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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, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-11556
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UNI-MARTS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 25-1311379
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
477 East Beaver Avenue, State College, PA 16801-5690
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (814) 234-6000
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common Stock, $.10 Par Value American Stock Exchange
- ----------------------------------- --------------------------------
Securities registered pursuant to Section 12(g) of the Act:
None
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(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 31, 1997,
computed by reference to the closing sale price of the registrant's common
stock on such date: $18,671,681.
6,669,515 shares of Common Stock were outstanding at December 31, 1997.
This Document Contains 116 Pages.
1
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Company's Proxy Statement, in connection with the Annual
Meeting of Stockholders expected to be held in February 1998, are
incorporated into Part III.
(2) A portion of the Company's Definitive Proxy Statement for the February
25, 1988 Annual Meeting of Stockholders, filed on January 28, 1988, is
incorporated into Part IV.
(3) A portion of the Company's Definitive Proxy Statement for the February
22, 1996 Annual Meeting of Stockholders, filed on January 25, 1996, is
incorporated into Part IV.
(4) Portions of the Company's Current Report on Form 8-K, dated December 20,
1991, are incorporated into Part IV.
(5) A portion of the Company's Annual Report on Form 10-K for the year ended
September 30, 1989, filed on December 27, 1989, is incorporated into
Part IV.
(6) A portion of the Company's Annual Report on Form 10-K for the year ended
September 30, 1990, filed on December 20, 1990, is incorporated into
Part IV.
(7) A portion of the Company's Annual Report on Form 10-K for the year ended
September 30, 1993, filed on December 29, 1993, is incorporated into
Part IV.
(8) Portions of the Company's Annual Report on Form 10-K for the year ended
September 30, 1994, filed on December 23, 1994, are incorporated into
Part IV.
(9) A portion of the Company's Annual Report on Form 10-K for the year ended
September 30, 1995, filed on December 29, 1995, is incorporated into Part
IV.
(10) A portion of the Company's Annual Report on Form 10-K for the year ended
September 30, 1996, filed on December 17, 1996, is incorporated into Part
IV.
(11) Portions of the Company's Quarterly Report on Form 10-Q for the period
ended April 1, 1993, filed on May 15, 1993, are incorporated into Part
IV.
(12) Portions of the Company's Quarterly Report on Form 10-Q for the period
ended March 30, 1995, filed on May 12, 1995, are incorporated into Part
IV.
(13) A portion of the Company's Quarterly Report on Form 10-Q for the period
ended April 4, 1996, filed on May 15, 1996, is incorporated into Part IV.
(14) Portions of the Company's Quarterly Report on Form 10-Q for the period
ended April 3, 1997, filed on May 15, 1997, are incorporated into Part
IV.
(15) A portion of the Company's Quarterly Report on Form 10-Q for the period
ended July 3, 1997, filed on August 15, 1997, is incorporated into Part
IV.
(16) A portion of the Company's Registration Statement on Form S-8, File No.
33-9807, filed on July 10, 1991, is incorporated into Part IV.
2
PART I.
ITEM 1. BUSINESS.
COMPANY OVERVIEW
Since its initial public offering in 1986, when it operated 208 convenience
stores, Uni-Marts, Inc. (the "Company" or "Uni-Marts") has expanded, primarily
through acquisitions of groups of stores. At September 30, 1997, the Company
operated 384 convenience stores and 17 Choice Cigarette Discount Outlets
("Choice Stores") in Pennsylvania, Virginia, New York, New Jersey, Delaware and
Maryland, of which 290 convenience stores and nine Choice 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. Most Company stores located in urban and suburban areas
have been acquired and are generally leased on a long-term basis.
On December 27, 1996, the Company notified Getty Petroleum Corp. and its
affiliates (collectively, "Getty") that, in accordance with their respective
terms, effective December 31, 1997, the Company intended to terminate certain
agreements with Getty, including leases and subleases and a gasoline supply
agreement pursuant to which the Company purchased substantially all of its
gasoline. Based on negotiations completed in December 1997, the Company and
Getty have agreed upon procedures for the conversion of 105 stores from
Uni-Marts' control to Getty control during December 1997 and January 1998.
After the conversion, the Company will operate 274 convenience stores,
including 198 with gasoline, plus 18 Choice Stores, of which 10 will sell
gasoline.
The size of the Company's stores 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 10,000 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, free check cashing and automated teller machines ("ATMs").
Certain statements contained in this report are forward looking. Although
Uni-Marts believes that its expectations are based on reasonable assumptions
within the bounds of its knowledge of its business and operations, there
can be no assurance that actual results will not differ materially from its
expectations. Factors that could cause actual results to differ from
expectations include general economic, business and market conditions,
volatility of gasoline prices, merchandise margins, customer traffic, weather
conditions, labor costs and the level of capital expenditures.
The following table shows the geographic distribution of the Company's
convenience stores as of September 30, 1997:
Company-
operated Franchise Total
-------- --------- -----
Pennsylvania 273 25 298
Virginia 48 1 49
Western New York 23 23
Southern New Jersey 6 6
Delaware 5 5
Maryland 3 3
--- --- ---
352 32 384
=== === ===
3
Following the previously discussed conversion of 105 stores to Getty control
and the closing of five stores since September 30, 1997, the geographic
distribution of the Company's convenience stores will be:
Company-
operated Franchise Total
-------- --------- -----
Pennsylvania 222 15 237
Virginia 0
Western New York 23 23
Southern New Jersey 6 6
Delaware 5 5
Maryland 3 3
--- --- ---
253 21 274
=== === ===
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 and its
phone number is (814) 234-6000.
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 considerable pressure on owners of independent
and small convenience store chains. One of the major forces is the need to
comply with environmental regulations for underground storage tanks. The large
capital expenditures required to comply with environmental regulations are also
affecting many operators of gasoline service stations. 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 now also with gasoline distributors which have
converted to convenience stores. To compete for a broader customer base,
convenience stores are adding prepared foods and new services and improving
store layouts to attract new customers. As consumer preferences and government
regulations put pressure on tobacco sales, convenience store operators are
improving gasoline dispensing facilities and installing branded fast-food
outlets and ATMs. In addition, the convenience store industry has aggressively
closed or remodeled underperforming stores.
4
STRATEGY
The Company's strategy is to enhance current operations by increasing customer
traffic, sales volume and profit margins. Key elements of the Company's
strategy include the following:
FOCUS ON RURAL AND SMALL-TOWN LOCATIONS. Most of the Company's stores are
located in small towns and rural locations where costs of operation and levels
of competition are generally lower than in urban and suburban markets. The
Company's stores in these rural markets often serve as the community's "general
store," providing the convenience of one-stop shopping for customers. As a
result, the Company is able to provide a wide range of services and products at
favorable margins. In addition, there tends to be less employee turnover at
the Company's rural and small-town stores.
ENHANCE BRANDED FAST-FOOD UNITS. The Company has added fast-food units
such as Burger King, Arby's and Blimpie Subs and Salads to certain stores. The
Company believes that the recognition associated with these names increases
foot traffic and attracts new customers. At September 30, 1997, the Company
was operating 55 branded fast-food units within its stores, including 37
Blimpie Subs and Salads, 8 Arby's, 6 Burger Kings, 2 Taco Makers, 1 Fox's Pizza
and 1 Manhattan Bagel. The Company expects to continue to improve the
profitability of these fast-food units by emphasizing employee training and
tighter cost controls.
OFFER ADDITIONAL TRAFFIC ENHANCING SERVICES. The Company offers various
services at its stores, including the sale of lottery tickets, money orders and
prepaid telephone cards, free check cashing and the acceptance of utility bill
payments. In addition, the Company installed ATMs at 115 locations during
fiscal years 1997 and 1996. The Company believes that the addition of these
ATMs will serve to increase merchandise and gasoline sales.
CONVERSION OF UNDERPERFORMING OR CLOSED STORES. The Company has converted
18 locations to Choice Stores to enhance the profitability of these locations.
The Company will convert other locations as conditions warrant.
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 one-half of the Company's stores are open 24
hours per day, while the majority of the remaining stores are open from 6:00
a.m. to 12:00 midnight. To alleviate checkout congestion, many of the
Company's products and services, such as certain prepared fast food, fountain
beverages and gasoline, 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. Television, radio and newspaper advertisements are used to promote
the Company's name and image. The Company maintains an employee training
program which 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, delicatessen foods,
5
fountain drinks and coffee products. In recent years, the Company has
emphasized new merchandise sales such as prepared foods and branded fast foods
to increase sales volume and customer traffic. In addition, the Company
continues to add customer services, such as ATMs, prepaid telephone cards, free
check cashing, the acceptance of utility bill payments 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, hot dogs, pizza, fried chicken, fresh baked
goods, frozen sandwiches, nachos and soups.
As part of the Company's strategy to increase branded fast foods, in fiscal
year 1994, the Company entered into an agreement with Blimpie International
("Blimpie") to become an area developer (franchisor) for Blimpie Subs and
Salads restaurants in Pennsylvania and western New York. During fiscal year
1997, the Company added two Blimpie branded installations to its stores
bringing total Blimpie locations in the convenience stores to 37. The Company
has also franchised 20 Blimpie locations with third parties, including 18 added
in fiscal year 1997. The Company receives a commission on these franchise
sales. In addition, the Company added one Taco Maker and one Burger King
fast-food unit to its stores in fiscal year 1997.
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 and to add to
existing stores where feasible. Sales of gasoline products at the Company's
stores are affected by wholesale and retail price volatility, competition and
marketing decisions. At September 30, 1997, the Company had 299 locations
offering unleaded gasoline, with 158 of these locations also offering kerosene.
All are branded self-service units, with 287 offering Getty gasoline pursuant
to a petroleum supply agreement entered into with Getty in December 1991, and
the balance offering other major brands. The petroleum supply agreement and
leases and subleases with Getty will expire on December 31, 1997 and the number
of locations offering gasoline will thereafter decline to 208. The Company
will offer branded gasoline at 35 locations after December 31, 1997 and
unbranded gasoline at 173 locations. The branded locations will sell Exxon
products (21), Mobil products (10) and other brands at 4 locations.
CHOICE CIGARETTE DISCOUNT OUTLETS. During fiscal year 1997, the Company
converted three closed and 14 underperforming convenience store locations to
discount tobacco stores operating under the name of Choice Cigarette Discount
Outlet. At September 30, 1997, nine of these locations were offering unleaded
gasoline. The Company expects to continue to sell gasoline at converted
locations if gasoline was sold there prior to conversion. Since September 30,
1997, the Company has converted one other location and may continue this
program should results prove favorable.
COMPANY OPERATIONS
STORE MANAGEMENT. Each Company-operated store is managed by a store
manager. All Company stores are divided into groups of approximately eight
stores by geographic area. Each group is managed by a store supervisor. A
regional manager is responsible for a number of groups and their store
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 on increased profitability
of the stores. The number of full-time and part-time employees per store
depends on the sales volume of the store and its hours of operation.
6
FRANCHISES. At September 30, 1997, the Company had 32 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.
Following the Getty conversion, the Company will have 21 franchise locations.
As part of its services to 23 franchise locations (20 after the Getty
conversion), the Company provides accounting services, merchandising and
advertising assistance, store layout and design guidance, supplier and product
selection and ongoing operational assistance. These franchisees are required
to use the same internal control systems that the Company uses for the stores
it operates. The Company's financial statements include the sales and costs of
sales of these 23 franchised stores. The Company does not provide these
services for nine franchise locations. The Company has periodically closed
franchised stores and does not intend to grant new franchises except in
connection with new acquisitions or in other special circumstances.
