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<CAPTION>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the 1st quarter ended July 30, 1994 Commission File Number 1-7923
HANDLEMAN COMPANY
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1242806
- - ------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 KIRTS BOULEVARD, TROY, MICHIGAN 48084-5299 Area Code 810 362-4400
- - ---------------------------------------- ------------ ---------------------------------
(Address of principal executive offices) (Zip code) (Registrant's telephone number)
Indicate by checkmark 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 at least 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.
<S> <C> <C>
CLASS DATE SHARES OUTSTANDING
- - ------------------------------ ------------------ --------------------------------------------
Common Stock - $.01 Par Value September 2, 1994 33,530,155
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HANDLEMAN COMPANY
INDEX
PAGE NUMBER
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PART I - FINANCIAL INFORMATION
Consolidated Statement of Income . . . . . . . . . . . . . . . . 1
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Shareholders' Equity . . . . . . . . . 3
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . 5
Management's Discussion and Analysis of Operations . . . . . . . 6 - 7
PART II - OTHER INFORMATION AND SIGNATURES . . . . . . . . . . . . . 8
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HANDLEMAN COMPANY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(amounts in thousands except per share data)
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Three Months Ended
-----------------------------
July 3O, July 31,
1994 1993
------------ ------------
<S> <C> <C>
Net sales $212,464 $193,995
Direct product costs 161,448 148,536
------------ ------------
Gross profit 51,016 45,459
Selling, general and
administrative expenses 46,372 46,184
Amortization of acquisition
costs 1,723 2,344
Interest expense, net 1,457 1,499
------------ ------------
Income (loss) before income taxes 1,464 (4,568)
Income tax expense (benefit) 563 (1,800)
------------ ------------
Net income (loss) $901 ($2,768)
============ ============
Earnings (loss) per average common share
outstanding during the period $0.03 ($0.08)
============ ============
Average number of shares
outstanding during the period 33,471 33,315
============ ============
Dividends per share $0.11 $0.11
============ ============
The accompanying notes are an integral part of the consolidated financial statements.
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<TABLE>
<CAPTION>
HANDLEMAN COMPANY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(amounts in thousands except share data)
July 30, April 30,
1994 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $13,469 $10,568
Accounts receivable, less allowance of $19,565 at
July 30, 1994 and $19,613 at April 30, 1994
for gross profit impact of future returns 213,200 227,278
Merchandise inventories 238,672 234,594
Other current assets 4,426 4,936
----------- -----------
Total current assets 469,767 477,376
----------- -----------
Property and equipment:
Land 7,172 7,176
Buildings and improvements 44,101 44,056
Display fixtures 87,784 87,538
Equipment, furniture and other 43,665 40,940
Leasehold improvements 2,961 2,802
----------- -----------
185,683 182,512
Less accumulated depreciation and amortization 77,201 70,485
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108,482 112,027
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Other assets, net of allowances 53,431 51,595
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Total assets $631,680 $640,998
=========== ===========
LIABILITIES
Current liabilities:
Accounts payable $173,725 $197,676
Debt, current 31,000 32,200
Income taxes, currently payable 2,941 3,677
Accrued and other liabilities 27,537 27,674
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Total current liabilities 235,203 261,227
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Debt, non-current 95,247 76,364
Deferred income taxes 4,579 3,914
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value; 1,000,000 shares
authorized; none issued -- --
Common stock, $.01 par value; 60,000,000 shares
authorized; 33,530,000 and 33,411,000 shares issued at
July 30, 1994 and April 30, 1994, respectively 335 334
Paid-in capital 33,141 31,900
Foreign currency translation adjustment and other (7,061) (5,732)
Retained earnings 270,236 272,991
----------- -----------
Total shareholders' equity 296,651 299,493
----------- -----------
Total liabilities and shareholders' equity $631,680 $640,998
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
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<TABLE>
<CAPTION>
HANDLEMAN COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(amounts in thousands except per share data)
Three Months Ended July 30, 1994
-----------------------------------------------------------------------
Foreign
Common Stock Currency
----------------- Translation Total
Shares Paid-in Adjustment Retained Shareholders'
Issued Amount Capital and Other Earnings Equity
------ ------ ------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
April 30, 1994 33,411 $334 $31,900 ($5,732) $272,991 $299,493
Equity adjustment for
foreign currency
translation (87) (87)
Net income 901 901
Cash dividends,
$.11 per share (3,656) (3,656)
Common stock issued for
employee benefit plans 119 1 1,241 ($1,242) 0
------ ----- ------- --------- -------- -----------
July 30, 1994 33,530 $335 $33,141 ($7,061) $270,236 $296,651
====== ===== ======= ========= ======== ===========
The accompanying notes are an integral part of the consolidated financial statements.
