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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED DECEMBER 23, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM_______ TO _______
COMMISSION FILE NUMBER: 0 - 22074
NATIONAL RECORD MART, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 11-2782687
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(State or jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
507 FOREST AVENUE
CARNEGIE, PENNSYLVANIA 15106-2873
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(Address of principal executive offices, including zip code)
(412) 276-6200
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(Registrant's telephone number, including area code)
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
COMMON STOCK, $.01 PAR VALUE,
5,051,667 SHARES OUTSTANDING AS OF FEBRUARY 6, 2001
EXHIBIT INDEX ON PAGE 10.
THIS DOCUMENT CONSISTS OF 11 PAGES.
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NATIONAL RECORD MART, INC.
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets: December 23, 2000 (unaudited) and March 25, 2000 3
Statements of Operations: Thirteen and Thirty-nine Weeks Ended
December 23, 2000 (unaudited) and December 25, 1999 (unaudited) 4
Statements of Cash Flows: Thirty-nine Weeks Ended December 23, 2000
(unaudited) and December 25, 1999 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-7
Notes to Consolidated Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 10
Signature 10
Exhibit 11 Calculation, etc. 11
NATIONAL RECORD MART, INC.
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NATIONAL RECORD MART, INC.
CONSOLIDATED BALANCE SHEETS
December 23, March 25,
2000 2000
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(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 6,303,067 $ 1,935,092
Merchandise inventory 46,872,381 51,040,684
Due from stockholder 354,279 380,154
Other current assets 1,779,178 2,239,753
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Total current assets 55,308,905 55,595,683
Property and equipment, at cost 42,640,274 44,332,172
Accumulated depreciation and amortization (21,886,998) (21,006,162)
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Property and equipment, net 20,753,276 23,326,010
Other assets:
Intangibles, net 1,967,573 2,296,205
Other 572,887 633,514
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Total other assets 2,540,460 2,929,719
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Total assets $ 78,602,641 $ 81,851,412
============ ============
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 28,875,407 $ 25,046,213
Deferred income 2,561,990 1,012,159
Other liabilities and accrued expenses 4,400,190 5,046,649
Current maturities of long-term debt 83,622 161,770
Current maturity of note payable- subordinated 14,830,318 --
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Total current liabilities 50,751,527 31,266,791
Long-term debt:
Notes Payable 134,043 --
Notes payable - subordinated -- 14,558,285
Revolving credit facility 28,404,665 28,219,850
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Total long-term debt 28,538,708 42,778,135
Stockholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized, none issued -- --
Common stock, $.01 par value, 9,000,000 shares
authorized, 5,498,484 issued at December 23, 2000 and
March 25, 2000 and 5,051,667 outstanding at
December 23, 2000, and March 25, 2000 54,985 54,985
Additional paid-in capital 15,902,474 15,902,474
Retained earnings (14,975,828) (6,481,748)
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981,631 9,475,711
Less treasury stock, 446,817 shares at
December 23, 2000 and March 25, 2000 (1,669,225) (1,669,225)
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Total stockholders' equity (687,594) 7,806,486
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Total liabilities and stockholders' equity $ 78,602,641 $ 81,851,412
============ ============
See accompanying notes to consolidated financial statements
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NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
December 23, December 25, December 23, December 29,
2000 1999 2000 1999
----------- ----------- ----------- ------------
Net sales $39,788,576 $48,756,029 $97,313,811 $109,738,339
Cost of sales 24,465,401 29,827,915 61,387,056 67,057,493
----------- ----------- ----------- ------------
Gross profit 15,323,175 18,928,114 35,926,755 42,680,846
Selling, general and administrative expenses 12,041,358 12,315,826 36,591,854 37,091,437
Depreciation and amortization 1,220,618 1,200,940 3,721,162 3,334,248
Interest expense 1,394,887 1,241,048 4,006,567 3,278,091
Interest income (8,857) (9,795) (27,819) (27,604)
Other expenses 72,598 34,904 129,071 84,830
----------- ----------- ----------- ------------
Total expenses 14,720,604 14,782,923 44,420,835 43,761,002
----------- ----------- ----------- ------------
Income (loss) before income taxes 602,571 4,145,191 (8,494,080) (1,080,156)
Income tax expense (benefit) -- 1,491,560 -- (386,410)
----------- ----------- ----------- ------------
Net income (loss) 602,571 2,653,631 (8,494,080) (693,746)
=========== =========== =========== ============
Basic net income (loss) per share $ 0.12 $ 0.53 $ (1.68) $ (0.14)
=========== =========== =========== ============
Diluted net income (loss) per share $ 0.11 $ 0.50 $ (1.68) $ (0.14)
=========== =========== =========== ============
Basic weighted average common shares
