal
year 1999.
Total merchandise sales increased by 18.8% in fiscal year 2001 as compared
to fiscal year 2000. This increase is primarily due to the April 2000
acquisition of 43 stores and increases in tobacco prices, in addition to
increased marketing initiatives and in-store traffic enhancing services.
Cigarette sales represented approximately 40% 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 increased sales of other
merchandise to mitigate the volatility.
The Company sells gasoline at 237 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 unbranded gasoline is purchased from various
sources for 159 locations. Gasoline margins have historically been volatile
and there can be no assurance that the Company's gasoline margins will be
maintained or enhanced by purchasing such products from these sources.
12
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,
-------------------
2001 2000 1999
----- ----- -----
Revenues:
Merchandise sales....................................... 48.5% 49.4% 58.1%
Gasoline sales.......................................... 51.1 50.1 41.0
Other income............................................ 0.4 0.5 0.9
----- ----- -----
Total revenues........................................ 100.0 100.0 100.0
Cost of sales............................................ 78.6 78.2 73.4
----- ----- -----
Gross profit:
Merchandise (as a percentage of merchandise sales)...... 32.3 33.3 35.5
Gasoline (as a percentage of gasoline sales)............ 10.3 9.5 12.5
Total gross profit.................................... 21.4 21.8 26.6
Costs and expenses:
Selling................................................. 15.7 15.9 20.8
General and administrative.............................. 1.7 1.9 3.0
Depreciation and amortization........................... 1.9 1.9 2.4
Interest................................................ 1.9 1.6 1.6
Provision for asset impairment.......................... 0.0 0.0 0.1
----- ----- -----
Total expenses........................................ 21.2 21.3 27.9
----- ----- -----
Earnings (loss) before income taxes...................... 0.2 0.5 (1.3)
Income tax provision (benefit)........................... 0.1 0.2 (0.4)
----- ----- -----
Net earnings (loss)...................................... 0.1% 0.3% (0.9)%
===== ===== =====
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 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.
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 is the result of the sale of an
13
additional 29.2 million gallons by the Company in fiscal year 2001 due to the
April 2000 acquisition. The balance of this increase is 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%, is 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 is 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%, is 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.
Fiscal Year 2000 Compared to Fiscal Year 1999
The Company operated 298 stores at September 30, 2000, including seven
franchised locations and 237 locations with self-service gasoline. During
fiscal year 2000, the Company acquired 44 stores, constructed three stores,
reopened two closed stores and closed seven underperforming stores. Total
revenues in fiscal year 2000 were $348.7 million, an increase of $96.4
million, or 38.2%, compared to total revenues of $252.3 million in fiscal year
1999. This increase was due largely to substantial increases in the number of
stores in operation and the average retail price per gallon of gasoline sold.
Merchandise sales increased from $146.7 million in fiscal year 1999 to
$172.2 million in fiscal year 2000. This increase of $25.5 million, or 17.4%,
was the result of sales at additional stores and an increase in merchandise
sales at comparable stores of 4.7%.
Gasoline sales increased $71.2 million, or 68.8%, to $174.6 million in
fiscal year 2000 from $103.4 million in fiscal year 1999. Over 70% of this
increase was due to a $0.37 increase in the average price per gallon sold at
the Company's stores. The remaining increase was the result of gallons sold at
the additional stores in operation.
Gross profits on merchandise sales were $57.4 million in fiscal year 2000,
an increase of $5.4 million, or 10.4%, in comparison to merchandise gross
profits of $52.0 million in fiscal year 1999. This increase was primarily the
result of higher sales volumes in fiscal year 2000.
14
Gasoline gross profits were $16.6 million in fiscal year 2000 compared to
$12.9 million in fiscal year 1999. This increase of $3.7 million, or 28.9%,
was the result of the sale of 22.8 million additional gallons at the Company's
stores and larger gross profits per gallon of gasoline sold. Approximately 90%
of the increase in gallons sold was due to the additional stores in operation
resulting from the acquisition of the Orloski stores in April 2000.
In fiscal year 2000, selling expenses were $55.3 million, an increase of
$2.8 million, or 5.3%, over fiscal year 1999 selling expenses of $52.6
million. This increase was the result of the higher number of stores in
operation in fiscal year 2000 but reflects lower expense levels per store
resulting from cost controls implemented by the Company. General and
administrative expense declined $778,000, or 10.4%, due largely to fewer
officers employed by the Company in fiscal year 2000. Depreciation and
amortization expense increased by $684,000, or 11.5%, due primarily to the
stores added by the Company in fiscal year 2000. Interest expense increased by
$1.7 million, or 42.3%, due to higher borrowing levels and interest rates. The
Company recorded a $160,000 provision for asset impairment in fiscal year 2000
compared to $208,000 in fiscal year 1999.
The Company had pre-tax earnings of $1.5 million in fiscal year 2000,
compared to a pre-tax loss of $3.2 million in fiscal year 1999, a difference
of $4.7 million. The Company recorded an income tax provision of $572,000 for
the fiscal year 2000 earnings and an income tax benefit of $948,000 for the
fiscal year 1999 loss. Net earnings for fiscal year 2000 were $880,000, or
$0.13 per share, compared to a fiscal year 1999 net loss of $2.2 million, or
$0.32 per share.
15
Seasonality and Unaudited Quarterly Results
The Company's business generally has been subject to moderate 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
have generally been lower than other quarters. In addition, because of price
volatility, gasoline profit margins fluctuate significantly throughout the
year. The acquisition of 43 stores in April 2000 increased sales and operating
expenses for the remainder of fiscal year 2000.
