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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, 1998
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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
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $.10 Par Value American Stock Exchange
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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
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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. [X]
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 1, 1998,
computed by reference to the closing sale price of the registrant's common
stock on such date: $17,371,628.
6,867,435 shares of Common Stock were outstanding at December 1, 1998.
This Document Contains 80 Pages.
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PART I.
ITEM 1. BUSINESS.
COMPANY OVERVIEW
Uni-Marts, Inc. (the "Company" or "Uni-Marts") is an independent operator of
convenience stores and discount tobacco stores. At September 30, 1998, the
Company operated 256 convenience stores and 20 Choice Cigarette Discount
Outlets ("Choice") stores in Pennsylvania, New York, Delaware, Maryland and
Virginia, of which 196 convenience stores and ten 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.
In December 1997, the Company ended its relationship with Getty Petroleum Corp.
and its affiliates (collectively, "Getty") by terminating leases and subleases
and a gasoline supply agreement pursuant to which the Company previously
purchased substantially all of its gasoline. The Company returned control of
105 stores to Getty in December 1997 and January 1998. The Company currently
purchases gasoline for 31 locations from Exxon and Mobil and for 173 locations
from other independent suppliers. Gasoline is sold at two locations on a
commission basis.
The size of the Company's stores generally ranges from approximately 1,200 to
3,300 square feet, with newly constructed stores generally having over 3,000
square feet. The Company's largest location is 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. See "Management
Discussion and Analysis of Financial Condition and Results of
Operations--Forward-Looking Statements."
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
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ample customer parking and quick checkout procedures to maximize convenience,
as well as to encourage impulse buying of high margin items.
The convenience store industry is extremely fragmented. Currently, there are
many external forces exerting pressure on owners of independent
and small convenience store chains. 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 with gasoline distributors which have converted
retail outlets 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, many convenience store operators have
aggressively closed or remodeled underperforming stores.
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 CUSTOMERS. We have undertaken several initiatives to enhance
product delivery to our customers. We have improved our ordering and
forecasting process to guarantee that appropriate products are always available
to our customers and revitalized product assortment and display. The Company's
convenience stores now offer freshly ground and freshly brewed coffee and have
introduced a variety or pastry products baked daily in the stores. We are
striving to improve the image of our stores to give them a clean, uncluttered
appearance. Employee response to customers is being enhanced through proper
staffing levels and employee training. We are instilling in our employees a
result-oriented focus and a commitment to a high level of performance.
ENHANCEMENT OF RETAIL GASOLINE OPERATION. We have evaluated gasoline
supply contracts and also established our own brand of gasoline. Major oil
companies continue to supply some of our stores, but development of a Company
brand has allowed the Company to utilize new exterior imaging for our stores
and given the Company more flexibility in the purchasing process to provide
greater benefits to our customers. In addition, the upgrading of our
gasoline-dispensing equipment provides our customers with quicker and safer
dispensing facilities and more flexibility in their method of payment.
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 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.
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ENHANCE BRANDED FAST-FOOD UNITS. The Company has added fast-food units
such as Blimpie Subs and Salads, Burger King and Arby's to certain stores. The
Company believes that the recognition associated with these names increases
foot traffic and attracts new customers. At September 30, 1998, the Company
was operating 49 branded fast-food units within its stores, including 31
Blimpie Subs and Salads, 8 Arby's, 6 Burger Kings, 2 Taco Makers, 1 Fox's Pizza
and 1 Manhattan Bagel. Although the Company did not add fast-food units in
fiscal year 1998, the Company expects to continue to improve the profitability
of these fast-food units by emphasizing employee training and tighter cost
controls. As a licensed subfranchisor, the Company has also franchised 26
Blimpie Subs and Salads units with third parties.
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 and free check cashing. In addition, the Company
installed ATMs at 125 locations during the last three fiscal years. 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
20 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 85% of the Company's convenience 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. The Company's goal is to have 24-hour service at
all of its convenience store locations. To alleviate checkout congestion, most
of the Company's products and services are sold on a self-service basis. Most
Company stores provide parking for customers.
Uni-Marts has a merchandising and marketing department which develops and
implements promotional and advertising programs, sometimes in conjunction with
suppliers. In addition, the Company recently retained a marketing and
communications firm experienced in the convenience store industry. Television,
radio, billboard 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,
fountain drinks and freshly-ground coffee and cappuccino 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 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, nachos and
soups.
In fiscal year 1994, as part of its strategy to increase sales of branded fast
foods, the Company entered into an agreement with Blimpie International
("Blimpie") to become an area developer (franchisor) for Blimpie Subs and
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Salads restaurants in Pennsylvania and western New York. The Company presently
operates 31 Blimpie locations and has franchised 26 locations with third
parties. The Company receives a commission on these franchise sales.
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, 1998, the Company had 206 locations
offering gasoline, with 132 of these locations also offering kerosene.
The Company offers Exxon gasoline at 21 locations, Mobil gasoline at 10
locations and Uni-Mart branded gasoline at 173 locations. Two locations sell
branded gasoline on a commission basis.
CHOICE CIGARETTE DISCOUNT OUTLETS. During fiscal year 1998, the Company
converted two underperforming convenience store locations to discount tobacco
stores operating under the name of Choice Cigarette Discount Outlet ("Choice").
At September 30, 1998, the Company operated 20 Choice stores, with ten of these
locations offering unleaded gasoline. The Company expects to sell gasoline at
converted locations if gasoline was sold there prior to conversion. Other
convenience store locations will be converted if conditions warrant. In
general, profitability has improved at locations converted to Choice stores.
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 Senior Vice
President, Operations, who oversees the day-to-day operations of the stores.
Managers, supervisors and regional managers are compensated in part through
incentive programs which provide for quarterly bonuses based primarily on
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.
FRANCHISES. At September 30, 1998, the Company had eleven franchise
stores which operate under various franchise agreements. Under all franchise
agreements, the franchisee pays a royalty, which varies depending upon the
agreement and whether the Company or the franchisee owns the convenience food
store equipment. The royalty is based on the store's merchandise sales volume.
As part of its services to ten franchise locations, the Company provides
accounting services, merchandising and advertising assistance, store layout and
design guidance, supplier and product selection and ongoing operational
assistance. These franchisees are required to use the same internal control
systems that the Company uses for the stores it operates. The Company does not
provide these services for one franchise location. The Company has
periodically closed franchised stores and does not intend to grant new
franchises except in connection with new acquisitions or in other special
circumstances.
SEASONALITY
The Company's business generally has been subject to moderate seasonal
influences with higher sales in the third and fourth quarters of each fiscal
year, since customers tend to purchase more convenience items and gasoline
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during the warmer months. Due to adverse weather conditions, merchandise sales
for the second fiscal quarter have generally been lower than other quarters.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Seasonality and Unaudited Quarterly Results."
DISTRIBUTION AND SUPPLY
All stores are serviced at least weekly by vendors. The Company does not
distribute products to its stores itself. In order to minimize costs and
facilitate deliveries, the Company utilizes a single wholesale distributor for
most in-store merchandise, pursuant to a six-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. The Company has entered into 10-year gasoline supply
agreements with Exxon and Mobil for stores that sell approximately 28% of the
Company's gasoline volume. Gasoline is purchased for the remaining stores from
various suppliers. A gasoline shortage, although unlikely, could adversely
affect the Company's ability to sell gasoline at these locations.
MANAGEMENT CONTROLS AND INFORMATION SYSTEMS
The Company has developed 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, 1998, installation of this new POS scanning system was completed in 30 of
the Company's convenience stores and 20 Choice stores. The system is still
being modified and will be added to additional stores when modifications are
completed.
The Company utilizes its current computer systems for inventory and accounting
control, financial record-keeping and management reporting, allowing management
to monitor and evaluate store operations. The Company's computer
systems are also programmed to identify variances from 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.
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 is being 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. See
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"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Impact of the Year 2000 "Y2K" Problem."
The Company believes that its existing and planned systems and controls can
accommodate significant expansion in the number of Company stores.
COMPETITION
The convenience store industry is highly competitive, fragmented and
regionalized. It is characterized by a few large companies, some medium-sized
companies, such as the Company, and many small independent companies. Several
competitors are substantially larger and have greater resources than the
Company. The Company's primary competitors include national chains such as A-
Plus and 7-Eleven and regional chains such as Sheetz, WaWa, 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.
Management believes that the Company is currently in material compliance with
all applicable federal and state laws and regulations. In the last ten years,
the Company has spent substantial amounts of money to upgrade its underground
storage tanks to meet the applicable standards and requirements. The Company
will terminate gasoline operations at two locations and remove the underground
storage tanks in fiscal year 1999. The Company does not expect expenditures in
fiscal year 1999 to maintain compliance at its other locations to have a
material adverse effect on the Company's financial position, results of
operations or cash flows. The Company has adopted a program to ensure that new
gasoline installations comply with federal and state regulations and that
existing locations are upgraded if required under these regulations.
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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 29% - of the Company's merchandise sales
is derived from the sale of tobacco products at its convenience stores and
Choice Stores. If the government were to impose significant regulations or
restrictions on the sale of tobacco products, it could have a material adverse
effect on the Company.
Management believes that the Company is currently in material compliance with
all applicable federal and state laws and regulations.
TRADEMARKS
The name "UNI-MART" and the Company's UNI-MART logo were registered with the
U.S. Patent and Trademark Office as of May 13, 1997, and are owned by and
licensed from Uni-Marts of America, Inc., a wholly owned subsidiary of the
Company.
EMPLOYEES
As of September 30, 1998, the Company had approximately 2,100 employees,
approximately 950 of whom were full-time. The Company believes that its
employee relations are good. None of the Company's employees are covered by a
collective bargaining agreement.
ITEM 2. PROPERTIES.
The following table sets forth certain information with respect to
administrative and storage facilities owned or leased by the Company as of
September 30, 1998:
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
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.
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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 256 convenience store locations, 123 are owned by the Company,
8 are leased from affiliated parties and 125 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 Company's 20
discount tobacco locations, six are owned by the Company, one is leased from an
affiliated party and 13 are leased from unaffiliated parties. The Company also
owns five gasoline service stations which are leased to unaffiliated operators.
As of September 30, 1998, the Company had no stores under construction.
The Company's store leases expire as follows:
Fiscal year of
lease expiration (1) Number of facilities
-------------------- --------------------
1999 8
2000 10
2001 11
2002 8
2003 and later 110
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(1) Most of the Company's leases have one or more renewal options at an
agreed upon rental or fair market rental at the end of their initial
terms.
The Company has generally renewed its leases prior to their expiration. Where
renewals have not been available or the Company otherwise determines to change
location, the Company generally has been able to locate acceptable alternative
facilities.
The lease for the Company's administrative offices in State College,
Pennsylvania, expires in December 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 material pending legal proceeding.
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
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Common Stock is ChaseMellon Shareholder Services, L.L.C., Ridgefield Park, New
Jersey. As of December 1, 1998, the Company had 6,867,435 shares of its Common
Stock outstanding.
Set forth below is a table which shows the high and low sale prices as
reflected on the American Stock Exchange and dividends paid on Common Stock for
each quarter in the two most recent fiscal years.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
1998
Cash Dividends per share $.00 $.00 $.00 $.00
Price Range:
High 5 1/2 5 1/4 4 9/16 3 7/8
Low 3 1/2 3 1/2 3 3/8 2 5/8
1997
Cash Dividends per share $.03 $.03 $.00 $.00
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
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.
Certain of the Company's debt agreements require the Company to maintain a
minimum net worth of $20 million, which could possibly restrict the Company's
ability to pay dividends on its Common Stock in the future.
At December 1, 1998, the Company had approximately 367 stockholders of record
of Common Stock. The Company believes that approximately 45 percent of its
Common Stock is held in street or nominee names.
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ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
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, 1998, 1997 and 1996, 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.
<CAPTION>
Fiscal Year Ended September 30,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data: (1)
Sales and other income by the
Company and its franchisees:
Merchandise sales $154,097 $188,936 $182,482 $180,343 $181,331
Gasoline sales 109,425 160,701 148,829 143,690 132,215
Dairy sales 0 0 0 0 10,495
Other income 2,847 2,563 2,501 2,978 2,575
-------- -------- -------- -------- --------
Total 266,369 352,200 333,812 327,011 326,616
Cost of sales 194,704 267,325 247,458 240,164 239,751
-------- -------- -------- -------- --------
Gross profit 71,665 84,875 86,354 86,847 86,865
Selling 54,267 69,271 65,823 64,416 65,904
General and administrative 6,981 8,181 6,971 6,915 6,462
Depreciation and amortization 6,388 7,339 6,058 5,533 5,660
Interest 4,042 4,234 2,854 3,323 3,297
Provision for loss on disposal 0 1,625 0 0 0
Provision for asset impairment 352 1,063 0 0 0
-------- -------- -------- -------- --------
Earnings (loss) before income taxes,
extraordinary item and cumulative
effect of accounting change ( 365) ( 6,838) 4,648 6,660 5,542
Income tax provision (benefit) ( 237) ( 2,262) 1,677 2,506 1,877
-------- -------- -------- -------- --------
Earnings (loss) before extraordinary
item and cumulative effect of
accounting change ( 128) ( 4,576) 2,971 4,154 3,665
Extraordinary item-loss from debt
extinguishment, net of income tax
benefit of $126 ( 244) 0 0 0 0
Cumulative effect of accounting
change, net of income tax benefit
of $726 (1) 0 ( 1,468) 0 0 0
-------- -------- -------- -------- --------
Net earnings (loss) ($ 372) ($ 6,044) $ 2,971 $ 4,154 $ 3,665
======== ======== ======== ======== ========
Earnings (loss) per share before
extraordinary item and cumulative
effect of accounting change ($ .02) ($ .69) $ .46 $ .66 $ .54
Loss per share from extraordinary
item ( .03) .00 .00 .00 .00
Loss per share from cumulative effect
of accounting change .00 ( .22) .00 .00 .00
-------- -------- -------- -------- --------
Net earnings (loss) per share ($ .05) ($ .91) $ .46 $ .66 $ .54
======== ======== ======== ======== ========
Dividends per share $ .0000 $ .0600 $ .1175 $ .1100 $ .1000
======== ======== ======== ======== ========
Weighted average shares outstanding 6,764 6,642 6,509 6,297 6,813
======== ======== ======== ======== ========
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA (CONTINUED).