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 products, pursuant to a seven-year supply agreement. 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 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 1991, the Company and Getty entered into a five-year gasoline supply
agreement pursuant to which Getty supplied gasoline products to substantially
all of the Company's convenience stores offering self-service gasoline. During
fiscal year 1996, the Company negotiated an extension of the petroleum supply
agreement with Getty that extends the agreement until December 31, 1997, at
which time the agreement terminates. Thereafter, the Company will offer
branded gasoline at 35 locations and unbranded gasoline at 173 locations.
MANAGEMENT CONTROLS AND INFORMATION SYSTEMS
The Company is developing an internal automation system which includes point-
of-sale ("POS") scanning. The system is designed to improve the timeliness and
accuracy of management information, reduce paperwork at the store level and
enhance cash, pricing and inventory controls. As of September 30, 1997,
installation of this new POS scanning system was completed in 42 of the
Company's convenience stores and 17 Choice Stores, with plans to add the POS
scanning system to additional locations.
The Company utilizes its current computer systems for inventory and accounting
control, financial record-keeping and management reporting, allowing management
to monitor closely and evaluate store operations. The Company's computer
systems are also programmed to identify variances from budgeted amounts by
store on a monthly and year-to-date basis. In addition, profit and loss
statements by store compare the current year's results for the month and year-
to-date to the previous year's comparable periods.
7
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 which 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 automated accounting and inventory control
systems provide the information required for management decisions and expense
control. An internal review has been conducted by the Company of all software
used in its data processing equipment to determine its exposure, if any, to the
"year 2000 problem." This problem may cause significant difficulties with the
electronic processing of information in the year 2000 and subsequent years due
to the inability of many computer programs to differentiate between the years
1900 and 2000. Based on its review, the Company believes the incremental costs
to make the necessary corrections to prevent any such difficulties will not have
a material effect on the Company's consolidated financial statements.
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 Mini-Markets and 7-Eleven and regional chains such as Sheetz, WaWa,
Stop-N-Go, Convenient Food Mart, Turkey Hill, Coastal 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.
Under current federal and certain state regulatory programs, the Company is
obligated to upgrade or replace all noncomplying underground storage tanks it
owns or operates to meet corrosion protection and overfill/spill containment
standards by December 1998. The Company has evaluated each of its stores which
sell gasoline to determine the type of expenditures required to comply with
these and other requirements under the federal and state UST regulatory
programs.
8
Management believes that the Company is currently in material compliance with
all applicable federal and state laws and regulations. The Company has spent
substantial amounts of money to upgrade its underground storage tanks to meet
the applicable standards and requirements and intends to expend approximately
$1.0 million during fiscal year 1998 to maintain compliance. 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. For a discussion of the capital expenditures planned
for environmental compliance, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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 27% - of the Company's merchandise sales
is derived from the sale of tobacco products at its convenience stores and at
its Choice Stores. If the government were to impose significant regulations or
restrictions on the sale of tobacco products, it would 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, 1997, the Company had approximately 2,750 employees,
approximately 1,250 of which 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. The number of employees will decline by
approximately 600, of which approximately 275 are full-time, on January 1,
1998 due to the termination of certain agreements with Getty. See "Business -
Company Overview."
On December 8, 1997, the President and Chief Operating Officer of the Company
retired pursuant to an agreement which provides, among other things, for his
salary to continue until May 15, 1998 and for certain other benefits. His
responsibilities have been assumed by the Chief Executive Officer of the
Company. On October 20, 1997, an Executive Vice President of the Company
retired. His duties have been assumed by the Vice President of Operations.
9
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, 1997:
Type of Square
Location Ownership Footage Use
- -------- ---------- ------- ---
State College, PA Leased 26,500 Administrative offices
State College, PA Owned 5,400 Administrative offices
State College, PA Leased 2,800 State Gas & Oil offices and
garage
Oak Hall, PA Leased 19,400 Storage facility
Pittsburgh, PA Leased 3,400 Regional office and storage
facility
Camp Hill, PA Leased 3,700 Regional office and storage
facility
Lancaster, PA Leased 3,000 Regional office and storage
facility
Roanoke, VA Leased 500 Regional office and storage
facility
The Company's above-referenced leased administrative offices and storage
facility in State College and Oak Hall, PA, 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. The State Gas & Oil division offices and
garage are leased from Unico Corporation, which is also controlled by Henry D.
Sahakian and Daniel D. Sahakian.
Of the Company's 384 convenience store locations, 123 are owned by the Company,
9 are leased from affiliated parties and 252 are leased from unaffiliated
parties. Most leases are for initial terms of five to ten years with renewal
terms of five years available at the Company's option. Under most leases, the
Company is responsible for the payment of insurance, taxes and maintenance. Of
the leased locations, 11 are subleased to franchisees. Of the 252 stores
leased from unaffiliated parties, 108 were leased from Getty in December 1991,
of which 105 leases expire in December 1997 when Getty will assume control of
these locations. The Company also owns five gasoline service stations which
are leased to unaffiliated operators. As of September 30, 1997, the Company
had no stores under construction.
10
The Company's store leases expire as follows:
Fiscal year of
lease expiration (1) Number of facilities
-------------------- --------------------
1998 115
1999 5
2000 10
2001 10
2002 and later 121
- ------------------
(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 table assumes the exercise of these renewal options, except
for the 105 Getty leases expiring in December 1997.
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 2000.
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 not a party to any pending material legal proceeding. Under its
risk-retention program, the Company is responsible for the first $300,000 of
any workers' compensation claim or most other liability exposures.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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 ChaseMellon Shareholder Services, L.L.C., Ridgefield Park, New
Jersey. As of December 10, 1997, the Company had 6,669,377 shares of its
Common Stock outstanding.
11
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
------- ------- ------- -------
1997
- ----
Cash Dividends per share $.0300 $.0300 $.0000 $.0000
Price Range:
High 8 1/4 5 13/16 5 3/8 5 3/4
Low 5 5/8 5 1/8 4 3/4 4 1/8
1996
- ----
Cash Dividends per share $.0275 $.0300 $.0300 $.0300
Price Range:
High 9 5/8 8 5/8 8 3/8 8 1/4
Low 6 7/8 7 7/8 7 1/2 7 3/8
In April 1997, the Company's Board of Directors elected to temporarily suspend
the quarterly dividends on its Common Stock. The dividend will be considered
for reinstatement upon the Company's return to profitability. However, there
can be no assurance of future dividends because they are dependent not only on
future earnings, but also capital requirements and financial condition. In
addition, certain debt agreements may restrict the Company's ability to declare
and pay dividends on Common Stock. The amount of retained earnings available
for such dividends at September 30, 1997 was $473,126.
At December 10, 1997, the Company had approximately 381 stockholders of record
of Common Stock. The Company believes that approximately 44 percent of its
Common Stock is held in street or nominee names.
12
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 and pro forma information, 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, 1997, 1996 and 1995, 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,
1997 1996 1995 1994 1993
--------- -------- -------- -------- --------
STATEMENTS OF OPERATIONS DATA: (1)
Sales and other income by the
Company and its franchisees:
Merchandise sales $188,936 $182,482 $180,343 $181,331 $185,560
Gasoline sales 160,701 148,829 143,690 132,215 130,891
Dairy sales 0 0 0 10,495 20,328
Other income 2,563 2,501 2,978 2,575 2,597
-------- -------- -------- -------- --------
Total 352,200 333,812 327,011 326,616 339,376
Cost of sales 267,325 247,458 240,164 239,751 249,896
-------- -------- -------- -------- --------
Gross profit 84,875 86,354 86,847 86,865 89,480
Selling 69,271 65,823 64,416 65,904 67,324
General and administrative 8,181 6,971 6,915 6,462 6,889
Depreciation and amortization 7,339 6,058 5,533 5,660 6,667
Interest 4,234 2,854 3,323 3,297 4,061
Provision for loss on disposal 1,625 0 0 0 0
Provision for asset impairment 1,063 0 0 0 0
-------- -------- -------- -------- --------
Earnings (loss) before income taxes
and cumulative effect of accounting
change ( 6,838) 4,648 6,660 5,542 4,539
Income taxes ( 2,262) 1,677 2,506 1,877 1,417
-------- -------- -------- -------- --------
Earnings (loss) before cumulative
effect of accounting change ( 4,576) 2,971 4,154 3,665 3,122
Cumulative effect of accounting
change, net of income tax benefit
of $726 (1) ( 1,468) 0 0 0 0
-------- -------- -------- -------- --------
Net earnings (loss) ($ 6,044) $ 2,971 $ 4,154 $ 3,665 $ 3,122
======== ======== ======== ======== ========
Earnings (loss) per share before
cumulative effect of accounting
change ($ .69) $ .46 $ .66 $ .54 $ .46
Loss per share from cumulative
effect of accounting change ( .22) .00 .00 .00 .00
-------- -------- -------- -------- --------
Net earnings (loss) per share ($ .91) $ .46 $ .66 $ .54 $ .46
======== ======== ======== ======== ========
Dividends per share $ .0600 $ .1175 $ .1100 $ .1000 $ .1000
======== ======== ======== ======== ========
Weighted average shares outstanding 6,642 6,509 6,297 6,813 6,858
======== ======== ======== ======== ========
13
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED).
Fiscal Year Ended September 30,
1997 1996 1995 1994 1993
--------- -------- -------- -------- --------
OPERATING DATA (CONVENIENCE STORES
ONLY):
Average, per store, for stores open
two full years:
Merchandise sales $ 474 $ 456 $ 448 $ 441 $ 426
Gasoline sales $ 526 $ 492 $ 478 $ 433 $ 399
Gallons of gasoline sold 496 477 468 468 436
Gross profit per gallon of gasoline $ .112 $ .120 $ .132 $ .117 $ .106
Total gallons of gasoline sold 150,005 144,059 139,842 139,512 136,820
Number of stores open at year end 384 405 414 417 444
Stores added 2 2 3 3 2
Stores closed 9 11 6 30 3
Stores converted to Choice locations 14 0 0 0 0
BALANCE SHEET DATA:
Working capital $ 727 $ 1,663 $ 2,330 $ 981 $ 2,923
Total assets 113,594 105,038 95,670 93,036 105,353
Long-term obligations 40,386 38,964 33,343 32,954 40,028
Stockholders' equity 29,547 36,062 32,579 28,803 29,222
(1) In fiscal year 1997, the Company changed its method of calculating ending
merchandise inventories under the retail inventory method. The cumulative
effect of this accounting change, net of the income tax benefit, was
approximately $1.5 million. The pro forma effect as if the accounting
change was in effect in each of the years presented is as follows:
Pro Forma for the Year Ended September 30,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Revenues $352,200 $333,812 $327,011 $326,616 $339,376
Gross profit 84,875 85,097 86,629 86,983 89,577
Net earnings (loss) ( 4,576) 2,168 4,018 3,743 3,189
Earnings (loss) per share ( .69) .33 .64 .55 .47
14
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 (Convenience Stores Only)" on the
preceding pages.
The Company experienced a significant loss of $6.0 million in fiscal year
1997. This loss includes a charge of $1.5 million (net of tax of $725,800) as
a result of the change in method of accounting for inventory, a pre-tax charge
of $1.6 million relating to the termination of Getty leases, and a pre-tax
charge of $1.1 million for the impairment of long-lived assets. Before the
effect of these charges, the loss from operations was $4.2 million on a pre-tax
basis, or $2.8 million after tax.
