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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 JUNE 29, 1996
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.
(Exact name of registrant as specified in its charter)
DELAWARE 11-2782687
(State or jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
507 FOREST AVENUE
CARNEGIE, PENNSYLVANIA 15106-2873
(Address of principal executive offices, including zip code)
(412-276-6200)
(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
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,
4,871,716 SHARES OUTSTANDING AS OF AUGUST 13, 1996
EXHIBIT INDEX ON PAGE 8.
THIS DOCUMENT CONSISTS OF 10 PAGES.
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NATIONAL RECORD MART, INC.
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets: June 29, 1996 (unaudited) and March 30, 1996 3
Statements of Operations: Thirteen Weeks Ended June 29, 1996
and June 24, 1995 (unaudited) 4
Statements of Cash Flows: Thirteen Weeks Ended June 29, 1996
and June 24, 1995 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Signature 9
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NATIONAL RECORD MART, INC.
CONSOLIDATED BALANCE SHEETS
June 29, March 30,
1996 1996
------------ ------------
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 715,266 $ 560,337
Merchandise inventory 37,151,985 35,352,623
Due from stockholder 396,163 388,071
Deferred income taxes 319,000 319,000
Refundable income taxes 1,107,000 1,107,000
Other current assets 2,026,812 1,298,990
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Total current assets 41,716,226 39,026,021
Property and equipment, at cost 20,760,082 20,503,860
Accumulated depreciation and amortization (11,189,618) (10,602,382)
------------ ------------
Property and equipment, net 9,570,464 9,901,478
Other assets:
Deferred income taxes 1,739,000 1,739,000
Long-term investments 262,884 488,704
Intangibles, net 1,209,572 1,246,434
Other 497,344 521,954
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Total other assets 3,708,800 3,996,092
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Total assets $ 54,995,490 $ 52,923,591
============ ============
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 14,874,924 $ 13,395,403
Other liabilities and accrued expenses 2,354,350 2,882,922
Current maturities of long-term debt 462,155 503,187
------------ ------------
Total current liabilities 17,691,429 16,781,512
Long-term debt:
Notes payable 200,255 258,415
Revolving credit facility 21,183,334 18,705,943
------------ ------------
Total long-term debt 21,383,589 18,964,358
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized,
none issued - -
Common stock, $.01 par value, 9,000,000 shares authorized, 5,037,916
shares issued at June 29, 1996 and March 30, 1996, 4,871,716
outstanding at June 29, 1996, and March 30, 1996 50,379 50,379
Additional paid-in capital 14,022,688 14,004,188
Retained earnings 2,214,047 3,489,796
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16,287,114 17,544,363
Less treasury stock, 166,200 shares (366,642) (366,642)
------------ ------------
Total stockholders' equity 15,920,472 17,177,721
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Total liabilities and stockholders' equity $ 54,995,490 $ 52,923,591
============ ============
See accompanying notes to consolidated financial statements
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NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Thirteen Thirteen
Weeks Ended Weeks Ended
June 29, June 24,
1996 1995
------------ -----------
Net sales $ 20,142,062 $19,017,356
Cost of sales 12,391,581 11,769,850
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Gross profit 7,750,481 7,247,506
Selling, general and administrative expenses 8,615,362 8,251,578
Depreciation and amortization 646,978 745,771
Interest expense 429,623 447,104
Interest income (8,832) (5,884)
Other expenses 60,708 91,356
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Total expenses 9,743,839 9,529,925
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Net loss before income taxes (1,993,358) (2,282,419)
Income tax benefit 717,609 821,671
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Net loss $ (1,275,749) $(1,460,748)
============ ===========
Net loss per share $(.26) $(.29)
============ ===========
Weighted average number of common shares
and common equivalent shares
outstanding 4,871,716 4,965,006
============ ===========
See accompanying notes to consolidated financial statements
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NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Thirteen Thirteen
Weeks Ended Weeks Ended
June 29, June 24,
1996 1995
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,275,749) $ (1,460,748)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 646,978 745,771
Other 18,500 25,676
Changes in operating assets and liabilities:
Merchandise inventory (1,799,362) (328,865)
Other assets (726,092) (466,788)
Accounts payable 1,479,521 1,545,217
Other liabilities and accrued expenses (528,572) (341,451)
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Net cash used in operating activities (2,184,776) (281,188)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (256,222) (459,811)
Other long term assets 225,820 (3,724)
Amounts loaned to/received from stockholders (8,092) 7,921
------------ ------------
Net cash used in investing activities (38,494) (455,614)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt (24,344,192) (23,537,514)
Borrowings on revolving line of credit 26,722,391 24,675,892
Purchases of treasury stock - (94,138)
------------ -----------
Net cash provided by financing activities 2,378,199 1,044,240
Net increase in cash and cash equivalents 154,929 307,438
Cash and cash equivalents, beginning of period 560,337 407,463
------------ -----------
Cash and cash equivalents, end of period $ 715,266 $ 714,901
============ ===========
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 first quarter ended June 29,
1996 were of a normal recurring nature. The results of operations for the first
quarter ended June 29, 1996 are not necessarily indicative of the results of
operations to be expected for the entire fiscal year ending March 29, 1997.
Additional information is contained in the Company's audited consolidated
financial statements for the year ended March 30, 1996, 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. The Company has historically operated at a loss in
the first quarter of its fiscal year.
