UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 3, 2003
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[ ] 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.
(Exact name of registrant as specified in its charter)
DELAWARE 25-1311379
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
477 EAST BEAVER AVENUE
STATE COLLEGE, PA 16801-5690
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (814) 234-6000
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
7,186,277 Common Shares were outstanding at May 9, 2003.
This Document Contains 33 Pages.
-1-
UNI-MARTS, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
PAGE(S)
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
April 3, 2003 and September 30, 2002 3-4
Condensed Consolidated Statements of Operations -
Quarter Ended and Two Quarters Ended
April 3, 2003 and April 4, 2002 5
Condensed Consolidated Statements of Cash Flows -
Two Quarters Ended April 3, 2003 and April 4, 2002 6-7
Notes to Condensed Consolidated Financial Statements 8-17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18-24
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 25
Item 4. Controls and Procedures 26-27
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 30
Certifications 31-32
Exhibit Index 33
-2-
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
UNI-MARTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
APRIL 3, SEPTEMBER 30,
2003 2002
-------- --------
ASSETS
CURRENT ASSETS:
Cash $ 3,978 $ 6,501
Accounts receivable - less allowances of $181 and $126 6,215 8,324
Inventories 17,368 20,859
Prepaid and current deferred taxes 1,884 1,494
Property and equipment held for sale 1,146 1,098
Prepaid expenses and other 731 1,137
Loan due from officer - current portion 60 0
-------- --------
TOTAL CURRENT ASSETS 31,382 39,413
PROPERTY, EQUIPMENT AND IMPROVEMENTS -
at cost, less accumulated depreciation and
amortization of $66,570 and $64,214 93,538 98,037
LOAN DUE FROM OFFICER 300 360
INTANGIBLE ASSETS 300 6,235
OTHER ASSETS 1,140 1,100
-------- --------
TOTAL ASSETS $126,660 $145,145
======== ========
(Continued)
-3-
UNI-MARTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(CONTINUED)
(UNAUDITED)
APRIL 3, SEPTEMBER 30,
2003 2002
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,006 $ 17,811
Gas taxes payable 3,374 3,460
Accrued expenses 7,069 7,207
Revolving credit 5,809 5,867
Current maturities of long-term debt 3,230 3,212
Current obligations under capital leases 103 113
-------- --------
TOTAL CURRENT LIABILITIES 30,591 37,670
LONG-TERM DEBT, less current maturities 69,392 71,912
OBLIGATIONS UNDER CAPITAL LEASES,
less current maturities 168 214
DEFERRED TAXES 1,721 1,797
DEFERRED INCOME AND OTHER LIABILITIES 4,645 5,235
COMMITMENTS AND CONTINGENCIES (See Note H)
STOCKHOLDERS' EQUITY:
Preferred Stock, par value $1.00 per share:
Authorized 100,000 shares
Issued none 0 0
Common Stock, par value $.10 per share:
Authorized 16,000,000 shares
Issued 7,453,383 and 7,420,859 shares, respectively 745 742
Additional paid-in capital 23,742 23,803
Retained (deficit) earnings ( 2,583) 5,661
-------- --------
21,904 30,206
Less treasury stock, at cost - 267,106 and
291,429 shares of Common Stock, respectively ( 1,761) ( 1,889)
-------- --------
20,143 28,317
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $126,660 $145,145
======== ========
See notes to consolidated financial statements
-4-
UNI-MARTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
QUARTER ENDED TWO QUARTERS ENDED
APRIL 3, APRIL 4, APRIL 3, APRIL 4,
2003 2002 2003 2002
------- ------ ------- -------
REVENUES:
Merchandise sales $50,734 $52,017 $106,790 $107,672
Gasoline sales 53,909 38,676 106,202 80,534
Other income 386 469 851 909
------- ------ ------- -------
105,029 91,162 213,843 189,115
------- ------ ------- -------
COSTS AND EXPENSES:
Cost of sales 84,681 70,371 171,224 145,613
Selling 16,909 16,735 34,118 33,510
General and administrative 1,986 2,141 3,886 4,043
Depreciation and amortization 1,930 2,048 3,858 4,083
Interest 1,577 1,574 3,200 3,369
------- ------ ------- -------
107,083 92,869 216,286 190,618
------- ------ ------- -------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND CHANGE
IN ACCOUNTING PRINCIPLE ( 2,054) ( 1,707) ( 2,443) ( 1,503)
INCOME TAX BENEFIT ( 108) ( 593) ( 129) ( 523)
------- ------ ------- -------
LOSS FROM CONTINUING OPERATIONS
BEFORE CHANGE IN ACCOUNTING
PRINCIPLE ( 1,946) ( 1,114) ( 2,314) ( 980)
DISCONTINUED OPERATIONS:
LOSS FROM DISCONTINUED OPERATIONS ( 99) ( 37) ( 156) ( 75)
LOSS ON DISPOSAL OF DISCONTINUED
OPERATIONS ( 248) 0 ( 248) 0
INCOME TAX BENEFIT ( 18) ( 13) ( 21) ( 26)
------- ------ ------- -------
LOSS ON DISCONTINUED OPERATIONS ( 329) ( 24) ( 383) ( 49)
CUMMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE, NET OF INCOME
TAX BENEFIT OF $310 0 0 ( 5,547) 0
------- ------ ------- -------
NET LOSS ($2,275) ($1,138) ($8,244) ($1,029)
======= ====== ======= =======
LOSS PER SHARE:
LOSS PER SHARE FROM CONTINUING
OPERATIONS BEFORE CHANGE IN
ACCOUNTING PRINCIPLE ($ 0.27) ($ 0.16) ($ 0.32) ($ 0.14)
LOSS PER SHARE FROM DISCOUNTINUED
OPERATIONS ( 0.04) 0.00 ( 0.05) ( 0.01)
LOSS PER SHARE FROM CHANGE IN
ACCOUNTING PRINCIPLE 0.00 0.00 ( 0.78) 0.00
------- ------ ------- -------
BASIC AND DILUTED NET LOSS PER SHARE ($ 0.31) ($ 0.16) ($ 1.15) ($ 0.15)
====== ====== ======= =======
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON SHARES
OUTSTANDING 7,155 7,095 7,143 7,082
====== ====== ======= =======
See notes to consolidated financial statements
-5-
UNI-MARTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
TWO QUARTERS ENDED
APRIL 3, APRIL 4,
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others $215,360 $191,753
Cash paid to suppliers and employees (211,998) (184,859)
Dividends and interest received 16 26
Interest paid ( 3,314) ( 3,762)
Income taxes (paid) received ( 5) 29
Other payments-discontinued operations ( 129) ( 29)
-------- --------
NET CASH (USED IN) PROVIDED BY ( 70) 3,158
OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts from sale of capital assets 27 109
Receipts from sale of discontinued operations 1,135
Purchase of property, equipment and improvements ( 796) ( 1,891)
Note receivable from officer 0 60
Cash advanced for intangible and other assets ( 75) ( 89)
Cash received for intangible and other assets 13 15
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING 304 ( 1,796)
ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving credit agreement ( 58) ( 214)
Principal payments on debt ( 2,701) ( 2,062)
Proceeds from issuance of common stock 2 18
-------- --------
NET CASH USED IN FINANCING ACTIVITIES ( 2,757) ( 2,258)
-------- --------
NET DECREASE IN CASH ( 2,523) ( 896)
CASH:
Beginning of period 6,501 5,075
-------- --------
End of period $ 3,978 $ 4,179
======== ========
-6-
UNI-MARTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(CONTINUED)
(UNAUDITED)
TWO QUARTERS ENDED
APRIL 3, APRIL 4,
2003 2002
------- -------
RECONCILIATION OF NET LOSS TO NET CASH
(USED IN) PROVIDED BY OPERATING ACTIVITIES:
NET LOSS ($8,244) ($1,029)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES:
Depreciation and amortization 3,858 4,083