Outstanding 5,051,667 5,048,167 5,051,667 5,048,372
=========== =========== =========== ============
Weighted average number of common shares
and common equivalent shares
outstanding 5,245,359 5,336,654 5,051,667 5,048,372
=========== =========== =========== ============
See accompanying notes to consolidated financial statements
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NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Thirty-nine Thirty-nine
Weeks Ended Weeks Ended
December 23, December 25,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (8,494,080) $ (693,746)
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 3,721,162 3,334,248
Accretion of notes payable for value assigned to warrants 413,028 334,098
Other 70,147 (263,009)
Changes in operating assets and liabilities:
Merchandise inventory 4,168,303 (10,522,215)
Other assets 608,194 (1,143,377)
Accounts payable 3,829,197 18,821,877
Other liabilities and accrued expenses 903,369 1,662,640
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Net cash provided by operating activities 5,219,320 11,530,516
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (976,935) (8,585,577)
Other long term assets -- --
Amounts repaid by (loaned to) stockholders 25,875 78,933
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Net cash used in investing activities (951,060) (8,506,644)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt (104,502,966) (120,538,252)
Borrowings on revolving line of credit 104,602,681 122,322,504
Borrowings on note -- 250,000
Exercise of options -- 1,500
Purchases of treasury stock -- (8,360)
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Net cash provided by financing activities 99,715 2,027,392
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Net increase in cash and cash equivalents 4,367,975 5,051,264
Cash and cash equivalents, beginning of period 1,935,092 853,222
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Cash and cash equivalents, end of period $ 6,303,067 $ 5,904,486
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See accompanying notes to consolidated financial statements
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NATIONAL RECORD MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying interim consolidated financial statements of National Record
Mart, Inc. (the "Company") and subsidiary are unaudited. However, in the opinion
of management, they include all adjustments necessary for a fair presentation of
financial position, results of operations, and cash flows for the interim
periods. All adjustments made for the third quarter ended December 23, 2000 were
of a normal recurring nature. The results of operations for the third quarter
ended December 23, 2000 are not necessarily indicative of the results of
operations to be expected for the entire fiscal year ending March 31, 2001.
Additional information is contained in the Company's audited consolidated
financial statements for the year ended March 25, 2000, included in the
Company's Form 10K and should be read in conjunction with this quarterly report.
The Consolidated Financial Statements include the accounts of the Company and
its wholly owned subsidiary, National Record Mart Investments, Inc., a Delaware
holding company. All intercompany accounts and transactions have been eliminated
in consolidation.
NOTE 2 - SEASONALITY
The Company's business is seasonal in nature, with the highest sales and
earnings occurring in the third quarter of its fiscal year, which includes the
Christmas selling season.
NOTE 3 - INCOME TAXES
The Company provides for income taxes in interim periods on an estimated basis.
For the third quarter ended December 23, 2000 and December 25, 1999, the
effective income tax rate is 35% and 36%, respectively. Based on assessment of
all available evidence, including the fact that the Company is in a cumulative
loss position, management concluded that the deferred tax asset should be
reduced by a valuation allowance equal to the net deferred tax asset. A
valuation allowance of approximately $4.2 and $3.0 million was recorded in the
fourth quarter of fiscal 2000 and the first, second and third quarters of fiscal
2001, respectively.
NOTE 4 - REVOLVING CREDIT FACILITY
The Company has a revolving credit facility (the "Revolver") which expires on
June 10, 2003. The maximum borrowings under the Revolver are $35,000,000 and are
based upon eligible inventory levels as defined therein. During the months of
October through December 31 of each year, an overadvance in the amount of $1.5
million is available in addition to the borrowing base as calculated by levels
of inventory. The total borrowings under this facility shall not exceed the
limit of $35 million. The interest rate is the bank's borrowing rate (9.50% at
December 23, 2000) or Libor (6.66375% at December 23, 2000) plus 2.0%. The
Company is required to pay a monthly commitment fee of .25% per annum on the
unused portion of the Revolver and a monthly collateral monitoring fee of
$3,500. The Revolver also contains various financial and other covenants that
place restrictions or limitations on the Company and its subsidiary, the more
restrictive of which include: (i) maintenance of a number of financial
covenants, as defined, (ii) a restriction on dividends, and (iii) limitation on
capital expenditures. The Company received a waiver from its lender for the Cash
Flow covenant under the Revolver for the quarter ended December 23, 2000.