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Data (Retail Locations
Only):
Average, per store, for stores open
two full years:
Merchandise sales $ 492 $ 474 $ 456 $ 448 $ 441
Gasoline sales $ 492 $ 526 $ 492 $ 478 $ 433
Gallons of gasoline sold 566 496 477 468 468
Gross profit per gallon of gasoline $ .108 $ .112 $ .120 $ .132 $ .117
Total gallons of gasoline sold 123,144 150,005 144,059 139,842 139,512
Number of stores open at year end 256 384 405 414 417
Stores added 0 2 2 3 3
Stores closed 126 9 11 6 30
Stores converted to Choice locations 2 14 0 0 0
Balance Sheet Data:
Working capital $ 1,590 $ 727 $ 1,663 $ 2,330 $ 981
Total assets 95,009 113,594 105,038 95,670 93,036
Long-term obligations 34,322 40,386 38,964 33,343 32,954
Stockholders' equity 30,040 29,547 36,062 32,579 28,803
</TABLE>
(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
-------- -------- -------- --------
Revenues $352,200 $333,812 $327,011 $326,616
Gross profit 84,875 85,097 86,629 86,983
Net earnings (loss) ( 4,576) 2,168 4,018 3,743
Earnings (loss) per share ( .69) .33 .64 .55
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Matters discussed below should be read in conjunction with "Statements of
Operations Data" and "Operating Data (Retail Locations Only)" on the
preceding pages.
The Company terminated its relationship with Getty Petroleum Corp. ("Getty")
and its affiliates during fiscal year 1998. The Company is no longer required
to purchase petroleum products from Getty and no longer operates 105 stores
which were leased to the Company by Getty. In fiscal year 1998, these stores
generated merchandise sales of $9.1 million and sold 7.9 million gallons of
gasoline for total sales of $17.7 million. 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 permits the Company to purchase
petroleum products from a variety of competing sources. The Company sells
gasoline at 206 locations, including two locations where gasoline is sold on a
commission basis. Branded gasoline is purchased under supply agreements for 31
locations, and unbranded gasoline is purchased from various sources for 173
locations. These arrangements provide for purchases of gasoline at cost levels
which are less than those offered by Getty. 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 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 convenience and discount tobacco stores. Revenues from both
the sale of merchandise and gasoline at the Company's stores declined in fiscal
year 1998 due to fewer stores in operation, largely as a result of the
termination of the Getty relationship, and lower retail prices for gasoline.
However, average annual merchandise sales for stores open two full years
increased to $492,000 in fiscal year 1998 from $474,000 in fiscal year 1997 and
$456,000 in fiscal year 1996. Average gallons of gasoline sold at the
Company's stores open two full years were 566,000 gallons in fiscal year 1998
compared to 496,000 gallons in fiscal year 1997 and 477,000 gallons in fiscal
year 1996.
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, and ATMs and free check cashing. Tobacco sales represented
approximately 29% 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 minimum expenditures in fiscal year 1999 to maintain
compliance. In addition, the Company has adopted a program to ensure that new
gasoline installations comply with federal and state regulations.
13
<PAGE> 14
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain expense
items to total revenues. It should be noted that the primary factors
influencing the percentage relationship of cost of sales to revenues are the
volatility of gasoline prices and gross profits and a 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,
1998 1997 1996
------- ------- -------
Revenues:
Merchandise sales 57.9% 53.6% 54.7%
Gasoline sales 41.0 45.6 44.6
Other income 1.1 0.8 0.7
----- ----- -----
Total revenues 100.0 100.0 100.0
Cost of sales 73.1 75.9 74.1
----- ----- -----
Gross profit:
Merchandise (as a percentage of
merchandise sales) 35.8 34.2 36.2
Gasoline (as a percentage of
gasoline sales) 12.5 10.7 11.9
Total gross profit 26.9 24.1 25.9
Costs and expenses:
Selling 20.4 19.7 19.7
General and administrative 2.6 2.3 2.1
Depreciation and amortization 2.4 2.1 1.8
Interest 1.5 1.2 0.9
Provision for loss on disposal 0.0 0.5 0.0
Provision for asset impairment 0.1 0.3 0.0
----- ----- -----
Total expenses 27.0 26.1 24.5
----- ----- -----
Earnings (loss) before income taxes,
extraordinary item and cumulative
effect of accounting change ( 0.1) ( 2.0) 1.4
Income tax provision (benefit) ( 0.1) ( 0.6) 0.5
----- ----- -----
Earnings (loss) before extraordinary
item and cumulative effect of
accounting change 0.0 ( 1.4) 0.9
Extraordinary item-loss from debt
extinguishment, net of income tax
benefit ( 0.1) 0.0 0.0
Cumulative effect of accounting
change, net of income tax benefit 0.0 ( 0.4) 0.0
----- ----- -----
Net earnings (loss) ( 0.1)% ( 1.8)% 0.9%
===== ===== =====
14
<PAGE> 15
FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997
At September 30, 1998, the Company operated 126 fewer stores than operated one
year previously. The Company formerly leased 105 of these stores, including
ten franchised locations, from Getty, and these stores were returned to Getty.
During fiscal year 1998, 21 other stores were closed or sold by the Company
including ten franchised locations. Also, two convenience stores were
converted to discount tobacco stores, and one franchised location was converted
to a Company-operated store. Total revenues in fiscal year 1998 were $266.4
million compared to $352.2 million in fiscal year 1997. This decline of $85.8
million, or 24.4%, is primarily the result of fewer stores in operation, as
well as lower retail prices for gasoline.
Merchandise sales declined $34.8 million, or 18.4%, from $188.9 million in
fiscal year 1997 to $154.1 million in fiscal year 1998, primarily as a result
of fewer stores in operation. Merchandise sales at comparable stores increased
0.7%. Sales of $12.4 million and $4.8 million at discount tobacco stores are
included in merchandise sales for fiscal years 1998 and 1997, respectively.
Gasoline sales in fiscal year 1998 were $109.4 million compared to $160.7
million in fiscal year 1997, a decline of $51.3 million, or 31.9%. This
decrease is the result of a decline of 26.9 million gallons sold due to fewer
stores in operation and lower sales prices per gallon sold. Gasoline gallons
sold at comparable stores increased 3.4%.
Gross profits on merchandise sales declined $10.0 million, or 15.4%, due
largely to the decline in sales volume. Merchandise sales gross profits were
$55.2 million in fiscal year 1998 compared to $65.2 million in fiscal year
1997. The gross profit decline from reduced sales volume was offset to some
degree by higher gross profit rates due to changing product mix and improved
purchasing arrangements.
Gasoline gross profits were $13.7 million in fiscal year 1998 compared to $17.2
million in fiscal year 1997, a decline of $3.5 million, or 20.1%. This
decrease is due to less total gallons sold due to fewer stores in operation and
lower gross profits per gallon of gasoline sold due to competitive pressures.
Selling expenses were $54.3 million in fiscal year 1998, a decrease of $15.0
million, or 21.7%, compared to $69.3 million in fiscal year 1997. This decline
is primarily due to the fewer number of stores in operation in the current
year. General and administrative expense in fiscal year 1998 declined $1.2
million, or 14.7%, due primarily to lower professional fees and staffing
levels. Depreciation and amortization decreased by $951,000, or 13.0%, due to
the disposal of equipment at stores closed during fiscal year 1998. Interest
expense declined by $193,000, or 4.6%, due primarily to lower borrowing levels.
The decline was reduced to some degree by higher interest rates.
In fiscal year 1997, the Company recorded a provision for loss on disposal of
certain assets to Getty of $1.6 million, with no similar provision in fiscal
year 1998.
The Company recorded a provision for the impairment of long-lived assets at
certain closed and underperforming stores of $352,000 in fiscal year 1998
compared to an impairment provision in fiscal year 1997 of $1.1 million.
The Company incurred a loss before income taxes, extraordinary item and
cumulative effect of an accounting change of $365,000 in fiscal year 1998
compared to a loss of $6.8 million in fiscal year 1997. The net change of $6.5
million is the result of a $13.2 million decline in gross profits offset by a
$19.7 million decrease in various expense categories. The Company recorded a
$237,000 income tax benefit in fiscal year 1998 compared to an income tax
benefit of $2.3 million in fiscal year 1997. This decline is due to the lower
15
<PAGE> 16
loss level, as well as changes in state income tax laws regarding the carry
forward of net operating losses. In fiscal year 1998, the Company recorded a
loss from debt extinguishment of $244,000, net of income tax benefit of
$126,000. In fiscal year 1997, the Company recorded the cumulative effect of
an accounting change of $1.5 million, net of income tax benefit of $0.7
million. The Company incurred a net loss of $372,000, or $0.05 per share, in
fiscal year 1998, compared to a net loss in fiscal year 1997 of $6.0 million,
or $0.91 per share.
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
fiscal year 1997.
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
16
<PAGE> 17
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.
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 leasehold
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.
17
<PAGE> 18
SEASONALITY AND UNAUDITED QUARTERLY RESULTS
The Company's business generally has been subject to moderate seasonal
influences with higher sales in the third and fourth 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. When the Company's relationship with Getty was terminated at the end of
the first quarter of fiscal year 1998, it no longer operated 105 stores
formerly leased from Getty. The loss of these stores reduced sales and
operating expenses for the remainder of the fiscal year.
<TABLE>
(In thousands, except per share data)
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
Jan. 1, Apr. 2, July 2, Sep. 30, Jan. 2, Apr. 3, July 3, Sep. 30,
1998 1998 1998 1998 1997 1997 1997 1997
------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Merchandise sales $45,255 $33,558 $37,410 $37,874 $46,473 $42,609 $50,334 $49,520
Gasoline sales 36,381 21,959 25,047 26,038 42,320 38,218 40,896 39,267
Other income 556 496 822 973 616 589 731 627
------- ------- ------- ------- ------- ------- ------- -------
Total revenues 82,192 56,013 63,279 64,885 89,409 81,416 91,961 89,414
Cost of sales 61,564 39,524 46,624 46,992 66,817 60,963 70,401 69,144
------- ------- ------- ------- ------- ------- ------- -------
Gross profit 20,628 16,489 16,655 17,893 22,592 20,453 21,560 20,270
Costs and expenses:
Selling 16,697 12,731 12,052 12,787 17,699 17,097 16,838 17,637
General & administrative 1,711 1,666 1,496 2,108 1,854 1,880 1,729 2,718
Depreciation & amortization 1,585 1,641 1,565 1,597 1,813 1,817 1,876 1,833
Interest 1,126 1,023 884 1,009 917 1,096 1,110 1,111
Provision for loss on disposal 0 0 0 0 0 0 0 1,625
Provision for asset impairment 0 0 0 352 0 0 0 1,063
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) before income
taxes, extraordinary item and
cumulative effect of accounting
change ( 491) ( 572) 658 40 309 ( 1,437) 7 ( 5,717)
Income tax provision (benefit) ( 217) ( 142) 282 ( 160) 116 ( 512) 3 ( 1,869)
------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) before
extraordinary item and
cumulative effect of
accounting change ( 274) ( 430) 376 200 193 ( 925) 4 ( 3,848)
Extraordinary item-debt
extinguishment, net of income
tax benefit of $126 0 0 ( 244) 0 0 0 0 0
Cumulative effect of accounting
change, net of income tax
benefit of $726 0 0 0 0 ( 1,468) 0 0 0
------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss) ($ 274) ($ 430) $ 132 $ 200 ($ 1,275) ($ 925) $ 4 ($ 3,848)
======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per share
before extraordinary item
and cumulative effect of
accounting change ($ 0.04) ($ 0.06) $ 0.06 $ 0.03 $ 0.03 ($ 0.14) $ 0.00 ($ 0.58)
Loss per share from extraordinary
item 0.00 0.00 ( 0.04) 0.00 0.00 0.00 0.00 0.00
Loss per share from cumulative
effect of accounting change 0.00 0.00 0.00 0.00 ( 0.22) 0.00 0.00 0.00
------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss) per share ($ 0.04) ($ 0.06) $ 0.02 $ 0.03 ($ 0.19) ($ 0.14) $ 0.00 ($ 0.58)
======= ======= ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding 6,655 6,734 6,827 6,848 6,642 6,636 6,642 6,647
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
18
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
Most of the Company's sales are for cash and its inventory turns over rapidly.
As a result, the Company's daily operations do not generally require large
amounts of working capital. From time to time, the Company utilizes
substantial portions of its cash to acquire and construct new stores and
renovate existing locations.
During fiscal year 1998, the Company completed a debt refinancing with
Franchise Finance Corporation of America ("FFCA"). This refinancing included
$36.0 million of long-term mortgages, a $3.0 million revolving line of credit,
$2.5 million in short-term property loans and a $2.7 million letter-of-credit
facility. The $36.0 million mortgage facility is being amortized over 20 years
and the short-term facilities and letter-of-credit facility are available until
June 30, 1999. The property loans were used to provide funds on an interim
basis until two parcels of real estate are sold. The sale of one parcel was
completed in July 1998 and $2.0 million of the property loan was repaid.
Capital requirements for debt service and capital leases in the next fiscal
year are approximately $4.7 million, including $500,000 which will be repaid
upon the closing of a second real estate sale which is under a written
agreement. The Company also entered into a three-year equipment loan agreement
for $629,000.
Through the long-term mortgage financing discussed above, the Company has
completed a matching of appropriate term financing with its long-term operating
assets. The Company is finalizing negotiations with lenders to secure
equipment financing and to establish more appropriate short-term credit and
letter-of-credit facilities. Capital expenditure plans for fiscal year 1999
include $5.0 million for store remodeling costs and $3.0 million for upgrades
of gasoline-dispensing equipment. Funds for renovations of stores and
equipment replacement will be supplied from available cash from operations.