The loss from operations is attributable primarily to significant declines in
gross profit rates on the sale of gasoline products and merchandise sales. In
addition, the Company's selling expenses increased primarily as a result of
higher labor costs associated with the staffing of 55 branded fast-food units
within its convenience stores. Depreciation, amortization and interest
expenses also increased due to the costs of new and remodeled stores and
upgrading stores for fast-food installations. The Company had expected
fast-food installations would result in enhanced revenues which would offset
these expenses. However, the anticipated increase in revenue has not been
realized to date.
The Company recently entered into an agreement with Getty pursuant to which
Getty has agreed, among other things, to purchase certain store equipment and
gasoline equipment for $4.1 million. The Company intends to use a portion of
these proceeds to repay $3.1 million of its outstanding senior debt. As a
result of the termination of the Getty leases, the number of stores operated by
the Company will be reduced by 105, which were previously leased to the Company
by Getty. In addition, the Company will no longer be required to purchase
petroleum products from Getty. In fiscal year 1997, these stores generated
merchandise sales of $44.8 million and sold 38.3 million gallons of gasoline,
for total sales of $88.8 million.
Termination of the relationship with Getty will permit the Company to purchase
petroleum products from a variety of competing sources. The Company has
recently entered into agreements to purchase branded gasoline for 35 locations.
The Company will purchase unbranded gasoline from various sources for 173
locations. These arrangements should provide for purchases of gasoline at cost
levels which are less than those offered by Getty. The Company believes that
the agreements it has already entered into to purchase gasoline as well as its
ability to purchase petroleum products from a number of competing sources will
enable it to improve gasoline margins. However, gasoline margins have
historically been volatile and there can be no assurance that the Company's
gasoline margins will be enhanced by purchasing such products from competitive
sources. In addition, the Company has suspended its program of capital
expenditures for fast-food installations and currently does not anticipate
adding any such new installations in the near future. The Company expects to
improve the operating results of its existing fast-food units.
The Company's revenues are derived primarily from sales of merchandise and
gasoline at its 384 convenience stores. In recent years, the sale of gasoline
has become an increasingly significant part of the Company's revenues.
Gasoline sales as a percentage of total revenues have increased from 43.9% in
fiscal year 1995 to 44.6% in fiscal year 1996 to 45.6% in fiscal year 1997.
Average gasoline sales per store, for stores open two full years, have
15
increased from approximately $478,000 in fiscal year 1995 to approximately
$492,000 in fiscal year 1996 to approximately $526,000 in fiscal year 1997, as
a result of the increase in the selling price per gallon and the increase in
gallons sold. While the Company expects to sell more gallons per store as it
continues to implement its strategy of adding high-volume gasoline dispensing
facilities, the price of gasoline can be volatile, and there can be no
assurance that an increase in sales volume will result in higher revenues or
gross profits. However, the Company expects that total gallons of gasoline
sold in fiscal year 1998 will decline due to the loss of 91 gasoline locations
leased from Getty. In fiscal year 1997, the locations leased from Getty sold
38.3 million gallons of gasoline.
Average merchandise sales per store, for stores open two full years, have
increased from approximately $448,000 in fiscal year 1995 to approximately
$456,000 in fiscal year 1996 to approximately $474,000 in fiscal year 1997.
This merchandise sales growth trend is primarily the result of increased sales
of branded fast-food items and the addition of in-store traffic enhancing
services, such as the sale of lottery tickets, money orders and prepaid
telephone cards, the acceptance of utility bill payments, ATMs and free check
cashing. Tobacco sales represented approximately 27% 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 volatility to continue, it has sought increased sales
of other merchandise to offset the uncertainty in cigarette sales.
Convenience stores selling gasoline have been heavily affected by environmental
regulations principally concerning underground storage tanks, which require
large capital expenditures in order to achieve compliance. In the late 1980's,
the Company began making significant expenditures to meet, and exceed,
applicable standards. Management believes that the Company is currently in
compliance with all applicable federal and state environmental laws and
regulations and expects to expend approximately $1.0 million in fiscal year
1998 to maintain compliance. In addition, the Company has adopted a program to
ensure that new gasoline installations comply with federal and state
regulations.
16
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain expense
items to total revenues. Since the Company's franchise agreements for 23 of
the Company's 32 franchise locations permit the Company to exercise complete
control over the operations of these 23 franchised stores and the Company bears
the attendant risks of ownership, the results of operations include sales and
related cost of sales of stores operated by these franchisees. 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 the proportional
increase in 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,
1997 1996 1995
------- ------ ------
Revenues:
Merchandise sales 53.6% 54.7% 55.2%
Gasoline sales 45.6 44.6 43.9
Other income 0.8 0.7 0.9
----- ----- -----
Total revenues 100.0 100.0 100.0
Cost of sales 75.9 74.1 73.4
----- ----- -----
Gross profit:
Merchandise (as a percentage of
merchandise sales) 34.2 36.2 36.0
Gasoline (as a percentage of
gasoline sales) 10.7 11.9 13.2
Total gross profit 24.1 25.9 26.6
Costs and expenses:
Selling 19.7 19.7 19.7
General and administrative 2.3 2.1 2.1
Depreciation and amortization 2.1 1.8 1.7
Interest 1.2 0.9 1.0
Provision for loss on disposal 0.5 0.0 0.0
Provision for asset impairment 0.3 0.0 0.0
----- ----- -----
Total expenses 26.1 24.5 24.5
----- ----- -----
Earnings (loss) before income taxes
and cumulative effect of accounting
change ( 2.0) 1.4 2.1
Income taxes ( 0.6) 0.5 0.8
----- ----- -----
Earnings (loss) before cumulative
effect of accounting change ( 1.4) 0.9 1.3
Cumulative effect of accounting change,
net of income tax benefit ( 0.4) 0.0 0.0
----- ----- -----
Net earnings (loss) ( 1.8)% 0.9% 1.3%
===== ===== =====
17
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
During fiscal year 1997, the Company opened two new stores, closed nine
underperforming stores, including three franchised locations, and converted one
franchised location to a Company-operated store. The Company also, on a test
basis, converted 14 underperforming convenience store locations to discount
tobacco stores operating under the name of Choice Cigarette Discount Outlet.
The Company expects to continue to sell gasoline at converted locations if
gasoline was sold there prior to conversion. Total revenues were $352.2
million in fiscal year 1997, compared to $333.8 million in fiscal year 1996, an
increase of $18.4 million, or 5.5%.
Merchandise sales increased by $6.4 million, or 3.5%, to $188.9 million in
fiscal year 1997 compared to $182.5 million in fiscal year 1996. Fiscal year
1997 merchandise sales include $4.8 million in merchandise sales at locations
converted to discount tobacco stores. The increase in merchandise sales is due
to higher sales levels per store as merchandise sales at comparable stores
increased by 1.9%. Part of this increase is due to increased sales of branded
fast food.
Gasoline sales in fiscal year 1997 were $160.7 million compared to fiscal year
1996 gasoline sales of $148.8 million, an increase of $11.9 million, or 8.0%.
This increase is due to 5.9 million additional gallons of gasoline sold and a
$0.04 increase in the average retail price per gallon sold at the Company's
convenience stores in fiscal year 1997.
In fiscal year 1997, the Company changed its method of valuing its merchandise
inventories. The Company formerly valued its merchandise inventories at the
lower of cost (first-in, first-out method) or market, as determined by the
retail inventory method utilizing a single category of merchandise. The
Company now values its merchandise inventories at the lower of cost (first-in,
first-out method) or market, as determined by the retail inventory method
utilizing eight categories of merchandise. This change is expected to improve
the measurement of the Company's profitability based upon a changing product
mix. This change caused a one-time charge to earnings of $1,468,140, net of
the income tax benefit of $725,800.
Gross profits on merchandise sales were $65.2 million, a decrease of $0.9
million, or 1.4%, from $66.1 million in fiscal year 1996. This decrease is due
to competitive pressures on gross profit rates.
Gross profits on gasoline sales decreased $595,000, or 3.4%, from $17.8 million
in fiscal year 1996 to $17.2 million in fiscal year 1997. This decrease is
primarily due to lower gross profit rates per gallon sold at the Company's
convenience stores from $0.120 per gallon in fiscal year 1996 to $0.112 in the
current year.
Selling expenses were $69.3 million in fiscal year 1997 compared to $65.8
million in fiscal year 1996. The increase of $3.5 million, or 5.2%, is due
primarily to a 7% increase in store labor costs associated with increased
staffing levels for fast-food installations and higher advertising costs as
well as smaller increases in other types of selling expenses. General and
administrative expense increased $1.2 million, or 17.4%. This increase is
primarily the result of higher salary levels, severance packages offered to
terminated and retired employees and higher professional fees, including
costs associated with a review of certain inventory and purchasing matters of
the Company. Depreciation and amortization increased by $1.3 million, or
21.1%. This increase is due to additional depreciation from new and remodeled
stores. Interest expense increased by $1.4 million, or 48.3%, due to higher
borrowing levels and interest rates as well as the capitalization of $297,000 of
interest paid in fiscal year 1996 compared to $57,000 in fiscal year 1997.
18
The Company recorded a provision in fiscal year 1997 for loss on disposal of
certain assets to Getty of $1.6 million due to the termination on December 31,
1997 of certain leases, subleases and a gasoline supply contract. Getty has
agreed to pay $4.1 million for equipment at 105 stores that are reverting to
Getty control in December 1997 and January 1998. The provision includes a loss
of approximately $950,000 on the disposal of equipment and leasesehold
improvements and additional costs of approximately $675,000 related to the
termination.
In fiscal year 1997, the Company established a provision for the impairment of
long-lived assets at certain closed and underperforming stores. This provision
caused a charge to earnings of $1.1 million.
The Company incurred a loss of $6.8 million before income taxes and cumulative
effect of an accounting change in fiscal year 1997 compared to earnings of $4.6
million in fiscal year 1996. This earnings decline of $11.4 million is due to
a decline in gross profit of $1.5 million as well as expense increases of $7.3
million and earnings charges of $1.6 million for loss on disposal of assets at
the Getty locations and $1.1 million for asset impairment. In fiscal year
1997, the Company recognized an income tax benefit of $2.3 million compared
to income taxes of $1.7 million in fiscal year 1996 due to the losses incurred.
Due to the accounting change discussed previously, the Company recorded a
charge to earnings of $1.5 million in fiscal year 1997, net of the income tax
benefit of $0.7 million. The Company incurred a net loss of $6.0 million, or
$0.91 per share, compared to net earnings of $3.0 million, or $0.46 per share,
in fiscal year 1996.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
During fiscal year 1996, the Company opened two new stores including a 10,000-
square-foot location which includes several types of fast-food operations,
a mailing center, a bank and a car wash. The Company also closed ten
underperforming locations and one location which was replaced by one of the new
stores. Total revenues were $333.8 million in fiscal year 1996, compared to
$327.0 million in fiscal year 1995, an increase of $6.8 million, or 2.1%.
Although the Company had fewer stores in operation, merchandise sales increased
by $2.1 million, or 1.2%, to $182.5 million in fiscal year 1996 from $180.3
million in fiscal year 1995. This increase was due to increased sales levels
per store which was partially due to additional branded fast-food locations.
Merchandise sales at comparable stores increased 1.1%.
Gasoline sales increased $5.1 million, or 3.6%, from $143.7 million in the
prior fiscal year to $148.8 million in fiscal year 1996. The gasoline sales
increase was due to the sale of additional gallons of gasoline as well as a
slight increase in the retail selling price per gallon.
