UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 1, 2004
[ ] 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
STATE COLLEGE, PA 16801-5690
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (814)234-6000
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
7,202,979 Common Shares were outstanding at January 29, 2004.
This Document Contains 30 Pages
-1-
UNI-MARTS, INC. AND SUBSIDIARIES
INDEX
PAGE(S)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
January 1, 2004 and September 30, 2003 3-4
Condensed Consolidated Statements of Operations -
Quarters Ended January 1, 2004 and January 2, 2003 5
Condensed Consolidated Statements of Cash Flows -
Quarters Ended January 1, 2004 and January 2, 2003 6-7
Notes to Condensed Consolidated Financial Statements 8-17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18-24
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 25
Item 4. Controls and Procedures 26-27
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 28
Signatures 29
Exhibit Index 30
-2-
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
UNI-MARTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
JANUARY 1, SEPTEMBER 30,
2004 2003
----------- -------------
ASSETS
CURRENT ASSETS:
Cash $ 5,185 $ 6,619
Accounts receivable - less allowances of $116 and $100,
respectively 5,664 6,186
Inventories 19,195 20,167
Prepaid and current deferred taxes 41 57
Property and equipment held for sale 40,496 41,024
Prepaid expenses and other 1,029 1,317
----------- -----------
TOTAL CURRENT ASSETS 71,610 75,370
NET PROPERTY, EQUIPMENT AND
IMPROVEMENTS 50,386 51,083
NET INTANGIBLE ASSETS 287 385
OTHER ASSETS 1,111 1,123
----------- -----------
TOTAL ASSETS $ 123,394 $ 127,961
=========== ===========
(Continued)
-3-
UNI-MARTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(CONTINUED)
(UNAUDITED)
JANUARY 1, SEPTEMBER 30,
2004 2003
----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,245 $ 19,101
Accrued expenses 7,217 7,425
Revolving credit agreement 7,875 5,705
Current maturities of long-term debt 35,853 36,934
Current obligations under capital leases 94 122
----------- -----------
TOTAL CURRENT LIABILITIES 64,284 69,287
LONG-TERM DEBT, less current maturities 34,398 34,358
OBLIGATIONS UNDER CAPITAL LEASES,
less current maturities 88 92
DEFERRED REVENUE AND OTHER LIABILITIES 3,780 4,101
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $1.00 per share:
Authorized 100,000 shares; issued none 0 0
Common Stock, par value $.10 per share:
Authorized 16,000,000 shares;
issued 7,454,383 and 7,453,883 shares, respectively 745 745
Additional paid-in capital 23,685 23,709
Retained deficit (1,908) (2,618)
----------- -----------
22,522 21,836
Less treasury stock, at cost - 251,404 and
258,110 shares of Common Stock, respectively (1,678) (1,713)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 20,844 20,123
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 123,394 $ 127,961
=========== ===========
See notes to condensed consolidated financial statements
-4-
UNI-MARTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
QUARTER ENDED
JANUARY 1, JANUARY 2,
2004 2003
----------- -----------
Revenues:
Merchandise sales $ 36,262 $ 35,799
Gasoline sales 44,741 34,858
Other income 310 418
----------- -----------
81,313 71,075
----------- -----------
Costs and expenses:
Cost of sales 66,750 56,555
Selling 10,022 10,225
General and administrative 2,197 1,901
Depreciation and amortization 1,082 1,113
Interest 889 921
----------- -----------
80,940 70,715
----------- -----------
Earnings from continuing operations before income taxes
and change in accounting principle 373 360
Income tax provision 1 19
----------- -----------
Earnings from continuing operations
before change in accounting principle 372 341
Discontinued operations:
Earnings (loss) from discontinued operations 337 (806)
Income tax provision (benefit) 0 (43)
----------- -----------
Earnings (loss) on discontinued operations 337 (763)
Cumulative effect of change in accounting principle,
net of income tax benefit of $310 0 (5,547)
----------- -----------
Net earnings (loss) $ 709 ($ 5,969)
=========== ===========
Earnings (loss) per share:
Earnings per share from continuing operations
Before change in accounting principle $ 0.05 $ 0.05
Earnings (loss) per share from discontinued operations 0.05 (0.11)
Loss per share from change in accounting principle 0.00 (0.78)
----------- -----------
Net earnings (loss) per share $ 0.10 ($ 0.84)
=========== ===========
Diluted earnings (loss) per share $ 0.10 ($ 0.84)
=========== ===========
Weighted average number of common shares outstanding 7,196 7,131
=========== ===========
Weighted average number of common shares
outstanding assuming dilution 7,249 7,131
=========== ===========
See notes to condensed consolidated financial statements
-5-
UNI-MARTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
QUARTER ENDED
JANUARY 1, JANUARY 2,
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others $ 81,520 $ 72,076
Cash paid to suppliers and employees (83,762) (74,946)
Dividends and interest received 6 9
Interest paid (775) (1,169)
Income taxes received (paid) 16 (4)
Other receipts-discontinued operations 378 29
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (2,617) (4,005)
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts from sale of capital assets 0 25
Receipts from sale of discontinued operations 491 0
Purchase of property, equipment and improvements (386) (396)
Cash advanced for intangible and other assets 0 (72)
Cash received for intangible and other assets 37 7
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 142 (436)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on revolving credit agreement 2,170 3,354
Principal payments on debt (1,129) (1,075)
Proceeds from issuance of common stock 0 2
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,041 2,281
----------- -----------
NET DECREASE IN CASH (1,434) (2,160)
Cash at beginning of period 6,619 6,501
----------- -----------
Cash at end of period $ 5,185 $ 4,341
=========== ===========
-6-
UNI-MARTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(CONTINUED)
(UNAUDITED)
QUARTER ENDED
JANUARY 1, JANUARY 2,
2004 2003
----------- -----------
RECONCILIATION OF NET EARNINGS (LOSS) TO
NET CASH USED IN OPERATING ACTIVITIES:
Net earnings (loss) $ 709 ($ 5,969)
Earnings (loss) from discontinued operations, net of
income tax benefit of $0 and $43 337 (763)
----------- -----------
Earnings (loss) from continuing operations 372 (5,206)
ADJUSTMENTS TO RECONCILE NET EARNINGS
(LOSS) TO NET CASH USED IN OPERATING
ACTIVITIES:
Depreciation and amortization 1,082 1,113
Loss on sale of capital and other assets 138 105
Cumulative effect of change in accounting principle 0 5,547
Change in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 522 1,297
Inventories 971 1,841
Prepaid and other expenses 289 132
Increase (decrease) in:
Accounts payable and accrued expenses (6,065) (8,586)
Deferred income taxes and other liabilities (304) (320)
----------- -----------
Net cash used in continuing operations (2,995) (4,077)
----------- -----------
Net cash provided by discontinued operations 378 72
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES ($ 2,617) ($ 4,005)
=========== ===========
See notes to condensed consolidated financial statements
-7-
UNI-MARTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. FINANCIAL STATEMENTS:
The condensed consolidated balance sheet as of January 1, 2004, the
condensed consolidated statements of operations and the condensed
consolidated statements of cash flows for the quarters ended January 1,
2004 and January 2, 2003, respectively, have been prepared by
Uni-Marts, Inc. (the "Company") without audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position of the
Company at January 1, 2004 and the results of operations and cash flows
for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed
or omitted. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission for the fiscal year
ended September 30, 2003. Certain reclassifications have been made to
the September 30, 2003 financial statements to conform to
classifications used in fiscal year 2004. The results of operations for
the interim periods are not necessarily indicative of the results to be
obtained for the full year.