Fiscal Year 2001 Fiscal Year 2000
Quarter Ended Quarter Ended
------------------------------------ ------------------------------------
Jan. 4, April 5, July 5, Sep. 30, Dec. 30, Mar. 30, June 29, Sep. 30,
2001 2001 2001 2001 1999 2000 2000 2000
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data)
Revenues:
Merchandise sales...... $ 50,482 $47,119 $ 53,734 $ 53,245 $36,493 $35,406 $47,998 $ 52,313
Gasoline sales......... 58,459 49,242 58,088 50,007 33,478 32,566 50,755 57,786
Other income........... 677 392 442 379 270 662 433 544
-------- ------- -------- -------- ------- ------- ------- --------
Total revenues....... 109,618 96,753 112,264 103,631 70,241 68,634 99,186 110,643
Cost of sales........... 86,351 76,420 88,434 80,798 53,780 53,310 78,351 87,313
-------- ------- -------- -------- ------- ------- ------- --------
Gross profit............ 23,267 20,333 23,830 22,833 16,461 15,324 20,835 23,330
Costs and expenses:
Selling................ 16,695 16,376 16,827 16,362 12,075 12,347 14,803 16,109
General &
administrative........ 1,871 1,736 2,021 1,636 1,553 1,609 1,624 1,945
Depreciation &
amortization.......... 1,977 2,031 2,056 2,076 1,432 1,447 1,800 1,973
Interest............... 1,936 2,048 1,952 1,861 928 984 1,716 1,993
Provision for asset
impairment............ 0 0 24 30 0 0 56 104
-------- ------- -------- -------- ------- ------- ------- --------
Earnings (loss) before
income taxes and
extraordinary item..... 788 (1,858) 950 868 473 (1,063) 836 1,206
Income tax provision
(benefit).............. 268 (632) 323 338 142 (319) 251 498
-------- ------- -------- -------- ------- ------- ------- --------
Net earnings (loss)..... $ 520 $(1,226) $ 627 $ 530 $ 331 $ (744) $ 585 $ 708
======== ======= ======== ======== ======= ======= ======= ========
Net earnings (loss) per
share.................. $ 0.07 $ (0.17) $ 0.09 $ 0.08 $ 0.05 $ (0.11) $ 0.08 $ 0.10
======== ======= ======== ======== ======= ======= ======= ========
Weighted average shares
outstanding............ 7,036 7,049 7,062 7,065 6,943 6,982 7,008 7,023
======== ======= ======== ======== ======= ======= ======= ========
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 do not generally require
large amounts of working capital. From time to time, the Company utilizes
substantial portions of its cash to acquire and construct new stores and
renovate existing locations.
During fiscal year 2001, the Company amended its revolving loan agreement
to increase the total credit line to $13.0 million from $10.0 million, with
$3.5 million available for letters of credit. At September 30, 2001, $4.2
million were available for borrowing under this agreement. The Company also
increased its mortgage and equipment loans by $5.2 million in the current
fiscal year to finance new store construction.
Capital requirements for debt service and capital leases for fiscal year
2002 are approximately $3.3 million. The Company anticipates capital
expenditures in fiscal year 2002 of $2.5 million, funded from cash flows from
operations. These capital expenditures include remodeling of stores, upgrades
of
16
store equipment and gasoline-dispensing equipment and upgrading of the
Company's data processing systems.
Management believes that cash from operations and the available credit
facilities will be sufficient to meet the Company's obligations for the
foreseeable future.
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.
Forward-Looking Statements
Certain statements contained in this report are forward looking, such as
statements regarding the Company's plans and strategies or future financial
performance. 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 the factors discussed
elsewhere in this report, the Company's actual consolidated quarterly or
annual operating results have been affected in the past, or could be affected
in the future, by additional factors, including, without limitation, general
economic, business and market conditions; environmental, tax and tobacco
legislation or regulation; volatility of gasoline prices, margins and
supplies; merchandising margins; customer traffic; weather conditions; labor
costs and the level of capital expenditures.
17
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, 2001. Notes G, H and I to the consolidated financial
statements should be read in conjunction with the table below (dollar amounts
in thousands).