Management believes that cash presently available, cash generated from
operations and new short-term financing will be sufficient to fulfill its cash
requirements for the foreseeable future.
IMPACT OF THE YEAR 2000 ("Y2K") PROBLEM
Background
- ----------
Many computer systems in use today were designed to utilize just two digits to
represent a year rather than four digits. If a system element uses the
two-digit convention for dates and the system is date sensitive, the system
will malfunction when it first encounters the date January 1, 2000.
The Company uses a variety of computers and computer software programs to
operate and manage its business. The functioning of these systems is subject
to problems if it does not properly interpret dates in the year 2000 and
beyond. The Company also utilizes certain date-sensitive electronic equipment
with embedded microchips such as cash registers and credit card readers. In
addition, the Company deals with numerous suppliers of merchandise and services
whose Y2K failure could be disruptive to the Company's business.
The Company's Y2K Program
- -------------------------
In early 1997, the Company began to identify and correct Y2K problems in its
mainframe computer applications software. To date, approximately 85% of this
project is complete, and the Company anticipates conclusion of this phase in
April 1999. In 1998, the Company tested and completed modifications of its
mainframe computer hardware and systems software. Testing and modification or
replacement of its personal computer hardware and software also began in 1998
and is expected to be completed in early 1999. Other date-sensitive hardware
19
<PAGE> 20
utilized by the Company will be tested and replaced or modified, if necessary,
by March 1999. Also in early 1999, the Company expects to identify suppliers
whose Y2K failure could be disruptive to the Company's business and solicit
written statements from them regarding the status of their Y2K compliance.
Supplier compliance will then be evaluated and appropriate action taken by the
Company. The Company anticipates the completion of its Y2K program with
testing and contingency planning in June 1999.
Cost of the Company's Y2K Program
- ---------------------------------
The Company expects total expenditures of approximately $400,000 to complete
its Y2K program, including approximately $85,000 spent prior to September 30,
1998. Future expenditures will be expensed or capitalized, as appropriate.
The expected impact and costs of this program, as well as the expected date of
completion, are based on management's best estimates using information
currently available and numerous assumptions about future events. However,
there can be no guarantee that these estimates are accurate and actual results
could differ materially. Based on these estimates and information currently
available, the Company does not believe that the costs associated with this
program will have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows in future periods.
Risks/Contingency Plans
- -----------------------
Based on its assessment and corrective efforts to date, the Company does not
expect material difficulties with the Y2K problem in its internal computer
systems. In addition, the Company does not expect material Y2K problems with
other date-sensitive hardware or materially disruptive Y2K failures of its
suppliers of merchandise and services. The Company's stores are geographically
dispersed, and it has a diverse supplier base. Although the Company has a
diverse supplier base, it does deal with a limited number of large suppliers
whose Y2K failure could have a material effect on the Company's business. The
Company believes that it could easily find alternative suppliers and that these
factors will moderate any material adverse effects of the Y2K problem. In
management's opinion, the largest risks facing the Company are the inability of
the Company's stores to process retail sales transactions or obtain merchandise
to sell. The Company expects to develop appropriate contingency plans pending
the outcome of future events.
IMPACT OF INFLATION
The Company believes that inflation has not had a material effect on its
results of operations in recent years. Generally, increases in the Company's
cost of merchandise can be quickly reflected in higher prices of goods sold.
However, any upward movement of gasoline costs may have short-term negative
effects on profit margins, since the Company's ability to raise gasoline prices
can be limited due to competition from other self-service gasoline outlets. In
addition, fluctuation of gasoline prices can limit the ability of the Company
to maintain stable gross margins.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report are forward looking, such as
statements regarding the Company's plans and strategies or future financial
performance. Although the Company believes that its expectations are based on
reasonable assumptions within the bounds of its knowledge, investors and
prospective investors are cautioned that such statements are only projections
and that actual events or results may differ materially from those expressed in
any such forward-looking statements. In addition to the factors discussed
20
<PAGE> 21
elsewhere in this report, the Company's actual consolidated quarterly or annual
operating results have been affected in the past, or could be affected in the
future, by additional factors, including, without limitation, general economic,
business and market conditions; environmental, tax and tobacco legislation or
regulation; volatility of gasoline prices, margins and supplies; merchandising
margins; customer traffic; weather conditions; labor costs and the level of
capital expenditures.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
21
<PAGE> 22
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, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended September 30, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with 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, 1998 and 1997, and the results of their operations and
their cash flows for each of three years in the period ended September 30,
1998, in conformity with generally accepted accounting principles.
As discussed in Note B, the Company changed its method of accounting for
inventory in 1997.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
December 16, 1998
22
<PAGE> 23
UNI-MARTS, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
September 30,
1998 1997
----------- ------------
<S> <C> <C>
A S S E T S
CURRENT ASSETS:
Cash $ 5,838,318 $ 5,993,388
Marketable equity securities 4,262 407,475
Accounts receivable - less allowances of
$384,900 and $132,600 2,296,187 3,377,554
Tax refunds receivable 1,416,363 1,819,100
Inventories 10,628,307 15,683,330
Prepaid and current deferred taxes 1,975,802 3,359,490
Property held for sale 1,729,598 5,643,006
Prepaid expenses and other 929,304 796,668
Loan due from officer - current portion 200,000 150,000
----------- ------------
TOTAL CURRENT ASSETS 25,018,141 37,230,011
NET PROPERTY, EQUIPMENT AND IMPROVEMENTS 63,960,971 69,055,846
LOAN DUE FROM OFFICER 450,800 674,768
NET INTANGIBLE AND OTHER ASSETS 5,578,727 6,633,157
----------- ------------
TOTAL ASSETS $95,008,639 $113,593,782
=========== ============
</TABLE>
23
<PAGE> 24
UNI-MARTS, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Continued)
<TABLE>
<CAPTION>
September 30,
1998 1997
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $11,120,972 $ 14,462,174
Gas taxes payable 2,324,299 2,424,641
Accrued expenses 5,304,579 6,806,632
Credit line payable 3,500,000 0
Current maturities of long-term debt 1,107,818 12,722,649
Current obligations under capital leases 70,810 87,320
----------- ------------
TOTAL CURRENT LIABILITIES 23,428,478 36,503,416
LONG-TERM DEBT, less current maturities 33,846,812 39,852,947
OBLIGATIONS UNDER CAPITAL LEASES,
less current maturities 474,826 533,551
DEFERRED TAXES 4,131,400 4,036,000
DEFERRED INCOME AND OTHER LIABILITIES 3,086,948 3,120,923
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, par value $.10 a share:
Authorized 15,000,000 shares
Issued 7,316,797 and 7,286,657
shares, respectively 731,680 728,666
Additional paid-in capital 24,189,258 24,341,999
Retained earnings 7,882,583 8,254,538
----------- ------------
32,803,521 33,325,203
Less treasury stock, at cost - 455,545
and 639,980 shares of Common Stock,
respectively ( 2,763,346) ( 3,778,258)
----------- ------------
30,040,175 29,546,945
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $95,008,639 $113,593,782
=========== ============
</TABLE>
See notes to consolidated financial statements
24
<PAGE> 25
UNI-MARTS, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Merchandise sales $154,097,184 $188,935,939 $182,481,748
Gasoline sales 109,424,633 160,700,946 148,829,207
Other income 2,846,896 2,563,490 2,501,324
------------ ------------ ------------
266,368,713 352,200,375 333,812,279
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of sales 194,703,534 267,324,567 247,457,964
Selling 54,267,079 69,270,631 65,822,709
General and administrative 6,981,006 8,181,303 6,970,780
Depreciation and amortization 6,388,426 7,339,206 6,058,030
Interest 4,041,719 4,234,440 2,854,552
Provision for loss on disposal 0 1,624,550 0
Provision for asset impairment 351,989 1,063,203 0
------------ ------------ ------------
266,733,753 359,037,900 329,164,035
------------ ------------ ------------
EARNINGS (LOSS) BEFORE INCOME TAXES,
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE ( 365,040) ( 6,837,525) 4,648,244
INCOME TAX PROVISION (BENEFIT) ( 237,400) ( 2,261,600) 1,677,200
EARNINGS (LOSS) BEFORE EXTRAORDINARY
ITEM AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE ( 127,640) ( 4,575,925) 2,971,044
EXTRAORDINARY ITEM-LOSS FROM DEBT
EXTINGUISHMENT, NET OF INCOME TAX
BENEFIT OF $125,800 ( 244,315) 0 0
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE, NET OF INCOME TAX BENEFIT
OF $725,800 0 ( 1,468,140) 0
------------ ------------ ------------
NET EARNINGS (LOSS) ($ 371,955) ($ 6,044,065) $ 2,971,044
------------ ------------ ------------
BASIC EARNINGS (LOSS) PER SHARE:
EARNINGS (LOSS) PER SHARE BEFORE
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE ($ 0.02) ($ 0.69) $ 0.46
LOSS PER SHARE FROM EXTRAORDINARY
ITEM ( 0.03) 0.00 0.00
LOSS PER SHARE FROM CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 0.00 ( 0.22) 0.00
------------ ------------ ------------
NET EARNINGS (LOSS) PER SHARE ($ 0.05) ($ 0.91) $ 0.46
============ ============ ============
DILUTED EARNINGS (LOSS) PER SHARE:
EARNINGS (LOSS) PER SHARE BEFORE
EXTRAORDINARY ITEM AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE ($ 0.02) ($ 0.69) $ 0.44
LOSS PER SHARE FROM EXTRAORDINARY
ITEM ( 0.03) 0.00 0.00
LOSS PER SHARE FROM CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 0.00 ( 0.22) 0.00
------------ ------------ ------------
NET EARNINGS (LOSS) PER SHARE ($ 0.05) ($ 0.91) $ 0.44
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 6,763,768 6,641,926 6,509,458
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING ASSUMING DILUTION 6,763,768 6,641,926 6,759,496
============ ============ ============
</TABLE>
See notes to consolidated financial statements
25
<PAGE> 26
<TABLE>
UNI-MARTS, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<CAPTION>
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
--------- -------- ---------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - October 1, 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)
Purchase of treasury stock 12,421 ( 49,285)
Issuance of common stock 30,140 3,014 ( 152,741) (196,856) 1,064,197
Net loss ( 371,955)
--------- -------- ------- ----------- ----------- ------- ----------
Balance - September 30, 1998 7,316,797 $731,680 $ 0 $24,189,258 $ 7,882,583 455,545 ($2,763,346)
========= ======== ======= =========== =========== ======= ==========
</TABLE>
See notes to consolidated financial statements
26
<PAGE> 27
UNI-MARTS, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Year Ended September 30,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and others $266,814,682 $351,614,420 $335,079,196
Cash paid to suppliers and employees ( 256,330,886) ( 340,898,407) ( 325,132,418)
Net receipts for sales and purchases
of trading equity securities 831,826 0 455,289
Dividends and interest received 138,277 80,172 44,675
Interest paid (net of capitalized interest
of $0, $57,400 and $297,000) ( 4,359,976) ( 4,157,146) ( 2,892,365)
Income taxes received (paid) 2,245,025 1,005,600 ( 1,778,900)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 9,338,948 7,644,639 5,775,477
CASH FLOWS FROM INVESTING ACTIVITIES:
Receipts from sale of capital assets 7,567,051 170,473 268,124
Purchase of property, equipment and
improvements ( 4,234,049) ( 11,844,707) ( 17,296,373)
(Payments) receipts for sales and
purchases of available-for-sale
securities 0 ( 183,667) ( 441,683)
Note receivable from officer 173,968 ( 824,768) 0
Cash advanced for intangible and
other assets ( 359,800) ( 506,164) ( 371,287)
Cash received for intangible and
other assets 813,535 236,651 116,058
------------ ------------ ------------
NET CASH PROVIDED (USED) IN
INVESTING ACTIVITIES 3,960,705 ( 12,952,182) ( 17,725,161)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) borrowings on revolving credit
agreement ( 10,000,000) 5,000,000 ( 1,000,000)
Additional long-term borrowings 34,895,954 10,000,000 10,000,000
Borrowings on line of credit 3,500,000 0 0
Principal payments on debt ( 42,647,892) ( 4,145,456) ( 3,381,869)
Purchases of treasury stock ( 49,285) ( 365,994) ( 79,457)
Proceeds from issuance of common stock 846,500 2,625 1,062,557
Dividends paid to stockholders 0 ( 398,173) ( 769,131)
------------ ------------ ------------
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES ( 13,454,723) 10,093,002 5,832,100
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH ( 155,070) 4,785,459 ( 6,117,584)
CASH AT BEGINNING OF YEAR 5,993,388 1,207,929 7,325,513
------------ ------------ ------------
CASH AT END OF YEAR $ 5,838,318 $ 5,993,388 $ 1,207,929
============ ============ ============
</TABLE>
27
<PAGE> 28
UNI-MARTS, INC. AND SUBSIDIARY
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Continued)
<TABLE>
<CAPTION>
Year Ended September 30,
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
RECONCILIATION OF NET EARNINGS (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
NET EARNINGS (LOSS) ($ 371,955) ($6,044,065) $2,971,044
ADJUSTMENTS TO RECONCILE NET EARNINGS (LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 6,388,426 7,339,206 6,058,030
Provision for loss on disposal 0 1,624,550 0
Provision for asset impairment 351,989 1,063,203 0
Net unrealized holding loss (gain) on
trading securities 130,355 ( 130,323) 0
Gain on sale of trading equity securities ( 110,662) ( 97,107) 0
Gain on sale of available-for-sale securities 0 ( 3,001) 0
(Gain) loss on sale of capital assets and
other ( 348,209) 282,836 150,545
Cumulative effect of accounting change 0 1,468,140 0
Change in assets and liabilities:
(Increase) decrease in:
Trading equity securities 383,520 0 434,508
Accounts receivable 1,223,694 ( 102,361) ( 414,903)
Tax refunds receivable 402,737 ( 1,819,100) 0
Inventories 5,055,023 ( 69,272) ( 2,243,246)
Prepaid expenses ( 267,486) 1,238,136 ( 1,669,640)
Increase (decrease) in:
Accounts payable and accrued expenses ( 4,943,597) 2,219,399 ( 1,233,865)
Deferred income taxes and other
liabilities 1,445,113 674,398 1,723,004
---------- ----------- ----------
TOTAL ADJUSTMENTS TO NET EARNINGS (LOSS) 9,710,903 13,688,704 2,804,433
---------- ----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $9,338,948 $ 7,644,639 $5,775,477
========== =========== ==========
</TABLE>
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
28
<PAGE> 29
UNI-MARTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
A. Summary of Significant Accounting Policies:
------------------------------------------
The Company is an independent operator of convenience stores and discount
tobacco stores located in Pennsylvania, New York, Delaware, Maryland and
Virginia.