During fiscal 2003, the Company increased its valuation allowance
against the deferred tax asset because it has been determined that it
is more likely than not that the Company will not be able to utilize
the net operating loss carryforwards ("NOL's"). The increase in the
allowance has resulted in a 0.0% tax provision in the first quarter of
fiscal 2004.
As part of the Company's plan to divest of stores, in fiscal 2003 the
Company reclassified the assets of 130 stores on its balance sheet as
properties held for sale and classified the income and expense of such
stores as discontinued operations. At January 1, 2004, the Company had
122 remaining stores classified as assets held for sale on its balance
sheet totaling $40.5 million. The Company continues to operate the
stores pending their successful negotiation of sale or sublease. At
January 1, 2004, the Company had 164 stores classified as continuing
operations.
B. FUTURE OPERATIONS:
In the last twelve months, the Company continued its store evaluation
and strategic initiative program. This evaluation initiative began
during fiscal year 2002 when the Company retained financial advisors to
evaluate operating strategies including the divestiture of certain
store locations and non-operating assets. As a result of this
evaluation, during the last twelve months, the Company closed three
convenience stores and sold four convenience stores, five Choice
Cigarette Discount Outlets ("Choice") and one non-operating location.
In addition, the Company's negotiations with certain buyers to divest
additional store locations led the Board of Directors to consider the
sale of the entire Company when certain potential buyers expressed an
interest in acquiring the Company. In fiscal 2003, the Board
established a Special Committee, consisting solely of independent
directors, that conducted all negotiations relating to the sale of the
Company. The Special Committee was advised separately by independent
counsel and financial advisors.
-8-
B. FUTURE OPERATIONS (CONTINUED):
Negotiations with certain potential buyers did not come to fruition for
a variety of reasons. As previously reported, one such potential
transaction included a merger with an entity controlled by Henry and
Daniel Sahakian. In December 2003, the Company agreed to consider a
proposal for the acquisition of the Company by an entity owned in part
by Henry Sahakian, Daniel Sahakian and Ara Kervandjian. On January 26,
2004, the Company entered into a definitive merger agreement with Green
Valley Acquisition Co., LLC, a privately held company formed for the
purpose of acquiring the Company ("Green Valley"). The business and
affairs of Green Valley are to be managed under the direction of a
Board of Managers, which currently consists of six individuals, three
of whom have been appointed by an entity controlled by Henry Sahakian,
Daniel Sahakian and Ara Kervandjian, and three of whom have been
appointed by an entity controlled by individuals who are not affiliated
with the Company. Consummation of the merger is subject to various
conditions, including shareholder approval, and is expected to be
completed in late May or early June 2004.
Management believes that cash from operations, available credit
facilities and asset sales will be sufficient to meet the Company's
obligations for the foreseeable future. In the event that the proposed
merger with Green Valley is not consummated and the Company is
otherwise unable to consummate the divestiture of certain store
locations on acceptable terms, there is a risk that the Company could
encounter liquidity problems.
C. INTANGIBLE AND OTHER ASSETS:
Intangible and other assets consist of the following (in thousands):
JANUARY 1, SEPTEMBER 30,
2004 2003
----------- -------------
Lease acquisition costs $ 298 $ 298
Noncompete agreements 250 250
Other intangibles 190 272
----------- -----------
738 820
Less accumulated amortization 451 435
----------- -----------
287 385
Other assets 1,111 1,123
----------- -----------
$ 1,398 $ 1,508
=========== ===========
Lease acquisition costs are the bargain element of acquired leases and
are being amortized on a straight-line basis over the related lease
terms. Goodwill represented the excess of costs over the fair value of
net assets acquired in business combinations. As discussed within this
report under "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Critical Accounting Policies and
Estimates," the Company's adoption of Statement of Financial Accounting
Standards ("SFAS") No. 142, eliminated the requirement to amortize
goodwill beginning in the first quarter of fiscal 2003 and resulted in
a write-off of goodwill in the amount of $5.8 million.
-9-
C. INTANGIBLE AND OTHER ASSETS (CONTINUED):
Amortization expense for the next five years is as follows (in
thousands):
2004 2005 2006 2007 2008 Total
---- ---- ---- ---- ---- -----
Lease acquisition costs $ 9 $ 14 $ 9 $ 9 $ 5 $ 46
Non compete agreements 37 29 0 0 0 66
Other intangibles 170 5 0 0 0 175
---- ---- ---- ---- ---- ----
$216 $ 48 $ 9 $ 9 $ 5 $287
==== ==== ==== ==== ==== ====
D. REVOLVING CREDIT AGREEMENT:
On April 20, 2000, the Company executed a 3-year secured $10.0 million
revolving loan agreement (the "Agreement") with $3.5 million available
for letters of credit. Provisions of the Agreement require the
maintenance of certain covenants relating to minimum tangible net
worth, interest and fixed-charge coverage ratios, as measured on a
quarterly basis. In addition, the Agreement places limitations on
capital expenditures, additional debt and payment of dividends. This
Agreement bears interest at the Company's option based on a rate of
either prime plus 1.0% or LIBOR plus 3.0%. The blended interest rate at
January 1, 2004 was 4.56%. The Agreement is collateralized by
substantially all of the Company's inventories, receivables, other
personal property and selected real properties. At January 1, 2004, the
net book value of these selected real properties that are pledged as
collateral was $2.4 million. The Company was in compliance with these
covenants as of January 1, 2004. Borrowings of $7.9 million and letters
of credit of $3.5 million were outstanding under the Agreement at
January 1, 2004.