Fiscal Year of Maturity Total Fair
-------------------------------------- Due At Value at
2002 2003 2004 2005 2006 Thereafter Maturity 9/30/01
------ ------ ------ ------ ------ ---------- -------- --------
Interest-rate sensitive
assets:
Noninterest-bearing
checking accounts..... $4,286 $ 0 $ 0 $ 0 $ 0 $ 0 $ 4,286 $ 4,286
Interest-bearing
checking accounts..... $ 790 $ 0 $ 0 $ 0 $ 0 $ 0 $ 790 $ 790
Average interest rate.. 2.70% 2.70%
------ ------ ------ ------ ------ ------- ------- -------
$5,076 $ 5,076 $ 5,076
0.42% 0.42% --
Interest-rate sensitive
liabilities:
Variable-rate
borrowings............ $1,774 $7,329 $1,692 $1,823 $1,963 $27,600 $42,181 $42,912
Average interest rate.. 6.47% 6.47% 6.38% 6.38% 6.38% 6.38% 6.38% --
Fixed-rate borrowings.. $1,146 $1,121 $1,245 $1,382 $1,532 $35,225 $41,651 $46,755
Average interest rate.. 9.36% 9.36% 9.36% 9.36% 9.36% 9.36% 9.36% --
------ ------ ------ ------ ------ ------- ------- -------
$2,920 $8,450 $2,937 $3,205 $3,495 $62,825 $83,832 $89,667
7.90% 7.92% 8.00% 8.01% 8.03% 8.05% 8.05% --
18
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, 2001 and 2000, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended September 30, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 2001, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Philadelphia, Pennsylvania
November 5, 2001, except for Note G as to which the date is December 5, 2001
19
Uni-Marts, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
September 30,
------------------
2001 2000
-------- --------
ASSETS
Current Assets:
Cash...................................................... $ 5,075 $ 7,882
Accounts receivable--less allowances of $225 and $226..... 7,156 6,106
Inventories............................................... 18,471 16,236
Prepaid and current deferred taxes........................ 1,672 1,856
Property and equipment held for sale...................... 3,137 1,603
Prepaid expenses and other................................ 1,448 1,205
Loan due from officer--current portion.................... 0 60
-------- --------
Total Current Assets................................... 36,959 34,948
Net Property, Equipment and Improvements................... 103,488 100,701
Loan Due from Officer...................................... 420 420
Net Intangible and Other Assets............................ 7,763 8,168
-------- --------
Total Assets........................................... $148,630 $144,237
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 16,239 $ 18,400
Gas taxes payable......................................... 3,360 3,399
Accrued expenses.......................................... 6,820 7,029
Current maturities of long-term debt...................... 2,920 2,233
Current obligations under capital leases.................. 391 386
-------- --------
Total Current Liabilities.............................. 29,730 31,447
Long-Term Debt, less current maturities.................... 80,912 74,220
Obligations under Capital Leases, less current maturities.. 361 786
Deferred Taxes............................................. 2,917 2,956
Deferred Income and Other Liabilities...................... 5,217 5,860
Commitments and Contingencies
Stockholders' Equity:
Common Stock, par value $.10 a share:
Authorized 15,000,000 shares
Issued 7,388,083 and 7,361,123 shares, respectively...... 739 736
Additional paid-in capital................................ 23,833 23,816
Retained earnings......................................... 6,978 6,527
-------- --------
31,550 31,079
Less treasury stock, at cost--323,275 and 333,714 shares
of Common Stock, respectively............................ (2,057) (2,111)
-------- --------
29,493 28,968
-------- --------
Total Liabilities and Stockholders' Equity............. $148,630 $144,237
======== ========
See notes to consolidated financial statements
20
Uni-Marts, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended September 30,
--------------------------
2001 2000 1999
-------- -------- --------
Revenues:
Merchandise sales................................ $204,580 $172,209 $146,718
Gasoline sales................................... 215,796 174,586 103,418
Other income..................................... 1,890 1,909 2,170
-------- -------- --------
422,266 348,704 252,306
-------- -------- --------
Costs and Expenses:
Cost of sales.................................... 332,003 272,754 185,285
Selling.......................................... 66,260 55,334 52,569
General and administrative....................... 7,264 6,731 7,509
Depreciation and amortization.................... 8,140 6,652 5,968
Interest......................................... 7,797 5,621 3,951
Provision for asset impairment................... 54 160 208
-------- -------- --------
421,518 347,252 255,490
-------- -------- --------
Earnings (loss) before income taxes............... 748 1,452 (3,184)
Income tax provision (benefit).................... 297 572 (948)
-------- -------- --------
Net earnings (loss)............................... $ 451 $ 880 $ (2,236)
======== ======== ========
Basic earnings (loss) per share................... $ 0.06 $ 0.13 $ (0.32)
======== ======== ========
Diluted earnings (loss) per share................. $ 0.06 $ 0.13 $ (0.32)
======== ======== ========
Weighted average number of common shares
outstanding...................................... 7,053 6,989 6,887
======== ======== ========
Weighted average number of common shares
outstanding assuming dilution.................... 7,093 7,021 6,887
======== ======== ========
See notes to consolidated financial statements
21
Uni-Marts, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share data)
Common Stock
Par Value
$.10 a Share
Authorized 15,000,000
Shares Additional Treasury Stock
--------------------- Paid-In Retained ----------------
Shares Amount Capital Earnings Shares Amount
------------- ------ ---------- -------- ------- -------
Balance--October 1,
1998................... 7,316,797 $732 $24,189 $7,883 455,545 $(2,763)
Purchase of treasury
stock................. 4,119 (9)
Issuance of common
stock................. 10,291 1 (159) (58,702) 308
Net loss............... (2,236)
------------- -------- ------- ------ ------- -------
Balance--September 30,
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)
============= ======== ======= ====== ======= =======
See notes to consolidated financial statements
22
Uni-Marts, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended September 30,
-------------------------------
2001 2000 1999
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others...... $ 418,400 $ 348,513 $ 250,706
Cash paid to suppliers and employees......... (410,275) (329,222) (247,105)
Dividends and interest received.............. 77 108 112
Interest paid (net of capitalized interest of
$287, $32 and $0)........................... (7,527) (5,100) (3,641)
Income taxes (paid) received................. (152) 45 691
--------- --------- ---------
Net Cash Provided by Operating Activities.. 523 14,344 763
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business...................... 0 (42,745) 0
Receipts from sale of capital assets......... 394 993 2,313
Purchase of property, equipment and
improvements................................ (10,402) (7,036) (4,800)
Note receivable from officer................. 60 60 111
Cash advanced for intangible and other
assets...................................... (207) (191) (509)
Cash received for intangible and other
assets...................................... 66 633 239