Discontinued operations-depreciation and amortization 27 46
Loss on sale of capital assets and other 262 289
Discontinued operations-loss on sale 248 0
Change in accounting principle 5,547 0
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable 2,109 1,259
Inventories 3,491 ( 239)
Prepaid expenses and other 406 2,217
Increase (decrease) in:
Accounts payable and accrued expenses ( 7,028) ( 2,604)
Deferred income taxes and other liabilities ( 746) ( 864)
------- -------
TOTAL ADJUSTMENTS TO NET LOSS 8,174 4,187
------- -------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITES ($ 70) $ 3,158
======= =======
See notes to consolidated financial statements
-7-
UNI-MARTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. FINANCIAL STATEMENTS:
The condensed consolidated balance sheet as of April 3, 2003, the
condensed consolidated statements of operations and the condensed
consolidated statements of cash flows for the six months ended April 3,
2003 and April 4, 2002, respectively, have been prepared by Uni-Marts,
Inc. (the "Company") without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position of the Company at April 3, 2003
and the results of operations and cash flows for all periods presented
have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted. It is suggested that these consolidated financial statements be
read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 2002. Certain reclassifications have been made to the
September 30, 2002 financial statements to conform to classifications
used in fiscal year 2003. The results of operations for the interim
periods are not necessarily indicative of the results to be obtained for
the full year.
During the first quarter of fiscal 2003, the Company increased its
valuation allowance against the deferred tax asset because it has been
determined that it is more likely than not that the Company will not be
able to utilize the Net Operating Loss carryforwards ("NOL's"). The
increase in reserve has resulted in a 5% tax benefit in the first two
quarters of fiscal 2003.
B. FUTURE OPERATIONS:
The Company continues to evaluate existing stores based on their
historical contribution. The Company will consider closing or selling
underperforming stores or investing in facility upgrades to enhance their
performance. The Company retained financial advisors in fiscal year 2002,
and entered into a new contractual arrangement with one of these
financial advisors in January 2003, to evaluate operating strategies
which include the potential divestiture of certain store locations and
non-operating assets. As a result of its analysis with its financial
advisor, the Company intends to intensify its divestiture strategy. The
Company is currently working with its financial advisor to assist in
negotiations with its lenders to facilitate this divestiture program.
Management believes that cash from operations, available credit
facilities and asset sales will be sufficient to meet the Company's
obligations for the foreseeable future. The Company is currently in
negotiations with its lenders to permit the sale of various store
locations. In the event that the Company is unable to obtain required
consents from its lenders for the divestiture of store locations, or
consummate proposed asset sales, on acceptable terms, there is a risk
that the Company may not be able to meet future cash obligations.
-8-
C. INTANGIBLE AND OTHER ASSETS:
Intangible and other assets consist of the following (in thousands):
APRIL 3, SEPTEMBER 30,
2003 2002
------ ------
Goodwill $ 0 $8,874
Lease acquisition costs 298 315
Noncompete agreements 250 250
Other intangible assets 154 197
------ ------
702 9,636
Less accumulated amortization 402 3,401
------ ------
300 6,235
Other assets 1,140 1,100
------ ------
$1,440 $7,335
====== ======
Goodwill represents the excess of costs over the fair value of net assets
acquired in business combinations. As discussed within this report under
"Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Critical Accounting Policies and Estimates," the Company
completed an impairment analysis during the second quarter of fiscal 2003
and the adoption of Statement of Financial Accounting Standards ("SFAS")
No. 142 resulted in a write-off of goodwill in the amount of $5.8
million. Lease acquisition costs are the bargain element of acquired
leases and are being amortized on a straight-line basis over the related
lease terms.
The Company's adoption of SFAS No. 142 eliminates the amortization of
goodwill beginning in the first quarter of fiscal 2003 (see Note G).
Goodwill amortization in the first two quarters of fiscal 2002 was
$194,300, or $0.03 per share. The following table adjusts net earnings
(loss) and net earnings (loss) per share for the adoption of SFAS No. 142
(in thousands, except per share data):
TWO QUARTERS ENDED
APRIL 3, APRIL 4,
2003 2002
------- ------
Reported net loss ($8,244) ($1,029)
Add back:
Goodwill amortization 0 194
------- ------
Adjusted net loss ($8,244) ($ 835)
======= ======
Net loss per share ($1.15) ($0.15)
======= ======
Adjusted net loss per share ($1.15) ($0.12)
======= ======
-9-
D. REVOLVING CREDIT AGREEMENT:
On April 20, 2000, the Company executed a 3-year secured $10.0 million
revolving credit agreement (the "Agreement") with $3.5 million available
for letters of credit. Provisions of the Agreement require the
maintenance of certain covenants relating to minimum tangible net worth,
interest and fixed-charge coverage ratios, as measured on a quarterly
basis. In addition, the Agreement places limitations on capital
expenditures, additional debt and payment of dividends. In the second
quarter of fiscal year 2001, the Agreement was amended to increase the
total credit line to $13.0 million, with $3.5 million available for
letters of credit, and to amend certain financial covenants. During the
first quarter of fiscal year 2002, the Agreement was amended to extend
the maturity date to April 20, 2004, to amend certain covenants and to
provide an additional $2.0 million for borrowing on a seasonal basis for
the months January through April. As of September 30, 2002, the Agreement
was amended to revise covenants relating to fixed- charge coverage and
interest coverage ratios for the fourth quarter of fiscal year 2002 and
the first quarter of fiscal year 2003. Effective April 1, 2003, the
Company amended the Agreement to extend the maturity date to December 31,
2004, extend the $2.0 million seasonal borrowing increase to April 30,
2004, and revise certain financial covenants. The Company was in
compliance with these covenants as of April 3, 2003. Borrowings of $5.8
million and letters of credit of $3.5 million were outstanding under the
Agreement at April 3, 2003. This facility bears interest at the Company's
option based on a rate of either prime plus 1.0% or LIBOR plus 3.0%. The
blended interest rate at April 3, 2003 was 4.79%. The Agreement is
collateralized by substantially all of the Company's inventories,
receivables, other personal property and selected real properties. At
April 3, 2003, the net book value of these selected real properties that
are pledged as collateral was $2.5 million.