During fiscal years 2001 and 2002, the Agreement was amended to
increase the total credit line, extend the maturity date, revise
covenants relating to fixed charge and interest coverage ratios, and
provide for additional borrowing on a seasonal basis. At January 1,
2004, the total credit line available for borrowings was $15.0 million,
with $3.5 million available for letters of credit and $4.0 million
available for the prepayment of debt in connection with the sale of
stores (as discussed below and in Footnote E). Effective April 1, 2003,
the Company amended the Agreement to extend the maturity date to
December 31, 2004, extend the $2.0 million seasonal borrowing increase
to April 30, 2004, and revise certain financial covenants.
As discussed in Footnote E, in connection with the negotiation of
Master Property Disposition Agreements relating to certain of the
Company's term loans, as of September 30, 2003, the Company entered
into an agreement with its revolving credit lender to provide a $4.0
million sub-limit under the revolving credit agreement. This sub-limit
may be utilized under certain conditions to pay off term debt
associated with stores that are sold. These agreements create a
subordinated interest in the several cross-escrow accounts created
pursuant to the Master Property Disposition Agreements and continue the
lien on working capital assets and certain real property assets created
by the original revolving credit agreement. At January 1, 2004, $3.6
million (including the $2.0 million seasonal borrowing increase that
expires on April 30, 2004) was available under the Agreement for
general working capital purposes and prepayment of debt.
-10-
E. LONG-TERM DEBT:
JANUARY 1, SEPTEMBER 30,
2004 2003
----------- -------------
(In thousands).
Mortgage Loan. Principal and interest will be
paid in 177 remaining monthly installments. At
January 1, 2004, the coupon rate was 9.08% and the
effective interest rate was 9.77%, net of unamortized
fees of $1,026,198 ($1,054,786 in 2003). $ 29,727 $ 29,949
Mortgage Loan. Principal and interest will be
paid in 197 remaining monthly installments. The
loan bears interest at LIBOR plus 3.75%. At January 1,
2004, the coupon rate was 4.87% and the
effective interest rate was 5.24%, net of
unamortized fees of $310,327 ($322,559 in 2003). 19,512 19,702
Mortgage Loan. Principal and interest will be
paid in 198 remaining monthly installments. At
January 1, 2004, the coupon rate was 10.39% and the
effective interest rate was 10.71%, net of unamortized
fees of $102,216 ($104,665 in 2003). 6,331 6,366
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 January 1, 2004,
the blended coupon rate was 5.87% and the
effective interest rate was 6.21%, net of
unamortized fees of $135,797 ($137,563 in 2003). 6,830 6,909
Revolving Credit Agreement. Interest is paid
monthly. The blended interest rate at January 1, 2004
was 4.56%. (See Note D). 7,875 5,705
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 January 1, 2004, the blended coupon rate was
4.87% and the effective interest rate was 5.31%, net of
unamortized fees of $75,648 ($91,716 in 2003). 7,120 7,616
Equipment Loan. Principal and interest will be
paid in 77 remaining monthly installments. The loan
expires in 2010. At January 1, 2004, the coupon rate was
10.73% and the effective interest rate was 11.12%,
net of unamortized fees of $8,263 ($9,450 in 2003). 731 750
----------- -------------
78,126 76,997
Less current maturities 43,728 42,639
----------- -------------
$ 34,398 $ 34,358
=========== =============
-11-
E. LONG-TERM DEBT (CONTINUED):
The mortgage loans are collateralized by $65,121,000 of property, at
net book value, of which $25,703,200 relates to assets classified as
held for sale on the balance sheet. The equipment loans are
collateralized by $4,384,800 of equipment, at net book value, of which
$2,355,900 relates to assets classified as held for sale on the balance
sheet.
The Company has classified $33.2 million of its debt as current
maturities relating to assets held for sale. However, $32.7 million
becomes due only when sales of the assets of store locations classified
as held for sale on the balance sheet are consummated and the remaining
$500,000 are regularly scheduled debt payments.
Aggregate maturities of long-term debt (net of loan fee amortization)
during the next five years are as follows (in thousands):
September 30,
2004 $ 42,777
2005 1,809
2006 1,942
2007 2,085
2008 2,238
Thereafter 27,275
--------
$ 78,126
========
As of September 30, 2003, the Company entered into several Master
Property Disposition Agreements that amended, through October 31, 2004,
certain terms of the various loan agreements originated originating
with and now serviced by GE Capital Franchise Finance Corporation,
(formerly Franchise Finance Corporation of America), ("FFCA"). Under
these agreements, the lenders will permit the disposition and release
of their security interest on certain real property and equipment
assets that are part of the Company's strategic disposition program. In
addition, the lenders will accept reduced prepayment penalties or yield
maintenance payments, and forbear from enforcing any property fixed
charge ratio covenants, corporate fixed charge ratio covenants, or net
worth covenants for the duration of the agreements. The agreements also
establish several cross-escrow accounts, create liens against these
accounts, and continue the liens on certain real property and equipment
assets that were part of the original loan. Simultaneously, the Company
entered into an agreement with its revolving credit lender to provide a
$4.0 million sub-limit under its existing revolving credit agreement.
(See Footnote D)
-12-
F. RELATED PARTY TRANSACTIONS:
Certain directors and officers of the Company are also directors,
officers or controlling shareholders of other entities from which the
Company leases its corporate headquarters and various store and other
locations under agreements classified as operating leases. In addition,
the Company leases store locations from entities controlled by, or from
persons related to, certain directors and officers of the Company.
Aggregate rentals in connection with all such leases for the quarters
ended January 1, 2004 and January 2, 2003 were $373,800 and $370,100,
respectively.
The Company charges an affiliate for general and administrative
services provided. Such charges amounted to $2,800 in each of the
quarters ended January 1, 2004 and January 2, 2003.
On January 26, 2004, the Company entered into a definitive merger
agreement with Green Valley Acquisition Co., LLC, a privately-held
company formed for the purpose of acquiring the Company. The business
and affairs of Green Valley Acquisition Co. LLC are to be managed under
the direction of a Board of Managers, which currently consists of six
individuals, three of whom have been appointed by an entity controlled
by Henry Sahakian, Daniel Sahakian and Ara Kervandjian, and three of
whom have been appointed by an entity controlled by individuals who are
not affiliated with the Company. (See Footnote B)
G. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets," which 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.