--------- --------- ---------
Net Cash Used in Investing Activities...... (10,089) (48,286) (2,646)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on revolving credit
agreement................................... 4,615 (656) 0
Additional long-term borrowings.............. 5,197 42,238 721
Payments on line of credit................... 0 0 (1,700)
Principal payments on debt................... (3,065) (1,710) (1,026)
Purchases of treasury stock.................. 0 0 (9)
Proceeds from issuance of common stock....... 12 8 3
--------- --------- ---------
Net Cash Provided by (Used in)
Financing Activities...................... 6,759 39,880 (2,011)
--------- --------- ---------
Net (Decrease) Increase in Cash............... (2,807) 5,938 (3,894)
Cash at Beginning of Year..................... 7,882 1,944 5,838
--------- --------- ---------
Cash at End of Year........................... $ 5,075 $ 7,882 $ 1,944
========= ========= =========
23
Uni-Marts, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Continued)
Year Ended September 30,
----------------------------
2001 2000 1999
-------- -------- --------
RECONCILIATION OF NET EARNINGS (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Earnings (Loss).............................. $ 451 $ 880 $ (2,236)
Adjustments to Reconcile Net Earnings (Loss) to
Net Cash Provided by Operating Activities:
Depreciation and amortization.................. 8,140 6,652 5,968
Provision for asset impairment................. 54 160 208
Loss (gain) on sale of capital assets and
other......................................... 405 197 (378)
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable.......................... (1,050) (3,574) (229)
Tax refunds receivable....................... 0 0 1,416
Inventories.................................. (2,235) (4,498) (1,109)
Prepaid expenses and other................... (2,334) 24 (171)
Increase (decrease) in:
Accounts payable and accrued expenses........ (2,201) 10,455 (376)
Deferred income taxes and other liabilities.. (707) 4,048 (2,330)
-------- -------- --------
Total Adjustments to Net Earnings (Loss)....... 72 13,464 2,999
-------- -------- --------
Net Cash Provided by Operating Activities........ $ 523 $ 14,344 $ 763
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING
ACTIVITY:
Liabilities Assumed in Acquisition............... $ 0 $ 2,500 $ 0
Fixed Assets Acquired Under Capital Leases....... $ 0 $ 426 $ 0
See notes to consolidated financial statements
24
Uni-Marts, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999
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) 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 C).
(3) 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. The amount of interest capitalized in fiscal years 2001
and 2000 was $287,200 and $31,900, respectively. No interest was
capitalized in fiscal year 1999.
(4) Asset Impairment -- Long-lived assets and certain identifiable
intangibles are reviewed for impairment 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. The Company recorded provisions of $54,200 (2001), $159,800
(2000) and $208,300 (1999) for asset impairment for certain real
estate, leasehold improvements, store and gasoline equipment and
goodwill at certain closed or underperforming stores.
(5) 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% (2001) and 7.0% (2000), using actuarial valuations provided by
independent companies. At September 30, 2001 and 2000, the Company had
self-insurance reserves totaling $2,719,600 and $2,678,800,
respectively.
(6) 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.
(7) Earnings Per Share -- Earnings per share for the years ended September
30, 2001, 2000 and 1999 were 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 576,441 shares outstanding
in fiscal year 1999, they were not included as the effect was
antidilutive.
25
A. Summary of Significant Accounting Policies (Continued):
(8) Advertising Costs -- The Company expenses advertising costs in the
period in which they are incurred. The Company incurred advertising
costs of $841,800, $1,228,000 and $1,894,600 in fiscal years 2001,
2000 and 1999, respectively.
(9) 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.
(10) Segment Disclosures -- In fiscal year 1999, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 131
"Disclosures about Segments of an Enterprise and Related Information."
The Company has only one reportable segment.
(11) New Accounting Pronouncements -- In fiscal year 2001, the Company
adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement, as amended by SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date Of FASB Statement No. 133," and SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities," requires that an entity recognize all derivatives
as assets or liabilities on the balance sheet and measure those
instruments at fair value. The adoption of this standard had no effect
on the Company's financial statements.
In fiscal year 2001, the Company also adopted SFAS Nos. 140 and 141.
SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," was effective for all
transfers and extinguishments occurring after March 31, 2001. SFAS No.
141, "Business Combinations," requires that all business combinations
be accounted for by the purchase method, requires recognition of
intangible assets apart from goodwill if they meet one of two
criteria, and provides for additional financial statement disclosures
regarding business combinations. This statement applies to all
business combinations initiated after June 30, 2001. Adoption of these
two statements had no effect on the Company's financial statements.
In June 2001, the Financial Accounting Standards Board issued SFAS
Nos. 142 and 143 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. The Company is not
required to adopt this accounting standard until fiscal year 2003. At
this time, the Company has not determined the impact this standard
will have on the Company's financial statements.
SFAS No. 143, "Accounting for Asset Retirement Obligations," is not
applicable to the Company since the Company has no obligations of this
type. 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 required to adopt SFAS No. 144 in fiscal year
2003. At this time, the Company has not determined the impact this
standard will have on the Company's financial statements.
26
B. Business Acquisition:
In April 2000, pursuant to an asset purchase agreement (the "Purchase
Agreement") the Company purchased the operating assets of Orloski Service
Station, Inc. and its owners (collectively "OSSI") for approximately $41.2
million in cash. In September 2000, the Company purchased an additional OSSI
property in accordance with the Purchase Agreement for approximately $1.5
million in cash. The transaction was accounted for as a purchase, and
accordingly, operations of the acquired OSSI assets are included in the
consolidated financial statements from the date of acquisition. The Company
also assumed a $2.5 million agreement with a gasoline supplier for partial
funding of gasoline equipment which is included in deferred income and other
liabilities on the balance sheet and is being amortized into income as gallons
are purchased and sold. If the Company terminates this agreement before
December 31, 2008, this funding, in addition to the funding previously made to
OSSI, must be repaid to the supplier. Goodwill of $3.2 million was acquired in
connection with the acquisition and is being amortized on a straight-line
basis over fifteen years.