-10-
E. LONG-TERM DEBT:
APRIL 3, SEPTEMBER 30,
2003 2002
------- -------
(In thousands)
Mortgage Loan. Principal and interest will be
paid in 185 remaining monthly installments. At
April 3, 2003, the coupon rate was 9.08% and the
effective interest rate was 9.78%, net of unamortized
fees of $1,114,451 ($1,204,119 in 2002). $30,295 $31,568
Mortgage Loan. Principal and interest will be
paid in 206 remaining monthly installments. The
loan bears interest at LIBOR plus 3.75%. At April 3,
2003, the coupon rate was 5.09% and the
effective interest rate was 5.52%, net of
unamortized fees of $343,755 ($364,952 in 2002). 20,077 20,423
Mortgage Loan. Principal and interest will be
paid in 206 remaining monthly installments. At
April 3, 2003, the coupon rate was 10.39% and the
effective interest rate was 10.71%, net of unamortized
fees of $109,674 ($114,683 in 2002). 6,432 6,502
Mortgage Loans. Principal and interest are paid in
monthly installments. The loans expire in 2009,
2010, 2020 and 2021. Interest ranges from the
prime rate to LIBOR plus 3.75%. At April 3, 2003,
the blended coupon rate was 6.03% and the
effective interest rate was 6.47%, net of
unamortized fees of $141,094 ($144,626 in 2002). 7,045 7,202
Revolving Credit Agreement. Interest is paid
monthly. The blended interest rate at April 3, 2003
was 4.79%. (See Note D) 5,809 5,867
Equipment Loans. Principal and interest will be
paid in monthly installments. The loans expire
in 2010 and 2011 and bear interest at LIBOR plus
3.75%. At April 3, 2003, the blended coupon rate was
5.09% and the effective interest rate was 5.67%, net of
unamortized fees of $113,464 ($135,213 in 2002). 7,993 8,506
Equipment Loan. Principal and interest will be
paid in 85 remaining monthly installments. The loan
expires in 2010. At April 3, 2003, the coupon rate was
10.73% and the effective interest rate was 11.18%,
net of unamortized fees of $10,862 ($13,776 in 2002). 780 923
------- -------
78,431 80,991
Less current maturities 9,039 9,079
------- -------
$69,392 $71,912
======= =======
-11-
E. LONG-TERM DEBT (CONTINUED):
The mortgage loans are collateralized by $65,259,900 of property, at net
book value, and the equipment loans are collateralized by $4,687,600 of
equipment, at net book value.
Aggregate maturities of long-term debt (net of loan fee amortization)
during the next five years are as follows (in thousands):
September 30,
2003 $7,134
2004 3,159
2005 3,398
2006 3,656
2007 3,934
Thereafter 57,150
-------
$78,431
=======
F. RELATED PARTY TRANSACTIONS:
Certain directors and officers of the Company are also directors,
officers or controlling shareholders of other entities from which the
Company leases its corporate headquarters and various store and other
locations under agreements classified as operating leases. In addition,
the Company leases store locations from entities controlled by, or from
persons related to, certain directors and officers of the Company.
Aggregate rentals in connection with all such leases for the two quarters
ended April 3, 2003 and April 4, 2002 were $743,500 and $562,200,
respectively.
The Company charges an affiliate for general and administrative services
provided. Such charges amounted to $5,600 and $5,600 in the two quarters
ended April 3, 2003 and April 4, 2002, respectively.
During the first two quarters of fiscal years 2003 and 2002, the Company
made payments of $0 and $39,900, respectively, to a director of the
Company for consulting fees and reimbursement of expenses.
-12-
G. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that
such assets with indefinite lives not be amortized but be tested annually
for impairment and provides specific guidance for such testing. This
statement also requires disclosure of information regarding goodwill and
other assets that was previously not required. In accordance with SFAS
No. 142, the Company has discontinued the amortization of goodwill as of
October 1, 2002 and completed its impairment test during the 2003 second
fiscal quarter. As a result, the Company wrote-off its total goodwill
balance of $5,857,000.
The Company adopted SFAS No. 143,"Accounting for Asset Retirement
Obligations," effective for the fiscal year ending September 30, 2003.
Under the statement's provisions, (1) entities must record the fair value
of a liability for an asset retirement obligation in the period in which
it is incurred, (2) when the liability is initially recorded, the entity
must capitalize a cost by increasing the carrying amount of the related
long-lived asset, (3) over time, the liability is accreted to its present
value each period, and the capitalized cost is depreciated over the
useful life of the related asset and (4) upon settlement of the
liability, the entity either settles the obligation for its recorded
amount or incurs a gain or loss upon settlement. There was no impact on
the Company's consolidated financial position or results of operations as
a result of the adoption of SFAS No. 143.
The Company adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long- Lived Assets," effective October 1, 2002. SFAS No. 144
addressed the financial accounting and reporting for the impairment or
disposal of long-lived assets. There was no impact on the Company's
consolidated financial position or results of operations as a result of
the adoption of SFAS No. 144.
The Company adopted SFAS No. 145, "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections," effective October 1, 2002. SFAS No. 145 rescinds SFAS No.
4, "Reporting Gains and Losses from Extinguishment of Debt," and an
amendment of that Statement, and SFAS No. 64, "Accounting for Leases," to
eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-
leaseback transactions. SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed
conditions. There was no impact on the Company's consolidated financial
position or results of operations as a result of the adoption of SFAS No.
145.
The Company adopted SFAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," effective January 1, 2003. SFAS No. 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment
to an exit or disposal plan. Previous accounting guidance was provided by
Emerging Issues Task Force ("EITF") No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)," which required
that a liability for costs associated with an exit plan or disposal
activity be recognized at the date of an entity's commitment to an exit
plan. There was no impact on the Company's consolidated financial
position or results of operations as a result of the adoption of SFAS No.
146.
-13-
G. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED):
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of
FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting
for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No.
148 amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and
the effect of the method used on reported results. The disclosure
requirements apply to all companies for fiscal years ending after
December 15, 2002. The interim disclosure provisions are effective for
financial reports containing financial statements for interim periods
beginning after December 15, 2002. The adoption of SFAS No. 148 had an
impact on the Company's disclosure requirements, but had no impact on the
Company's consolidated financial statements.
The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations for all periods represented.
Accordingly, compensation cost for stock options is measured as the
excess, if any, of the fair value of the Company's common stock at the
date of the grant over the amount an employee must pay to acquire the
stock. The following table illustrates the effect on net loss and net
loss per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", to
stock-based employee compensation (in thousands, except per share data):
Quarter Ended Two Quarters Ended
April 3, April 4, April 3, April 4,
2003 2002 2003 2002
------- ------- ------- -------
Net loss, as reported ($2,275) ($1,138) ($8,244) ($1,029)
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects ( 2) ( 11) ( 2) ( 29)
------- ------- ------- -------
Pro forma net loss ($2,277) ($1,149) ($8,246) ($1,058)
======= ======= ======= =======
Basic and diluted net loss per share
as reported ($ 0.31) ($ 0.16) ($ 1.15) ($ 0.15)
Pro forma basic and diluted net loss
per share ($ 0.31) ($ 0.16) ($ 1.15) ($ 0.15)
In September 2002, the EITF released Issue No. 02-16, "Accounting by a
Reseller for Cash Consideration Received from a Vendor," which has two
parts. The first part of the pronouncement requires that vendor
allowances be categorized as a reduction of cost of sales unless they are
a reimbursement of costs incurred to sell the vendor's products, in which
case, the cash consideration should be characterized as a reduction of
that cost. If the amount of cash consideration paid by a vendor exceeds
the estimated fair value of the benefit received, that excess should be
characterized as a reduction of the cost of sales when recognized in the
customer's income statement. This portion of the pronouncement must be
implemented by fiscal 2004.