In fiscal year 1996, gross profits on merchandise sales were $66.1 million
compared to $64.9 million in the prior fiscal year, an increase of $1.2
million, or 1.9%. This increase was due to the higher sales volume as well as
slightly higher gross profit rates.
Gross profits on gasoline sales declined $1.2 million, or 6.4%, from $19.0
million in fiscal year 1995 to $17.8 million in fiscal year 1996. This
decline was the result of a decrease in gross profits per gallon of gasoline
sold at the Company's stores from $0.132 in fiscal year 1995 to $0.120 in
fiscal year 1996.
19
Other income decreased by $500,000 to $2.5 million in fiscal year 1996 from
$3.0 million in the prior fiscal year, largely due to lower rental income and
promotional allowances.
Selling expenses of $65.8 million in fiscal year 1996 were $1.4 million, or
2.2%, higher than selling expenses of $64.4 million in fiscal year 1995,
primarily the result of increased staffing and maintenance costs. General and
administrative expense increased by $56,000, or 0.8%, due largely to higher
professional fees. Depreciation and amortization expense increased by
$525,000, or 9.5%, due to additional depreciation of convenience store capital
expenditures. Interest expense declined by $468,000, due largely to lower
interest rates, interest capitalization and lower average debt levels.
Primarily as a result of a $493,000 reduction in gross profits and the $1.4
million increase in selling expenses, earnings before income taxes in fiscal
year 1996 declined by $2.0 million, or 30.2%, from $6.7 million in fiscal year
1995 to $4.6 million in fiscal year 1996. Income taxes decreased by $829,000
due to lower pre-tax income. Net earnings declined by $1.2 million to
$3.0 million, or $0.46 per share, in fiscal year 1996 from $4.2 million, or
$0.66 per share, in fiscal year 1995.
20
SEASONALITY AND QUARTERLY RESULTS
The Company's business has been subject to moderate seasonal influences with
higher sales in the third and fourth fiscal quarters of each 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. However, because of price
volatility, gasoline profit margins fluctuate significantly throughout the
year.
(In thousands, except per share data)
QUARTER ENDED
---------------------------------------------------------------------------------
(1) (1) (1)
Jan. 2, Apr. 3, July 3, Sep. 30, Jan. 4, Apr. 4, July 4, Sep. 30,
1997 1997 1997 1997 1996 1996 1996 1996
-------- -------- -------- -------- -------- -------- -------- --------
Revenues:
Merchandise sales $46,473 $42,609 $50,334 $49,520 $46,362 $42,050 $47,513 $46,557
Gasoline sales 42,320 38,218 40,896 39,267 37,219 33,550 40,833 37,227
Other income 616 589 731 627 553 998 479 471
------- ------- ------- ------- ------- ------- ------- -------
Total revenues 89,409 81,416 91,961 89,414 84,134 76,598 88,825 84,255
Cost of sales 66,817 60,963 70,401 69,144 61,192 56,493 66,351 63,422
------- ------- ------- ------- ------- ------- ------- -------
Gross profit 22,592 20,453 21,560 20,270 22,942 20,105 22,474 20,833
Costs and expenses:
Selling 17,699 17,097 16,838 17,637 16,833 15,961 16,636 16,393
General & administrative 1,854 1,880 1,729 2,718 1,653 1,505 1,826 1,987
Depreciation & amortization 1,813 1,817 1,876 1,833 1,453 1,467 1,498 1,640
Interest 917 1,096 1,110 1,111 785 773 793 503
Provision for loss on disposa 0 0 0 1,625 0 0 0 0
Provision for asset impairmen 0 0 0 1,063 0 0 0 0
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) before income
taxes and cumulative effect of
accounting change 309 ( 1,437) 7 ( 5,717) 2,218 399 1,721 310
Income taxes 116 ( 512) 3 ( 1,869) 820 145 609 103
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) before cumulative
effect of accounting change 193 ( 925) 4 ( 3,848) 1,398 254 1,112 207
Cumulative effect of accounting
change, net of income tax
benefit of $726 ( 1,468) 0 0 0 0 0 0 0
------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss) ($ 1,275) ($ 925) $ 4 ($ 3,848) $ 1,398 $ 254 $ 1,112 $ 207
======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share
before cumulative effect of
accounting change $ 0.03 ($ 0.14) $ 0.00 ($ 0.58) $ 0.22 $ 0.04 $ 0.16 $ 0.03
Loss per share from cumulative
effect of accounting change ( 0.22) 0.00 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss) per share ($ 0.19) ($ 0.14) $ 0.00 ($ 0.58) $ 0.22 $ 0.04 $ 0.16 $ 0.03
======= ======= ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding 6,642 6,636 6,642 6,647 6,368 6,727 6,776 6,649
======= ======= ======= ======= ======= ======= ======= =======
Pro forma amounts assuming the
new inventory method is
applied retroactively:
Net earnings $ 992 ($ 8) $ 1,088 $ 96
Earnings (loss) per share $ 0.16 $ 0.00 $ 0.16 $ 0.01
(1) Restated for retroactive application of change in inventory - See Note C to
the consolidated financial statements.
21
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 and interim credit facilities to acquire and
construct new stores and renovate existing locations. In addition, the Company
periodically utilizes credit facilities for working capital as it did during
fiscal year 1997.
At September 30, 1997, the Company was not in compliance with certain financial
covenants contained in both its Senior Note Agreements and its bank term loans
and revolving credit agreement. This noncompliance resulted primarily from
lower gross profits on merchandise and gasoline sales as well as lower than
anticipated profit contributions from newly constructed and remodeled stores
during fiscal year 1997.
The Senior Notes had an outstanding balance of $3,736,735 at September 30,
1997. The agreements related to these notes had previously been amended in
January, April and July 1997 to waive covenant noncompliance by amending
certain covenants and the scheduled amortization of the notes. The agreements
related to these notes were further amended by the holders in December 1997 to
waive covenant noncompliance for the fiscal quarter ended September 30, 1997
and the first fiscal quarter ending January 1, 1998. In consideration of the
December amendment, the Company has agreed to repay the remaining $3,133,333
of outstanding principal on February 2, 1998.
The bank term loans and revolving credit agreement were amended on December 29,
1997 to waive covenant noncompliance for the fiscal quarter ended September 30,
1997, modify certain existing covenants and add new covenants effective on
the amendment date. The new schedule of term loan principal payments beginning
on February 2, 1998, requires quarterly payments of $1,905,000 through
October 1, 1998 and $2,000,000 through October 1, 1999, with the remaining
balance due on December 31, 1999. In addition, the Company must make mandatory
prepayments if specified cash flow targets are met or if the Company receives
proceeds from the sale of certain assets. The rate of interest paid by the
Company to the banks for the Revolving Credit Loan was increased by .25% per
annum. In addition, the amendment restricts the Company's capital expenditures
to $3.0 million in fiscal year 1998 and places certain restrictions on any
additional borrowing by the Company.
As a result of the amendments discussed above, the Company has debt service
requirements for fiscal year 1998 of $12.7 million, a significant increase from
requirements in prior years. As of September 30, 1997, the Company had cash
balances of approximately $6.0 million but had no additional borrowing
available under its existing credit agreements. The Company expects to utilize
approximately $8.0 million in proceeds from tax refunds and asset disposals for
a portion of the debt service requirements. Management believes these sources
of cash and cash generated from operations will be sufficient to meet its
obligations in fiscal year 1998.
22
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, the 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.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
23
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 subsidiary as of September 30, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended September 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 subsidiary
as of September 30, 1997 and 1996 and the results of their operations and
their cash flows for each of the three years in the period ended September 30,
1997, in conformity with generally accepted accounting principles.
As discussed in Note C, the Company changed its method of accounting for
inventory in 1997.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
December 29, 1997
24
UNI-MARTS, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
September 30,
1997 1996
------------ ------------
A S S E T S
------------
CURRENT ASSETS:
Cash $ 5,993,388 $ 1,207,929
Marketable equity securities 407,475 387,282
Accounts receivable - less allowances of
$132,600 and $74,600 3,377,554 2,826,887
Tax refunds receivable 1,819,100 0
Inventories 15,683,330 17,807,998
Prepaid and current deferred taxes 3,359,490 2,491,978
Property held for sale 5,643,006 0
Prepaid expenses and other 796,668 1,560,816
Loan due from officer - current portion 150,000 0
------------ ------------
TOTAL CURRENT ASSETS 37,230,011 26,282,890
NET PROPERTY, EQUIPMENT AND IMPROVEMENTS 69,055,846 71,794,100
LOAN DUE FROM OFFICER 674,768 0
NET INTANGIBLE AND OTHER ASSETS 6,633,157 6,960,752
------------ ------------
TOTAL ASSETS $113,593,782 $105,037,742
============ ============
25
UNI-MARTS, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Continued)
September 30,
1997 1996
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 14,462,174 $ 13,335,711
Gas taxes payable 2,424,641 2,053,729
Accrued expenses 6,806,632 5,852,143
Current maturities of long-term debt 12,722,649 3,272,957
Current obligations under capital leases 87,320 105,071
------------ ------------
TOTAL CURRENT LIABILITIES 36,503,416 24,619,611
LONG-TERM DEBT, less current maturities 39,852,947 38,343,024
OBLIGATIONS UNDER CAPITAL LEASES,
less current maturities 533,551 620,871
DEFERRED TAXES 4,036,000 2,394,700
DEFERRED INCOME AND OTHER LIABILITIES 3,120,923 2,997,125
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, par value $.10 a share:
Authorized 15,000,000 shares
Issued 7,286,657 and 7,279,684
shares, respectively 728,666 727,968
Additional paid-in capital 24,341,999 24,287,858
Retained earnings 8,254,538 14,696,776
Less unrealized loss on securities 0 ( 54,401)
------------ ------------
33,325,203 39,658,201
Less treasury stock, at cost - 639,980
and 621,197 shares of Common Stock,
respectively ( 3,778,258)( 3,595,790)
------------ ------------
29,546,945 36,062,411
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $113,593,782 $105,037,742
============ ============
See notes to consolidated financial statements
26
UNI-MARTS, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Year Ended September 30,
1997 1996 1995
------------- ------------ ------------
REVENUES:
Merchandise sales $188,935,939 $182,481,748 $180,343,639
Gasoline sales 160,700,946 148,829,207 143,689,680
Other income 2,563,490 2,501,324 2,978,052
------------ ------------ ------------
352,200,375 333,812,279 327,011,371
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 267,324,567 247,457,964 240,164,720
Selling 69,270,631 65,822,709 64,416,108
General and administrative 8,181,303 6,970,780 6,915,288
Depreciation and amortization 7,339,206 6,058,030 5,532,744
Interest 4,234,440 2,854,552 3,322,550
Provision for loss on disposal 1,624,550 0 0
Provision for asset impairment 1,063,203 0 0
------------ ------------ ------------
359,037,900 329,164,035 320,351,410
------------ ------------ ------------
EARNINGS (LOSS) BEFORE INCOME
TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE ( 6,837,525) 4,648,244 6,659,961
INCOME TAXES ( 2,261,600) 1,677,200 2,506,200
------------ ------------ ------------
EARNINGS (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE ( 4,575,925) 2,971,044 4,153,761
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE, NET OF INCOME TAX
BENEFIT OF $725,800 ( 1,468,140) 0 0
------------ ------------ ------------
NET EARNINGS (LOSS) ($ 6,044,065) $ 2,971,044 $ 4,153,761
============ ============ ============
EARNINGS (LOSS) PER SHARE BEFORE