The following table summarizes, on an unaudited pro-forma basis, the estimated
combined statements of operations for the fiscal years ended September 30,
2000 and September 30, 1999 as though the acquisition took place on October 1,
1998. This pro-forma information does not purport to be indicative of the
results of operations that would have been obtained if the acquisition had
occurred on October 1, 1998 (in thousands, except per share data).
Fiscal Year Ended
September 30,
-----------------
2000 1999
-------- --------
Revenues.............................................. $397,059 $330,018
Net earnings (loss)................................... $ 858 $ (1,213)
Net earnings (loss) per share......................... $ 0.12 $ (0.18)
C. Inventories:
The following is a summary of inventories at September 30 (in thousands):
2001 2000
-------- --------
Merchandise........................................... $ 15,636 $ 12,684
Gasoline.............................................. 2,835 3,552
-------- --------
$ 18,471 $ 16,236
======== ========
D. Property and Equipment Held for Sale:
Property held for sale is carried at the lower of cost or net realizable
value. The properties and equipment have been classified as current assets
because the Company expects the properties and equipment to be sold within the
next fiscal year. The properties are undeveloped land, rental properties,
store equipment and closed convenience stores. Also included at September 30,
2001 are properties and equipment totaling $2,091,500 which were pending
completion of lease arrangements (See Note M).
27
E. Property, Equipment and Improvements--at cost (in thousands):
Accumulated Net Book Estimated Life
Cost Depreciation Value in Years
-------- ------------ -------- --------------
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
======== ======= ========
September 30, 2000:
Land............................ $ 21,629 $ 0 $ 21,629
Buildings....................... 65,992 16,587 49,405 29-35
Machinery and equipment......... 43,798 24,353 19,445 3-10
Machinery and equipment......... 6,569 3,464 3,105 11-20
Capitalized property and
equipment leases............... 1,879 751 1,128 5-25
Leasehold improvements.......... 11,213 8,167 3,046 1-10
Leasehold improvements.......... 434 360 74 11-20
Construction in progress........ 2,869 0 2,869
-------- ------- --------
$154,383 $53,682 $100,701
======== ======= ========
Depreciation expense in fiscal years 2001, 2000 and 1999 was $7,677,100,
$6,306,600 and $5,700,700, respectively, including the amortization of
capitalized property and equipment leases.
F. Intangible and Other Assets:
Intangible and other assets consist of the following (in thousands):
Net
Accumulated Book Useful
Cost Amortization Value Lives
------- ------------ ------ ------
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
Other assets................................ 1,074 0 1,074
------- ------ ------
$10,703 $2,940 $7,763
======= ====== ======
For the year ended September 30, 2000:
Goodwill.................................... $ 8,874 $2,240 $6,634 13-40
Lease acquisition costs..................... 439 335 104 12-25
Noncompete agreements....................... 250 21 229 5
Other intangibles........................... 175 5 170 15-16
Other assets................................ 1,031 0 1,031
------- ------ ------
$10,769 $2,601 $8,168
======= ====== ======
28
F. Intangible and Other Assets (Continued):
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.
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 $462,600 (2001), $345,800 (2000) and $267,500 (1999).
G. 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. During the second quarter of fiscal year 2001, the Company
amended the Agreement to increase the total credit line to $13.0 million, with
$3.5 million available for letters of credit, and amend certain financial
covenants. 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. The Company was in compliance with these covenants as of September
30, 2001. At September 30, 2001, $4.2 million were available for borrowings
under the Agreement. This Agreement expires on April 20, 2003. Borrowings of
$5.8 million and letters of credit of $3.0 million were outstanding at
September 30, 2001. 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, 2001 was 7.0%. The Agreement is collateralized by substantially
all of the Company's eligible inventories and eligible receivables and
selected properties. The net book value of these selected properties at
September 30, 2001 was $2,456,200. On December 5, 2001, the Company received a
commitment to amend this Agreement to extend the maturity date to April 20,
2004 and amend certain covenant provisions.
29
H. Long-Term Debt:
September 30,
---------------
2001 2000
------- -------
(In thousands)
Mortgage Loan. Principal and interest will be paid in 204
remaining monthly installments. At September 30, 2001, the
coupon rate was 9.08% and the effective interest rate was
9.78%, net of unamortized fees of $1,329,757 ($1,425,995 in
2000)........................................................ $32,331 $33,047
Mortgage Loan. Principal and interest will be paid in 225
remaining monthly installments. The loan bears interest at
LIBOR plus 3.75%. At September 30, 2001, the coupon rate was
7.37% and the effective interest rate was 9.70%, net of
unamortized fees of $403,779 ($437,653 in 2000).............. 21,249 21,804
Mortgage Loan. Principal and interest will be paid in 225
remaining monthly installments. At September 30, 2001, the
coupon rate was 10.39% and the effective interest rate was
10.70%, net of unamortized fees of $124,901 ($135,298 in
2000)........................................................ 6,628 6,730
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, 2001, the blended coupon rate was 7.90% and the
effective interest rate was 9.36%, net of unamortized fees of
$151,688 ($0 in 2000)........................................ 7,496 3,466
Revolving Credit Agreement. Interest is paid monthly. The
interest rate at September 30, 2001 was 7.00%. (See Note G).. 5,758 1,144
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, 2001, the
blended coupon rate was 7.37% and the effective interest rate
was 9.57%, net of unamortized fees of $174,996 ($176,414 in
2000)........................................................ 9,375 9,028
Equipment Loan. Principal and interest will be paid in 106
remaining monthly installments. The loan expires in 2010. At
September 30, 2001, the coupon rate was 10.73% and the
effective interest rate was 11.20%, net of unamortized fees
of $17,124 ($20,713 in 2000)................................. 995 1,059
Equipment Loan. The loan was repaid in fiscal year 2001....... 0 175
------- -------
83,832 76,453
Less current maturities....................................... 2,920 2,233
------- -------
$80,912 $74,220
======= =======
The mortgage loans are collateralized by $70,489,700 of property, at net book
value, and the equipment loans are collateralized by $5,741,700 of equipment,
at net book value.