(1) Principles of Consolidation -- The consolidated financial
statements include the accounts of 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,
1998 1997
-------- --------
Trading equity securities:
Cost $ 4,174 $277,152
Plus unrealized holding gains 88 130,323
-------- --------
Fair value $ 4,262 $407,475
======== ========
(3) Inventories -- The Company values its merchandise inventories at
the lower of cost (first-in, first-out method) or market, as
determined by the retail inventory method. Gasoline inventories
are valued at the lower of cost (first-in, first-out method) or
market (see Note B).
(4) Property, Equipment and Improvements -- Depreciation and
amortization are calculated using the straight-line method over the
useful lives of the related assets. Amortization of improvements
to leased properties is based on the remaining terms of the leases
or the estimated useful lives of such improvements, whichever is
shorter. Interest costs incurred on borrowed funds during the
period of construction of capital assets are capitalized as a
component of the cost of acquiring those assets. 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
1998.
29
<PAGE> 30
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, 1998:
Goodwill $ 145,399 $ 115,278 $ 30,121 13-21
Goodwill 5,658,044 1,769,629 3,888,415 29-40
Lease acquisition costs 827,465 595,009 232,456 12-25
Other intangibles 91,879 87,953 3,926 15-16
Other assets 1,423,809 0 1,423,809
----------- ---------- ----------
$ 8,146,596 $2,567,869 $5,578,727
=========== ========== ==========
For the year ended September 30, 1997:
Goodwill $ 145,399 $ 105,368 $ 40,031 13-21
Goodwill 5,680,118 1,594,204 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
----------- ---------- ----------
$10,494,581 $3,861,424 $6,633,157
=========== ========== ==========
Goodwill represents the excess of cost over the fair value of net
assets acquired in business combinations and is amortized on a
straight-line basis. Lease acquisition costs are the bargain
element of acquired leases and are being amortized on a straight-
line basis over the related lease terms. Amortization expense was
$439,500 (1998), $431,200 (1997) and $510,100 (1996).
(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 recorded
provisions of $352,000 (1998) and $1,063,200 (1997) 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. The Company also
recorded a provision for loss on disposal of $1,624,600 in fiscal
year 1997 for certain assets that were 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 6.0%, using actuarial valuations
provided by independent companies. At September 30, 1998 and 1997,
the Company had self-insurance reserves totaling $2,551,500 and
$2,456,900, respectively.
30
<PAGE> 31
A. Summary of Significant Accounting Policies (Continued):
-----------------------------------------------------
(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,
1998 1997
---------- ----------
Deferred income $2,559,061 $1,892,557
Deferred compensation 487,499 1,056,498
Other noncurrent
liabilities 40,388 171,868
---------- ----------
$3,086,948 $3,120,923
========== ==========
(10) Earnings Per Share -- Earnings per share for the years ended
September 30, 1998, 1997 and 1996 were calculated based on the
weighted average number of shares of common stock outstanding.
Diluted earnings per share were calculated in fiscal year 1996.
Although there were potentially dilutive stock options for 535,566
and 555,035 shares outstanding in fiscal years 1998 and 1997,
respectively, they were not included as the effect was
antidilutive.
A reconciliation of the numerator and denominator for the earnings
per share calculation for the year ended September 30, 1996
follows:
For the Year Ended September 30, 1996
-------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic Earnings Per Share:
Earnings before
extraordinary item and
cumulative effect of
accounting change $2,971,044 6,509,458 $0.46
Effect of Dilutive Securities:
Stock Options 0 250,038
---------- ---------
Diluted Earnings Per Share: $2,971,044 6,759,496 $0.44
========== =========
Options to purchase 25,000 shares of common stock at $8.50 per share
were outstanding during seven months of fiscal year 1996 but were not
included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of
the common shares. At September 30, 1998, 4,000 of these options
remained outstanding.
31
<PAGE> 32
A. Summary of Significant Accounting Policies (Continued):
------------------------------------------------------
(11) Advertising Costs -- The Company expenses advertising costs in the
period in which they are incurred. The Company incurred advertising
costs of $2,084,800, $1,885,500 and $1,327,800 in fiscal years 1998,
1997 and 1996, respectively.
(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 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 stockholders. 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.
In February 1998, the Financial Accounting Standards Board issued
Statement No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." The Statement standardizes the disclosure
requirements for pensions and other benefits to the extent
practicable and requires disclosure of certain other information.
The Company is not required to adopt this standard until fiscal year
1999 but expects that the adoption will have a minimal effect on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." The Statement establishes accounting and reporting
standards for derivative instruments. The Company is not required to
adopt this standard until fiscal year 1999 but expects that the
adoption will have a minimal effect on the Company's financial
statements.
(14) Reclassifications -- Certain reclassifications have been made to the
1997 and 1996 financial statements to conform to the classifications
used in 1998.
32
<PAGE> 33
B. Inventories/Change in Accounting Method:
---------------------------------------
The following is a summary of inventories at September 30:
1998 1997
----------- -----------
Merchandise $ 8,754,773 $12,442,076
Gasoline 1,873,534 3,241,254
----------- -----------
$10,628,307 $15,683,330
=========== ===========
During fiscal year 1997, 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
cumulative effect of this accounting change was a charge to earnings of
approximately $1,468,000, net of the related income tax benefit of
$725,000. 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
------------ ----------
Net earnings (loss):
As reported ($6,044,065)* $2,971,044
Pro forma ($4,575,925) $2,167,632
Net earnings (loss) per share:
As reported ($ 0.91) $ 0.46
Pro forma ($ 0.69) $ 0.33
*Includes cumulative effect of accounting change of $1,468,140.
C. 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, a vacant rental property and
closed convenience stores.
33
<PAGE> 34
D. Property, Equipment and Improvements - at cost:
----------------------------------------------
Estimated
Accumulated Net Book Life in
Cost Depreciation Value Years
------------ ------------ ----------- --------
Year Ended September 30, 1998:
-----------------------------
Land $ 15,170,920 $ 0 $15,170,920
Buildings 42,131,243 13,666,374 28,464,869 29-35
Machinery and equipment 35,057,292 23,134,977 11,922,315 3-10
Machinery and equipment 6,469,607 2,914,240 3,555,367 11-20
Capitalized property and
equipment leases 731,197 522,507 208,690 5-25
Leasehold improvements 10,559,147 7,399,401 3,159,746 1-10
Leasehold improvements 466,344 341,092 125,252 11-20
Construction in progress 1,353,812 0 1,353,812
------------ ----------- -----------
$111,939,562 $47,978,591 $63,960,971
============ =========== ===========
Year Ended September 30, 1997:
-----------------------------
Land $ 15,929,967 $ 0 $15,929,967
Buildings 43,086,802 12,390,990 30,695,812 29-35
Machinery and equipment 34,480,226 22,047,689 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 10,706,456 7,134,849 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
------------ ----------- -----------
$114,676,974 $45,621,128 $69,055,846
============ =========== ===========
Depreciation expense in fiscal years 1998, 1997 and 1996 was $5,948,900,
$6,908,000 and $5,547,900, respectively, including the amortization of
capitalized property and equipment leases.
E. Short-Term Credit Facilities:
----------------------------
The Company has a credit facility aggregating $6.2 million, including a
$3.0 million revolving credit facility, a $0.5 million property loan and
a $2.7 million letter-of-credit facility. The revolving credit facility
and property loan are due on or before June 30, 1999 and bear interest at
a floating rate of LIBOR plus 3.5%. The letter-of-credit facility expires
on June 30, 1999. At September 30, 1998, borrowings of $3.5 million and a
letter of credit of $2.7 million were outstanding under these facilities.
The interest rate was 9.16% at September 30, 1998. Management believes it
will renew or replace its existing credit facility in fiscal year 1999.
34
<PAGE> 35
F. Long-Term Debt:
--------------
September 30,
1998 1997
----------- -----------
Mortgage Loan. Principal and interest will
be paid in 238 monthly installments. The
interest rate at September 30, 1998 was
9.08%. $34,140,001 $ 0
Term Loan. Principal on the note was repaid
in June 1998. 0 16,741,488
Term Loan. Principal on the note was repaid
in June 1998. 0 20,000,000
Revolving Credit Agreement. Principal was
repaid in June 1998. 0 10,000,000
Senior Notes of the Company. Principal was
repaid in February 1998. 0 3,736,735
Equipment Loan. Principal and interest are paid
in monthly installments. The loan expires in
2001. The interest rate at September 30, 1998
was 9.5%. 594,309 0
Mortgage Loans Payable. Principal and interest
are paid in monthly installments. The loan
expires in year 2010. The interest rate at
September 30, 1998 was 8.5%. 220,320 2,097,373
----------- -----------
34,954,630 52,575,596
Less current maturities 1,107,818 12,722,649
----------- -----------
$33,846,812 $39,852,947
=========== ===========
The mortgage loans are collateralized by $47,343,400 of property, at cost.
Aggregate maturities of long-term debt during the next five years are as
follows:
September 30,
1999 $ 1,107,818
2000 951,700
2001 986,900
2002 889,000
2003 973,200
Thereafter 30,046,012
-----------
$34,954,630
===========
On June 30, 1998, the Company completed a 20-year mortgage financing
with Franchise Finance Corporation of America ("FFCA") pursuant to which
the Company received long-term financing of $36.0 million. The Company
repaid all of its long-term debt with these funds except for one mortgage
with a balance of $220,300. This mortgage is expected to be repaid in
fiscal year 1999.
Certain provisions of the loan agreements with FFCA require the Company's
maintenance of a minimum net worth of $20 million and an aggregate fixed
charge ratio of 1.25:1. This agreement could possibly restrict the
Company's ability to declare and pay dividends on its common stock.
35
<PAGE> 36
G. 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.
Credit line payable -- Credit line payable is carried at 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.
The estimated fair values of the Company's financial instrument liabilities
are as follows:
September 30, 1998 September 30, 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
Long-term debt $34,954,630 $38,754,840 $52,575,596 $53,121,725
Obligations under
capital leases 545,636 595,619 620,871 619,834
H. 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, 1998 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 $1,330,000 in 1998, $1,299,700 in 1997 and
$1,128,500 in 1996.
36
<PAGE> 37
H. Commitments and Contingencies (Continued):
-----------------------------------------
Capital Operating Rental
Leases Leases Income
-------- ----------- ----------
1999 $132,100 $ 4,270,600 $ 608,100
2000 139,900 3,634,300 382,100
2001 124,400 2,884,200 240,400
2002 106,100 2,405,000 188,800
2003 103,100 2,055,500 107,700
Thereafter 206,800 4,748,700 91,600
-------- ----------- ----------
Total future minimum
lease payments 812,400 $19,998,300 $1,618,700
Less amount representing =========== ==========
interest 266,800
--------
Present value of future
payments 545,600
Less current maturities 70,800
--------
$474,800
========
Rental expense under operating leases was as follows:
Year Ended September 30,
1998 1997 1996
---------- ---------- ----------
Minimum rentals $5,929,900 $9,890,200 $10,871,700
Contingent rentals 39,000 63,300 84,500
---------- ---------- -----------
$5,968,900 $9,953,500 $10,956,200
========== ========== ===========
(2) Change of Control Agreements -- The Company has change of control
agreements with its five executive officers pursuant to which each
executive officer will receive remuneration of 2.99 times his base
compensation if his employment is terminated due to a change of
control as defined in the agreements. Remuneration which might be
payable under these agreements has not been accrued in the
consolidated financial statements as a change of control has not
occurred.
(3) Pursuant to ten-year agreements with two gasoline suppliers, the
Company receives from the suppliers partial funding of the cost of
the aboveground gasoline equipment and rebates for the purchase of
gasoline. As of September 30, 1998, the total funding subject to this
arrangement is $894,000. If the Company terminates these
agreements before the expiration of the ten years, part of this
funding must be repaid to the suppliers.
(4) Litigation -- The Company is involved in litigation and other legal
matters which have arisen in the normal course of business. Although
the ultimate results of these matters are not currently determinable,
management does not expect that they will have a material adverse
effect on the Company's consolidated financial position, results of
operations or cash flows.
37
<PAGE> 38
I. Income Taxes:
------------
The provision for income taxes includes the following:
Year Ended September 30,
1998 1997 1996
---------- ---------- ----------
Current tax expense (credit):
Federal ($1,362,300) ($2,739,700) $1,895,800
State 18,400 ( 72,500) 40,000
---------- ---------- ----------
( 1,343,900) ( 2,812,200) 1,935,800
---------- ---------- ----------
Deferred tax expense (credit):
Federal 1,259,300 ( 190,400) ( 126,200)
State ( 278,600) 15,200 ( 132,400)
---------- ---------- ----------
980,700 ( 175,200) ( 258,600)
---------- ---------- ----------
( 363,200) ( 2,987,400) 1,677,200
Less portion included in
accounting change 0 725,800 0
Less portion included in
extraordinary item 125,800 0 0
---------- ---------- ----------
($ 237,400) ($2,261,600) $1,677,200
========== ========== ==========
The current tax provision for fiscal year 1998 includes the benefit of net
operating loss carrybacks of $1,352,400 for federal income tax purposes and
$64,000 for state income tax purposes, for which the Company expects to
receive cash refunds. During fiscal year 1998, the Company received tax
refunds of approximately $1.8 million resulting from the filing
of its tax returns for fiscal year 1997. An additional refund of
$46,200 is still expected.