-14-
G. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED):
The second part of the pronouncement requires that rebates or refunds
that are payable only if the customer completes a specified cumulative
level of purchases should be recognized as a reduction of cost of sales
based on a systematic and rational allocation over the purchase period.
This portion of the pronouncement was implemented by the Company in the
second quarter of fiscal 2003. There was no impact on the Company's
consolidated financial position or results of operations as a result of
the adoption of EITF No. 02-16.
In November 2002, the EITF reached a consensus on Issue No. 02-16,
"Accounting by a Reseller for Cash Consideration Received from a Vendor."
Issue 02-16 provides guidance on when to classify consideration received
from a vendor as a reduction of the price of the vendor's products, a
reimbursement of costs incurred or as revenue. In addition, Issue 02-16
provides guidance on when to recognize rebates or refunds of a specified
amount of cash consideration from a vendor that are based on the
achievement of a specified cumulative level of purchases or are based on
the customer purchasing from the vendor for a specified period of time.
The guidance in Issue 02-16 has been adopted by the Company in the second
quarter of fiscal 2003. There was no impact on the Company's consolidated
financial position or results of operations as a result of the guidance
in 02-16.
In November of 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees
Including Indirect Guarantees of Indebtedness of Others." FIN No. 45
requires entities to establish liabilities for certain types of
guarantees, and expands financial statement disclosures for others. The
accounting requirements of FIN No. 45 are effective for guarantees issued
or modified after December 31, 2002, and the disclosure requirements are
effective for financial statements of interim or annual periods ending
after December 15, 2002. There was no impact on the Company's
consolidated financial position or results of operations as a result of
the adoption of FIN No. 45.
The FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities" ("FIN 46"). FIN 46 applies immediately to variable
interest entities created after January 31, 2003, and to variable
interest entities in which an enterprise obtains an interest after that
date. Based on management's assessment as of the date of this report, the
Company does not have any interests in variable interest entities as
defined in FIN 46 that would require disclosure in the consolidated
financial statements as of December 31, 2002.
-15-
H. COMMITMENTS AND CONTINGENCIES:
(1) Leases -- The Company leases its corporate headquarters, 126 of its
store locations, certain equipment, offices, and maintenance and
storage facilities. Future minimum lease payments under capital leases
and noncancellable operating leases with initial or remaining terms in
excess of one year at April 3, 2003 are shown below. Some of the leases
provide for additional rentals when sales exceed a specified amount and
contain variable renewal options and escalation clauses.
Capital Operating Rental
Leases Leases Income
------ ------ ------
(In thousands)
Six months ending
September 30, 2003 $74 $3,096 $ 378
Fiscal Year 2004 140 5,976 622
Fiscal Year 2005 31 4,544 495
Fiscal Year 2006 31 3,295 322
Fiscal Year 2007 31 3,091 244
Thereafter 21 8,037 381
-- ----- ---
Total future minimum
lease payments 328 $28,039 $2,442
======= ======
Less amount representing
interest 57
--
Present value of future
payments 271
Less current maturities 103
---
$168
====
(2) 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.
-16-
I. CHANGES IN SECURITIES:
On February 6, 2002, the Company adopted a shareholder rights plan and declared
a dividend distribution of one Common Stock Purchase Right on each outstanding
share of its common stock. Pursuant to the rights plan, the Company distributed
to all shareholders of record on February 19, 2002, as a dividend on each
outstanding share of common stock, a right to purchase two-thirds of a share of
common stock for a purchase price of $10.67. The rights, however, are
exercisable (subject to limited grandfathering provisions for certain
shareholders who currently beneficially own more than 15% of the Company's
stock) only if: (1) a person or group acquires 15% or more of the Company's
common stock, other than through an offer for all shares of the common stock at
a price and on terms determined by the Board of Directors to be fair to all
shareholders, or (2) a person or group commences a tender or exchange offer for
15% or more of the Company's common stock. If the rights become exercisable, the
rights will be modified automatically to entitle the rightholders (other than
the acquiring person or group) to purchase shares of the Company's common stock
at a 50% discount from the then market value. In addition, if the Company is
acquired in a merger or other transaction after such person or group has
acquired a 15% common stock interest, the rightholders (other than such person
or group) will be entitled to purchase shares of common stock of the surviving
company at the same discount from market value. Initially, the rights will be
represented by existing Uni-Marts stock certificates. Should the rights become
exercisable, the Company will issue separate rights certificates to all holders.
Uni- Marts can redeem the rights at any time before (but not after) a person or
group has acquired 15% or more of the Company's common stock as described above.
If not redeemed prior to January 31, 2012, the rights will expire on that date.
Terms of the Shareholder Rights Plan are set forth in a Rights Agreement dated
as of February 6, 2002 between the Company and Mellon Investor Services LLC, as
Rights Agent, which was filed as an exhibit to an amendment to the Registration
Statement on Form 8-A pursuant to which the Company's common stock, par value
$0.10, is registered under the Securities Exchange Act of 1934.
During the first two quarters of fiscal 2003, the Company purchased 24,323
shares of its treasury stock for $128,045 to fund its 401(k) retirement plan,
resulting in a decline of additional paid-in capital of $99,525. The Company
also issued 31,000 shares of common stock to its non-employee directors, as part
of their annual retainer, and 1,524 shares of common stock to the Company's
employee stock purchase plan. The issuance of these shares resulted in an
increase of $38,780 to additional paid-in capital. The net effect of these
transactions in the first two quarters of fiscal 2003 was a decrease to
additional paid-in capital of $60,745.