NOTE 3 - INCOME TAXES
The Company provides for income taxes in interim periods on an estimated basis.
For the first quarter ended June 29, 1996 and June 24, 1995, the effective
income tax rate is 36%.
NOTE 4 - REVOLVING CREDIT FACILITY
Effective June 11, 1993, the Company obtained a five-year revolving credit
facility from a lender (the "Agreement"). The maximum borrowings under the
Agreement, as amended, are based upon eligible inventory as defined therein,
and may not exceed $22 million. The interest rate is the bank's borrowing rate
(8.25% at June 29, 1996) plus .50% or Libor (5.4375% at June 29, 1996) plus
2.75%. The Company is required to pay a monthly commitment fee at the rate of
.25% per annum on the unused portion of the revolving credit facility. Various
covenants in the Agreement require the Company, among other things, to maintain
certain financial ratios, including minimum tangible net worth and working
capital, and to limit capital expenditures, additional indebtedness, and to
prohibit dividend distributions.
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 - ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company adopted Financial Accounting Standards Board Statement No. 123
"Accounting for Stock-Based Compensation" ("Statement No. 123") in the first
quarter of fiscal 1997. In accordance with the provisions of "Statement No.
123", the Company has elected to continue to measure compensation cost under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and will prepare pro forma disclosures of net income and earnings
per share in its fiscal year end March 29, 1997 financial statements as if the
fair value-based method of accounting had been applied.
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 30, 1996 ("fiscal 1996") included
in the Company's Form 10K.
RESULTS OF OPERATIONS
NET SALES: The Company's net sales increased during the first quarter
(ended June 29, 1996) of the Company's fiscal year ending March 29, 1997
("fiscal 1997") by $1,125,000, or 5.9%, over the first quarter of fiscal 1996.
Net comparable stores sales for the first quarter were up 2.2% or $412,000. The
increase in total sales were attributable to 13 additional stores (net), opened
subsequent to the first quarter of fiscal 1996. The comparative store sales
increases were primarily due to the Company's focus on its' "It's the Stores"
strategy, a combination of improving customer service, overall store appeal,
quality of personnel through better training and more selective recruiting.
Another factor contributing to the increase in sales is an improvement in the
Company's management of its inventory, with an emphasis on buying deeper into
product lines to appeal to a larger demographic customer base.
GROSS PROFIT: Gross profit, expressed as a percentage of net sales,
increased to 38.5% for the first quarter of fiscal 1997 from 38.1% in the first
quarter of fiscal 1996. The increase in margin is primarily attributable to the
restructuring of the Company's pricing format.
EXPENSES: Selling, general and administrative (SG&A) expenses,
expressed as a percentage of net sales decreased to 42.8% during the first
quarter of fiscal 1997 from 43.4% in the first quarter of fiscal 1996. The
decrease expressed as a percentage of sales is partially a function of the
Company's implementation of a new wage control system and restructuring of
field personnel, as well as internal management.
Interest expense decreased to $429,623 in the first quarter of fiscal 1997 from
$447,104 in the first quarter of fiscal 1996. The decrease is due to the
decrease in interest rates during fiscal 1997 as the revolving line of credit
facility is tied to the bank's base rate which decreased from 9.0% at June 24,
1995 to 8.25% at June 29, 1996.
NET LOSS: The Company had a net loss of ($1,275,749), or ($0.26) per
share, in the first quarter of fiscal 1997 compared to net loss of ($1,460,748)
or ($0.29) per share, in the same quarter of fiscal 1996, the decrease of the
net loss is primarily attributable to the increase in sales at a higher gross
profit margin and the management of expenses.
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ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
INCOME TAXES: The Company's effective tax rate in the first quarter of
fiscal 1997 and 1996 was 36%.
As of June 29, 1996 the Company had net deferred tax assets of $2,058,000. The
Company may be required to earn approximately $5,717,000 of future taxable
income in order to realize the benefit of the net deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of fiscal 1997 and 1996 the Company had
net cash used by operating activities of $2,184,776 and $281,188, respectively
due to merchandise inventory purchasing.
The Company made capital expenditures during the first three months of
fiscal 1997 of $256,000, relating to upgrading the Company's Distribution
center, redeveloping store design and store equipment, fixtures and leaseholds
for one new store.
The Company has a five-year revolving credit facility (the "Revolver")
from an institutional lender. Advances under the Revolver bears interest at a
floating rate equal to the lender's base rate (8.25% at June 29, 1996) plus
.50% or Libor rate (5.4375% at June 29, 1996) plus 2.75%. Effective November 1,
1994 the interest rate under the Revolver was reduced 25 basis points to .50%
plus the lender's base rate. The alternate borrowing rate based on Libor was
reduced 50 basis points to 2.75% plus Libor.
Management believes that cash flows from operations and amounts available under
the Revolver will be sufficient to meet the Company's current liquidity and
capital needs at least through fiscal 1997.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT NO. DESCRIPTION PAGE NO.
11 Calculation of Net Loss Per
Common Share - For the thirteen weeks
ended June 29, 1996 and June 24, 1995 10
27 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the thirteen
weeks ended June 29, 1996.
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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: /s/ THERESA CARLISE
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Theresa Carlise
Senior Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
Date: AUGUST 13, 1996
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