38
<PAGE> 39
I. Income Taxes (Continued):
------------------------
Deferred tax liabilities (assets) are comprised of the following at
September 30:
1998 1997 1996
Depreciation $5,907,400 $5,251,700 $3,928,900
---------- ---------- ----------
Gross deferred tax
liabilities 5,907,400 5,251,700 3,928,900
---------- ---------- ----------
Insurance reserves ( 1,093,800) ( 1,143,100) ( 1,085,400)
Change in accounting
method ( 667,200) ( 882,300) 0
Capital leases ( 96,800) ( 92,500) ( 107,600)
Deferred compensation ( 107,700) ( 330,700) ( 268,100)
Deferred income ( 1,037,700) ( 761,100) ( 816,300)
Intangible assets ( 82,400) ( 178,100) ( 182,400)
Accrued expenses 0 ( 394,700) 0
Net operating loss
carryforward ( 707,100) ( 197,800) 0
Prepaid expenses 0 ( 181,000) 0
Other ( 253,100) ( 104,800) ( 110,500)
---------- ---------- ----------
Gross deferred tax
assets ( 4,045,800) ( 4,266,100) ( 2,570,300)
Less valuation allowance 302,500 197,800 0
---------- ---------- ----------
Net deferred tax assets ( 3,743,300) ( 4,068,300) ( 2,570,300)
---------- ---------- ----------
$2,164,100 $1,183,400 $1,358,600
========== ========== ==========
The financial statements include noncurrent deferred tax liabilities of
$4,131,400 and $4,036,000 in 1998 and 1997, respectively, and current
deferred tax assets of $1,967,300 and $2,852,600 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,
1998 1997 1996
-------- ---------- ----------
Statutory rate ($250,000) ($3,070,700) $1,580,400
Increase (decrease)
resulting from:
Tax credits 0 ( 3,200) 0
Nondeductible items 67,500 125,000 66,200
State taxes (net) ( 171,700) ( 37,800) ( 61,000)
Other (net) ( 9,000) ( 700) 91,600
-------- ---------- ----------
Tax provision (benefit) ($363,200) ($2,987,400) $1,677,200
======== ========== ==========
39
<PAGE> 40
J. Related Party Transactions:
--------------------------
During fiscal year 1997, the Company granted a loan of $800,000 to the
Company's Chairman of the Board and Chief Executive Officer. The loan
bears interest at the brokerage call rate (7.25% at September 30, 1998)
and is being 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 its corporate headquarters and four additional locations
from affiliates of Unico. Aggregate rentals in connection with these
leases were $629,800 (1998), $672,600 (1997) and $693,400 (1996).
(2) The Company charges an affiliate of Unico for general and
administrative services provided. Such charges amounted to $8,500
(1998), $11,700 (1997) and $11,100 (1996).
(3) During fiscal year 1996, the Company purchased a store location from
Unico for a purchase price of $116,200.
The Company received commissions from TeleBeam Incorporated ("TeleBeam")
for coin-operated telephones installed at convenience store locations and
for the sale of prepaid telephone cards. Payments received from TeleBeam
were $296,700 (1998), $428,800 (1997) and $452,200 (1996). The Company
also made payments to TeleBeam for discounted prepaid telephone cards and
telephone service. Payments made to TeleBeam were $748,700 (1998),
$577,000 (1997) and $557,700 (1996). The majority of the stock of TeleBeam
is beneficially owned or controlled by persons related to the Company's
Chairman and Chief Executive Officer.
In fiscal year 1997, the Company purchased a property for $1,500,000 from
a partnership in which a former director is also a partner. Prior to the
purchase, the Company paid rents to the partnership of $35,500 (1997) and
$40,000 (1996).
K. 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 $110,300 (1998), $127,000 (1997) and $113,800
(1996).
40
<PAGE> 41
L. 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 $15,600,
$25,700 and $28,200 for the years ended September 30, 1998, 1997 and 1996,
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 $487,500 and $1,056,500 at September
30, 1998 and 1997, 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
$29,000, $0 and $99,200 for fiscal years 1998, 1997 and 1996,
respectively.
M. Equity Compensation Plans:
-------------------------
The Company has an Equity Compensation Plan, pursuant to which no
additional stock options may be granted, and a 1996 Equity Compensation
Plan, which became effective November 1, 1996. The Company has reserved
163,455 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. In addition, newly appointed or elected
nonemployee directors receive an initial grant for 5,000 shares.
Nonemployee directors will also receive grants of stock equal in value to
and in lieu of two-thirds of the retainer due to such director.
The Company granted options to purchase 7,140, 6,223 and 4,116 shares of
common stock to nonemployee directors under the Plans during fiscal years
1998, 1997 and 1996, 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 have various vesting schedules.
41
<PAGE> 42
M. Equity Compensation Plans (Continued):
-------------------------------------
Information regarding outstanding options is presented below. All options
outstanding are exercisable according to their vesting schedule.
Outstanding Options for Shares of Common Stock:
Weighted Average
Outstanding Exercise Exercise Price
Options Price Per Share Per Share
----------- --------------- ----------------
Balance, October 1, 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 405,035 $2.50 to $8.50 $5.95
Granted 318,556 $3.13 to $5.78 $3.82
Exercised ( 23,000) $2.50 to $3.50 $2.76
Canceled (165,025) $3.50 to $8.50 $6.29
Balance, September 30, 1998:
212,250 $2.50 to $3.75 $3.30
168,561 $3.76 to $5.65 $4.77
154,755 $5.66 to $8.50 $6.55
-------
535,566 $2.50 to $8.50 $4.70
-------
Exercisable at
September 30, 1998 204,233 $2.50 to $8.50 $5.93
=======
Balance of Shares Reserved for
Grant at September 30, 1998 614,526
=======
The weighted average fair value of the stock options granted during fiscal
years 1998, 1997 and 1996 were $1.88, $2.97 and $3.65, 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,
1998 1997 1996
--------- --------- ---------
Risk-free interest rate 4.8% 6.3% 6.2%
Expected volatility 37.9% 29.3% 29.3%
Expected life in years 7.9 8.2 8.4
Contractual life in years 8.9 9.0 9.2
Fair value of options granted $597,578 $327,163 $351,371
42
<PAGE> 43
M. Equity Compensation Plans (Continued):
-------------------------------------
The Company accounts for the Plans in accordance with Accounting Principles
Board Opinion No. 25, under which no compensation cost has been recognized
for stock option awards. Had compensation cost for the Plans been
determined in accordance with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the
Company's pro forma net earnings (loss) and earnings (loss) per share for
the fiscal years ended September 30, 1998, 1997 and 1996 would have been as
follows:
1998 1997 1996
-------- ---------- ----------
Net earnings (loss):
As reported ($371,955) ($6,044,065) ($2,971,044)
Pro forma ($466,503) ($6,262,937) ($2,746,518)
Basic earnings
(loss) per share:
As reported ($ 0.05) ($ 0.91) ($ 0.46)
Pro forma ($ 0.07) ($ 0.94) ($ 0.42)
Diluted earnings
(loss) per share:
As reported ($ 0.05) ($ 0.91) ($ 0.44)
Pro forma ($ 0.07) ($ 0.94) ($ 0.41)
N. Nonqualified Stock Options:
--------------------------
On February 26, 1993, the Company made a one-time, special grant of
nonqualified stock options to each of Henry D. Sahakian and Daniel D.
Sahakian 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 exercised his option during fiscal year
1998 for a cash payment to the Company of $675,000.
43
<PAGE> 44
SUPPLEMENTARY FINANCIAL INFORMATION
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<C> <C> <C> <C> <C>
Year Ended September 30, 1998
- -----------------------------
Revenues $82,191,301 $56,012,612 $63,279,423 $64,885,377
Gross Profits 20,627,858 16,488,756 16,655,311 17,893,254
Earnings (Loss) Before
Extraordinary Item ( 274,243) ( 429,694) 376,219 200,078
Extraordinary Item-Loss
From Debt Extinguishment 0 0 244,315 0
----------- ----------- ----------- -----------
Net Earnings (Loss) ($ 274,243) ($ 429,694) $ 131,904 $ 200,078
=========== =========== =========== ===========
Earnings (Loss) Per Share
Before Extraordinary
Item ($ 0.04) ($ 0.06) $ 0.06 $ 0.03
Loss Per Share From
Extraordinary Item 0.00 0.00 ( 0.04) 0.00
----------- ----------- ----------- -----------
Net Earnings (Loss)
Per Share ($ 0.04) ($ 0.06) $ 0.02 $ 0.03
=========== =========== =========== ===========
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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)
=========== =========== =========== ===========
</TABLE>
44
<PAGE> 45
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, 1998, the end of the fiscal year
covered by this report.
45
<PAGE> 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(A) Financial Statements and Schedules
The Financial Statements listed below are filed as part of this Annual Report
on Form 10-K.
(1) Financial Statements
PAGE(S)
Report of Deloitte & Touche LLP, Independent Auditors 22
Consolidated Balance Sheets - September 30, 1998 and 1997 23-24
Consolidated Statements of Operations for the years ended
September 30, 1998, 1997 and 1996 25
Consolidated Statements of Stockholders' Equity for the years
ended September 30, 1998, 1997 and 1996 26
Consolidated Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996 27-28
Notes to Consolidated Financial Statements 29-43
Supplementary Financial Information - Selected Quarterly
Financial Data (Unaudited) 44
(2) Financial Statement Schedules
The following financial statement schedule should be read in conjunction with
the financial statements and notes thereto included in this report. Schedules
not included below have been omitted because they are not applicable or
required or because the required information is not material or is included in
the financial statements or notes thereto.
The following schedule for the years ended September 30, 1998, 1997 and 1996 is
included in this report:
PAGE
Schedule II Valuation and Qualifying Accounts 50
(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, 1998.
(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).
46
<PAGE> 47
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, File No. 1-11556, and incorporated herein by
reference thereto).
10.1 Uni-Marts, Inc. Amended and Restated Equity Compensation Plan
(Filed as Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended March 30, 1995 and incorporated herein
by reference thereto).
10.3 Uni-Marts, Inc. Retirement Savings & Incentive Plan (Filed as
Exhibit 4.2 to the Company's Registration Statement on Form S-8,
File No. 33-9807, filed on July 10, 1991 and incorporated herein
by reference thereto).
10.4 Form of Indemnification Agreement between Uni-Marts, Inc. and
each of its Directors (Filed as Exhibit A to the Company's
Definitive Proxy Statement for the February 25, 1988 Annual
Meeting of Stockholders, File No. 0-15164, and incorporated
herein by reference thereto).
10.5 Uni-Marts, Inc. Deferred Compensation Plan (Filed as Exhibit 10.8
to the Annual Report of Uni-Marts, Inc. on Form 10-K for the year
ended September 30, 1990, File No. 0-15164, and incorporated
herein by reference thereto).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 Amendment 1998-1 to the Uni-Marts, Inc. 1996 Equity Compensation
Plan.
10.11 Amended and Restated Note between Henry D. Sahakian and
Uni-Marts, Inc. dated January 7, 1998 (Filed as Exhibit 10.16 to
the Annual Report of Uni-Marts, Inc. on Form 10-K for the year
ended September 30, 1997 and incorporated herein by reference
thereto).
10.12 Loan Agreement between FFCA Acquisition Corporation and Uni-Marts,
Inc. (Filed as Exhibit 10.10 to the Company's Quarterly
Report on Form 10-Q for the period ended on July 2, 1998 and
incorporated herein by reference thereto).
47
<PAGE> 48
10.13 Revolving Loan Agreement between FFCA Acquisition Corporation and
Uni-Marts, Inc. (Filed as Exhibit 10.11 to the Company's
Quarterly Report on Form 10-Q for the period ended on July 2,
1998 and incorporated herein by reference thereto).
10.14 Property Loan Agreement between FFCA Acquisition Corporation and
Uni-Marts, Inc. (Filed as Exhibit 10.12 to the Company's
Quarterly Report on Form 10-Q for the period ended on July 2,
1998 and incorporated herein by reference thereto).
11 Statement regarding computation of per share earnings.
21 Subsidiary of the registrant.
23 Consent of Deloitte & Touche LLP.
27 Financial data schedule.
99 Report on Form 11-K.
(D) Schedules
The schedules listed in Item 14(A) are filed as part of this Annual Report on
Form 10-K.
48
<PAGE> 49
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: December 24, 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 December 24, 1998
Henry D. Sahakian
/S/ J. KIRK GALLAHER
- ----------------------- Executive Vice President December 24, 1998
J. Kirk Gallaher and Director
/S/ M. MICHAEL ARJMAND
- ----------------------- Director December 24, 1998
M. Michael Arjmand
/S/ HERBERT C. GRAVES
- ----------------------- Director December 24, 1998
Herbert C. Graves
/S/ STEPHEN B. KRUMHOLZ
- ----------------------- Director December 24, 1998
Stephen B. Krumholz
/S/ DANIEL D. SAHAKIAN
- ----------------------- Director December 24, 1998
Daniel D. Sahakian
/S/ GEROLD C. SHEA
- ----------------------- Director December 24, 1998
Gerold C. Shea
49
<PAGE> 50
<TABLE>
UNI-MARTS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Column A Column B Column C Column D Column E
Additions
----------------------
Charged to
Balance at Charged to other Balance at
beginning costs and accounts- Deductions- end of
Description of period expenses describe describe(1) period
- ----------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1998:
- -----------------------------
Allowance for
doubtful
accounts $132,600 $304,500 $ 0 ($52,200) $384,900
======== ======== ======= ======= ========
YEAR ENDED SEPTEMBER 30, 1997:
- -----------------------------
Allowance for
doubtful
accounts $ 74,600 $105,200 $ 0 ($ 47,200) $132,600
======== ======== ======= ======== ========
YEAR ENDED SEPTEMBER 30, 1996:
- -----------------------------
Allowance for
doubtful
accounts $123,800 $ 50,200 $ 0 ($ 99,400) $ 74,600
======== ======== ======= ======== ========
</TABLE>
(1) Specific account or note receivable written off to allowance.
