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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 SEPTEMBER 27, 1997
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,
4,844,624 SHARES OUTSTANDING AS OF NOVEMBER 11, 1997
EXHIBIT INDEX ON PAGE 9.
THIS DOCUMENT CONSISTS OF 10 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: September 27, 1997 (unaudited) and March 29, 1997 3
Statements of Operations: Thirteen and Twenty-six Weeks Ended
September 27, 1997 (unaudited) and September 28, 1996 (unaudited) 4
Statements of Cash Flows: Twenty-six Weeks Ended September 27, 1997
(unaudited) and September 28, 1996 (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 4. Submission of Matters to a Vote of Security Holders 8-9
Item 6. Exhibits and Reports on Form 8-K 9
Signature 9
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NATIONAL RECORD MART, INC.
CONSOLIDATED BALANCE SHEETS
September 27, March 29,
1997 1997
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Assets (unaudited)
Current assets:
Cash and cash equivalents $ 526,816 $ 834,889
Merchandise inventory 45,470,962 37,510,462
Due from stockholder 406,479 370,725
Deferred income taxes 263,000 263,000
Refundable income taxes 1,507,812 1,523,139
Other current assets 2,524,483 1,205,309
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Total current assets 50,699,552 41,707,524
Property and equipment, at cost 23,801,606 23,037,427
Accumulated depreciation and amortization (13,813,449) (12,803,745)
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Property and equipment, net 9,988,157 10,233,682
Other assets:
Deferred income taxes 1,249,000 1,249,000
Long-term investments 262,884 262,884
Intangibles, net 1,025,259 1,098,984
Other 422,612 468,205
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Total other assets 2,959,755 3,079,073
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Total assets $ 63,647,464 $ 55,020,279
============= =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 22,259,344 $ 14,535,131
Other liabilities and accrued expenses 2,356,754 3,049,032
Current maturities of long-term debt 115,051 159,301
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Total current liabilities 24,731,149 17,743,464
Long-term debt:
Notes payable 21,056 34,803
Revolving credit facility 24,528,528 21,176,204
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Total long-term debt 24,549,584 21,211,007
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 September 27, 1997 and March 29, 1997, 4,844,624 outstanding
at September 27, 1997, and March 29, 1997 50,379 50,379
Additional paid-in capital 14,057,288 14,057,288
Retained earnings 690,048 2,389,125
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14,797,715 16,496,792
Less treasury stock, 193,292 shares (430,984) (430,984)
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Total stockholders' equity 14,366,731 16,065,808
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Total liabilities and stockholders' equity $ 63,647,464 $ 55,020,279
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See accompanying notes to consolidated financial statements
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NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Thirteen Thirteen Twenty-six Twenty-six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
----------- ----------- ----------- -------------
Net sales $23,690,788 $21,023,949 $44,703,736 $41,166,011
Cost of sales 14,723,878 12,941,545 27,699,215 25,333,126
----------- ----------- ----------- -----------
Gross profit 8,966,910 8,082,404 17,004,521 15,832,885
Selling, general and administrative expenses 8,981,528 8,604,064 17,416,392 17,219,426
Depreciation and amortization 691,910 657,602 1,402,964 1,304,580
Interest expense 487,602 459,281 948,777 888,904
Interest income (9,198) (8,110) (18,478) (16,942)
Other expenses (income) 51,416 65,991 (90,324) 126,699
----------- ----------- ----------- -----------
Total expenses 10,203,258 9,778,828 19,659,331 19,522,667
----------- ----------- ----------- -----------
Net loss before income taxes (1,236,348) (1,696,424) (2,654,810) (3,689,782)
Income tax benefit 445,086 610,712 955,733 1,328,321
----------- ----------- ----------- -----------
Net loss $ (791,262) $(1,085,712) (1,699,077) (2,361,461)
=========== =========== =========== ===========
Net loss per share $ (0.16) $ (0.22) $ (0.35) $ (0.49)
=========== =========== =========== ===========
Weighted average number of common shares
and common equivalent shares
outstanding 4,844,624 4,871,716 4,844,624 4,835,308
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
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NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Twenty-six Twenty-six
Weeks Ended Weeks Ended
September 27, September 28,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,699,077) $ (2,361,461)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,402,964 1,304,580
Other 32,093 37,000
Changes in operating assets and liabilities:
Merchandise inventory (7,960,500) (4,952,403)
Other assets (1,246,794) (641,232)
Accounts payable 7,724,213 4,468,677
Other liabilities and accrued expenses (698,713) (710,969)
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Net cash used in operating activities (2,445,814) (2,855,808)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,090,537) (868,670)
Other long term assets (30,295) 209,529
Amounts (loaned to) received from stockholders (35,754) 18,416
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Net cash used in investing activities (1,156,586) (640,725)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt (53,207,997) (49,328,044)
Borrowings on revolving line of credit 56,502,324 52,328,827
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Net cash provided by financing activities 3,294,327 3,000,783
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Net decrease in cash and cash equivalents (308,073) (495,750)
Cash and cash equivalents, beginning of period 834,889 560,337
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Cash and cash equivalents, end of period $ 526,816 $ 64,587
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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 second quarter ended September 27, 1997
were of a normal recurring nature. The results of operations for the second
quarter ended September 27, 1997 are not necessarily indicative of the results
of operations to be expected for the entire fiscal year ending March 28, 1998.