-17-
ITEM 2
UNI-MARTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Set forth below are selected unaudited consolidated financial data of the
Company for the periods indicated:
QUARTER ENDED TWO QUARTERS ENDED
APRIL 3, APRIL 4, APRIL 3, APRIL 4,
2003 2002 2003 2002
---- ---- ---- ----
Revenues:
Merchandise sales 48.3 % 57.1 % 49.9 % 56.9 %
Gasoline sales 51.3 42.4 49.7 42.6
Other income 0.4 0.5 0.4 0.5
--- --- --- ---
Total revenues 100.0 100.0 100.0 100.0
Cost of sales 80.6 77.2 80.1 77.0
---- ---- ---- ----
Gross profit:
Merchandise (as a percentage of
merchandise sales) 30.0 30.5 30.4 31.1
Gasoline (as a percentage of
gasoline sales) 8.8 11.5 8.7 11.3
Total gross profit 19.4 22.8 19.9 23.0
Costs and expenses:
Selling 16.1 18.4 16.0 17.7
General and administrative 1.9 2.3 1.8 2.1
Depreciation and amortization 1.9 2.2 1.8 2.2
Interest 1.5 1.7 1.5 1.8
--- --- --- ---
Total expenses 21.4 24.6 21.1 23.8
Loss from continuing operations before
income taxes and change in accounting
principle ( 2.0) ( 1.8) ( 1.2) ( 0.8)
Income tax benefit ( 0.1) ( 0.6) ( 0.1) ( 0.3)
--- --- --- ---
Loss from continuing operations before
change in accounting principle ( 1.9) ( 1.2) ( 1.1) ( 0.5)
--- --- --- ---
Discontinued operations:
Loss from discontinued operations ( 0.1) 0.0 ( 0.1) 0.0
Loss on disposal of discontinued
operations ( 0.2) 0.0 ( 0.1) 0.0
Income tax benefit 0.0 0.0 0.0 0.0
--- --- --- ---
Loss on discontinued operations ( 0.3) 0.0 ( 0.2) 0.0
Cumulative effect of change in
accounting principle, net of income tax
benefit 0.0 0.0 ( 2.6) 0.0
--- --- --- ---
Net loss ( 2.2) % ( 1.2) % ( 3.9) % ( 0.5) %
=== === === ===
-18-
RESULTS OF OPERATIONS:
RISKS THAT COULD AFFECT FUTURE RESULTS
A number of the matters and subject areas discussed in this Item 2 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-Q that are not historical or current facts, including
statements regarding the Company's plans and strategies or future financial
performance, deal with potential future circumstances and developments. These
forward-looking statements frequently can be identified by the use of
terminology such as "believes," "expects," "may," "will," "should" or
"anticipates" (or the negative or other variations thereof) or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
Although the Company believes that its expectations are based on reasonable
assumptions within the bounds of its knowledge, investors and prospective
investors are cautioned that such statements are only projections and that
actual events or results may differ materially from those expressed in any such
forward-looking statements. In addition to other factors described elsewhere in
this report, the Company's actual consolidated quarterly or annual operating
results have been affected in the past, or could be affected in the future, by
factors, including, without limitation, general economic, business and market
conditions; environmental, tax and tobacco legislation or regulation; volatility
of gasoline prices, margins and supplies; competition and ability to maintain
merchandising margins; the ability to obtain required consents from lenders and
otherwise successfully consummate the Company's divestiture program; the
sufficiency of cash balances, cash from operations and cash from asset sales to
meet future cash obligations; volume of customer traffic; weather conditions;
labor costs; and the level of capital expenditures.
OVERVIEW
Matters discussed below should be read in conjunction with "Operating Data
(Retail Locations Only)" on the preceding page.
In the last twelve months, the Company continued its store evaluation and
strategic initiative program. During that period, two convenience stores and one
Choice Cigarette Discount Outlet ("Choice") were closed, and five convenience
stores, one Choice and one non-operating location were sold. The Company also
constructed two Choice stores during this period.
From April 2002 until December 2002, the Company had retained financial advisors
to assist in the exploration and evaluation of all of its strategic alternatives
to enhance stockholder value. As a result of its analysis with its financial
advisors, the Company intends to intensify a divestiture strategy of certain
underperforming store locations and non-operating assets. In January 2003, the
Company entered into a new financial advisory agreement with one of these
financial advisors to assist in negotiations with the Company's debt holders to
permit the Company's ongoing divestiture plan. If the disposition of assets is
successful and is in excess of certain amounts, the Company's executive officers
will be eligible to receive bonuses pursuant to a Transaction Success Bonus Plan
adopted by the Company. The aggregate amount of such bonuses will be based upon
the total consideration received for such assets. The Company is currently in
negotiations with its lenders to permit the sale of various store locations. If
the Company is unsuccessful in obtaining required consents from its lenders or
consummate proposed asset sales, the Company could encounter liquidity problems
during fiscal year 2003. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations --Liquidity and Capital Resources."
-19-
QUARTERS ENDED APRIL 3, 2003 AND APRIL 4, 2002
At April 3, 2003, the Company operated 294 stores, which were comprised of 227
Uni-Mart convenience stores and 67 Choice stores. Of these locations, three were
franchised and 238 offered self-service gasoline. The Company sold four
locations in the second fiscal quarter, including three convenience stores of
which one was a franchise location and one Choice store. The Company had six
less convenience stores and one fewer Choice store in operation in the fiscal
quarter ended April 3, 2003 compared to the quarter ended April 4, 2002.
For the second quarter of fiscal 2003, ended April 3, 2003, total revenues were
$105.0 million, an increase of $13.8 million, or 15.2%, compared to total
revenues of $91.2 million for the second quarter of fiscal 2002, ended April 4,
2002. The increase in revenues is principally due to a $15.2 million, or 39.4%,
increase in gasoline sales to $53.9 million compared to gasoline sales of $38.7
million in the second quarter of fiscal 2002. This increase is primarily the
result of a 39.4 cent per gallon increase in the average retail price per gallon
of petroleum sold during the current fiscal quarter compared to the same quarter
of the prior fiscal year. Merchandise sales declined by $1.3 million, or 2.5%,
to $50.7 million, compared to merchandise sales of $52.0 million in the second
quarter of fiscal 2002. Merchandise sales declined in part due to fewer stores
in operation in the current fiscal quarter. Other income declined by $83,000 to
$386,000 for the current quarter. Merchandise sales at comparable stores
declined by 2.0% and gasoline gallons sold at comparable stores declined by 0.9%
in the second quarter of fiscal 2003 compared to the second quarter of fiscal
2002.
Gross profits on merchandise sales were $15.2 million, a decline of $675,000, or
4.3%, compared to merchandise gross profits of $15.9 million in the second
quarter of fiscal 2002. Lower merchandise sales, due primarily to poor weather
conditions and fewer stores in operation in the current fiscal quarter when
compared to the same quarter of fiscal 2002, as well as a 0.6% decline in the
merchandise gross margin rate, contributed to the decline in merchandise gross
margins for the second quarter of fiscal 2003.
Gasoline gross profit margins increased by $315,000, or 7.1%, to $4.8 million in
the second quarter of fiscal 2003 compared to gasoline gross profit margins of
$4.5 million in the second quarter of fiscal 2002. Gasoline gross profits per
gallon sold increased by 8.6%, while total gallons sold declined by
564,000 gallons, or 1.4%, in the current fiscal quarter. Higher gasoline gross
profit margins per gallon sold contributed to greater gasoline gross profits,
while the effects of unfavorable weather and economic conditions resulted in
fewer gallons sold.