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE ($ 0.69) $ 0.46 $ 0.66
LOSS PER SHARE FROM CUMULATIVE
EFFECT OF ACCOUNTING CHANGE ( 0.22) 0.00 0.00
------------ ------------ ------------
NET EARNINGS (LOSS) PER SHARE ($ 0.91) $ 0.46 $ 0.66
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,641,926 6,509,458 6,297,362
============ ============ ============
See notes to consolidated financial statements
27
UNI-MARTS, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
Common Stock
Par Value $.10
a share
Authorized 15,000,000 Unrealized Additional
Shares Loss On Paid-In Retained Treasury Stock
Shares Amount Securities Capital Earnings Shares Amount
--------- -------- ---------- ----------- ------------ ------- ------------
Balance - October 1, 1994 6,996,498 $699,650 $ 0 $22,897,804 $ 9,035,050 722,238 ($3,829,481)
Issuance of common stock 46,388 4,639 236,776 ( 24,817) 74,451
Net earnings 4,153,761
Dividends ($.1100 per share) ( 693,948)
--------- -------- ------- ----------- ----------- ------- ----------
Balance - September 30, 1995 7,042,886 704,289 0 23,134,580 12,494,863 697,421 ( 3,755,030)
Purchase of treasury stock 94,075 ( 754,457)
Issuance of common stock 236,798 23,679 1,153,278 (170,299) 913,697
Unrealized loss on securities ( 54,401)
Net earnings 2,971,044
Dividends ($.1175 per share) ( 769,131)
--------- -------- ------- ----------- ----------- ------- ----------
Balance - September 30, 1996 7,279,684 727,968 ( 54,401) 24,287,858 14,696,776 621,197 ( 3,595,790)
Purchase of treasury stock 50,500 ( 365,994)
Issuance of common stock 6,973 698 54,141 ( 31,717) 183,526
Unrealized gain on securities 54,401
Net loss ( 6,044,065)
Dividends ($.0600 per share) ( 398,173)
--------- -------- ------- ----------- ----------- ------- ----------
Balance - September 30, 1997 7,286,657 $728,666 $ 0 $24,341,999 $ 8,254,538 639,980 ($3,778,258)
========= ======== ======= =========== =========== ======= ==========
See notes to consolidated financial statements
28
UNI-MARTS, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Year Ended September 30,
1997 1996 1995
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others $351,614,420 $335,079,196 $326,516,241
Cash paid to suppliers and employees ( 340,898,407) ( 325,132,418) ( 309,676,039)
Net receipts for sales and purchases
of trading equity securities 0 455,289 45,267
Dividends and interest received 80,172 44,675 112,393
Interest paid (net of capitalized interest
of $57,400, $297,000 and $0) ( 4,157,146) ( 2,892,365) ( 3,258,761)
Income taxes received (paid) 1,005,600 ( 1,778,900) ( 2,862,500)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 7,644,639 5,775,477 10,876,601
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts from sale of capital assets 170,473 268,124 297,939
Purchase of property, equipment and
improvements ( 11,844,707) ( 17,296,373) ( 8,637,466)
(Payments) receipts for sales and
purchases of available-for-sale
securities ( 183,667) ( 441,683) 0
Note receivable from officer ( 824,768) 0 0
Cash advanced for intangible and
other assets ( 506,164) ( 371,287) ( 260,965)
Cash received for intangible and
other assets 236,651 116,058 250,112
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES ( 12,952,182) ( 17,725,161) ( 8,350,380)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (payments) on revolving credit
agreement 5,000,000 ( 1,000,000) 0
Additional long-term borrowings 10,000,000 10,000,000 250,000
Principal payments on debt ( 4,145,456) ( 3,381,869) ( 3,430,753)
Purchases of treasury stock ( 365,994) ( 79,457) 0
Proceeds from issuance of common stock 2,625 1,062,557 140,728
Dividends paid to stockholders ( 398,173) ( 769,131) ( 693,948)
------------ ------------ ------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 10,093,002 5,832,100 ( 3,733,973)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 4,785,459 ( 6,117,584) ( 1,207,752)
CASH AT BEGINNING OF YEAR 1,207,929 7,325,513 8,533,265
------------ ------------ ------------
CASH AT END OF YEAR $ 5,993,388 $ 1,207,929 $ 7,325,513
============ ============ ============
29
UNI-MARTS, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Continued)
-----------
Year Ended September 30,
1997 1996 1995
----------- ---------- ----------
RECONCILIATION OF NET EARNINGS (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
NET EARNINGS (LOSS) ($ 6,044,065) $2,971,044 $ 4,153,761
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 7,339,206 6,058,030 5,532,744
Provision for loss on disposal 1,624,550 0 0
Provision for asset impairment 1,063,203 0 0
Net unrealized holding (gain) loss on
trading securities ( 130,323) 0 49,251
Gain on sale of trading equity securities ( 97,107) 0 0
Gain on sale of available-for-sale securities ( 3,001) 0 0
Loss on sale of capital assets and other 282,836 150,545 143,668
Cumulative effect of accounting change 1,468,140 0 0
Change in assets and liabilities:
(Increase) decrease in:
Trading equity securities 0 434,508 88,407
Accounts receivable ( 102,361) ( 414,903) ( 243,335)
Tax refunds receivable ( 1,819,100) 0 0
Inventories ( 69,272) ( 2,243,246) ( 456,295)
Prepaid expenses 1,238,136 ( 1,669,640) ( 4,199)
Increase (decrease) in:
Accounts payable and accrued expenses 2,219,399 ( 1,233,865) 2,004,689
Deferred income taxes and other
liabilities 674,398 1,723,004 ( 392,090)
----------- ---------- -----------
TOTAL ADJUSTMENTS TO NET EARNINGS 13,688,704 2,804,433 6,722,840
----------- ---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 7,644,639 $5,775,477 $10,876,601
=========== ========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING ACTIVITY:
During fiscal year 1997, the Company sold marketable securities for $448,300
and recognized a gain of $97,100. The cash proceeds from the sale were not
received until after September 30, 1997.
See notes to consolidated financial statements
30
UNI-MARTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
A. Summary of Significant Accounting Policies:
------------------------------------------
The Company is an independent operator of convenience stores located in
Pennsylvania, Virginia, New York, New Jersey, Delaware and Maryland.
(1) Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary.
All material intercompany balances and transactions have been
eliminated.
(2) Marketable Equity Securities -- The Company's marketable equity
securities are stated at fair value based on published quotes.
Management determines the proper classification of investments in
marketable equity securities at the time of purchase and reevaluates
such designations periodically. During fiscal year 1997 the Company
transferred all of its available-for-sale securities to the trading
category, based upon management's intent to sell the securities.
The unrealized holding gain at the time of the transfer was
approximately $174,000. Realized gains and losses on sales of
investments, and unrealized gains and losses as determined on a
specific identification basis, are included in the Consolidated
Statements of Operations. Marketable securities include the
following:
September 30,
1997 1996
---------- ----------
Available-for-sale securities:
Cost $ 0 $441,683
Less unrealized holding losses 0 54,401
-------- --------
Fair value $ 0 $387,282
======== ========
Trading equity securities:
Cost $277,152 $ 0
Plus unrealized holding gains 130,323 0
-------- --------
Fair value $407,475 $ 0
======== ========
(3) Inventories -- The Company values its merchandise inventories at the
lower of cost (first-in, first-out method) or market, as determined
by the retail inventory method. Gasoline inventories are valued at
the lower of cost (first-in, first-out method) or market (see
Note C).
(4) Property, Equipment and Improvements -- Depreciation and amortization
are calculated using the straight-line method over the
useful lives of the related assets. Amortization of improvements to
leased properties is based on the remaining terms of the leases or
the estimated useful lives of such improvements, whichever is
shorter. Interest costs incurred on borrowed funds during the
period of construction of capital assets are capitalized as a
component of the cost of acquiring those assets. The amount of
interest capitalized in fiscal years 1997 and 1996 was $57,400 and
$297,000, respectively. No interest was capitalized in fiscal year
1995.
31
A. Summary of Significant Accounting Policies (Continued):
------------------------------------------------------
(5) Intangible and Other Assets -- Intangible and other assets consist
of the following:
Accumulated Net Book Useful
Cost Amortization Value Lives
----------- ------------ ---------- -------
For the year ended September 30, 1997:
Goodwill $ 145,399 $ 105,368 $ 40,031 13-21
Goodwill 5,852,952 1,767,038 4,085,914 29-40
Lease acquisition costs 1,187,174 844,470 342,704 12-25
Non-competition agreements 1,213,040 1,211,430 1,610 10
Other intangibles 117,362 105,952 11,410 15-16
Other assets 2,151,488 0 2,151,488
----------- ---------- ----------
$10,667,415 $4,034,258 $6,633,157
=========== ========== ==========
For the year ended September 30, 1996:
Goodwill $ 645,719 $ 570,762 $ 74,957 5-21
Goodwill 5,852,952 1,409,294 4,443,658 29-40
Lease acquisition costs 1,296,637 881,591 415,046 10-25
Non-competition agreements 1,213,040 1,074,470 138,570 10
Other intangibles 117,362 98,468 18,894 15-16
Other assets 1,869,627 0 1,869,627
----------- ---------- ----------
$10,995,337 $4,034,585 $6,960,752
=========== ========== ==========
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. Non-competition agreements
are being amortized over the terms of the particular agreements.
Amortization expense was $431,200 (1997), $510,100 (1996) and
$533,900 (1995).
(6) Asset Impairment -- It is the Company's policy to periodically review
and evaluate the recoverability of fixed and intangible assets by
assessing current and future profitability and cash flows and to
determine whether the depreciation or amortization of the balances
over their remaining lives can be recovered through expected future
results and cash flows. The Company has recorded a $1,063,200
provision for asset impairment for certain real estate, leasehold
improvements, store and gasoline equipment and goodwill at certain
closed or underperforming stores. Fair value was determined based on
a review of historical and projected cash flows. As discussed in
Footnote D, the Company also recorded a provision for loss on
disposal of $1,624,600 for certain assets to be sold in January 1998.
(7) 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 the risk-free
treasury rate of 6.1%, using actuarial valuations provided by
32
A. Summary of Significant Accounting Policies (Continued):
------------------------------------------------------
independent companies. At September 30, 1997 and 1996, the Company
had self-insurance reserves totaling $2,456,900 and $2,460,300,
respectively.
(8) 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.
(9) Deferred Income and Other Liabilities -- The Company generally
records revenues when products are sold or services rendered. In
certain instances, the Company receives advance payments for purchase
commitments or other services and records revenue from such payments
in accordance with the terms of the related contractual arrangements.
Deferred income and other liabilities includes the following:
September 30,
1997 1996
---------- ----------
Deferred income $1,892,557 $2,025,000
Deferred compensation 1,056,498 747,541
Other noncurrent
liabilities 171,868 224,584
---------- ----------
$3,120,923 $2,997,125
========== ==========
(10) Operations -- The Company operates 384 convenience stores, 32 of
which are operated by franchisees (36 in 1996 and 39 in 1995).
During fiscal 1997, the results of operations include sales and costs
of sales of 23 of these franchisees for which the Company exercises
complete control and bears the attendant risks of ownership (26 in
1996 and 28 in 1995). Net sales of franchise stores under Company
control were $10,165,800 (1997), $11,597,000 (1996) and
$13,057,200 (1995).
(11) Earnings Per Share -- Earnings per share for the years ended
September 30, 1997, 1996 and 1995 were calculated based on the
weighted average number of shares of common stock outstanding.