30
H. 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,
2002............................................................. $ 2,920
2003............................................................. 8,450
2004............................................................. 2,937
2005............................................................. 3,205
2006............................................................. 3,495
Thereafter....................................................... 62,825
-------
$83,832
=======
In April and September 2000, the Company, through special purpose consolidated
entities, completed 20-year mortgage loans with Franchise Finance Corporation
of America ("FFCA") aggregating $33.5 million and a $7.5 million equipment
loan to finance the purchase of assets from OSSI.
Certain provisions of the loan agreements with FFCA require the Company's
maintenance of a minimum net worth of $20.0 million and aggregate fixed charge
ratios, both measured on an annual basis. The Company was in compliance with
these covenants as of September 30, 2001. These covenants may have the effect
of restricting the Company's ability to declare and pay dividends on its
common stock.
I. 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 carrying amounts plus
unamortized loan fees associated with the debt.
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, September 30,
2001 2000
---------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
Long-term debt......................... $83,832 $89,667 $76,453 $79,942
Obligations under capital leases....... 752 797 1,172 1,222
J. 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.
31
J. Deferred Income and Other Liabilities (Continued):
Deferred income and other liabilities includes the following (in thousands):
September 30,
-------------
2001 2000
------ ------
Deferred income............................................ $5,064 $5,774
Deferred compensation...................................... 82 28
Other noncurrent liabilities............................... 71 58
------ ------
$5,217 $5,860
====== ======
K. Commitments and Contingencies:
(1) Leases -- The Company leases its corporate headquarters, 132 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, 2001 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 $876,300 in 2001, $811,900 in
2000 and $549,100 in 1999.
Capital Operating Rental
Leases Leases Income
------- --------- ------
(In thousands)
2002............................................. $456 $ 4,919 $ 834
2003............................................. 180 4,414 640
2004............................................. 140 3,116 491
2005............................................. 31 2,248 385
2006............................................. 31 1,551 198
Thereafter....................................... 52 5,289 401
---- ------- ------
Total future minimum lease payments.............. 890 $21,537 $2,949
======= ======
Less amount representing interest................ 138
----
Present value of future payments................. 752
Less current maturities.......................... 391
----
$361
====
Rental expense under operating leases was as follows (in thousands):
Year Ended
September 30,
--------------------
2001 2000 1999
------ ------ ------
Minimum rentals....................................... $5,287 $4,481 $4,539
Contingent rentals.................................... 39 47 45
------ ------ ------
$5,326 $4,528 $4,584
====== ====== ======
(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 average base
annual compensation over the preceding five years, or the actual number of
years if less than five, if his employment is terminated due to a change
of control as defined in the
32
K. Commitments and Contingencies (Continued):
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, 2001, the total funding subject to these arrangements
is $6,917,600. 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.
L. Income Taxes:
The provision for income taxes includes the following (in thousands):
Year Ended
September 30,
------------------
2001 2000 1999
---- ---- -------
Current tax expense (credit):
Federal............................................. $ 0 $ 0 $ 0
State............................................... 2 2 (18)
---- ---- -------
2 2 (18)
---- ---- -------
Deferred tax expense (credit):
Federal............................................. 388 550 (1,020)
State............................................... (93) 20 90
---- ---- -------
295 570 (930)
---- ---- -------
$297 $572 $ (948)
==== ==== =======
The tax provision for fiscal year 2001 includes the benefit of net operating
loss carryforwards of $2,652,700 for federal income tax purposes and $743,100
for state income tax purposes. During fiscal year 1999, the Company received
tax refunds of approximately $753,700 resulting from the filing of its tax
returns for fiscal years 1998 and 1997.
33
L. Income Taxes (Continued):
Deferred tax liabilities (assets) are comprised of the following at September
30 (in thousands):
2001 2000 1999
------- ------- -------
Depreciation................................... $ 7,361 $ 6,743 $ 6,087
------- ------- -------
Gross deferred tax liabilities................. 7,361 6,743 6,087
------- ------- -------
Insurance reserves............................. (1,100) (1,128) (1,212)
Change in accounting method.................... 0 (222) (444)
Capital leases................................. 60 (9) (80)
Deferred compensation.......................... (33) (12) (23)
Deferred income................................ (1,078) (1,365) (877)
Net operating loss carryforward................ (3,440) (2,516) (3,098)
Other.......................................... (450) (400) (279)
------- ------- -------
Gross deferred tax assets...................... (6,041) (5,652) (6,013)
Less valuation allowance....................... 45 25 453
------- ------- -------
Net deferred tax assets........................ (5,996) (5,627) (5,560)
------- ------- -------
$ 1,365 $ 1,116 $ 527
======= ======= =======
The financial statements include noncurrent deferred tax liabilities of
$2,916,900 and $2,956,300 in 2001 and 2000, respectively, and current deferred
tax assets of $1,552,000 and $1,840,300 which are included in prepaid and
current deferred taxes.