Selling expenses increased by $174,000, or 1.0%, to $16.9 million for the fiscal
2003 second quarter, primarily due to higher credit card fees resulting from
higher retail petroleum prices, and higher levels of store maintenance resulting
from the harsh weather conditions in the Company's operating area, offset by
fewer stores in operation. General and administrative expense declined by
$155,000, or 7.2%, to $2.0 million due to a reduction in the number of employees
in the current fiscal quarter. Depreciation and amortization expense declined by
$118,000, or 5.8%, to $1.9 million as the result of the adoption of SFAS No.
142, lower levels of capital expenditures and fewer stores in operation in the
current fiscal quarter. Interest expense remained relatively the same at $1.6
million for the second quarter of fiscal 2003. While borrowing rates and levels
were lower in the second fiscal quarter of 2003 in comparison to the second
fiscal quarter of 2002, interest expense remained relatively the same at $1.6
million. In the second quarter of fiscal 2002, the Company received a $129,000
refund from an insurance company related to interest payments on borrowings for
claims paid by the Company which were subsequently reimbursed. The amount was
recorded as a credit to interest expense.
-20-
For the second quarter of fiscal 2003, losses from continuing operations, before
income taxes and change in accounting principle, were $2.1 million, compared to
losses from continuing operations, before income taxes and change in accounting
principle, of $1.7 million in the second quarter of fiscal 2002. The Company
received a benefit from income taxes of $108,000 compared to an income tax
benefit of $593,000 in the second quarter of fiscal 2002. Losses from continuing
operations before the change in accounting principle were $1.9 million, or $0.27
per share, for the current fiscal quarter compared to losses from continuing
operations before the change in accounting principle in the second quarter of
fiscal 2002 of $1.1 million, or $0.16 per share.
The Company recorded a loss on discontinued operations of $329,000, or $0.04 per
share, compared to a loss on discontinued operations in the second quarter of
fiscal 2002 of $24,000, or no per share loss. Discontinued operations for this
period consist of the sale of three convenience stores and one Choice location
in the second quarter of fiscal 2003. This loss included a loss from
discontinued operations of $99,000, a loss on disposal of discontinued
operations of $248,000 and an income tax benefit of $18,000 for the second
quarter of fiscal 2003, compared to a loss of $37,000, $0 and $13,000,
respectively, for the second quarter of fiscal 2002. During the first quarter of
fiscal 2003, the Company increased its valuation allowance against the deferred
tax asset because it was determined that it is more likely than not that the
Company will not be able to fully utilize the NOL's. This increase in the
reserve has resulted in a 5% tax benefit in comparison to a 35% tax provision in
the second quarter of fiscal 2002. Total net losses for the quarter ended April
3, 2003 were $2.3 million, or $0.31 per share, compared to total net losses of
$1.1 million, or $0.16 per share, for the quarter ended April 4, 2002.
TWO QUARTERS ENDED APRIL 3, 2003 AND APRIL 4, 2002
Total revenues for the first two quarters of fiscal 2003 were $213.8 million, an
increase of $24.7 million, or 13.1%, compared to total revenues of $189.1
million for the two quarters ended April 4, 2002. The principal factor in the
revenues increase was a $25.7 million, or 31.9%, increase in gasoline sales for
the current reporting period compared to the same six-month period of fiscal
2002. Gasoline sales for the first six months of fiscal 2003 increased to $106.2
million from $80.5 million for the first six months of fiscal 2002, due
principally to a 31.0 cent per gallon increase in the average retail price per
gallon of petroleum sold in the current reporting period. Merchandise sales
declined by $882,000, or 0.8%, to $106.8 million from $107.7 million in the
first six months of fiscal 2002 due primarily to fewer stores in operation. At
comparable stores, merchandise sales declined by 0.3%, while gasoline gallons
sold at comparable stores were relatively flat when compared to the first six
months of fiscal 2002. Other income declined by $58,000, or 6.4%, to $851,000
for the current six-month period.
A 0.7% decline in the merchandise gross margin rate, combined with lower
merchandise sales contributed to a $1.0 million, or 3.0%, decline in merchandise
gross margins for the first six months of fiscal 2003. Gross profit margins on
merchandise sales were $32.5 million for the first six months of fiscal 2003,
compared to $33.5 million for the first six months of fiscal 2002.
Gross profits on gasoline sales for the first two quarters of fiscal 2003
increased by 2.1% to $9.3 million compared to gasoline gross profit margins of
$9.1 million reported in the first two quarters of fiscal 2002. A 2.9% increase
in gross profit margins per gallon sold contributed to higher gasoline margin
levels, offset by a decline in gasoline gallons sold of 635,000 gallons.
-21-
Selling expenses increased by 1.8% to $34.1 million due to increases in credit
card fees resulting from higher retail petroleum prices, and higher levels of
store maintenance and utilities due to poor weather conditions in the Company's
operating area primarily in the second fiscal quarter, offset by fewer stores in
operation. General and administrative expense declined by 3.9% to $3.9 million
for the current fiscal quarter due to fewer salaried employees, offset by
increased legal and professional fees. Depreciation and amortization expense for
the first six months of fiscal 2003 declined by 5.5% to $3.9 million due to the
adoption of SFAS No. 142, lower levels of capital expenditures and fewer stores
in operation. Lower interest rates and borrowing levels resulted in a 5.0%
decline in interest expense to $3.2 million for the first six months of fiscal
2003 compared to $3.4 million for the first six months of fiscal 2002.
The Company reported a net loss from continuing operations, before the effect of
a change in accounting principle in connection with the Company's adoption of
SFAS No. 142 effective as of October 1, 2002, of $2.4 million compared to a net
loss of $1.5 million for the same period of fiscal 2002. The Company received a
benefit for income taxes in the first six months of fiscal 2003 of $129,000
compared to an income tax benefit of $523,000 in the first six months of fiscal
2002. During the first quarter of fiscal 2003, the Company increased its
valuation allowance against the deferred tax asset because it was determined
that it is more likely than not that the Company will not be able to fully
utilize the NOL's. This increase in the reserve has resulted in a 5% tax benefit
in comparison to a 35% tax provision in the first two quarters of fiscal 2002.
Losses from continuing operations before the change in accounting principle were
$2.3 million, or $0.32 per share, compared to $980,000, or $0.14 per share, for
the first six months of fiscal 2002.
The Company reported a loss on discontinued operations (the sale of three
convenience stores and one Choice location in the second quarter of fiscal 2003)
of $383,000, or $0.05 per share, for the first six months of fiscal 2003,
compared to a loss on discontinued operations of $49,000, $0.01 per share, in
the first six months of fiscal 2002. This loss included a loss from discontinued
operations of $156,000, a loss on disposal of discontinued operations of
$248,000 and an income tax benefit of $21,000 for the first six months of fiscal
2003, compared to a loss from discontinued operations of $75,000, no loss on
disposal of discontinued operations and an income tax benefit of $26,000 for the
first six months of fiscal 2002.
The Company incurred a one-time charge in connection with the adoption of SFAS
No. 142 during the first quarter of fiscal 2003 of $5.8 million, before income
taxes. The cumulative effect of the change in accounting principle, net of an
income tax benefit of $310,000, was $5.5 million. Total net losses for the two
quarters ended April 3, 2003 were $8.2 million, or $1.15 per share, compared to
total net losses of $1.0 million, or $0.15 per share, for the two quarters ended
April 4, 2002.