Common stock equivalents were not considered in the computation of
earnings per share as the effect was not significant to the Company.
(12) Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles 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.
(13) New Accounting Pronouncements -- In February 1997, the Financial
Accounting Standards Board issued Statement No. 128, "Earnings Per
Share." This Statement will be effective for both interim and annual
periods ending after December 15, 1997. The Company anticipates that
this statement will not have a material effect on its financial
statements.
33
A. Summary of Significant Accounting Policies (Continued):
------------------------------------------------------
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income," which will
result in disclosure of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. The Company is not required to adopt
this standard until fiscal year 1999. At this time, the Company has
not determined the impact this statement will have on the Company's
financial statements but expects that the effect will not be
material.
The Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related
Information," in June 1997. The Statement establishes standards for
the way public business enterprises report information about
operating segments in annual financial statements and requires that
those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company is not
required to adopt this standard until fiscal year 1999. At this
time, the Company has not determined the impact this standard will
have on the Company's financial statements but does not expect the
effect to be material.
(14) Reclassifications -- Certain reclassifications have been made to the
1996 and 1995 financial statements to conform to the classifications
used in 1997.
B. Operations:
----------
The Company incurred a significant loss from operations during fiscal year
1997. This loss was primarily due to lower gross profits on merchandise
and gasoline sales and lower than anticipated profit contributions from
newly constructed and remodeled stores. Results were also negatively
impacted by the noncash charges for the provision for loss on disposal of
property (see Note D) and the provision for asset impairment (see Note A).
As discussed in Note G, as of September 30, 1997, the Company was not in
compliance with certain financial covenants contained in both its Senior
Note Agreements and its bank term loans and revolving credit agreement.
The amendments to these agreements to waive the Company's noncompliance
included new accelerated principal repayment terms. As a result, the
Company's debt service requirements for fiscal year 1998 represents a
significant increase from requirements in prior years. In addition, the
amended bank term loans and revolving credit agreement restrict the
Company's capital expenditures to $3,000,000 in fiscal year 1998 and
places certain restrictions on any additional borrowing by the Company.
As of September 30, 1997, the Company had cash balances of $5,993,388 but
had no additional borrowing available under its existing credit agreements.
Management's plans for fiscal year 1998 include purchasing petroleum
products from more competitive sources in order to improve gasoline margins.
In addition, the Company expects to continue to improve the operating
results of its existing fast-food merchandising units. The Company
anticipates that cash presently available, cash to be generated from
operations, and proceeds from tax refunds (see Note J) and asset sales
(see Note D) will be sufficient to meet its cash requirements in fiscal year
1998.
34
C. Inventories/Change in Accounting Method:
---------------------------------------
The following is a summary of inventories at September 30:
1997 1996
----------- -----------
Merchandise $12,442,076 $14,468,983
Gasoline 3,241,254 3,339,015
----------- -----------
$15,683,330 $17,807,998
=========== ===========
During the year, the Company changed its method of calculating ending
merchandise inventories under the retail inventory method. Prior to 1997,
the Company utilized an average cost-to-retail ratio to value ending
inventory. In fiscal year 1997, the Company began utilizing a method that
weights the cost-to-retail ratio using multiple inventory categories.
Management believes that this change in accounting improves the measurement
of the Company's profitability based upon a changing product mix. The
effect of the change in 1997 was to increase the Company's net loss by
$205,000 (net of tax effect of $101,000), or $.03 per share. The
cumulative effect of this accounting change, net of the related income tax
benefit, was approximately $1,468,000. The pro forma effect as if the
accounting change was in effect in each of the years presented is as
follows:
Year ended September 30,
1997 1996 1995
---------- ---------- ----------
Net earnings (loss):
As reported ($6,044,065)* $2,971,044 $4,153,761
Pro forma ($4,575,925) $2,167,632 $4,017,868
Net earnings (loss) per share:
As reported ($ 0.91) $ 0.46 $ 0.66
Pro forma ($ 0.69) $ 0.33 $ 0.64
*Includes cumulative effect of accounting change of $1,468,140.
D. Property Held for Sale:
----------------------
Property held for sale is carried at the lower of cost or net realizable
value. The properties have been classified as current assets because the
Company expects the properties to be sold within the next fiscal year. The
properties are undeveloped land expected to be sold in March 1998 and store
equipment and gasoline equipment to be sold to Getty in January 1998. The
store equipment and gasoline equipment are being sold to Getty due to the
December 31, 1997 termination of leases of properties from Getty. The
undeveloped land is carried at its cost of $1,593,000 and the store
equipment and gasoline equipment are carried at the net realizable value
of $4,050,000. The Company has recorded a provision for loss on disposal
of $1,624,600 for the assets to be sold to Getty. The 105 stores being
transferred to Getty control generated sales of $88,816,600 in fiscal year
1997.
35
E. Property, Equipment and Improvements - at cost:
----------------------------------------------
Estimated
Accumulated Net Book Life in
Cost Depreciation Value Years
------------ ------------ ------------ ---------
Year Ended September 30, 1997:
-----------------------------
Land $ 15,929,967 $ 0 $15,929,967
Buildings 43,427,340 12,731,528 30,695,812 29-35
Machinery and equipment 34,612,257 22,179,720 12,432,537 3-10
Machinery and equipment 6,141,175 2,457,801 3,683,374 11-20
Capitalized property and
equipment leases 1,643,775 1,275,235 368,540 5-25
Leasehold improvements 11,086,842 7,515,235 3,571,607 1-10
Leasehold improvements 466,344 314,564 151,780 11-20
Construction in progress 2,222,229 0 2,222,229
------------ ----------- -----------
$115,529,929 $46,474,083 $69,055,846
============ =========== ===========
Year Ended September 30, 1996:
-----------------------------
Land $ 15,618,241 $ 0 $15,618,241
Buildings 39,324,176 10,599,959 28,724,217 29-35
Machinery and equipment 35,361,652 20,927,052 14,434,600 3-10
Machinery and equipment 5,835,634 2,117,198 3,718,436 11-20
Capitalized property and
equipment leases 1,643,775 1,209,339 434,436 5-25
Leasehold improvements 12,303,875 6,674,540 5,629,335 1-10
Leasehold improvements 466,344 287,281 179,063 11-20
Construction in progress 3,055,772 0 3,055,772
------------ ----------- -----------
$113,609,469 $41,815,369 $71,794,100
============ =========== ===========
Depreciation expense in fiscal years 1997, 1996 and 1995 was $6,908,000,
$5,547,900 and $4,998,800, respectively, including the amortization of
capitalized property and equipment leases.
F. Revolving Credit Agreement:
--------------------------
The Company has a $13.5 million revolving credit agreement with a bank
group at the bank's prime rate or a fixed rate option at the Company's
election, with a maximum of $3.5 million available for issuance of letters
of credit. The revolving credit facility is committed for a two-year
period expiring February 28, 1999, or a later date as approved by the bank
group. At September 30, 1997, borrowings of $10.0 million and letters of
credit of $2.7 million were outstanding under the agreement.
36
G. Long-Term Debt:
September 30,
1997 1996
----------- -----------
Term Loan. Interest is paid at least quarterly
at the rate of 8.80%. Principal on the note
will be repaid in ten quarterly installments
beginning October 31, 1997. $16,741,488 $16,741,488
Term Loan. Interest is paid at least quarterly.
Principal on the note will be repaid on
December 31, 1999, or earlier if certain
conditions are met. The blended interest rate
was 7.99% at September 30, 1997. 20,000,000 10,000,000
Revolving Credit Agreement. Interest is paid
quarterly at the bank's prime rate or a
fixed rate option at the Company's election.
The blended interest rate was 8.07% at
September 30, 1997. (See Note F) 10,000,000 5,000,000
Senior Notes of the Company. Interest is paid
in quarterly installments at a blended rate
of 10.50%. Principal is due on February 2,
1998. 3,736,735 7,570,068
Mortgage Loans Payable. Principal and interest
are paid in monthly installments. The loans
expire in years 1999 through 2010 with interest
ranging from 8.50% to 8.75%. The blended
interest rate was 8.54% at September 30, 1997. 2,097,373 2,304,425
----------- -----------
52,575,596 41,615,981
Less current maturities 12,722,649 3,272,957
----------- -----------
$39,852,947 $38,343,024
=========== ===========
The mortgage loans are collateralized by $7,288,100 of property, at cost.
Aggregate maturities of long-term debt during the next five years,
including payments due in connection with the senior notes and the term
loans, are as follows:
September 30,
1998 $12,722,600
1999 18,369,700
2000 20,493,000
2001 154,100
2002 155,200
Thereafter 680,996
-----------
$52,575,596
===========
37
G. Long-Term Debt (Continued):
--------------------------
Certain of the Company's debt agreements contain covenants which provide
for the maintenance of minimum working capital and net worth as well as
limitations on future indebtedness, sales and leasebacks and dispositions
of assets. These agreements may restrict the Company's ability to declare
and pay dividends on common stock. The amount of retained earnings
available for such dividends at September 30, 1997 was $473,126.
At September 30, 1997, the Company was not in compliance with certain
financial covenants contained in both its Senior Note Agreements and its
bank term loans and revolving credit agreement. This noncompliance
resulted primarily from lower gross profits on merchandise and gasoline
sales as well as lower than anticipated profit contributions from newly
constructed and remodeled stores during fiscal year 1997.
The Senior Notes had an outstanding balance of $3,736,735 at September 30,
1997. The agreements related to these notes had previously been amended
in January, April and July 1997 to waive covenant noncompliance by
amending certain covenants and the scheduled amortization of the notes.
The Senior Notes were further amended by the holders in December 1997 to
waive covenant noncompliance for the fiscal quarter ended September 30,
1997 and the first fiscal quarter ending January 1, 1998. In onsideration
of the December amendment, the Company has agreed to repay the remaining
$3,133,333 of outstanding principal on February 2, 1998.
The bank term loans and revolving credit agreement were amended on
December 29, 1997 to waive covenant noncompliance for the fiscal quarter
ended September 30, 1997, modify certain existing covenants and add new
covenants effective on the amendment date. The new schedule of term loan
principal payments beginning on February 2, 1998, requires quarterly
payments of $1,905,000 through October 1, 1998 and $2,000,000 through
October 1, 1999, with the remaining balance due on December 31, 1999. In
addition, the Company must make mandatory prepayments if specified cash
flow targets are met or if the Company receives proceeds from the sale of
certain assets or public offering of the Company's Common Stock. The rate
of interest paid by the Company to the banks for the Revolving Credit Loan
was increased by .25% per annum. In addition, the amendment restricts the
Company's capital expenditures to $3.0 million in fiscal year 1998.
H. Disclosures About Fair Value of Financial Instruments:
-----------------------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate fair value:
CASH -- Cash is carried at fair value.
MARKETABLE EQUITABLE SECURITIES -- Carrying value is based on quoted
market values which are the equivalent of fair value.
LONG-TERM DEBT -- Fair value of the Company's long-term debt is estimated
based on quoted market prices for the same or similar issues or on the
current rates offered to the Company for similar debt.
OBLIGATIONS UNDER CAPITAL LEASES -- Fair value of capital lease
obligations is estimated based on current rates offered to the Company for
similar debt.