Borrowings are collateralized by substantially all assets of the Company,
including inventory, property and equipment.
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NATIONAL RECORD MART, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
NOTE 5 - SUBORDINATED DEBT
On April 16, 1998, the Company secured a private placement of $15,000,000 in
senior subordinated notes. The notes carry an interest rate of 11.75% payable
semi-annually and expire April 16, 2001. In consideration of the placement the
Company issued 400,000 common stock warrants with an exercise price of $0.01.
The Company has allocated $1,600,000 of value for accounting purposes to the
warrants, which has been recorded as a reduction of the $15,000,000. This
reduction will be accreted as additional interest expense over the term of the
note. The Company received a waiver for the Cash Flow covenant relating to the
subordinated debt for the quarter ended December 23, 2000. An aggregate
principal amount of $7,500,000 of the senior subordinated notes is
collateralized, on a basis subordinated to the revolver, by substantially all
the assets of the Company, including inventory, property and equipment.
NOTE 6 - ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No. 25
(APB 25), "Accounting for Stock Issued to Employees" and the related
interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123
(FASB 123), "Accounting for Stock-Based Compensation," requires the use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options is greater than the market price of the underlying stock
on the date of the grant, no compensation expense is recognized.
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included elsewhere in this
report and with the Company's audited consolidated financial statements and
notes thereto for the fiscal year ended March 25, 2000 ("fiscal 2000") included
in the Company's Form 10K.
RESULTS OF OPERATIONS
NET SALES: The Company's net sales decreased during the third quarter
ended December 23, 2000 of the Company's fiscal year ending March 31, 2001
("fiscal 2001") by $9.0 million or 18.4%, over the third quarter of fiscal 2000.
Net comparable store sales for the third quarter were down 16.1% or $7.5
million. The decrease in total sales is attributable to the 16.1% decrease in
comparable store sales. Sales for the thirty-nine weeks ended December 23, 2000
decreased $12.4 million or 11.3% compared to the thirty-nine weeks ended
December 25, 1999. Net comparable store sales for the thirty-nine weeks ended
December 23, 2000 decreased 11.1% or $11.6 million as compared to the same
period in the prior year. The comparative store sales decreases were primarily
due to an increase in competition of loss leader mass merchants in key market
areas.
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ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
GROSS PROFIT: Gross profit decreased $3.6 million or 19.0% from the
same quarter in the previous year. As a percentage of net sales, gross profit
decreased to 38.5% for the third quarter of fiscal 2001 from 38.8% in the third
quarter of fiscal 2000. Gross profit for the thirty-nine weeks ended December
23, 2000 was 36.9% as compared to 38.9% for the thirty-nine weeks ended December
25, 1999. The decrease in margin as a percentage of sales is related to the
continued shift of consumer preference from higher margin cassettes to lower
margin CD's and competitive shelf pricing.
EXPENSES: Selling, general and administrative (SG&A) expenses,
decreased $274,000 or 2.2% to $12.0 million during the third quarter of fiscal
2001 from $12.3 million in the third quarter of fiscal 2000. Expressed as a
percentage of sales, SG&A expenses increased to 30.3% for the third quarter
ending December 23, 2000 compared to 25.3% for the quarter ending December 25,
1999. For the thirty-nine weeks ended December 23, 2000, SG&A expenses decreased
$500,000 or 1.3% as compared to the same period of the prior year. Expressed as
a percentage of sales, SG&A expenses increased to 37.6% for the thirty-nine
weeks ended December 23, 2000 compared to 33.8% for the thirty-nine weeks ended
December 25, 1999. The increase as a percentage of sales is primarily
attributable to the decrease in comparable store sales of 16.1% for the quarter
and 11.1% for the thirty-nine weeks. The decrease in SG&A expenses is
attributable to personnel and operating costs.
Net interest expense increased $155,000 to $1,386,000 in the third quarter of
fiscal 2001 from $1,231,000 in the third quarter of fiscal 2000. The increase is
due to an increase in borrowings.
NET INCOME (LOSS): The Company had a net income of $603,000, or $0.12
per share, in the third quarter of fiscal 2001 compared to a net income of
$2,654,000 or $0.53 per share, in the same quarter of fiscal 2000. The net loss
for the thirty-nine weeks ended December 23, 2000 was ($8,494,000) or basic net
loss per share ($1.68) compared to ($694,000) or ($0.14) per share for the
thirty-nine weeks ended December 25, 1999. The increase in the net loss is
primarily attributable to the decrease in sales and gross margin and the effect
of recording a valuation allowance on the deferred tax asset in the first,
second and third quarters of fiscal 2001.