LIQUIDITY AND CAPITAL RESOURCES:
Most of the Company's sales are for cash and its inventory turns over rapidly.
As a result, the Company's daily operations generally do not require large
amounts of working capital. From time to time, the Company utilizes portions of
its cash to construct new stores and renovate existing locations.
As of April 1, 2003, the Company amended its revolving credit agreement (the
"Agreement") to extend the maturity date to December 31, 2004 and revise
covenants relating to interest and fixed- charge coverage ratios. At April 3,
2003, $5.7 million was available for borrowing under this Agreement. See
Footnote D to the Consolidated Financial Statements included in this report for
-22-
additional information regarding the Agreement. In addition, the Company's
liquid fuels tax bond expires in the third fiscal quarter of 2003. Due to the
expiration of the bond, the Company will reduce its annual insurance expense by
$103,000 and the Company will be required to pay the liquid fuels tax on
purchases to the vendors within current payment terms. The Company intends to
utilize its amended working capital credit facility to mitigate the cash flow
impact of the liquid fuels tax bond expiration, resulting in increased
borrowings of $2.1 million on average throughout the year.
Capital requirements for debt service and capital leases for the balance of
fiscal year 2003 are approximately $7.2 million, which includes $5.8 million in
revolving credit that has been classified as current. The Company anticipates
capital expenditures in the remainder of fiscal year 2003 of $1.2 million,
funded by cash flows from operations. These capital expenditures include normal
replacement of store equipment and gasoline-dispensing equipment and upgrading
of the Company's in-store and corporate data processing systems.
Operating lease commitments for the remainder of fiscal year 2003 are
approximately $3.1 million. These commitments for fiscal years 2004, 2005, 2006
and 2007 are approximately $6.0 million, $4.5 million, $3.3 million, and $3.1
million, respectively.
Management believes that cash from operations, available credit facilities and
asset sales will be sufficient to meet the Company's obligations for the
foreseeable future. In the event that the Company is unable to successfully
consummate proposed asset sales, there is risk that the Company will not be able
to meet future cash obligations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
The discussion and analysis of the Company's financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, and expenses, and related disclosure of
contingent assets and liabilities. On an on- going basis, the Company evaluates
its estimates, including those related to self-insured liabilities, impairment
of long-lived assets and goodwill and income taxes. The Company bases its
estimates on historical experience, current and anticipated business conditions,
the condition of the financial markets, and various other assumptions that are
believed to be reasonable under existing conditions. Actual results may differ
from these estimates.
The Company believes that the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements:
Self-insurance liabilities -- The Company records estimates for self-insured
worker's compensation and general liability insurance coverage. Should a greater
amount of claims occur compared to what was estimated, or costs increase beyond
what was anticipated, reserves recorded may not be sufficient, and additional
expense may be recorded.
Impairment -- The Company evaluates long-lived assets, including stores, for
impairment quarterly, or whenever events or changes in circumstances indicate
that the assets may not be recoverable. The impairment is measured by
calculating the estimated future cash flows expected to be generated by the
store, and comparing this amount to the carrying value of the store's assets.
Cash flows are calculated
-23-
utilizing individual store forecasts and total company projections for the
remaining estimated lease lives of the stores being analyzed. Should actual
results differ from those forecasted and projected, the Company may be subject
to future impairment charges related to these facilities.
During the first quarter of fiscal year 2003, the Company adopted Statement of
Financial Accounting Standards ("SFAS") Nos. 142 and 144. SFAS No. 142 requires
that assets with indefinite lives not be amortized but tested annually for
impairment and provides specific guidance for such testing. SFAS No. 144
provides additional guidance for impairment testing and determination of when an
asset is considered to be for sale. The Company completed its impairment test
during the second quarter of fiscal 2003 and the adoption of SFAS No. 142
resulted in the write-off of goodwill in the amount of $5,857,000.
Income taxes -- The Company currently has NOL's that can be utilized to offset
future income for federal and state tax purposes. These NOL's generate a
significant deferred tax asset. However, the Company has recorded a valuation
allowance against this deferred tax asset as it has determined that it is more
likely than not that it will not be able to fully utilize the NOL's. Should the
Company's assumptions regarding the utilization of these NOL's change, it may
reduce some or all of this valuation allowance, which would result in the
recording of an income tax benefit.
-24-
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company uses its revolving credit facility and its mortgage and equipment
loans to finance a significant portion of its operations. These on-balance sheet
financial instruments, to the extent they provide for variable rates of
interest, expose the Company to interest rate risk resulting from changes in the
LIBOR or prime rate.
To the extent that the Company's financial instruments expose the Company to
interest rate risk, they are presented in the table below. The table presents
principal cash flows and related interest rates by year of maturity for the
Company's revolving credit facility, mortgage loans and equipment loans at April
3, 2003.
The carrying amounts of cash and short-term debt approximate fair value. The
Company estimates the fair value of its long-term, fixed-rate debt generally
using discounted cash flow analysis based on the Company's current borrowing
rates for debt with similar maturities. The Company estimates the fair value of
its long-term, variable-rate debt based on carrying amounts plus unamortized
loan fees associated with the debt.
FISCAL YEAR OF MATURITY
(DOLLAR AMOUNTS IN THOUSANDS)
TOTAL FAIR
DUE AT VALUE AT
2003 2004 2005 2006 2007 THEREAFTER MATURITY 4/3/03
---- ---- ---- ---- ---- ---------- -------- --------
Interest-rate sensitive assets:
------------------------------
Noninterest-bearing
checking accounts $1,850 $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,850 $ 1,850
Interest-bearing
checking accounts $2,128 $ 0 $ 0 $ 0 $ 0 $ 0 $ 2,128 $ 2,128
Average interest rate 1.15% 1.15% --
-----------------------------------------------------------------------------------------
Total $3,978 $ 0 $ 0 $ 0 $ 0 $ 0 $ 3,978 $ 3,978
Total average interest rate 0.62% 0.62% --
Interest-rate sensitive liabilities:
-----------------------------------
Variable-rate borrowings $6,648 $1,945 $2,051 $2,164 $2,282 $24,230 $39,320 $39,320
Average interest rate 5.04% 5.09% 5.09% 5.09% 5.09% 5.09% 5.08% --
Fixed-rate borrowings $ 486 $1,214 $1,347 $1,492 $1,652 $32,920 $39,111 $41,694
Average interest rate 9.34% 9.33% 9.34% 9.34% 9.34% 9.34% 9.34% --
-----------------------------------------------------------------------------------------
Total $7,134 $3,159 $3,398 $3,656 $3,934 $57,150 $78,431 $81,014
Total average interest rate 5.92% 7.39% 7.42% 7.46% 7.50% 7.54% 7.20% --
-25-
ITEM 4 - CONTROLS AND PROCEDURES
CEO AND CFO CERTIFICATIONS. Appearing immediately following the Signatures
section of this Quaterly Report are two certifications, one by each of our Chief
Executive Officer and our Chief Financial Officer (the "Section 302
Certifications"). This Item 4 of our Quarterly Report contains information
concerning the evaluation of the Company's disclosure controls and procedures
and matters regarding our internal controls that are referred to in the Section
302 Certifications. This information should be read in conjunction with the
Section 302 Certifications for a more complete understanding of the topics
presented.