In accordance with SFAS No. 142, the Company discontinued the
amortization of goodwill as of October 1, 2002 and completed its
impairment test, using a discounted cash flow approach, during the 2003
second fiscal quarter. As a result, the Company wrote-off its total
goodwill balance of $5,857,000.
The Company adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long- Lived Assets," effective October 1, 2002. SFAS No.
144 addressed the financial accounting and reporting for the impairment
or disposal of long-lived assets. There was no impact on the Company's
consolidated financial position or results of operations as a result of
the adoption of SFAS No. 144. (See "Critical Accounting Policies and
Estimates").
The FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities" ("FIN 46"). FIN 46 applies immediately to variable
interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that
date. For variable interest entities created before February 1, 2003,
it becomes applicable for the first annual period beginning after June
15, 2003.
In January 2004, the FASB revised the Interpretation and issued FIN
46(R) which delays the effective date of FIN 46 prior to revision,
except for special-purpose entities, and has separate effective dates
for certain public entities that are small business issuers as defined
by the SEC. The Company must apply FIN 46 or FIN 46R for
special-purpose entities no later than the end of
-13-
G. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED):
the first reporting period that ends after December 15, 2003. FIN 46R
must be applied to all entities no later than the end of the first
reporting period that ends after March 15, 2004. Based on management's
assessment as of the date of this report, management has determined
that the adoption of FIN 46 has not had an impact on the Company's
financial position or results of operations.
H. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash and short-term debt approximates 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 rates offered for similar security, terms and
maturity.
Fair value of capital lease obligations is estimated based on current
rates offered to the Company for similar debt.
The estimated fair values of the Company's financial instrument
liabilities are as follows (in thousands):
January 1, 2004 September 30, 2003
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Long-term debt:
Current maturities $ 42,777 $ 42,777 $ 42,639 $ 42,639
Long-term debt $ 35,349 $ 37,153 $ 34,358 $ 36,937
Obligations under capital leases:
Current maturities $ 94 $ 94 $ 122 $ 122
Long-term debt $ 88 $ 95 $ 92 $ 101
I. DEFERRED REVENUE 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 as purchase commitments are met and services are
performed in accordance with the terms of the related contractual
arrangements.
Deferred revenue and other liabilities includes the following (in
thousands):
January 1, September 30,
2004 2003
----------- -------------
Deferred revenue $ 3,696 $ 4,011
Other non-current liabilities 84 90
----------- -------------
$ 3,780 $ 4,101
=========== =============
-14-
J. DISCONTINUED OPERATIONS:
During fiscal year 2003, the Company announced plans to divest 130
stores and reclassified the assets relating to these stores as assets
held for sale in accordance with the adoption of SFAS 144. At January
1, 2004, the Company had 122 remaining stores classified as assets held
for sale on its balance sheet with a net book value of $40.5 million.
The income and expense relating to these stores is reported as
discontinued operations for all periods presented in the accompanying
financial statements and are reported separately from the results of
continuing operations. The Company continues to operate these stores
pending successful negotiation of their sale or sub-lease.
The following is a summary of the operating results and net earnings
(loss) of discontinued operations (in thousands, except per share
data):
Quarter Ended
January 1, January 2,
2004 2003
----------- -----------
Revenues $ 41,261 $ 38,836
Earnings (loss) from discontinued operations $ 337 ($ 806)
Income tax provision (benefit) 0 (43)
----------- -----------
Net earnings (loss) from discontinued operations $ 337 ($ 763)
=========== ===========
Earnings (loss) per share from
discontinued operations $ 0.05 ($ 0.11)
=========== ===========
-15-
K. COMMITMENTS AND CONTINGENCIES:
(1) Leases -- The Company leases its corporate headquarters, 119 of its
store locations, certain equipment, offices, and maintenance and
storage facilities. Future minimum lease payments under capital leases
and noncancellable operating leases with initial or remaining terms in
excess of one year at January 1, 2004 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.
Capital Operating Rental
Leases Leases Income
------- --------- -------
(In thousands)
Nine months ending
September 30, 2004 $ 103 $ 4,385 $ 557
Fiscal Year 2005 31 4,757 612
Fiscal Year 2006 31 3,506 440
Fiscal Year 2007 31 3,331 372
Fiscal Year 2008 21 2,274 303
Thereafter 0 5,967 226
------- --------- -------
Total future minimum
lease payments 217 $ 24,220 $ 2,510
========= =======
Less amount representing
interest 35
-------
Present value of future
payments 182
-------
Less current maturities 94
-------
$ 88
=======
(2) Contingent Bonus -- If the proposed merger between the Company and
Green Valley, described above in Footnote B (the "Merger"), is
completed, certain executive officers, including Henry Sahakian and
Ara Kervandjian will be eligible to receive bonuses pursuant to a
Transaction Success Bonus Plan adopted by the Company in 2003. The
aggregate amount of such bonuses available under the plan is estimated
to be between $0 and $500,000 and will be based on several factors,
including the purchase price, the outstanding debt of the Company at
closing and transaction related expenses.
(3) 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.
In connection with the Merger, subsequent to the period covered by
this Quarterly Report on Form 10-Q, three lawsuits were filed on
behalf of stockholders of the Company in Delaware Chancery Court
against the Company, the members of the Company's Board of Directors
and, in two of the actions, Green Valley, seeking an injunction
prohibiting the Company from completing the merger, rescission of the
merger if it is consummated or the award of rescissory damages,
compensatory damages, and an award of attorneys' fees and costs of the
lawsuit. The Company believes that the allegations in the complaints
are without merit and intends to defend the lawsuits vigorously.
-16-
L. STOCK BASED COMPENSATION:
The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations for all periods represented.