A reconciliation of the provision for income taxes to an amount determined by
application of the statutory federal income tax rate follows (in thousands):
Year Ended September 30,
---------------------------
2001 2000 1999
------- ------- ---------
Statutory rate.............................. $ 254 $ 494 $ (1,083)
Increase (decrease) resulting from:
Tax credits................................ 45 1 0
Nondeductible items........................ 66 61 69
State taxes (net).......................... (60) 15 60
Other (net)................................ (8) 1 6
------- ------- --------
Tax provision (benefit)..................... $ 297 $ 572 $ (948)
======= ======= ========
M. Related Party Transactions:
During fiscal year 1997, the Company granted a loan of $800,000 to the
Company's Chairman of the Board and Chief Executive Officer. In January 1999,
the interest rate on the loan changed to the brokerage call rate plus 0.5%
(5.25% at September 30, 2001). The loan requires payments of $60,000 plus
interest on November 1, 1999, 2000, 2001, 2002 and 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 and 73,000 shares of the common stock of
Unico Corporation. The balance of this loan at September 30, 2001 was
$420,000.
34
M. Related Party Transactions (Continued):
Certain directors and officers of the Company are also directors, officers and
controlling shareholders of Unico Corporation ("Unico"), formerly the
Company's parent, and other affiliated companies. The following is a summary
of significant transactions with these entities:
(1) The Company leases three stores and certain other locations from Unico
and leases its corporate headquarters and six additional locations from
affiliates of Unico under agreements classified as operating leases.
Aggregate rentals in connection with these leases were $666,600 (2001),
$594,500 (2000) and $646,300 (1999). Certain lease agreements made with
Unico and an affiliate in fiscal year 2001 were completed in the first
two months of fiscal year 2002.
(2) The Company charges an affiliate of Unico for general and
administrative services provided. Such charges amounted to $11,200
(2001), $11,500 (2000) and $12,300 (1999).
The Company received commissions from TeleBeam Incorporated ("TeleBeam") for
coin-operated telephones installed at convenience store locations and for the
sale of prepaid telephone cards. Payments received from TeleBeam were $226,300
(2001), $171,600 (2000) and $213,900 (1999). The Company also made payments to
TeleBeam for discounted prepaid telephone cards and telephone service.
Payments made to TeleBeam were $1,226,200 (2001), $1,187,800 (2000) and
$1,199,600 (1999). Until its sale in January 2000, the majority of the stock
of TeleBeam was beneficially owned or controlled by persons related to the
Company's Chairman and Chief Executive Officer.
The Company made payments of approximately $79,200, $80,100 and $81,000 to a
director of the Company during fiscal years 2001, 2000 and 1999, respectively,
for consulting fees and reimbursement of expenses.
N. 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 $108,300
(2001), $98,100 (2000) and $96,600 (1999).
O. Deferred Compensation Plan:
The Company has a nonqualified deferred compensation plan which permits key
executives to elect annually (via individual contracts) to defer a portion of
their compensation until their retirement, death or disability. The Company
makes a 50% matching contribution not exceeding $5,000 annually per executive.
The deferred compensation expense was $16,200, $27,900 and $21,300 for the
years ended September 30, 2001, 2000 and 1999, respectively.
The Company has recorded the liabilities for the deferred compensation plan in
the consolidated balance sheets because such liabilities belong to the Company
rather than to any plan or trust. The liabilities of $81,800 and $28,100 at
September 30, 2001 and 2000, respectively, includes employee deferrals,
accrued earnings and matching contributions of the Company. The liability
amount is included in deferred income and other liabilities.
35
P. 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 67,250 shares of
common stock which can be issued in accordance with the terms of the Equity
Compensation Plan and 930,317 shares of common stock which can be issued 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" below.
A committee of the Board of Directors has authority to administer the Plans,
and the committee may grant qualified 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. 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 32,500, 33,000 and 14,000 shares of common stock
to nonemployee directors under the Plans during fiscal years 2001, 2000 and
1999, respectively. The Company also issued 19,850, 27,775 and 8,695 shares of
common stock to nonemployee directors during fiscal years 2001, 2000 and 1999,
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 various vesting schedules.