50
<PAGE> 51
UNI-MARTS, INC. AND SUBSIDIARY
EXHIBIT INDEX
Number Description Page(s)
10.10 Amendment 1998-1 to the Uni-Marts, Inc. 1996
Equity Compensation Plan. 52-53
11 Statement regarding computation of per share
earnings for the years ended September 30, 1998,
1997 and 1996. 54-55
21 Subsidiary of the registrant. 56
23 Consent of Deloitte & Touche LLP 57
27 Financial Data Schedule 58
99 Report on Form 11-K 59-81
51
<PAGE> 52
AMENDMENT 1998-1
TO THE UNI-MARTS, INC.
1996 EQUITY COMPENSATION PLAN
Section 6 of the Uni-Marts, Inc. 1996 Equity Compensation Plan shall be
replaced in its entirety with the following Section 6:
"6. Grants to Non-Employee Directors
--------------------------------
(a) Option Grants to Non-Employee Directors.
---------------------------------------
(1) INITIAL GRANT. Each Non-Employee Director who first
becomes a member of the Board of Directors of the Corporation after
the Corporation's 1998 annual shareholders' meeting shall receive a
Nonqualified Stock Option to purchase 5,000 shares of Common Stock
(a "Formula Grant Option") on the date as of which he or she first
becomes a member of the Board (or, for 1998, the date of approval of
this Section 6 by the Board) or at such other proximate time as the
Committee may determine (the "Date of Grant").
(2) ANNUAL GRANTS. In addition to the grant provided for in
paragraph (1) above, on the day of the annual meeting of
stockholders (also the "Date of Grant"), each Non-Employee Director
shall receive a Nonqualified Stock Option to purchase 2,000 shares
of Common Stock of the Corporation, plus 500 shares of Common Stock
for each full year the Non-Employee Director has served as a member
of the Board as a Non-Employee Director, up to a maximum of 4,000
shares of Common Stock per grant (also a "Formula Grant Option").
(3) OPTION PRICE. The option price of a Formula Grant
Option shall be equal to the fair market value of a share of Common
Stock on the Date of Grant, as determined under Section 5(b) of the
Plan. Formula Grant Options shall become exercisable one year
following the Date of Grant. Formula Grant Options shall have a
term of ten years after the Date of Grant, provided that the
optionee remains a Non-Employee Director or employee of the
Corporation.
(4) EXERCISABILITY. Upon a Non-Employee Director ceasing to
be a Director for any reason other than death or disability or as a
result of becoming an employee of the Corporation, such Director's
Formula Grant Options shall immediately terminate. In the event a
Non-Employee Director ceases to be a Director by reason of death or
disability, such Director's Formula Grant Options may thereafter be
exercised in accordance with the applicable provisions of Section
5(e) of the Plan. In the event a Non-Employee Director ceases to be
a Director by reason of his becoming an employee of the Corporation
and his employment with the Corporation is subsequently terminated,
such Director's Formula Grant Options may thereafter be exercised in
accordance with the provisions in Section 5(f) of the Plan.
52
<PAGE> 53
(b) STOCK GRANTS TO NON-EMPLOYEE DIRECTORS. On the date of the
annual meeting of stockholders, each Non-Employee Director shall receive
a grant of shares of Common Stock equal in value to 2/3 of the amount of
the annual retainer due to such Director for the fiscal year in which the
Date of Grant occurs.
For purposes of determining the amount of shares to be distributed,
the fair market value of a share of Common Stock shall be determined in
accordance with the provisions of Section 5(b). Such shares shall not be sold
for six months following the Date of Grant. No other restrictions shall apply
to such shares.
(c) Notwithstanding any other provision of the Plan, this Section
6 may not be amended more than once every six months, except for
amendments necessary to conform the Plan to changes of the provisions of,
or for regulations relating to, the Code."
53
<PAGE> 54
EXHIBIT (11)
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (LOSS):
(A) Computation of the weighted average number of shares of common stock
outstanding for the years ended September 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION> WEIGHTED
SHARES OF NUMBER OF DAYS NUMBER OF NUMBER OF SHARES
COMMON STOCK OUTSTANDING SHARE DAYS OUTSTANDING
------------ -------------- -------------- ----------------
<S> <C> <C> <C> <C>
1998
- ----
October 1 - September 30 6,646,677 365 2,426,037,057
Treasury Stock Purchases ( 12,421) Various ( 1,854,115)
Shares Issued 226,996 Various 44,592,437
---------- -------------
6,861,252 2,468,775,379 6,763,768
========== ============= =========
1997
- ----
October 1 - September 30 6,658,487 365 2,430,347,718
Treasury Stock Purchases ( 50,500) Various ( 15,179,575)
Shares Issued 38,690 Various 9,134,740
--------- -------------
6,646,677 2,424,302,883 6,641,926
========= ============= =========
1996
- ----
October 1 - September 30 6,345,465 366 2,322,440,346
Treasury Stock Purchases ( 94,075) Various ( 8,164,523)
Shares Issued 407,097 Various 68,185,760
--------- -------------
6,658,487 2,382,461,583 6,509,458
========= ============= =========
</TABLE>
-1-
54
<PAGE> 55
(B) Computation of Earnings (Loss) Per Share:
Computation of earnings (loss) per share is net earnings divided by the
weighted average number of shares of common stock outstanding for the
years ended September 30,
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Basic:
Weighted average number of shares
of common stock outstanding 6,763,768 6,641,926 6,509,458
---------- ---------- ----------
Earnings (loss) before extraordinary
item and cumulative effect of
accounting change ($ 127,640) ($4,575,925) $2,971,044
Extraordinary item-loss from debt
extinguishment 244,315 0 0
Cumulative effect of accounting
change 0 ( 1,468,140) 0
---------- ---------- ----------
Net earnings (loss) ($ 371,955) ($6,044,065) $2,971,044
---------- ---------- ----------
Earnings (loss) per share before
extraordinary item and cumulative
effect of accounting change ($ 0.02) ($ 0.69) $ 0.46
Loss per share from extraordinary
item ( 0.03) 0.00 0.00
Loss per share from cumulative
effect of accounting change 0.00 ( 0.22) 0.00
---------- ---------- ----------
Net earnings (loss) per share ($ 0.05) ($ 0.91) $ 0.46
========== ========== ==========
Assumuming dilution:
Weighted average number of shares
of common stock outstanding 6,763,768 6,641,926 6,509,458
Net effect of dilutive stock
options-not included if the
effect was antidilutive 0 0 250,038
---------- ---------- ----------
Total 6,763,768 6,641,926 6,759,496
---------- ---------- ----------
Earnings (loss) before extraordinary
item and cumulative effect of
accounting change ($ 127,640) ($4,575,925) $2,971,044
Extraordinary item-loss from debt
extinguishment 244,315 0 0
Cumulative effect of accounting
change 0 ( 1,468,140) 0
---------- ---------- ----------
Net earnings (loss) ($ 371,955) ($6,044,065) $2,971,044
---------- ---------- ----------
Earnings (loss) per share before
extraordinary item and cumulative
effect of accounting change ($ 0.02) ($ 0.69) $ 0.44
Loss per share from extraordinary
item ( 0.03) 0.00 0.00
Loss per share from cumulative
effect of accounting change 0.00 ( 0.22) 0.00
---------- ---------- ----------
Net earnings (loss) per share ($ 0.05) ($ 0.91) $ 0.44
========== ========== ==========
-2-
55
</TABLE>
<PAGE> 56
EXHIBIT (21)
SUBSIDIARY OF THE REGISTRANT
STATE OF
NAME INCORPORATION
- ---- -------------
Uni-Marts of America, Inc. Delaware
Uni-Marts of America, Inc. does business only under its legal corporate name.
56
<PAGE> 57
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
Board of Directors and Stockholders of Uni-Marts, Inc.
State College, Pennsylvania
We consent to the incorporation by reference in Registration Statements No.
333-69136, No. 333-07697 and No. 333-24903 of Uni-Marts, Inc. on Form S-8 of
our report dated December 16, 1998 appearing in the Annual Report on Form 10-K
of Uni-Marts, Inc. for the year ended September 30, 1998.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Uni-Marts, Inc., listed in
Item 14(a)(2). This financial statement schedule is the responsibility of
Uni-Marts, Inc.'s management. Our responsibility is to express an opinion
based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
December 22, 1998
57
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET DATED SEPTEMBER 30, 1998 AND THE STATEMENT OF OPERATIONS FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000805020
<NAME> UNI-MARTS, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 5,838,318
<SECURITIES> 4,262
<RECEIVABLES> 2,681,087
<ALLOWANCES> 384,900
<INVENTORY> 10,628,307
<CURRENT-ASSETS> 25,018,141
<PP&E> 111,939,562
<DEPRECIATION> 47,978,591
<TOTAL-ASSETS> 95,008,639
<CURRENT-LIABILITIES> 23,428,478
<BONDS> 34,321,638
0
0
<COMMON> 731,680
<OTHER-SE> 29,308,495
<TOTAL-LIABILITY-AND-EQUITY> 95,008,639
<SALES> 263,521,817
<TOTAL-REVENUES> 266,368,713
<CGS> 194,703,534
<TOTAL-COSTS> 266,733,753
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 246,307
<INTEREST-EXPENSE> 4,041,719
<INCOME-PRETAX> (365,040)
<INCOME-TAX> (237,400)
<INCOME-CONTINUING> (127,640)
<DISCONTINUED> 0
<EXTRAORDINARY> (244,315)
<CHANGES> 0
<NET-INCOME> (371,955)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
<PAGE> 59
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1998
---------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
------------------ ------------------
Commission file number 1-11556
------------------------------------------------
UNI-MARTS, INC. RETIREMENT SAVINGS & INCENTIVE PLAN
- -----------------------------------------------------------------------
(Full title of the plan)
UNI-MARTS, INC.
- -----------------------------------------------------------------------
(Name of issuer of the securities held pursuant to the plan)
477 East Beaver Avenue, State College, PA 16801-5690
- -----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
This Document Contains 22 Pages.
Exhibit Index on Page 21.
1
<PAGE> 60
UNI-MARTS, INC.
RETIREMENT SAVINGS & INCENTIVE PLAN
TABLE OF CONTENTS
- ------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT 3-4
FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1998 AND 1997 AND FOR EACH
OF THE THREE YEARS IN THE PERIOD ENDED SEPTEMBER 30, 1998:
Statements of Net Assets Available for Benefits 5-6
Statements of Changes in Net Assets Available for Benefits 7-11
Notes to Financial Statements 12-17
SUPPLEMENTAL SCHEDULES AS OF SEPTEMBER 30, 1998
AND FOR THE YEAR THEN ENDED:
Item 27a - Schedule of Assets Held for Investment Purposes 18
Item 27d - Schedule of Reportable Transactions 19
Supplemental schedules not included herein are omitted because
of the absence of conditions under which they are required.
2
<PAGE> 61
Deloitte & Touche Deloitte & Touche LLP Telephone: (215) 246-2300
Twenty-Fourth Floor Facsimile: (215) 569-2441
1700 Market Street
Philadelphia, Pennsylvania 19103-3984
INDEPENDENT AUDITORS' REPORT
To the Trustees and Participants of
Uni-Marts, Inc. Retirement Savings & Incentive Plan
State College, Pennsylvania
We have audited the accompanying statements of net assets available for
benefits of Uni-Marts, Inc. Retirement Savings & Incentive Plan (the
"Plan") as of September 30, 1998 and 1997, and the related statements of
changes in net assets available for benefits for each of the three years
in the period ended September 30, 1998. These financial statements are
the responsibility of the Plan'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 financial statements present fairly, in all
material respects, the net assets available for benefits of the Plan as
of September 30, 1998 and 1997, and the changes in net assets available
for benefits for each of the three years in the period ended September
30, 1998 in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedules
listed in the Table of Contents are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements, but are supplementary information required by the Department
of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security
Act of 1974. The supplemental information by fund in the statements of
net assets available for benefits and statements of changes in net
assets available for benefits is presented for the purpose of additional
analysis rather than to present the net assets available for benefits
and changes in net assets
- ---------------
Deloitte Touche
Tohmatsu
- ---------------
3
<PAGE> 62
available for benefits of the individual funds. The supplemental
schedules and supplemental information by fund are the responsibility of
the Plan's management. Such supplemental schedules and supplemental
information by fund have been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our
opinion, except for the omission of certain historical cost information
in the supplemental schedules, are fairly stated in all material
respects when considered in relation to the basic financial statements
taken as a whole.
/S/ DELOITTE & TOUCHE LLP
December 10, 1998
4
<PAGE> 63
UNI-MARTS, INC.
RETIREMENT SAVINGS & INCENTIVE PLAN
<TABLE>
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Supplementary Information by Fund
-------------------------------------------------------------------
Investments, at fair value
--------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS
Pooled Participant Total Contributions AVAILABLE
ASSETS Cash Funds Loans Investments Receivable FOR BENEFITS
--------- ---------- ----------- ----------- ------------- ------------
Conservative Lifeystyle Option $456 $60,809 $60,809 $364 $61,629
More Moderate Lifestyle Option 8,080 96,147 96,147 591 104,818
Moderate Lifestyle Option 20,715 957,747 957,747 3,750 982,212
Aggressive Lifestyle Option 12,023 845,100 845,100 2,750 859,873
Very Aggressive Lifestyle Option 140 114,416 114,416 881 115,437
Spartan Money Market (Loan Account) 50,650 $73,294 123,944 123,944
Fidelity Cash Reserves Fund 54 182,757 182,757 445 183,256
Bernstein Intermediate Duration Fund 1,429 46,606 46,606 264 48,299
Vanguard Asset Allocation Fund 75 292,081 292,081 604 292,760
Fidelity Growth & Income Fund 607 327,393 327,393 888 328,888
Janus Worldwide Fund 1,394 246,269 246,269 700 248,363
Vanguard U.S. Growth Fund 1,911 237,165 237,165 694 239,770
Putnam Vista Fund Class A 1,166 175,697 175,697 559 177,422
Baron Asset Fund 334 217,892 217,892 822 219,048
Uni-Marts, Inc. Common Stock Fund
165,864 shares 518,326 518,326 518,326
------- ---------- ------- ---------- ------- ----------
TOTAL $48,384 $4,369,055 $73,294 $4,442,349 $13,312 $4,504,045
======= ========== ======= ========== ======= ==========
See notes to financial statements.