Accordingly, compensation cost for stock options is measured as the
excess, if any, of the fair value of the Company's common stock at the
date of the grant over the amount an employee must pay to acquire the
stock. The following table illustrates the effect on net loss and net
loss per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation",
to stock-based employee compensation (in thousands, except per share
data):
Quarter Ended
January 1, January 2,
2004 2003
----------- -----------
Net earnings (loss), as reported $ 709 ($ 5,969)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects 0 0
----------- -----------
Pro forma net earnings (loss) $ 709 ($ 5,969)
=========== ===========
Basic and diluted net earnings (loss)
per share as reported $ 0.10 ($ 0.84)
=========== ===========
Pro forma basic and diluted net earnings
(loss) per share $ 0.10 ($ 0.84)
=========== ===========
M. CHANGES IN SECURITIES:
During the first quarter of fiscal 2004, the Uni-Marts, Inc. Retirement
Savings and Incentive Plan purchased 6,706 shares of the Company's
treasury stock for $35,610 to fund its 401(k) retirement plan,
resulting in a decrease of additional paid-in capital of $24,545. The
Company issued 500 shares of common stock to an employee upon the
exercise of stock options pursuant to the Company's 1996 Equity
Compensation Plan. The issuance of these shares resulted in an increase
of $650 to additional paid-in capital. The net effect of these
transactions in the first quarter of fiscal 2004 was a decrease to
additional paid-in capital of $23,895.
Additional
Paid
Shares Amount in Capital
------ -------- ----------
January 1, 2004:
Sale of treasury stock (6,706) ($35,610) ($24,545)
Exercise of stock options 500 700 650
------ -------- --------
(6,206) ($34,910) ($23,895)
====== ======== ========
January 2, 2003:
Sale of treasury stock (8,338) ($43,775) ($32,518)
Employee stock purchase plan 1,524 2,042 1,890
Exercise of stock options 0 0 0
------ -------- --------
(6,814) ($41,733) ($30,628)
====== ======== ========
-17-
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATING DATA (RETAIL LOCATIONS ONLY)
Set forth below are selected unaudited consolidated financial data of the
Company for the periods indicated:
QUARTER ENDED
JANUARY 1, JANUARY 2,
2004 2003
----------- -----------
Revenues:
Merchandise sales 44.6% 50.4%
Gasoline sales 55.0 49.0
Other income 0.4 0.6
----------- -----------
Total revenues 100.0 100.0
Cost of sales 82.1 79.6
----------- -----------
Gross profit:
Merchandise (as a percentage of
merchandise sales) 30.5 30.8
Gasoline (as a percentage of
gasoline sales) 7.1 8.8
Total gross profit 17.9 20.4
Costs and expenses:
Selling 12.3 14.4
General and administrative 2.7 2.7
Depreciation and amortization 1.3 1.6
Interest 1.1 1.3
----------- -----------
Total expenses 17.4 20.0
Earnings from continuing operations
before income taxes and change in
accounting principle 0.5 0.4
Income tax provision 0.0 0.0
----------- -----------
Earnings from continuing operations
before change in accounting principle 0.5 0.4
----------- -----------
Discontinued operations:
Earnings (loss) from discontinued operations 0.4 (1.1)
Income tax provision (benefit) 0.0 (0.1)
----------- -----------
Earnings (loss) on discontinued operations 0.4 (1.0)
Cumulative effect of change in
accounting principle, net of income tax
benefit 0.0 (7.8)
----------- -----------
Net earnings (loss) 0.9% (8.4)%
=========== ===========
-18-
RESULTS OF OPERATIONS:
RISKS THAT COULD AFFECT FUTURE RESULTS
A number of the matters and subject areas discussed in this Item 2 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-Q that are not historical or current facts, including
statements regarding the Company's plans and strategies or future financial
performance, deal with potential future circumstances and developments. These
forward-looking statements frequently can be identified by the use of
terminology such as "believes," "expects," "may," "will," "should" or
"anticipates" (or the negative or other variations thereof) or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
Although the Company believes that its expectations are based on reasonable
assumptions within the bounds of its knowledge, investors and prospective
investors are cautioned that such statements are only projections and that
actual events or results may differ materially from those expressed in any such
forward-looking statements. In addition to other factors described elsewhere in
this report, the Company's actual consolidated quarterly or annual operating
results have been affected in the past, or could be affected in the future, by
factors, including, without limitation, general economic, business and market
conditions; environmental, tax and tobacco legislation or regulation; volatility
of gasoline prices, margins and supplies; competition and ability to maintain
merchandising margins; the ability to successfully consummate the Company's
divestiture program; the sufficiency of cash balances, cash from operations and
cash from asset sales to meet future cash obligations; volume of customer
traffic; weather conditions; labor costs; the level of capital expenditures; and
costs associated with litigation.
OVERVIEW
In the last twelve months, the Company continued its store evaluation and
strategic initiative program. This evaluation initiative began during fiscal
year 2002 when the Company retained financial advisors to evaluate operating
strategies including the divestiture of certain store locations and
non-operating assets. As a result of this evaluation, during the last twelve
months, the Company closed three convenience stores and sold four convenience
stores, five Choice Cigarette Discount Outlets ("Choice") and one non-operating
location. In addition, the Company's negotiations with certain buyers to divest
additional store locations led the Board of Directors to consider the sale of
the entire Company when certain potential buyers expressed an interest in
acquiring the Company. In fiscal 2003, the Board established a Special
Committee, consisting solely of independent directors, that conducted all
negotiations relating to the sale of the Company. The Special Committee was
advised separately by independent counsel and financial advisors.
Negotiations with certain potential buyers did not come to fruition for a
variety of reasons. As previously reported, one such potential transaction
included a merger with an entity controlled by Henry and Daniel Sahakian. In
December 2003, the Company agreed to consider a proposal for the acquisition of
the Company by an entity owned in part by Henry Sahakian, Daniel Sahakian and
Ara Kervandjian. On January 26, 2004, the Company entered into a definitive
merger agreement with Green Valley Acquisition Co., LLC, a privately held
company formed for the purpose of acquiring the Company. The business and
affairs of Green Valley are to be managed under the direction of a Board of
Managers, which currently consists of six individuals, three of whom have been
appointed by an entity controlled by Henry Sahakian, Daniel Sahakian and Ara
Kervandjian, and three of whom have been appointed by an entity controlled by
individuals who are not affiliated with the Company. Consummation of the merger
is subject to various conditions, including shareholder approval, and is
expected to be completed in late May or early June 2004.
If the Company is unsuccessful in consummating the merger or its disposition
strategy, the Company could encounter liquidity problems.
-19-
QUARTERS ENDED JANUARY 1, 2004 AND JANUARY 2, 2003
At January 1, 2004, the Company operated 286 stores, which were comprised of 223
Uni-Mart convenience stores and 63 Choice stores. Of these locations, three were
franchised and 235 offered self-service gasoline. In the fiscal quarter, the
Company sold four Choice stores and closed two Uni-Mart convenience stores. The
Company had seven fewer convenience stores and five fewer Choice stores in
operation in the first fiscal quarter ended January 1, 2004 compared to the
first fiscal quarter ended January 2, 2003.