INCOME TAXES: The Company's effective tax rate in the third quarter of
fiscal 2001 and 2000 was 35% and 36%, respectively. The Company recorded a
valuation allowance in the fourth quarter of fiscal 2000 and the first, second
and third quarter of fiscal 2001 of approximately $4.2 and $3.0 million,
respectively. See Note 3 of notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 2001 and 2000 the Company had
net cash provided by operating activities of $5.2 million and $11.5 million,
respectively due to the cash loss from operations, more than offset by non-cash
charges to operations and changes in operating assets and liabilities.
The Company made capital expenditures during the first nine months of
fiscal 2001 of $977,000 relating to store equipment, fixtures and leaseholds for
one new store, and two remodels and expansions.
The Company has a five-year revolving credit facility (the "Revolver")
from an institutional lender, which expires June 10, 2003. Advances under the
Revolver bear interest at a floating rate equal to the lender's base rate (9.5%
at December 23, 2000) or Libor (6.66375% at December 23, 2000) plus 2.0%.
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ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On April 16, 1998 the Company completed a private placement of
$15,000,000 of senior subordinated notes to a group of institutional lenders.
The notes carry an interest rate of 11.75% payable semi-annually and are due on
April 16, 2001.
Management believes that cash flows from operations and amounts
available under the credit facilities will be sufficient to meet the Company's
current liquidity and capital needs at least through fiscal 2001 which ends
March 31, 2001. The Company's ability to meet its liquidity and capital needs
after March 31, 2001 will depend primarily upon its ability to refinance the
$15,000,000 of senior subordinated notes due April 16, 2001. There can be no
assurance that such refinancing will be effected.
Forward-Looking Statements. This quarterly report on Form 10-Q contains
certain forward-looking statements, as defined in the Private Securities
Litigation Reform Act of 1995, and information relating to the Company that are
based on the beliefs of the management of the Company as well as assumptions
made by and information currently available to the management of the Company.
Forward-looking statements can be identified by, among other things, the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "anticipates," "intends" or intentions. Accordingly, any
forward-looking statements included therein do not purport to be predictions of
future events or circumstances and may not be realized. Subsequent written and
oral forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by the cautionary
statements in this paragraph.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on Thursday
September 21, 2000 at 9:30 a.m. at the James H. Reed Building, 435
Sixth Avenue, 9th Floor, Pittsburgh, Pennsylvania at which time the
following matters were voted upon:
1. Six directors were voted on for appointment to the Board. All
six were appointed by virtue of the vote as follows:
William A. Teitelbaum 4,949,686 for 98,113 withheld
Theresa Carlise 4,953,225 for 94,574 withheld
Samuel S. Zacharias 4,958,086 for 89,713 withheld
Irwin B. Goldstein 4,957,786 for 90,013 withheld
Damian Georgino 4,958,486 for 89,313 withheld
David Lang 4,980,525 for 67,274 withheld
2 The appointment of Ernst & Young to audit the Company's
financial statement for the 2001 fiscal year was ratified by a
vote of 5,000,860 for; 43,614 against and 3,325 abstaining.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description Page No.
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10.13 Amendment to Employment Agreement dated as of
January 1, 2001 by and between National Record Mart,
Inc. and William A. Teitelbaum.
10.14 Amendment to Employment Agreement dated as of
December 30, 2000 by and between National Record
Mart, Inc. and Theresa Carlise.
10.15 Change in Control Agreement dated as of January 1,
2001 by and between National Record Mart, Inc. and
William A. Teitelbaum.
10.16 Change in Control Agreement dated as of January 1,
2001 by and between National Record Mart, Inc. and
Theresa Carlise.
11 Calculation of Net Income (Loss) Per Common
Share - For the thirteen and thirty-nine
weeks ended December 23, 2000 and
December 25, 1999 11
(b) Reports on Form 8-K:
There was one report on Form 8-K filed during the thirteen
weeks ended December 23, 2000. The date of report (date of
earliest event reported) was November 10, 2000. The report
disclosed, under Item 4 thereof, the resignation on November
10, 2000 of Ernst & Young LLP, the independent accountant
previously engaged as the principal accountant to audit the
financial statements of the registrant.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
NATIONAL RECORD MART, INC.
By: Theresa Carlise
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Theresa Carlise
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
Date: February 6, 2001
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