</TABLE>
5
<PAGE> 64
UNI-MARTS, INC.
RETIREMENT SAVINGS & INCENTIVE PLAN
<TABLE>
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Supplementary Information by Fund
-------------------------------------------------------------------
Investments, at fair value
--------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS
Pooled Participant Total Contributions AVAILABLE
ASSETS Cash Funds Loans Investments Receivable FOR BENEFITS
--------- ---------- ----------- ----------- ------------- ------------
Money Market Fund $0 $0
Government Income Fund 0 0
Capital Growth Fund 0 0
High Income Fund 0 0
Conservative Lifeystyle Option $115 $93,913 93,913 $539 94,567
More Moderate Lifestyle Option 325 237,150 237,150 629 238,104
Moderate Lifestyle Option 3,534 987,359 987,359 4,401 995,294
Aggressive Lifestyle Option 6,917 891,596 891,596 3,519 902,032
Very Aggressive Lifestyle Option 6,007 135,156 135,156 1,432 142,595
Spartan Money Market (Loan Account) 33,624 $82,747 116,371 116,371
Fidelity Cash Reserves Fund 756 213,764 213,764 738 215,258
Bernstein Intermediate Duration Fund 44,275 44,275 293 44,568
Vanguard Asset Allocation Fund 1,695 307,627 307,627 660 309,982
Fidelity Growth & Income Fund 1,170 481,634 481,634 1,153 483,957
Janus Worldwide Fund 771 263,454 263,454 762 264,987
Vanguard U.S. Growth Fund 747 250,963 250,963 797 252,507
Putnam Vista Fund Class A 522 200,098 200,098 527 201,147
Baron Asset Fund 882 323,550 323,550 892 325,324
Uni-Marts, Inc. Common Stock Fund
130,477 shares 701,312 701,312 701,312
------- ---------- ------- ---------- ------- ----------
TOTAL $23,441 $5,165,475 $82,747 $5,248,222 $16,342 $5,288,005
======= ========== ======= ========== ======= ==========
See notes to financial statements.
</TABLE>
6
<PAGE> 65
<TABLE>
UNI-MARTS, INC. Page 1 of 2
RETIREMENT SAVINGS & INCENTIVE PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
SEPTEMBER 30, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Supplementary Information by Fund
----------------------------------------------------------------------------------------------------
NET ASSETS ------------------------------------------------Additions----------------------------
AVAILABLE FOR Net Apprecitaion
BENEFITS, Interest (Depreciation)
BEGINNING Participant Employer and Dividend in Fair Value Interfund Total
OF YEAR Contributions Contributions Income of Plan Assets Transfers Additions
------------- ------------- ------------- ------------ ----------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Conservative Lifeystyle Option $94,567 $11,432 $5,883 $1,607 $0 $18,922
More Moderate Lifestyle Option 238,104 15,725 11,682 1,482 (43,597) (14,708)
Moderate Lifestyle Option 995,294 105,201 60,739 27,432 (22,865) 170,507
Aggressive Lifestyle Option 902,032 85,648 48,155 (12,265) (15) 121,523
Very Aggressive Lifestyle Option 142,595 33,190 6,519 (1,887) 9,646 47,468
Spartan Money Market (Loan Account) 116,371 8,222 0 3,000 11,222
Fidelity Cash Reserves Fund 215,258 14,708 11,063 0 (5,422) 20,349
Bernstein Intermediate
Duration Fund 44,568 6,837 3,338 420 1,075 11,670
Vanguard Asset Allocation Fund 309,982 16,562 24,843 22,046 (13,012) 50,439
Fidelity Growth & Income Fund 483,957 30,443 20,873 40,765 2,562 94,643
Janus Worldwide Fund 264,987 21,679 17,762 (13,446) (15,348) 10,647
Vanguard U.S. Growth Fund 252,507 19,977 10,352 32,934 (13,226) 50,037
Putnam Vista Fund Class A 201,147 15,217 15,036 (18,296) (5,068) 6,889
Baron Asset Fund 325,324 23,357 279 (40,865) (2,847) (20,076)
Uni-Marts, Inc. Common Stock Fund 701,312 17,248 $110,045 0 (288,154) 105,117 (55,744)
---------- -------- -------- -------- -------- ------- --------
TOTAL $5,288,005 $417,224 $110,045 $244,746 ($248,227) $0 $523,788
========== ======== ======== ======== ======== ======= ========
See notes to financial statements.
</TABLE>
7
<PAGE> 66
<TABLE>
UNI-MARTS, INC. Page 2 of 2
RETIREMENT SAVINGS & INCENTIVE PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------------------------------
<CAPTION>
Supplementary Information by Fund
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS
--------------Deductions--------------- (Decrease) AVAILABLE FOR
Payments to Total Increase in BENEFITS,
Beneficiaries Other Deductions Net Assets END OF YEAR
------------- -------- ---------- ----------- -------------
Conservative Lifeystyle Option ($51,860) ($51,860) ($32,938) $61,629
More Moderate Lifestyle Option (118,578) (118,578) (133,286) 104,818
Moderate Lifestyle Option (183,589) (183,589) (13,082) 982,212
Aggressive Lifestyle Option (163,682) (163,682) (42,159) 859,873
Very Aggressive Lifestyle Option (74,626) (74,626) (27,158) 115,437
Spartan Money Market (Loan Account) (3,649) (3,649) 7,573 123,944
Fidelity Cash Reserves Fund (52,351) (52,351) (32,002) 183,256
Bernstein Intermediate Duration Fund (7,939) (7,939) 3,731 48,299
Vanguard Asset Allocation Fund (67,661) (67,661) (17,222) 292,760
Fidelity Growth & Income Fund (249,712) (249,712) (155,069) 328,888
Janus Worldwide Fund (27,271) (27,271) (16,624) 248,363
Vanguard U.S. Growth Fund (62,774) (62,774) (12,737) 239,770
Putnam Vista Fund Class A (30,614) (30,614) (23,725) 177,422
Baron Asset Fund (86,200) (86,200) (106,276) 219,048
Uni-Marts, Inc. Common Stock Fund (127,242) (127,242) (182,986) 518,326
---------- ------ ---------- -------- ----------
TOTAL ($1,307,748) $0 ($1,307,748) ($783,960) $4,504,045
========== ====== ========= ======== ==========
See notes to financial statements.
</TABLE>
8
<PAGE> 67
<TABLE>
UNI-MARTS, INC. Page 1 of 2
RETIREMENT SAVINGS & INCENTIVE PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
SEPTEMBER 30, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Supplementary Information by Fund
---------------------------------------------------------------------------------------------------------
NET ASSETS --------------------------------------------Additions-------------------------------------
AVAILABLE FOR Net Apprecitaion
BENEFITS, Interest (Depreciation)
BEGINNING Participant Employer and Dividend in Fair Value Liquidation Interfund Total
OF YEAR Contributions Contributions Income of Plan Assets Transfers Transfers Additions
------------- ------------- ------------- ------------ ----------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund $572,824 $3,593 ($495,341) ($79,833) ($571,581)
Government Income Fund 655,707 2,616 ($799) (657,463) (61) (655,707)
Capital Growth Fund 1,586,685 13 3,221 (1,589,949) 30 (1,586,685)
High Income Fund 563,707 2,577 (1,707) (564,577) (563,707)
Conservative Lifeystyle Option $14,579 4,953 2,662 76,409 6,436 105,039
More Moderate Lifestyle Option 20,304 11,480 15,097 179,763 14,125 240,769
Moderate Lifestyle Option 118,094 46,968 89,549 716,021 48,619 1,019,251
Aggressive Lifestyle Option 101,731 38,596 121,538 715,056 (10,089) 966,832
Very Aggressive Lifestyle Option 30,928 3,280 20,266 67,861 20,541 142,876
Spartan Money Market
(Loan Account) 6,813 0 0 109,558 116,371
Fidelity Cash Reserves Fund 25,826 10,477 0 383,112 (142,958) 276,457
Bernstein Intermediate
Duration Fund 7,523 2,159 601 31,708 4,198 46,189
Vanguard Asset Allocation Fund 18,014 21,289 41,766 217,822 15,905 314,796
Fidelity Growth & Income Fund 32,862 20,834 93,169 339,651 3,904 490,420
Janus Worldwide Fund 22,542 10,863 42,477 157,912 41,839 275,633
Vanguard U.S. Growth Fund 22,067 15,148 36,252 186,591 4,797 264,855
Putnam Vista Fund Class A 16,686 10,194 29,089 166,853 (15,348) 207,474
Baron Asset Fund 27,435 400 81,096 224,581 2,304 335,816
Uni-Marts, Inc. Common
Stock Fund 1,088,524 32,790 $126,480 7,156 (312,633) (156,010) (23,967) (326,184)
---------- -------- -------- -------- -------- ------- ------ ----------
TOTAL $4,467,447 $491,381 $126,480 $219,409 $261,644 $0 $0 $1,098,914
========== ======== ======== ======== ======== ======= ====== ==========
See notes to financial statements.
</TABLE>
9
<PAGE> 68
<TABLE>
UNI-MARTS, INC. Page 2 of 2
RETIREMENT SAVINGS & INCENTIVE PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
SEPTEMBER 30, 1997
- -------------------------------------------------------------------------------------------------------
<CAPTION>
Supplementary Information by Fund
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSETS
--------------Deductions-------------- (Decrease) AVAILABLE FOR
Payments to Total Increase in BENEFITS,
Beneficiaries Other Deductions Net Assets END OF YEAR
------------- -------- ---------- ----------- -------------
Money Market Fund ($1,243) ($1,243) ($572,824) $0
Government Income Fund 0 (655,707) 0
Capital Growth Fund 0 (1,586,685) 0
High Income Fund 0 (563,707) 0
Conservative Lifeystyle Option ($10,472) (10,472) 94,567 94,567
More Moderate Lifestyle Option (2,665) (2,665) 238,104 238,104
Moderate Lifestyle Option (23,957) (23,957) 995,294 995,294
Aggressive Lifestyle Option (64,800) (64,800) 902,032 902,032
Very Aggressive Lifestyle Option (281) (281) 142,595 142,595
Spartan Money Market (Loan Account) 0 116,371 116,371
Fidelity Cash Reserves Fund (61,199) (61,199) 215,258 215,258
Bernstein Intermediate Duration Fund (1,621) (1,621) 44,568 44,568
Vanguard Asset Allocation Fund (4,814) (4,814) 309,982 309,982
Fidelity Growth & Income Fund (6,463) (6,463) 483,957 483,957
Janus Worldwide Fund (10,646) (10,646) 264,987 264,987
Vanguard U.S. Growth Fund (12,348) (12,348) 252,507 252,507
Putnam Vista Fund Class A (6,327) (6,327) 201,147 201,147
Baron Asset Fund (10,492) (10,492) 325,324 325,324
Uni-Marts, Inc. Common Stock Fund (61,028) (61,028) (387,212) 701,312
-------- ------ -------- -------- ----------
TOTAL ($277,113) ($1,243) ($278,356) $820,558 $5,288,005
======== ====== ======== ======== ==========
See notes to financial statements.
</TABLE>
10
<PAGE> 69
UNI-MARTS, INC.
RETIREMENT SAVINGS & INCENTIVE PLAN
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEAR ENDED SEPTEMBER 30, 1996
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Supplementary Information by Fund
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Uni-Marts,
Inc.
Money Government Capital High Common
Market Income Growth Income Stock Total
Fund Fund Fund Fund Fund
NET ASSETS AVAILABLE FOR BENEFITS,
BEGINNING OF YEAR $667,024 $570,876 $1,250,714 $453,116 $849,414 $3,791,144
-------- -------- ---------- -------- ---------- ----------
ADDITIONS:
Participant Contributions 79,445 60,281 124,149 53,502 70,602 387,979
Employer Contributions 113,641 113,641
Interest and dividend income 30,421 39,924 133,891 42,192 15,018 261,446
Net appreciation (depreciation)
in fair value of plan assets (15,122) 114,239 3,125 156,720 258,962
Interfund transfers (137,004) 49,394 40,067 61,000 (13,457) 0
-------- -------- ---------- --------- ---------- -----------
Total additions (27,138) 134,477 412,346 159,819 342,524 1,022,028
-------- -------- ---------- --------- ---------- -----------
DEDUCTIONS:
Payments to beneficiaries (67,025) (49,646) (76,375) (49,228) (103,414) (345,688)
Other (37) (37)
-------- -------- ---------- --------- ---------- -----------
Total deductions (67,062) (49,646) (76,375) (49,228) (103,414) (345,725)
-------- -------- ---------- --------- ---------- -----------
(DECREASE) INCREASE IN NET ASSETS (94,200) 84,831 335,971 110,591 239,110 676,303
-------- -------- ---------- --------- ---------- -----------
NET ASSETS AVAILABLE FOR BENEFITS,
END OF YEAR $572,824 $655,707 $1,586,685 $563,707 $1,088,524 $4,467,447
======== ======== ========== ========= ========== ===========
See notes to financial statements
</TABLE>
11
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
- ------------------------------------------------------------------------
1. THE PLAN
Uni-Marts, Inc. Retirement Savings & Incentive Plan (the "Plan"),
a defined contribution plan, was established October 1, 1983 to
include all full-time employees of the former parent of Uni-Marts,
Inc. and certain of its subsidiaries and related companies.