As part of the Company's plan to divest of stores, in fiscal 2003 the Company
reclassified the assets of 130 stores on its balance sheet as properties held
for sale and classified the income and expense of such stores as discontinued
operations. At January 1, 2004, the Company had 122 remaining stores classified
as discontinued operations on its balance sheet totaling $40.5 million. Although
these stores are now classified as discontinued operations, the Company intends
to continue to operate these stores pending successful negotiation of their sale
or sub-lease.
CONTINUING OPERATIONS
For the first quarter of fiscal 2004, ended January 1, 2004, revenues from
continuing operations of 164 stores were $81.3 million, an increase of $10.2
million, or 14.4%, compared to revenues of $71.1 million for the first quarter
of fiscal 2003. The increase in revenues is primarily the result of a 28.4%
increase in gasoline sales at continuing operations as a result of a 35.3 cent
per gallon increase in the average reported retail price per gallon of petroleum
sold at the Company's locations in the first quarter of fiscal year 2004
compared to the first quarter of fiscal year 2003. The 35.3 cent per gallon
price increase includes the effect of the Company's change in payment method for
Pennsylvania gasoline taxes of 25.9 cents per gallon. As previously reported, in
June 2003 the Company changed its payment method for gasoline taxes for its
Pennsylvania stores and now includes the gasoline taxes in its average reported
retail price per gallon and its cost of sales. This change in payment method has
no effect on gross profits.
Gasoline sales in the first quarter of fiscal year 2004 were $44.7 million, an
increase of $9.9 million, compared to gasoline sales of $34.8 million in the
first quarter of fiscal 2003. The gasoline sales increase includes approximately
$6.5 million for gasoline taxes for the Company's Pennsylvania stores which was
not included in gasoline sales in the first quarter of fiscal year 2003.
Merchandise sales were $36.3 million, an increase of $463,000, or 1.3%, compared
to merchandise sales of $35.8 million recorded in the first quarter of fiscal
2003. Other income declined by $108,000 to $310,000 for the current fiscal
quarter. Merchandise sales from continuing operations at comparable stores
increased by 2.6%, while gasoline gallons sold from continuing operations at
comparable stores declined by 0.6% in the first quarter of fiscal 2004 compared
to the first quarter of fiscal 2003.
Gross profits on merchandise sales increased by $43,000 to $11.1 million in the
first quarter of fiscal 2004 compared to the same period in fiscal 2003.
Merchandise gross margins increased by 0.4% as higher merchandise sales were
offset by a 0.3% decline in the merchandise gross profit rate in the first
quarter of fiscal 2004.
-20-
Gross profits on gasoline sales increased by $107,000, or 3.5%, to $3.2 million
in the first quarter of fiscal 2004, compared to gasoline gross margins of $3.1
million in the first quarter of fiscal 2003. A 4.8% increase in the gasoline
gross profit per gallon sold was offset by a 1.2% decline in gallons sold in the
current fiscal quarter.
The Company reported a 2.0% decline in selling expenses in the first fiscal
quarter to $10.0 million due to lower maintenance expenses in comparison to the
same period in fiscal 2003. General and administrative expense increased by
15.6%, or $296,000, to $2.2 million, compared to $1.9 million due primarily to
increased legal and audit fees. Depreciation and amortization expense declined
by $31,000, or 2.8%, to $1.1 million as the result of the adoption of SFAS 142,
lower levels of capital expenditures and fewer stores in operation in the
current fiscal quarter. Interest expense declined by 3.5% to $889,000 for the
first quarter of fiscal 2004, due to lower borrowing levels and interest rates
in the first fiscal quarter of 2004, in comparison to the first fiscal quarter
of 2003.
For the first quarter of fiscal 2004, earnings from continuing operations,
before income taxes and change in accounting principle, were $373,000, compared
to earnings from continuing operations, before income taxes and change in
accounting principle, of $360,000 in the first quarter of fiscal 2003. The
Company recorded a provision for income taxes of $1,000, compared to an income
tax provision of $19,000 in the first quarter of fiscal 2003. Earnings from
continuing operations before the change in accounting principle were $372,000,
or $0.05 per share, for the first quarter of fiscal 2004, compared to earnings
from continuing operations before the change in accounting principle of
$341,000, or $0.05 per share, for the prior year's first fiscal quarter.
DISCONTINUED OPERATIONS
The Company reported earnings from discontinued operations in the first quarter
of fiscal 2004 of $337,000, compared to a loss of $806,000 in the first quarter
of fiscal 2003. The earnings improvement from discontinued operations was
primarily the result of the discontinuance of $795,000 of depreciation on assets
held for sale, as well as lower salaries and wages and interest expense. The
Company had no income tax provision in the first quarter of fiscal 2004,
compared to an income tax benefit of $43,000 for the first quarter of fiscal
2003. Earnings from discontinued operations for the first fiscal quarter of 2004
were $337,000, or $0.05 per share, compared to a loss on discontinued operations
of $763,000, or $0.11 per share, in the first quarter of fiscal 2003.
OTHER
The Company reported a one-time non-cash charge of $5.5 million, or a net loss
of $0.78 per share, in the first quarter of fiscal 2003 due to a change in
accounting principle relating to the adoption of Statement of Financial
Accounting Standard No. 142 and the write-off of the Company's goodwill.
During fiscal 2003, the Company increased its valuation allowance against the
deferred tax asset because it was determined that it is more likely than not
that the Company will not be able to fully utilize the NOL's. This increase in
the reserve has resulted in a 0.0% tax provision in comparison to a 5.3% tax
benefit in the first quarter of fiscal 2003.
Total net earnings for continued and discontinued operations for the first
quarter ended January 1, 2004 were $709,000, or $0.10 per share, compared to
total net losses of $5.9 million, or $0.84 per share, for the first quarter of
fiscal 2003.
-21-
LIQUIDITY AND CAPITAL RESOURCES
Most of the Company's sales are for cash and its inventory turns over rapidly.
From time to time, the Company utilizes portions of its cash to acquire and
construct new stores and renovate existing locations.
As of April 1, 2003, the Company amended its revolving credit agreement (the
"Agreement") to extend the maturity date to December 31, 2004 and revise
covenants relating to interest and fixed-charge coverage ratios. As of September
30, 2003, the Company entered into an agreement with its revolving credit lender
to provide a $4.0 million sub-limit under its existing revolving credit
agreement as discussed in Footnotes D and E to the Consolidated Financial
Statements. At January 1, 2004, $3.6 million was available for borrowing under
this Agreement for general working capital and prepayment of debt. In addition,
the Company's liquid fuels tax bond expired in the third fiscal quarter of 2003.