Additional information is contained in the Company's audited consolidated
financial statements for the year ended March 29, 1997, 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 second quarter ended September 27, 1997 and September 28, 1996, 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 are based upon eligible inventory as defined therein, and may not
exceed $26 million. The interest rate is the bank's borrowing rate (8.50% at
September 27, 1997) plus .50% or Libor (5.6563% at September 27, 1997) 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, limit capital expenditures and 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 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. 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 29, 1997 ("fiscal 1997") included
in the Company's Form 10K.
RESULTS OF OPERATIONS
NET SALES: The Company's net sales increased during the second quarter
(ended September 27, 1997) of the Company's fiscal year ending March 28, 1998
("fiscal 1998") by $2.7 million, or 12.7%, over the second quarter of fiscal
1997. Net comparable store sales for the second quarter were up 15.6% or $3.1
million. The increase in total sales were attributable to the 15.6% increase in
same store sales, partially offset by having two less stores than in the second
quarter of fiscal 1997. Sales for the twenty-six weeks ended September 27, 1997
increased $3.5 million or 8.6%. Net comparable store sales for the twenty-six
weeks ended September 27, 1997 were up 10.8% or $4.1 million compared to the
twenty-six weeks ended September 28, 1996. The comparative store sales increases
were primarily due to the increased performance of stores renovated in the prior
year, increase in product selection, the Company's marketing efforts and
consumer demand.
GROSS PROFIT: While gross profit increased $0.9 million or 10.9% from
the same quarter in the previous year, as a percentage of net sales, gross
profit decreased to 37.8% for the second quarter of fiscal 1998 from 38.4% in
the second quarter of fiscal 1997. Gross profit for the twenty-six weeks ended
September 27, 1997 was 38.0% compared to 38.5% for the twenty-six weeks ended
September 28, 1996. The decrease in gross profit as a percentage of sales is
related to the continued shift from sales of higher margin cassettes to lower
margin compact discs.
EXPENSES: Selling, general and administrative (SG&A) expenses, expressed
as a percentage of net sales, decreased to 37.9% or $9.0 million during the
second quarter of fiscal 1998 from 40.9% or $8.6 million in the second quarter
of fiscal 1997. SG&A expenses, expressed as a percentage of sales decreased to
39.0% for the twenty six weeks ended September 27, 1997 from 41.8% for the
twenty six weeks ended September 28, 1996. The decrease expressed as a
percentage of sales is attributable to the closing of under-performing stores
and comparable store sales increases.
Interest expense increased to $487,602 in the second quarter of fiscal 1998
from $459,281 in the second quarter of fiscal 1997. The increase is due to an
increase in borrowings, as the Company's revolving line of credit increased to
$24.5 million from $21.9 million for the same period in the prior year.
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ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NET LOSS: The Company had a net loss of ($0.8) million, or ($0.16) per
share, in the second quarter of fiscal 1998 compared to a net loss of ($1.1)
million, or ($0.22) per share, in the same quarter of fiscal 1997. The net loss
for the twenty-six weeks ended September 27, 1997 was ($1.7) million, or ($0.35)
per share, compared to ($2.4) million, or ($0.49) per share, for the twenty-six
weeks ended September 28, 1996. The reduction of the net loss is primarily
attributable to the increase in comparative store sales and the closing of
underperforming stores.
INCOME TAXES: The Company's effective tax rate in the second quarter of
fiscal 1998 and 1997 was 36%.
As of September 27, 1997 the Company had net deferred tax assets of $1,512,000.
The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income and the taxable income in the three previous tax years
to which tax loss carrybacks can be applied. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, taxable
income in the carryback period, and tax planning strategies in making this
assessment. Management believes it is more likely than not that the Company will
realize the benefits of those deductible differences. The amount of the deferred
tax asset considered realizable could be reduced if estimates of future taxable
income during the carryforward period are reduced.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 1998 and 1997 the Company had net
cash used by operating activities of $2.4 million and $2.9 million, due
primarily to its net loss and increases in operating assets in excess of
operating liabilities.
The Company made capital expenditures during the first six months of
fiscal 1998 of $1.1 million, relating to store equipment, fixtures and
leaseholds for five new stores as well as for one expansion and one relocation.
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 (8.50% at September 27, 1997) plus
.50% or Libor rate (5.6563% at September 27, 1997) plus 2.75%.
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 1998.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on Wednesday
September 17, 1997 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:
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1. Five directors were voted on for appointment to the Board.
All five were appointed by virtue of the vote as follows:
William A. Teitelbaum 4,713,030 for 38,695 against
Theresa Carlise 4,710,680 for 41,045 against
Larry K. Mundorf 4,721,530 for 30,195 against
Samuel S. Zacharias 4,721,530 for 30,195 against
Irwin B. Goldstein 4,721,530 for 30,195 against
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description Page No.
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11 Calculation of Net Loss Per Common
Share - For the thirteen and twenty-six
weeks ended September 27, 1997 and
September 28, 1996 10
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the thirteen
weeks ended September 27, 1997.
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: November 11, 1997
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