36
P. Equity Compensation Plans (Continued):
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
Exercise Average
Price Remaining
Outstanding Exercise Price Per Contractual
Options Per Share Share Life
----------- -------------- -------- -----------
Balance, October 1, 1998........... 536 $2.50 to $8.50 $4.70
Granted............................ 156 $1.38 to $2.89 $1.52
Canceled........................... (116) $3.13 to $7.00 $4.50
----
Balance, September 30, 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
====
805 $1.13 to $3.75 $2.27 8.1 years
84 $3.76 to $6.13 $5.40 3.7 years
56 $6.14 to $8.50 $6.74 3.7 years
----
945 $1.13 to $8.50 $2.81 7.4 years
====
Exercisable at September 30, 2001.. 463 $1.13 to $8.50 $3.38
====
Balance of Shares Reserved for
Grant at September 30, 2001....... 52
====
The weighted average fair value of the stock options granted during fiscal
years 2001, 2000 and 1999 were $1.84, $1.54 and $1.03, 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, (in thousands):
2001 2000 1999
---- ---- ----
Risk-free interest rate.................................... 4.6% 5.8% 5.9%
Expected volatility........................................ 86.0% 69.6% 52.2%
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.............................. $475 $469 $161
37
P. Equity Compensation Plans (Continued):
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 123), the Company's pro forma
net earnings (loss) and earnings (loss) per share for the fiscal years ended
September 30, 2001, 2000 and 1999 would have been as follows (in thousands,
except per share data):
2001 2000 1999
----- ----- -------
Net earnings (loss):
As reported.......................................... $ 451 $ 880 $(2,236)
Pro forma............................................ $ 441 $ 867 $(2,243)
Basic earnings (loss) per share:
As reported.......................................... $0.06 $0.13 $ (0.32)
Pro forma............................................ $0.06 $0.12 $ (0.33)
Diluted earnings (loss) per share:
As reported.......................................... $0.06 $0.13 $ (0.32)
Pro forma............................................ $0.06 $0.12 $ (0.33)
Q. 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 2001, 2000 and 1999, employees purchased 7,110, 6,260 and 2,004
shares, respectively, pursuant to the stock purchase plan.
38
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, 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
======== ======= ======== ========
Year Ended September 30, 2000
Revenues................................... $ 70,241 $68,634 $ 99,186 $110,643
Gross Profits.............................. 16,461 15,324 20,835 23,330
Net Earnings (Loss)........................ $ 331 $ (744) $ 585 $ 708
======== ======= ======== ========
Net Earnings (Loss) Per Share.............. $ 0.05 $ (0.11) $ 0.08 $ 0.10
======== ======= ======== ========
39
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, 2001, the end of the fiscal year
covered by this report.
40
PART IV
ITEM 14. 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.............. 19
Consolidated Balance Sheets--September 30, 2001 and 2000........... 20
Consolidated Statements of Operations for the years ended September
30, 2001, 2000 and 1999........................................... 21
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 2001, 2000 and 1999................................. 22
Consolidated Statements of Cash Flows for the years ended September
30, 2001, 2000 and 1999........................................... 23-24
Notes to Consolidated Financial Statements......................... 25-38
Supplementary Financial Information--Selected Quarterly Financial
Data (Unaudited).................................................. 39
(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, 2001, 2000 and 1999
is included in this report:
Page
----
Schedule II -- Valuation and Qualifying Accounts........................ 45
(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,
2001.
41
(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
March 30, 1995, File No. 0-15164, and incorporated herein by reference thereto).
3.2 By-Laws of the Company (Filed as Exhibit 3.2 to the Company's Quarterly Report on
Form 10-Q for the period ended March 30, 1995, 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).
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 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).
10.3 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).
10.4 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).
10.5 Composite copy of Change of Control Agreements between Uni-Marts, Inc. and its
executive officers (Filed as Exhibit 10.10 to the Annual Report of Uni-Marts,
Inc. on Form 10-K for the year ended September 30, 1994 and incorporated herein
by reference thereto).
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 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).
10.8 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).
10.9 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).
10.10 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).
42
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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).
10.16 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).
10.17 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).
11 Statement regarding computation of per share earnings (loss).
21 Subsidiaries of the registrant.
23 Consent of Deloitte & Touche LLP.
99 Report on Form 11-K.
(D) Schedules
The schedules listed in Item 14(A) are filed as part of this Annual Report on
Form 10-K.
43
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)
/s/ Henry D. Sahakian
By: _________________________________
Henry D. Sahakian
Chairman of the Board
(Principal Executive Officer)
/s/ N. Gregory Petrick
By: _________________________________
N. Gregory Petrick
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
(Principal Financial Officer)
Dated: December 21, 2001
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 21, 2001
______________________________________
Henry D. Sahakian
/s/ M. Michael Arjmand Director December 21, 2001
______________________________________
M. Michael Arjmand
/s/ Herbert C. Graves Director December 21, 2001
______________________________________
Herbert C. Graves
/s/ Stephen B. Krumholz Director December 21, 2001
______________________________________
Stephen B. Krumholz
/s/ Jack G. Najarian Director December 21, 2001
______________________________________
Jack G. Najarian
/s/ Frank R. Orloski, Sr. Director December 21, 2001
______________________________________
Frank R. Orloski, Sr.
/s/ Anthony s. Regensburg Director December 21, 2001
______________________________________
Anthony S. Regensburg
/s/ Daniel D. Sahakian Director December 21, 2001
______________________________________
Daniel D. Sahakian
/s/ Gerold C. Shea Director December 21, 2001
______________________________________
Gerold C. Shea
44
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,
2001:
Allowance for doubtful
accounts............... $226 $35 $0 $ (36) $225
==== === === ===== ====
YEAR ENDED SEPTEMBER 30,
2000:
Allowance for doubtful
accounts............... $288 $51 $0 $(113) $226
==== === === ===== ====
YEAR ENDED SEPTEMBER 30,
1999:
Allowance for doubtful
accounts............... $385 $59 $0 $(156) $288
==== === === ===== ====
--------
(1) Specific account or note receivable written off to allowance.
45
Uni-Marts, Inc. and Subsidiaries
EXHIBIT INDEX
Number Description
------ -----------
11 Statement regarding computation of per share earnings (loss) for the
years ended September 30, 2001, 2000 and 1999.
21 Subsidiaries of the registrant.
23 Consent of Deloitte & Touche LLP.
99 Report on Form 11-K.
46