Due to the expiration of the bond, the Company pays the liquid fuels tax on
purchases directly to the vendors within its normal payment terms. The Company
utilizes its working capital credit facility to mitigate the cash flow impact of
the liquid fuels tax bond expiration.
Capital requirements for debt service and capital leases for the remainder of
fiscal year 2004 are approximately $42.9 million, which includes $33.2 million
related to the Company's divestiture plan and $7.9 million in revolving credit
that have been classified as current. The Company anticipates capital
expenditures for the remainder of fiscal year 2004 of $1.5 million, funded from
cash flows from operations. These capital expenditures include normal
replacement of store equipment and gasoline-dispensing equipment and upgrading
of the Company's in-store and corporate data processing systems.
Management believes that cash from operations, available credit facilities and
asset sales will be sufficient to meet the Company's obligations for the
foreseeable future. In the event that the Company cannot consummate proposed
asset sales, there is a risk that the Company could encounter liquidity
problems.
CONTRACTUAL OBLIGATIONS
Below is a summarized list of the Company's contractual obligations relating to
long-term debt, capitalized leases, noncancelable operating leases and gasoline
supply agreements at January 1, 2004 (in thousands):
2004 2005 2006 2007 2008 Thereafter Total
-------- -------- -------- -------- ------- ---------- --------
Contractual Obligations:
Long-term debt
(including interest) $ 48,270 $ 4,430 $ 4,445 $ 4,459 $ 4,474 $ 29,360 $ 95,438
Capitalized leases
(including interest) 103 31 31 31 21 0 217
Operating leases 4,385 4,757 3,506 3,331 2,274 5,967 24,220
Gasoline supply agreements(1) 105,692 121,212 100,261 96,538 81,656 78,390 583,749
-------- -------- -------- -------- ------- ---------- --------
$158,450 $130,430 $108,243 $104,359 $88,425 $ 113,717 $703,624
======== ======== ======== ======== ======= ========== ========
------------
(1) The Company has agreements with four gasoline suppliers with terms ranging
from 6 to 15 years. These agreements obligate the Company to purchase specified
quantities of gasoline at market prices from the various suppliers over the life
of the contracts. On an annualized basis, the minimum required purchases under
these agreements total approximately 96.5 million gallons. The estimated minimum
purchase obligations reflected in the table above are calculated based on the
gallon purchase requirements remaining under the contracts at a current market
price of $1.46 per gallon. Although the Company did not meet the minimum
purchase requirements in fiscal year 2003, the Company does not expect any
material change to its obligations.
-22-
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
The discussion and analysis of the Company's financial condition and results of
operations are based upon its condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, the Company evaluates
its estimates, including those related to self-insured liabilities, impairment
of long-lived assets and income taxes. The Company bases its estimates on
historical experience, current and anticipated business conditions, the
condition of the financial markets, and various other assumptions that are
believed to be reasonable under existing conditions. Actual results may differ
from these estimates.
The Company believes that the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements:
Self-insurance liabilities -- The Company records estimates for self-insured
worker's compensation and general liability insurance coverage. Should a greater
amount of claims occur compared to what was estimated, or costs increase beyond
what was anticipated, reserves recorded may not be sufficient, and additional
expense may be recorded.
Impairment -- The Company evaluates long-lived assets, including stores, for
impairment quarterly, or whenever events or changes in circumstances indicate
that the assets may not be recoverable. The impairment is measured by
calculating the estimated future cash flows expected to be generated by the
store, and comparing this amount to the carrying value of the store's assets.
Cash flows are calculated utilizing individual store forecasts and total company
projections for the remaining estimated lease lives of the stores being
analyzed. Should actual results differ from those forecasted and projected, the
Company may be subject to future impairment charges related to these facilities.
During the first quarter of fiscal year 2003, the Company adopted Statement of
Financial Accounting Standards ("SFAS") Nos. 142 and 144. SFAS No. 142 requires
that assets with indefinite lives not be amortized but tested annually for
impairment and provides specific guidance for such testing. SFAS No. 144
provides additional guidance for impairment testing and determination of when an
asset is considered to be for sale. The Company completed its impairment test
during the second quarter of fiscal 2003 and the adoption of SFAS No. 142
resulted in the write-off of goodwill in the amount of $5,857,000. Furthermore,
in accordance with SFAS No. 144, at January 1, 2004 the Company had reclassified
as assets held for sale $40.5 million relating to 122 remaining stores that the
Company plans to sell or sublet, reclassified the related debt totaling $33.2
million as current maturities, and classified the income and expense of such
stores as discontinued operations. During fiscal year 2003, the Company
recognized a $654,000 loss relating to the future disposal of certain locations.
Income taxes -- The Company currently has NOL's that can be utilized to offset
future income for federal and state tax purposes. These NOL's generate a
significant deferred tax asset. However, the Company has recorded a valuation
allowance against this deferred tax asset as it has determined that it is more
likely than not that it will not be able to fully utilize the NOL's. Should the
Company's assumptions regarding the utilization of these NOL's change, it may
reduce some or all of this valuation allowance, which would result in the
recording of an income tax benefit.
-23-
ITEM 3 - 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
January 1, 2004.
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.