38
H. Disclosures About Fair Value of Financial Instruments (Continued):
-----------------------------------------------------------------
The estimated fair values of the Company's financial instruments are as
follows:
September 30, 1997 September 30, 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
Long-term debt $52,575,596 $53,121,725 $41,615,981 $42,594,915
Obligations under
capital leases 620,871 619,834 725,942 762,080
I. Commitments and Contingencies:
-----------------------------
(1) Leases -- The Company leases its corporate headquarters, a majority
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, 1997 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 lease of certain properties is also provided.
Such rental income was $1,299,700 in 1997, $1,128,500 in 1996 and
$1,221,700 in 1995.
Capital Operating Rental
Leases Leases Income
--------- ----------- ----------
1998 $167,700 $ 5,276,400 $ 718,000
1999 132,100 2,959,200 321,000
2000 139,900 2,232,600 185,700
2001 124,400 1,611,500 98,400
2002 106,100 1,281,000 73,000
Thereafter 309,900 5,604,400 104,500
-------- ----------- ----------
Total future minimum
lease payments 980,100 $18,965,100 $1,500,600
=========== ==========
Less amount representing
interest 359,200
--------
Present value of future
payments 620,900
Less current maturities 87,300
--------
$533,600
========
Rental expense under operating leases was as follows:
Year Ended September 30,
1997 1996 1995
---------- ----------- -----------
Minimum rentals $9,890,200 $10,871,700 $10,537,700
Contingent rentals 63,300 84,500 98,800
---------- ----------- -----------
$9,953,500 $10,956,200 $10,636,500
========== =========== ===========
39
I. Commitments and Contingencies (Continued):
-----------------------------------------
(2) Change of Control Agreements -- The Company has change of control
agreements with its two executive officers pursuant to which each
executive officer will receive remuneration of 2.99 times his base
compensation if his employment is terminated due to a change of
control as defined in the agreements. Remuneration which might be
payable under these agreements has not been accrued in the
consolidated financial statements as a change of control has not
occurred.
(3) 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.
J. Income Taxes:
------------
The provision for income taxes includes the following:
Year Ended September 30,
1997 1996 1995
---------- ---------- ----------
Current tax expense (credit):
Federal ($2,739,700) $1,895,800 $2,572,400
State ( 72,500) 40,000 290,100
---------- ---------- ----------
( 2,812,200) 1,935,800 2,862,500
---------- ---------- ----------
Deferred tax expense (credit):
Federal ( 190,400) ( 126,200) ( 214,200)
State 15,200 ( 132,400) ( 142,100)
---------- ---------- ----------
( 175,200) ( 258,600) ( 356,300)
---------- ---------- ----------
( 2,987,400) 1,677,200 2,506,200
Less portion included in
accounting change 725,800 0 0
---------- ---------- ----------
($2,261,600) $1,677,200 $2,506,200
========== ========== ==========
The current tax provision for fiscal year 1997 includes the benefit of net
operating loss carrybacks of $1,748,700 for federal income tax purposes
and $70,400 for state income tax purposes, for which the Company expects
to receive cash refunds.
40
J. Income Taxes (Continued):
Deferred tax liabilities (assets) are comprised of the following at
September 30:
1997 1996 1995
---------- ---------- ----------
Depreciation $5,251,700 $3,928,900 $3,512,500
---------- ---------- ----------
Gross deferred tax
liabilities 5,251,700 3,928,900 3,512,500
---------- ---------- ----------
Insurance reserves ( 1,143,100) ( 1,085,400) ( 1,120,100)
Change in accounting
method ( 882,300) 0 0
Capital leases ( 92,500) ( 107,600) ( 119,600)
Deferred compensation ( 330,700) ( 268,100) ( 211,900)
Deferred income ( 761,100) ( 816,300) ( 91,600)
Intangible assets ( 178,100) ( 182,400) ( 155,000)
Deferred tax payments 0 0 ( 96,200)
Accrued expenses ( 394,700) 0 0
Net operating loss
carryforward ( 197,800) 0 0
Prepaid expenses ( 181,000) 0 0
Other ( 104,800) ( 110,500) ( 100,900)
---------- ---------- ----------
Gross deferred tax
assets ( 4,266,100) ( 2,570,300) ( 1,895,300)
Less valuation allowance 197,800 0 0
---------- ---------- ----------
Net deferred tax assets ( 4,068,300) ( 2,570,300) ( 1,895,300)
---------- ---------- ----------
$1,183,400 $1,358,600 $1,617,200
========== ========== ==========
The financial statements include noncurrent deferred tax liabilities of
$4,036,000 and $2,394,700 in 1997 and 1996, respectively, and current
deferred tax assets of $2,852,600 and $1,036,100 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:
Year Ended September 30,
1997 1996 1995
---------- ---------- ----------
Statutory rate ($3,070,700) $1,580,400 $2,264,400
Increase (decrease)
resulting from:
Tax credits ( 3,200) 0 0
Nondeductible items 125,000 66,200 83,000
State taxes (net) ( 37,800) ( 61,000) 97,700
Other (net) ( 700) 91,600 61,100
---------- ---------- ----------
Tax provision ($2,987,400) $1,677,200 $2,506,200
========== ========== ==========
41
K. Related Party Transactions:
--------------------------
During fiscal year 1997, the Company granted a loan of $800,000 to the
Company's Chief Executive Officer and Chairman of the Board. The loan
bears interest at the brokerage call rate (7.25% at September 30, 1997)
and is to be repaid in quarterly installments of $50,000 commencing March
1998, with a final payment of $400,000 due in March 2000. The loan is
collateralized by 150,000 shares of the Company's Common Stock and 73,000
shares of the common stock of Unico Corporation.
Certain directors and officers of the Company are also directors, officers
and 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 five stores and certain other locations from Unico
and leases it corporate headquarters and four additional locations
from affiliates of Unico. Aggregate rentals in connection with these
leases were $672,600 (1997), $693,400 (1996) and $700,300 (1995).
(2) The Company charges an affiliate of Unico for general and
administrative services provided. Such charges amounted to $11,700
(1997), $11,100 (1996) and $10,400 (1995).
(3) During fiscal year 1996, the Company purchased a store location from
Unico for fair market value of $116,200.
The Company received commissions from Coinfone Telecommunications, Inc.
("CTI") for coin-operated telephones installed at convenience store
locations and for the sale of prepaid telephone cards. The Company also
made payments to CTI for discounted prepaid telephone cards and telephone
service. The majority of the stock of CTI is beneficially owned or
controlled by persons related to Henry D. Sahakian. Commissions received
from CTI were $428,800 (1997), $452,200 (1996) and $311,200 (1995).
Payments made to CTI were $577,000 (1997), $557,700 (1996) and $89,500
(1995).
In fiscal year 1995, the Company acquired property for $1,605,300 by
exercising a property option that was controlled by Whitehall Associates,
a partnership in which the Company was a partner. Bruce K. Heim, a
director of the Company, is also a partner in a partnership which controls
75% of Whitehall Associates. The Company also paid rent to Whitehall
Associates in the amount of $86,300 in 1995.
In fiscal year 1997, the Company purchased a property from Nicholas, Heim
and Kissinger Associates, a partnership in which Bruce K. Heim is also a
partner, for $1,500,000. The Company also paid rents to Nicholas, Heim
and Kissinger Associates of $35,500 (1997) and $40,000 (1996).
L. 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 $127,000 (1997), $113,800 (1996) and $111,100
(1995).
42
M. Deferred Compensation Plan and Performance Unit 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 $25,700,
$28,200 and $27,000 for the years ended September 30, 1997, 1996 and 1995,
respectively.
The Company has recorded the assets and liabilities for the deferred
compensation plan in the consolidated balance sheets because such assets
and liabilities belong to the Company rather than to any plan or trust.
The asset and matching liability of $1,056,500 and $747,500 at September
30, 1997 and 1996, respectively, include employee deferrals, accrued
earnings and matching contributions of the Company. The asset amount is
included in net intangible and other assets and the liability amount is
included in deferred income and other liabilities.
The Company also has a Performance Unit Plan to provide long-term
incentives to senior executives. Under the Performance Unit Plan, the
amount of compensation is determined over the succeeding three-year period
based upon performance of the Company as well as individual goals for the
senior executives. Compensation expense recognized under this plan was
$0, $99,200 and $100,000 for fiscal years 1997, 1996 and 1995,
respectively.
N. 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. The Company has reserved 297,645 shares of common stock which can
be issued in accordance with the terms of the Equity Compensation Plan and
1,000,000 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. 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.
43
N. Equity Compensation Plans (Continued):
-------------------------------------
The Company granted 6,223, 4,116 and 6,223 shares of common stock to
nonemployee directors under the Plans during fiscal years 1997, 1996 and
1995, respectively. 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
vest one year after the grant date except for certain option grants to
senior executives which vest on a schedule based on the performance of the
Company as well as individual goals for the senior executives.
Information regarding outstanding options is presented below. All options
outstanding are exercisable except for options granted during the year
ended September 30, 1997.
Outstanding Options for Shares of Common Stock:
Weighted Average
Outstanding Exercise Exercise Price
Options Price Per Share Per Share
----------- --------------- ----------------
Balance, October 1, 1994 431,074 $2.50 to $6.36 $4.57
Granted 73,000 $5.38 to $5.63 $5.52
Exercised ( 40,165) $2.50 to $6.36 $3.50
Canceled 0
-------
Balance, September 30, 1995 463,909 $2.50 to $6.36 $4.81
Granted 96,260 $7.00 to $8.50 $7.50
Exercised (232,682) $2.50 to $6.36 $4.54
Canceled ( 1,210) $5.37 $5.37
-------
Balance, September 30, 1996 326,277 $2.50 to $8.50 $5.79
Granted 110,140 $5.63 to $6.88 $6.23
Exercised ( 750) $3.50 $3.50
Canceled ( 30,632) $2.50 to $7.00 $5.30
Balance, September 30, 1997:
38,750 $2.50 to $3.75 $2.87
121,710 $3.76 to $5.65 $5.32
244,575 $5.66 to $8.50 $6.76
-------
405,035 $2.50 to $8.50 $5.95
=======
Exercisable at
September 30, 1997 297,645 $2.50 to $8.50 $5.86
=======
Balance of Shares Reserved for
Grant at September 30, 1997 892,610
=======
44
N. Equity Compensation Plans (Continued):
-------------------------------------
The weighted average fair value of the stock options granted during fiscal
years 1997 and 1996 were $5.95 and $5.79, 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,
1997 1996
--------- ---------
Risk-free interest rate 6.3% 6.2%
Expected volatility 29.3% 29.3%
Expected life in years 8.2 8.4
Contractual life in years 9.0 9.2
Fair value of options granted $327,163 $351,371
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 with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123), the Company's pro
forma net income (loss) and earnings (loss) per share for the fiscal years
ended September 30, 1997 and 1996 would have been as follows:
1997 1996
---------- ----------
Net income (loss):
As reported ($6,044,065) $2,971,044
Pro forma ($6,262,937) $2,746,518
Earnings (loss) per share:
As reported ($ 0.91) $ 0.46
Pro forma ($ 0.94) $ 0.42
O. Nonqualified Stock Options:
--------------------------
On February 26, 1993, the Company made a one-time, special grant of
nonqualified stock options to Henry D. Sahakian and Daniel D. Sahakian
each to purchase 150,000 shares of common stock of the Company at a price
of $4.50 per share in exchange for their relinquishment of effective
voting control of the Company as a result of the elimination of the super-
majority voting provisions of the Class B Common Stock. These
nonqualified stock options are not related to the Company's Equity
Compensation Plan. Henry D. Sahakian exercised his option during fiscal
year 1996 by exchanging 84,375 shares of the Company's Common Stock valued
at $675,000. Daniel D. Sahakian's stock option expires on February 25,
1998.