EVALUATION OF THE COMPANY'S DISCLOSURE CONTROLS AND PROCEDURES. The Securities
and Exchange Commission (the "SEC") requires that within 90 days prior to the
filing of this Quarterly Report on Form 10-Q, the CEO and the CFO evaluate the
effectiveness of the design and operation of the Company's "disclosure controls
and procedures" and report their conclusions on the effectiveness of the design
and operation of the Company's disclosure controls and procedures in this
report.
"Disclosure controls and procedures" mean the controls and other procedures that
are designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934 (the
"Exchange Act"), such as this Quarterly Report, is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
promulgated by the Securities and Exchange Commission (the "SEC"). Disclosure
controls and procedures are also designed with the objective of ensuring that
such information is accumulated and communicated to our management, including
the CEO and CFO, as appropriate to allow timely decisions regarding required
disclosure.
EVALUATION OF THE COMPANY'S INTERNAL CONTROLS. The SEC also requires that the
CEO and CFO certify certain matters regarding the Company's "internal controls."
"Internal controls" mean our procedures which are designed with the objective of
providing reasonable assurance that (1) our transactions are properly
authorized; (2) our assets are safeguarded against unauthorized or improper use;
and (3) our transactions are properly recorded and reported, all to permit the
preparation of our financial statements in conformity with generally accepted
accounting principles. Our internal controls are evaluated quarterly by the
Company.
Among the matters our CEO and CFO must certify in the Section 302 Certifications
are whether all "significant deficiencies" or "material weaknesses" in the
Company's internal controls have been disclosed to the Company's auditors and
the audit committee of the Company's Board of Directors. In the professional
auditing literature, "significant deficiencies" are referred to as "reportable
conditions"; these are control issues that could have a significant adverse
effect on an entity's ability to record, process, summarize and report financial
data in the financial statements. A "material weakness" is defined in the
auditing literature as a particularly serious reportable condition where the
design or operation of one or more internal control components does not reduce
to a relatively low level the risk that misstatements caused by error or fraud
may occur in amounts that would be material in relation to the financial
statements and not be detected within a timely period by employees in the normal
course of performing their assigned functions.
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LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS. The Company's management,
including the CEO and CFO, does not expect that our disclosure controls and
procedures or our internal controls will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, as opposed to absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within an entity have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
CEO/CFO CONCLUSIONS ABOUT THE EFFECTIVENESS OF THE DISCLOSURE CONTROLS AND
PROCEDURES. Based upon their evaluation of the disclosure controls and
procedures, our CEO and CFO have concluded that, subject to the limitations
noted above, our disclosure controls and procedures are effective to provide
reasonable assurance that material information relating to the Company and its
consolidated subsidiaries is made known to management, including the CEO and
CFO, on a timely basis.
CHANGES IN INTERNAL CONTROLS. There were no significant changes to our internal
controls or in other factors that could significantly affect our internal
controls, subsequent to the date of our last evaluation of our internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
-27-
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Uni-Marts, Inc. was held on February 27,
2003 at which time the following matters were voted upon:
(1) Election of three Class I directors to serve until the Annual
Meeting of Stockholders in 2006.
(2) Ratification of the appointment of independent auditors.
The results of the votes on the matters considered at the Annual Meeting of
Stockholders are set forth below:
(1) Election of Directors:
---------------------
VOTES VOTES BROKER
"FOR" "WITHHELD" NON-VOTES
----- ---------- ---------
Herbert C. Graves 5,997,504 868,060 0
Henry D. Sahakian 5,990,964 874,600 0
Gerold C. Shea 5,998,393 867,171 0
Class II and Class III directors whose terms of office expire in
2004 and 2005, respectively:
CLASS II CLASS III
Stephen B. Krumholz M. Michael Arjmand
Jack G. Najarian Frank R. Orloski, Sr.
Anthony S. Regensburg Daniel D. Sahakian
(2) Ratification of appointment of independent auditors:
---------------------------------------------------
VOTES VOTES VOTES BROKER
"FOR" "AGAINST" "ABSTAIN" NON-VOTES
----- --------- --------- ---------
6,019,956 842,211 3,397 0
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
3.1 Amended and Restated Certificate of Incorporation of the Company (Filed as exhibit
3.1 to the Company's Quarterly Report on Form 10-Q for the period ended April 4,
2002 and incorporated herein by reference thereto).
3.2 Amended and Restated By-Laws of the Company (Filed as exhibit 3.2 to the
Company's Quarterly Report on Form 10-Q for the period ended April 4, 2002 and
incorporated herein by reference thereto).
10.1 Fifth Amendment to Loan Agreement between Provident Bank and Uni-Marts, Inc. effective as of April 1, 2003.
10.2 Transaction Success Bonus Plan, amended and restated as of April 28, 2003.
11 Statement regarding computation of per share loss.
99.1 Certification of the Chairman and Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
(b) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on January 28, 2003 reporting
its Fiscal 2003 First Quarter Financial Results for the period ended
January 2, 2003 and announcing that it had entered into a new financial
advisory agreement with Trefethen & Company, LLC.
The Company filed a report on Form 8-K on April 3, 2003, announcing
that it has reached an agreement with The Provident Bank to amend its
current revolving credit facility effective April 1, 2003.
The Company also filed a report on Form 8-K on April 28, 2003,
announcing its financial results for the fiscal 2003 second quarter,
ended April 3, 2003.
-29-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Uni-Marts, Inc.
(Registrant)
--------------------------------
Date May 16, 2003 /S/ HENRY D. SAHAKIAN
------------ --------------------------------
Henry D. Sahakian
Chairman of the Board
(Principal Executive Officer)
Date May 16, 2003 /S/ N. GREGORY PETRICK
------------ --------------------------------
N. Gregory Petrick
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
(Principal Financial Officer)
-30-
CERTIFICATION
I, Henry D. Sahakian, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Uni-Marts, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 16, 2003
------------------
/S/ HENRY D. SAHAKIAN
-------------------------
Henry D. Sahakian
Chief Executive Officer
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CERTIFICATION
I, N. Gregory Petrick, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Uni-Marts, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 16, 2003
-------------------
/S/ N. GREGORY PETRICK
--------------------------
N. Gregory Petrick
Chief Financial Officer
-32-
UNI-MARTS, INC. AND SUBSIDIARIES
EXHIBIT INDEX
NUMBER DESCRIPTION
------ -----------
10.1 Fifth Amendment to Loan Agreement between Provident Bank and Uni-Marts,
Inc. effective as of April 1, 2003.
10.2 Transaction Success Bonus Plan, amended and restated as of April 28,
2003.
11 Statement regarding computation of per share loss.
99.1 Certification of the Chairman and Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
-33-