FISCAL YEAR OF MATURITY
(DOLLAR AMOUNTS IN THOUSANDS)
TOTAL FAIR
DUE AT VALUE AT
2004 2005 2006 2007 2008 THEREAFTER MATURITY 1/01/04
-------- ------- ------- ------- ------- ---------- -------- --------
Interest-rate sensitive assets:
Noninterest-bearing
checking accounts $ 2,611 $ 0 $ 0 $ 0 $ 0 $ 0 $ 2,611 $ 2,611
Interest-bearing
checking accounts $ 2,574 $ 0 $ 0 $ 0 $ 0 $ 0 $ 2,574 $ 2,574
Average interest rate 0.90% 0.90% --
------------------------------------------------------------------------------------------
Total $ 5,185 $ 0 $ 0 $ 0 $ 0 $ 0 $ 5,185 $ 5,185
Total average interest rate 0.45% 0.45% --
Interest-rate sensitive liabilities:
Variable-rate borrowings $ 25,111 $ 1,088 $ 1,144 $ 1,204 $ 1,265 $ 9,973 $ 39,785 $ 39,785
Average interest rate 4.81% 4.87% 4.87% 4.87% 4.87% 4.87% 4.86% --
Fixed-rate borrowings $ 17,666 $ 721 $ 798 $ 881 $ 973 $ 17,302 $ 38,341 $ 40,145
Average interest rate 9.34% 9.23% 9.23% 9.23% 9.23% 9.23% 9.25% --
------------------------------------------------------------------------------------------
Total $ 42,777 $ 1,809 $ 1,942 $ 2,085 $ 2,238 $ 27,275 $ 78,126 $ 79,930
Total average interest rate 7.03% 7.41% 7.46% 7.51% 7.57% 7.64% 7.44% --
-24-
ITEM 4 - CONTROLS AND PROCEDURES
CEO AND CFO CERTIFICATIONS. Appearing as Exhibits 31.1 and Exhibit 31.2 of this
Quarterly Report are two certifications, one by each of our Chief Executive
Officer and our Chief Financial Officer (the "Section 302 Certifications"). This
Item 4 of our Quarterly Report contains information concerning the evaluation of
the Company's disclosure controls and procedures and matters regarding our
internal controls that are referred to in the Section 302 Certifications. This
information should be read in conjunction with the Section 302 Certifications
for a more complete understanding of the topics referred to in the Section 302
Certifications.
EVALUATION OF OUR DISCLOSURE CONTROLS AND PROCEDURES. The Securities and
Exchange Commission (the "SEC") requires that as of the end of the quarter
covered by this Report, the CEO and the CFO must evaluate the effectiveness of
the design and operation of our disclosure controls and procedures and report on
the effectiveness of the design and operation of our disclosure controls and
procedures.
"Disclosure controls and procedures" mean the controls and other procedures that
are designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934 (the
"Exchange Act"), such as this Quarterly Report, is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
promulgated by the Securities and Exchange Commission (the "SEC"). Disclosure
controls and procedures are also designed with the objective of ensuring that
such information is accumulated and communicated to our management, including
the CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure.
EVALUATION OF OUR INTERNAL CONTROL OVER FINANCIAL REPORTING. The SEC also
requires that the CEO and CFO certify certain matters regarding our internal
control over financial reporting.
"Internal control over financial reporting" means the process designed by, or
under the supervision of, our CEO and CFO, and implemented by management and
other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that: (i) pertain to the maintenance of
records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the issuer; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the issuer are being made only in accordance with
authorizations of management and directors of the issuer; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the issuer's assets that could have a
material effect on the financial statements.
Among the matters our CEO and CFO must certify in the Section 302 Certifications
are whether all "significant deficiencies" or "material weakness" in the design
or operation of our internal control over financial reporting that are likely to
adversely affect our ability to record, process, summarize and report financial
information have been disclosed to our auditors and the Audit Committee of our
Board of Directors. "Significant deficiencies" has the same meaning as the term
"reportable conditions" in auditing literature. Both terms represent
deficiencies in the design or operation of internal control over financial
reporting that could adversely affect a company's ability to record, process,
summarize and report financial data consistent with the assertions of management
in a company's financial statements. A "material weakness" is defined in the
auditing literature as a particularly serious reportable condition
-25-
where the design or operation of one or more internal control over financial
reporting components does not reduce to a relatively low level the risk that
misstatements caused by error or fraud may occur in amounts that would be
material in relation to the financial statements and not be detected within a
timely period by employees in the normal course of performing their assigned
functions. A "material weakness" constitutes a greater deficiency than a
"significant deficiency, but an aggregation of significant deficiencies may
constitute a material weakness in a company's internal control over financial
reporting.
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. The Company's management,
including the CEO and CFO, does not expect that our disclosure controls and
procedures or our internal controls will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, as opposed to absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within an entity have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
CEO/CFO CONCLUSIONS ABOUT THE EFFECTIVENESS OF THE DISCLOSURE CONTROLS AND
PROCEDURES. As required by Rule 13a-15(b), the Company's management, including
our CEO and CFO, conducted an evaluation as of the end of the period covered by
this report, of the effectiveness of the Company's disclosure controls and
procedures. Based on that evaluation, the CEO and CFO concluded that, subject to
the limitations noted above, our disclosure controls and procedures are
effective to provide reasonable assurance that the disclosure controls and
procedures will meet their objectives.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. As required by Rule
13a-15(d), the Company's management, including the CEO and CFO conducted an
evaluation of the Company's internal control over financial reporting to
determine whether any changes occurred during the period covered by this report
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting. Based on that
evaluation, there has been no such change during the period covered by this
report.
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) 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 July 4, 2002 and incorporated herein by reference
thereto).
3.2 Amended and Restated By-Laws of the Company (Filed as exhibit 3.2 to
the Company's Quarterly Report on Form 10-Q for the period ended July
4, 2002 and incorporated herein by reference thereto).
11 Statement regarding computation of per share earnings (loss).
31.1 Certification of the Chairman and Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of
the Sarbanes- Oxley Act of 2002.
32.1 Certification of the Chairman and Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant to Section 906 of
the Sarbanes- Oxley Act of 2002.
(b) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on November 6, 2003, announcing
its financial results for the fiscal 2003 fourth quarter and fiscal
year, ended September 30, 2003.
The Company filed a report on Form 8-K on January 23, 2004, announcing
its financial results for the fiscal 2004 first quarter ended January
1, 2004
The Company filed a report on Form 8-K on January 27, 2004 and amended
on February 4, 2004, reporting that (i) it had signed a merger
agreement whereby the Company agreed to merge with and into Green
Valley Acquisition Co., LLC, a privately-held company formed for the
purpose of acquiring the Company (the "Merger") and (ii) the signing of
the merger agreement may be deemed to be, and the consummation of the
Merger will result in, a change of control of the Company.
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SIGNATURES
Pursuant to the requirements 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)
Date February 13, 2004 /S/ HENRY D. SAHAKIAN
------------------------------
Henry D. Sahakian
Chairman of the Board
(Principal Executive Officer)
Date February 13, 2004 /S/ N. GREGORY PETRICK
------------------------------
N. Gregory Petrick
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
(Principal Financial Officer)
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UNI-MARTS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
NUMBER DESCRIPTION
11 Statement regarding computation of per share earnings (loss).
31.1 Certification of the Chairman and Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of
the Sarbanes- Oxley Act of 2002.
32.1 Certification of the Chairman and Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant to Section 906 of
the Sarbanes- Oxley Act of 2002.
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