Effective October 1, 1987, the Plan was amended and restated to
include only the employees of Uni-Marts, Inc. and its affiliates
(the "Company"). The assets of the Plan attributable to employees
of the former parent and related companies were spun off from the
Plan effective the date of the amendment. Uni-Marts, Inc. is the
Trustee of the Plan.
The following is a summary description of the Plan. Participants
should refer to the Plan document for a complete description of
the Plan. Employees are eligible to participate after attainment
of age 21, and completion of at least 1,000 hours of service in
one eligibility computation period. Employees whose wages and
conditions of employment are subject to agreement with a
collective bargaining agent are not eligible to participate unless
provided by the collective bargaining agreement. The Plan is
subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA).
All eligible employees may direct the Company to contribute from
1% to 3% of their compensation to the Plan on their behalf as a
basic contribution. An additional amount up to 12% of
compensation may be deposited as a supplemental contribution.
Total individual employee contributions may not exceed IRS imposed
limits as provided in the Plan. The Company will make matching
contributions equal to $.50 for each $1.00 of basic contribution
and may make an optional contribution at the discretion of the
Board of Directors. No optional contributions were made in the
Plan years 1998, 1997 and 1996. Each participant has at all times
a 100% nonforfeitable interest in their account balance.
Each employee directs that his/her contribution be invested and
reinvested in one or more of the investment funds selected by the
Trustee and/or in the Company's common stock. The Trustee
determines how all amounts credited to a member's optional
contribution account, if any, will be invested. All income,
expenses, gains or losses attributable to assets held in each
investment fund are reflected therein exclusively.
Participants' accounts may be withdrawn upon separation from the
Company, death, disability or retirement (regular - age 65;
early - age 55). Withdrawals, except for hardship withdrawals,
are distributed in lump sums, including earnings. A participant
may request a loan or apply for a hardship withdrawal in
accordance with the provisions of the Plan. The Company has the
right to terminate the Plan subject to the provisions of ERISA.
12
<PAGE> 71
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 and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. ADMINISTRATION OF THE PLAN
The Company is the administrator of the Plan. All fees related to
the Plan's administration and recordkeeping are paid by the
Company and therefore are not reported as an expense of the Plan.
3. INVESTMENTS
Investments representing units of funds maintained by diversified,
open-end management investment companies are stated at fair value
as determined by published market prices. Uni-Marts, Inc. common
stock is valued at the closing market price. Income and expenses
relating to these investments are recorded on the accrual basis of
accounting.
Following is a brief description of the nine funds in which the
Plan was invested as of September 30, 1998
FIDELITY CASH RESERVES FUND. Money market fund which seeks as
high a level of current income as is consistent with preservation
of capital and liquidity. The fund invests in high quality U.S.
dollar denominated money market instruments of U.S. and foreign
issuers; yield will fluctuate.
BERNSTEIN INTERMEDIATE DURATION FUND. Government/corporate bond
fund which seeks total return consistent with safety of principal.
The fund invests at least 65% of assets in fixed-income securities
rated AA or higher. The fund normally maintains an effective
duration of three to six years.
VANGUARD ASSET ALLOCATION FUND. Asset allocation/balanced fund
which seeks total return. The fund allocates among a common-stock
portfolio, a bond portfolio, and money market instruments. It
varies its mix according to the relative attractiveness of the
asset classes. There is no limitation as to the amount of assets
in each class.
FIDELITY GROWTH & INCOME FUND. Large value stock fund which seeks
long-term growth, current income, and growth of income consistent
with reasonable investment risk. The fund invests primarily in
dividend-paying common stocks with growth potential. However,
some common stock selections may be made in securities not paying
dividends.
JANUS WORLDWIDE FUND. International/world stock fund which seeks
long-term growth of capital consistent with preservation of
capital. The fund invests primarily in foreign and domestic
common stocks. Its portfolio is usually spread across at least
five different countries, including the United States, though at
times it may invest in a single country.
13
<PAGE> 72
VANGUARD U.S. GROWTH FUND. Large growth stock fund which seeks
capital appreciation; income is incidental. The fund invests
primarily in common stocks and convertible securities issued by
established U.S. companies.
PUTNAM VISTA CLASS A FUND. Mid-cap stock fund which seeks capital
appreciation. The fund invests primarily in common stocks issued
by companies of any size; it may also invest in preferred stocks,
debt securities, convertible securities, and warrants.
BARON ASSET FUND. Aggressive/small growth stock fund which seeks
capital appreciation. The fund invests in smaller companies that
the advisor believes have undervalued assets or favorable growth
prospects.
UNI-MARTS, INC. COMMON STOCK FUND. Company stock fund which seeks
capital appreciation. The stock is traded on the American Stock
Exchange. The symbol for the stock is UNI.
At the discretion of the individual participant, contributions can
be allocated among the respective funds described above, or
contributions can be managed by Asset & Wealth Services, Inc.
through the election of Lifestyle Options. Lifestyle Options are
professionally allocated, managed and monitored portfolio
investment pools for 401(k) Plans. The Lifestyle Option
portfolios are diversified across various asset classes and
investment styles. Participants choose an allocation, ranging
from Conservative to Very Aggressive, that fits their individual
risk and return objectives. The same mutual funds described above
are used in the Lifestyle Options.
INVESTMENTS AT SEPTEMBER 30, ARE AS FOLLOWS:
1998 1997
Conservative Lifestyle Option:
Fidelity Cash Reserves Fund 1,862 7,695
Bernstein Intermediate Duration Fund 53,773 76,855
Fidelity Growth & Income Fund 1,403 0
Vanguard U.S. Growth Fund 3,771 9,363
---------- ----------
60,809 93,913
---------- ----------
More Moderate Lifestyle Option:
Fidelity Cash Reserves Fund 4,243 42,493
Bernstein Intermediate Duration Fund 55,123 121,568
Fidelity Growth & Income Fund 16,309 36,861
Vanguard U.S. Growth Fund 16,180 36,228
Baron Asset Fund 4,292 0
---------- ----------
96,147 237,150
---------- ----------
Moderate Lifestyle Option:
Fidelity Cash Reserves Fund 5,110 79,511
Bernstein Intermediate Duration Fund 474,679 403,213
Fidelity Growth & Income Fund 183,387 202,851
Putnam Vista Fund Class A 85,486 102,536
Vanguard U.S. Growth Fund 180,079 199,248
Baron Asset Fund 29,006 0
---------- ----------
957,747 987,359
---------- ----------
14
<PAGE> 73
1998 1997
Aggressive Lifestyle Option:
Fidelity Cash Reserves Fund 18,195 26,556
Bernstein Intermediate Duration Fund 262,821 270,601
Fidelity Growth & Income Fund 139,366 135,976
Putnam Vista Fund Class A 83,845 91,611
Vanguard U.S. Growth Fund 142,537 133,562
Baron Asset Fund 122,863 140,580
Janus Worldwide Fund 75,473 92,710
---------- ----------
845,100 891,596
---------- ----------
Very Aggressive Lifestyle Option:
Fidelity Cash Reserves Fund 4,946 6,203
Bernstein Intermediate Duration Fund 32,292 19,485
Fidelity Growth & Income Fund 16,040 20,037
Putnam Vista Fund Class A 9,420 13,263
Vanguard U.S. Growth Fund 11,493 13,046
Baron Asset Fund 27,282 49,432
Janus Worldwide Fund 12,943 13,690
---------- ----------
114,416 135,156
---------- ----------
Fidelity Cash Reserves Fund 182,757 213,764
---------- ----------
Bernstein Intermediate Duration Fund 46,606 44,275
---------- ----------
Vanguard Asset Allocation Fund 292,081 307,627
---------- ----------
Spartan Money Market (Loan Account) 50,650 33,624
---------- ----------
Fidelity Growth & Income Fund 327,393 481,634
---------- ----------
Janus Worldwide Fund 246,269 263,454
---------- ----------
Vanguard U.S. Growth Fund 237,165 250,963
---------- ----------
Putnam Vista Fund Class A 175,697 200,098
---------- ----------
Baron Asset Fund 217,892 323,550
---------- ----------
Uni-Marts, Inc. Common Stock 518,326 701,312
---------- ----------
Investments 4,369,055 5,165,475
Participant Loans 73,294 82,747
---------- ----------
Total Investments $4,442,349 $5,248,222
========== ==========
15
<PAGE> 74
During 1998, 1997 and 1996, the Plan purchased from Uni-Marts, Inc.
31,872; 28,738 and 23,361 shares of its common stock at a cost of
$127,292; $159,270 and $184,243, respectively. For the 1998, 1997
and 1996 Plan years the price paid for the shares was as traded on
the American Stock Exchange.
4. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for
benefits according to the financial statements to Form 5500:
September 30,
1998 1997
---- ----
Net assets available for benefits per
the financial statements $4,504,045 $5,288,005
Amount receivable due to overpayment in
distribution to participant 50 0
Amounts allocated to withdrawing
participants. ( 9,636) 0
---------- ----------
Net assets available for benefits per
Form 5500 $4,494,459 $5,288,005
========== ==========
The following is a reconciliation of benefits paid to participants
according to the financial statements to Form 5500:
Year Ended
September 30,
1998
-------------
Benefits paid to participants per the
financial statements $1,307,748
Add: Amounts allocated to withdrawing participants
at September 30, 1998 9,636
Less: Amounts allocated to withdrawing participants
at September 30, 1997 ( 0)
----------
Benefits paid to participants per Form 5500 $1,317,384
==========
Year Ended
September 30,
1997
-------------
Benefits paid to participants per the
financial statements $ 277,113
Add: Amounts allocated to withdrawing participants
at September 30, 1997 0
Less: Amounts allocated to withdrawing participants
at September 30, 1996 ( 0)
----------
Benefits paid to participants per Form 5500 $ 277,113
==========
16
<PAGE> 75
Year Ended
September 30,
1996
-------------
Benefits paid to participants per the
financial statements $ 345,688
Add: Amounts allocated to withdrawing participants
at September 30, 1996 0
Less: Amounts allocated to withdrawing participants
at September 30, 1995 ( 0)
----------
Benefits paid to participants per Form 5500 $ 345,688
==========
Amounts allocated to withdrawing participants are recorded on Form
5500 for benefit claims that have been processed and approved for
payment prior to September 30 but not yet paid as of that date.
5. TAX STATUS
The trust established under the Plan to hold the Plan's assets is
qualified pursuant to the appropriate section of the Internal Revenue
Code (IRC), and, accordingly, the trust's net investment income is
exempt from income taxes. The Plan obtained its latest determination
letter on September 9, 1993, in which the IRS stated that the Plan,
as then designed, was in compliance with the applicable requirements
of the IRC. The Plan has been amended since receiving the
determination letter. However, the Plan administrator and the Plan's
tax counsel believe that the Plan is currently designed and being
operated in compliance with the applicable requirements of the IRC.
*****
17
<PAGE> 76
UNI-MARTS, INC.
RETIREMENT SAVINGS & INCENTIVE PLAN
<TABLE>
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DESCRIPTION OF INVESTMENT INCLUDING
MATURITY DATE, RATE OF INTEREST, CURRENT
IDENTITY OF ISSUE COLLATERAL, PAR OR MATURITY VALUE COST VALUE
<S> <C> <C> <C>
Spartan Money Market (Loan Account) Money Market Account, 50,650 shares $50,650 $50,650
Fidelity Cash Reserves Fund Money Market Account, 217,113 shares 217,113 217,113
Bernstein Intermediate Duration FundGovernment/Corporate Bond Mutual Fund, 68,591 shares * 925,295
Vanguard Asset Allocation Fund Asset Allocation/Balanced Mutual Fund, 12,755 shares * 292,081
Fidelity Growth & Income Fund Large Value Stock Mutual Fund, 17,708 shares * 683,899
Janus Worldwide Fund International/World Stock Mutual Fund, 8,465 shares * 334,685
Vanguard U.S. Growth Fund Large Growth Stock Mutual Fund, 18,355 shares * 591,223
Putnam Vista Fund Class A Mid-Cap Stock Mutual Fund, 30,929 shares * 354,447
Baron Asset Fund Aggressive/Small Growth Stock Mutual Fund, 10,043 shares * 401,336
Uni-Marts, Inc.** Common Stock Company Common Stock, 165,864 shares 554,172 518,326
Employee Loans Receivable Maturing 1998 - 2010, interest from 7% to 8.5% 73,294 73,294
----------
Total $4,442,349
==========
*Cost information is not available.
**Indicates party-in-interest to the Plan
</TABLE>
18
<PAGE> 77
UNI-MARTS, INC.
RETIREMENT SAVINGS & INCENTIVE PLAN
<TABLE>
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
YEAR ENDED SEPTEMBER 30, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CURRENT VALUE
EXPENSE OF ASSET ON
IDENTITY OF PURCHASE SELLING INCURRED WITH COST OF TRANSACTION NET GAIN
PARTY INVOLVED DESCRIPTION OF ASSET PRICE PRICE TRANSACTION ASSET DATE (LOSS)
<S> <C> <C> <C> <C> <C> <C> <C>
Uni-Marts, Inc. Uni-Marts, Inc. Various N/A None $127,292 $127,292 N/A
common stock
</TABLE>
19
<PAGE> 78
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this Annual Report to be signed on its
behalf by the undersigned hereunto duly authorized.
UNI-MARTS, INC.
RETIREMENT SAVINGS & INCENTIVE PLAN
/S/ J. KIRK GALLAHER
------------------------------------
J. Kirk Gallaher
Executive Vice President
20
<PAGE> 79
EXHIBIT INDEX
Page(s)
23 Consent of Independent Certified Public Accountants. 21
21
<PAGE> 80
INDEPENDENT AUDITORS' CONSENT
Board of Directors and Stockholders of Uni-Marts, Inc.
State College, Pennsylvania
We consent to the incorporation by reference in Registration Statement
No. 33-9807 of Uni-Marts, Inc. on Form S-8 of our report dated December
10, 1998, appearing in this Annual Report on Form 11-K of Uni-Marts,
Inc. Retirement Savings and Incentive Plan for the year ended September
30, 1998.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
December 24, 1998
22