45
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
As discussed in Note C, the Company changed its method of calculating ending
merchandise inventory under the retail inventory method. The quarterly
information for fiscal year 1997 appearing below has been restated assuming the
new inventory method had been applied retroactively.
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER(1)
------------ ------------ ------------ ------------
Year Ended September 30, 1997
- -----------------------------
Revenues $89,409,027 $81,415,601 $91,960,873 $89,414,874
Gross Profits 22,591,987 20,452,844 21,560,290 20,270,687
Earnings (Loss) Before
Cumulative Effect of
Accounting Change 193,511 ( 925,542) 4,289 ( 3,848,183)
Cumulative Effect of
Accounting Change ( 1,468,140) 0 0 0
----------- ----------- ----------- -----------
Net Earnings (Loss) ($ 1,274,629) ($ 925,542) $ 4,289 ($ 3,848,183)
=========== =========== =========== ===========
Earnings (Loss) Per Share
Before Cumulative Effect
of Accounting Change $ 0.03 ($ 0.14) $ 0.00 ($ 0.58)
Cumulative Effect of
Accounting Change ( 0.22) 0.00 0.00 0.00
----------- ----------- ----------- -----------
Net Earnings (Loss)
Per Share ($ 0.19) ($ 0.14) $ 0.00 ($ 0.58)
=========== =========== =========== ===========
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
Year Ended September 30, 1996
- -----------------------------
Revenues $84,134,611 $76,597,479 $88,824,832 $84,255,357
Gross Profits 22,942,204 20,104,958 22,473,655 20,833,498
Net Earnings 1,398,228 254,278 1,111,807 206,731
Earnings Per Share $ 0.22 $ 0.04 $ 0.16 $ 0.03
Pro Forma Amounts Assuming
the New Inventory Method
is Applied Retroactively:
Net Earnings (Loss) $ 991,571 ($ 7,842) $ 1,088,104 $ 95,800
Earnings (Loss) Per
Share $ 0.16 $ 0.00 $ 0.16 $ 0.01
(1) In the fourth quarter of fiscal year 1997, the Company recorded pre-tax
charges of $1.6 million related to the disposal of assets in connection
with the termination of the Getty leases (see Note D) and $1.0 million for
impairment of long-lived assets (see Note A).
46
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, 1997, the end of the fiscal year
covered by this report.
47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(A) Financial Statements
The Financial Statements listed below are filed as part of this Annual Report
on Form 10-K.
PAGE(S)
Report of Deloitte & Touche LLP, Independent Auditors 24
Consolidated Balance Sheets - September 30, 1997 and 1996 25-26
Consolidated Statements of Operations for the years ended
September 30, 1997, 1996 and 1995 27
Consolidated Statements of Stockholders' Equity for the years
ended September 30, 1997, 1996 and 1995 28
Consolidated Statements of Cash Flows for the years ended
September 30, 1997, 1996 and 1995 29-30
Notes to Consolidated Financial Statements 31-45
Supplementary Financial Information - Selected Quarterly
Financial Data (Unaudited) 46
(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, 1997.
(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 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
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 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 hereto).
10.2 Uni-Marts, Inc. Stock Option Plan for Nonqualified Stock Options
dated as of February 26, 1993 (Filed as exhibit 10.2 to the
Annual Report of Uni-Marts, Inc. for the year ended September 30,
1993 and incorporated herein by reference thereto).
48
10.3 Uni-Marts, Inc. Retirement Savings & Incentive Plan (Filed as
Exhibit 4.2 to the Company's Registration Statement on Form S-8,
File No. 33-9807, and incorporated herein by reference thereto).
10.4 Composite Conformed Copy of Note Agreements dated August 29, 1989
between four insurance companies and Uni-Marts, Inc. (Filed as
Exhibit 10.14 to the Annual Report of Uni-Marts, Inc. on
Form 10-K for the year ended September 30, 1989 and incorporated
herein by reference thereto).
10.4(a) Waiver and Second Amendment to Senior Note Agreement between the
Senior Noteholders and Uni-Marts, Inc. dated as of January 21,
1997 (Filed as Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the period ended April 3, 1997 and incorporated
herein by reference thereto).
10.4(b) Third Amendment to Senior Note Agreement between the Senior
Noteholders and Uni-Marts, Inc. dated as of April 18, 1997 (Filed
as Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
for the period ended April 3, 1997 and incorporated herein by
reference thereto).
10.4(c) Fourth Amendment to Senior Note Agreement between the Senior
Noteholders and Uni-Marts, Inc. dated as of July 28, 1997 (Filed
as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for
the period ended July 3, 1997 and incorporated herein by
reference thereto).
10.4(d) Waiver and Fifth Amendment to Note Agreement between the Senior
Noteholders and Uni-Marts, Inc. dated as of December 24, 1997.
10.5 Credit Agreement between the Bank Group and Uni-Marts, Inc. dated
as of March 1, 1993 (Filed as Exhibit 19 to the Company's
Quarterly Report on Form 10-Q for the period ended April 1, 1993
and incorporated herein by reference thereto).
10.5(a) Amendment No. 1 to Credit Agreement between the Bank Group and
Uni-Marts, Inc. dated as of March 21, 1994 (Filed as Exhibit
10.5(a) 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).
10.5(b) Amendment No. 2 to Credit Agreement between the Bank Group and
Uni-Marts, Inc. dated as of July 1, 1994 (Filed as Exhibit
10.5(b) 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).
10.5(c) Third Amendment to Credit Agreement between the Bank Group and
Uni-Marts, Inc. dated as of October 26, 1994 (Filed as Exhibit
10.5(c) 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).
10.5(d) Amendment No. 4 to Credit Agreement between the Bank Group and
Uni-Marts, Inc. dated as of March 27, 1995 (Filed as Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the period
ended March 30, 1995 and incorporated herein by reference
thereto).
49
10.5(e) Amendment No. 5 to Credit Agreement between the Bank Group and
Uni-Marts, Inc. dated as of December 26, 1995 (Filed as Exhibit
10.5(e) to the Company's Annual Report on Form 10-K for the
period ended September 30, 1995 and incorporated herein by
reference thereto).
10.5(f) Amendment No. 6 to the Credit Agreement between the Bank Group
and Uni-Marts, Inc. dated as of March 28, 1996 (Filed as Exhibit
10 to the Company's Quarterly Report on Form 10-Q for the period
ended April 4, 1996 and incorporated herein by reference
thereto).
10.5(g) Amendment No. 7 to Credit Agreement between the Bank Group and
Uni-Marts, Inc. dated as of December 31, 1996 (Filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the
period ended April 3, 1997 and incorporated herein by reference
thereto).
10.5(h) Amendment No. 8 to Credit Agreement between the Bank Group and
Uni-Marts, Inc. dated as of February 20, 1997 (Filed as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
period ended April 3, 1997 and incorporated herein by reference
thereto).
10.5(i) Amendment No. 9 to Credit Agreement between the Bank Group and
Uni-Marts, Inc. dated as of April 15, 1997 (Filed as Exhibit 10.3
to the Company's Quarterly Report on Form 10-Q for the period
ended April 3, 1997 and incorporated herein by reference
thereto).
10.5(j) Amendment No. 10 to Credit Agreement between the Bank Group and
Uni-Marts, Inc. dated as of December 29, 1997.
10.6 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 and incorporated herein by reference
thereto).
10.7 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 and incorporated herein by reference
thereto).
10.8 Uni-Marts, Inc. Annual Bonus Plan (Filed as Exhibit 10.8 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).
10.9 Uni-Marts, Inc. Performance Unit Plan (Filed as Exhibit 10.9 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).
10.10 Composite copy of Change in 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).
50
10.11 Agreement to Lease Properties and Sell Assets between Getty and
the Company dated October 31, 1991 with amendment dated December
5, 1991 (Filed as Exhibit 2.1 to the Company's Current Report on
Form 8-K dated December 20, 1991 and incorporated herein by
reference thereto).
10.11(a) Second Amendment to Agreement to Lease Properties and Sell Assets
between Getty and the Company dated June 28, 1996 (Filed as
Exhibit 10.13 to the Annual Report of Uni-Marts, Inc. on
Form 10-K for the year ended September 30, 1996 and incorporated
herein by reference thereto).
10.12 Getty Petroleum Corp./Uni-Marts, Inc. Supply Agreement dated
December 6, 1991 (Filed as Exhibit 28.1 to the Company's Current
Report on Form 8-K dated December 20, 1991 and incorporated
herein by reference thereto).
10.13 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).
10.14 Getty Petroleum Marketing Inc./Uni-Marts, Inc. Termination
Agreement dated December 12, 1997.
10.15 Termination Agreement between Uni-Marts, Inc. and Charles R.
Markham dated November 28, 1997.
10.16 Amended and Restated Note between Henry D. Sahakian and
Uni-Marts, Inc. dated January 7, 1998.
11 Statement regarding computation of per share earnings.
18 Preferability letter from independent auditors.
21 Subsidiary of the registrant.
23 Consent of Deloitte & Touche LLP.
27 Financial data schedule.
99 Report on Form 11-K.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNI-MARTS, INC.
(Registrant)
By: /S/ HENRY D. SAHAKIAN
------------------------------
Henry D. Sahakian
Chairman of the Board
(Principal Executive Officer)
By: /S/ J. KIRK GALLAHER
------------------------------
J. Kirk Gallaher
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
(Principal Financial Officer)
DATED: January 13, 1998
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 January 13, 1998
- -----------------------------
Henry D. Sahakian
/S/ J. KIRK GALLAHER Executive Vice President January 13, 1998
- ----------------------------- and Director
J. Kirk Gallaher
/S/ G. DAVID GEARHART Director January 13, 1998
- -----------------------------
G. David Gearhart
/S/ BRUCE K. HEIM Director January 13, 1998
- -----------------------------
Bruce K. Heim
/S/ JEREMIAH A. KEATING Director January 13, 1998
- -----------------------------
Jeremiah A. Keating
/S/ JOSEPH V. PATERNO Director January 13, 1998
- -----------------------------
Joseph V. Paterno
/S/ DANIEL D. SAHAKIAN Director January 13, 1998
- -----------------------------
Daniel D. Sahakian
/S/ MICHAEL J. SERVENTI Director January 13, 1998
- -----------------------------
Michael J. Serventi
52
UNI-MARTS, INC. AND SUBSIDIARY
EXHIBIT INDEX
Number Description Page(s)
- ------ ----------- -------
10.4(d) Waiver and Fifth Amendment to Note Agreement
between the Senior Noteholders and
Uni-Marts, Inc. dated as of December 24, 1997. 54-55
10.5(j) Amendment No. 10 to Credit Agreement between
the Bank Group and Uni-Marts, Inc. dated as of
December 29, 1997. 56-67
10.14 Getty Petroleum Marketing Inc./Uni-Marts, Inc.
Termination Agreement dated December 12, 1997. 68-70
10.15 Termination Agreement between Uni-Marts, Inc.
and Charles R. Markham dated November 29, 1997. 71-80
10.16 Amended and Restated Note between Henry D. Sahakian
and Uni-Marts, Inc. dated January 7, 1998. 81-90
11 Statement regarding computation of per share
earnings for the years ended September 30,
1997, 1996 and 1995. 91
18 Preferability letter from independent auditors. 92
21 Subsidiary of the registrant. 93
23 Consent of Deloitte & Touche LLP. 94
27 Financial data schedule. 95
99 Report on Form 11-K. 96-116
53