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<TABLE>
<CAPTION>
HANDLEMAN COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
Three Months Ended
----------------------------
July 30, July 31,
1994 1993
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $901 ($2,768)
----------- -----------
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation 6,473 5,649
Amortization of acquisition costs 1,723 2,344
Amortization of video license advances 1,832 316
(Increase) decrease in assets:
Accounts receivable 14,078 (6,116)
Merchandise inventories (4,078) (4,356)
Other current assets 510 75
Other assets, net of allowances (373) (880)
Increase (decrease) in liabilities:
Accounts payable (23,951) (15,694)
Income taxes, currently payable (736) (5,811)
Deferred income taxes 665 (147)
Accrued and other liabilities (37) 729
----------- -----------
Total adjustments (3,894) (23,891)
----------- -----------
Net cash used by operating
activities (2,993) (26,659)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (4,619) (5,475)
Retirements of property and equipment 1,109 372
Video license advances (4,536) (3,263)
----------- -----------
Net cash used by investing activities (8,046) (8,366)
----------- -----------
Cash flows from financing activities:
Issuances of debt 233,650 141,969
Repayments of debt (215,967) (130,730)
Cash dividends (3,656) (3,675)
Other changes in shareholders' equity, net (87) (267)
----------- -----------
Net cash provided from financing
activities 13,940 7,297
----------- -----------
Net increase (decrease) in cash and
cash equivalents 2,901 (27,728)
Cash and cash equivalents at beginning
of period 10,568 57,306
Cash and cash equivalents at end of ----------- -----------
period $13,469 $29,578
=========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
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HANDLEMAN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of Management, the accompanying consolidated balance sheet
and consolidated statements of income, shareholders' equity and cash flows
contain all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company as of
July 30, 1994, and the results of operations and changes in cash flows
for the three months then ended. Because of the seasonal nature of the
Company's business, sales and earnings results for the three months ended
July 30, 1994 are not necessarily indicative of what the results will
be for the full year. The consolidated balance sheet as of April 30, 1994
is derived from the audited consolidated financial statements of the Company
included in the Company's 1994 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. Reference should also be made to the
Company's Form 10-K for the year ended April 30, 1994.
2. Certain prior period amounts have been reclassified to conform with
presentations adopted by the Company in the current year.
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HANDLEMAN COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Net sales for the first quarter ended July 30, 1994 increased 10% to $212.5
million, compared with $194.0 million for the first quarter ended July 31, 1993.
The $212.5 million represents the highest first quarter sales level in the
Company's history. Net income for the first quarter this year was $901,000 or
$.03 per share, compared to a net loss of $2,768,000 or a loss of $.08 per share
for the first quarter last year.
Music sales during the first quarter this year were $118.9 million versus $113.3
million for the first quarter last year, an increase of 5%. The higher music
sales level was attributable to increased compact disc (CD) sales of current
best sellers. For the first quarter this year CD sales were $60.5 million,
compared to $50.4 million for the same quarter last year. CDs now account for
51% of Handleman's music sales, compared to 44% during the first quarter last
year.
Video sales for the first quarter of fiscal 1995 increased 18% to $67.6 million
from $57.2 million for the same quarter last year. The increase in video sales
was primarily attributable to higher sales of direct to sell-through titles and
a reduction in customer returns. Direct to sell-through titles represent those
videos where sales expectations motivate movie studios to distribute product
directly to the sell-through channel simultaneously with distribution to the
rental channel.
Book sales were $14.1 million for the first quarter of fiscal 1995, compared to
$15.1 million for the first quarter last year, a decrease of 7%. The decrease
in book sales was primarily attributable to a reduction in the number of retail
departments serviced.
Personal computer software sales were $11.9 million this year, compared to $8.4
million last year, an increase of 42%. The increase in personal computer
software sales was primarily attributable to shipments of a Back-to-School
promotion to many of the software departments serviced by the Company.
The gross profit margin percentage for the first quarter this year was 24.0%,
compared to 23.4% for the first quarter last year. The increase in the gross
profit margin percentage was primarily attributable to sales of proprietary
products (i.e., certain video and personal computer software) where the Company
earns greater margins as a result of being the manufacturer as well as the
distributor.
-6-
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Selling, general and administrative (SG&A) expenses were $46.4 million for the
first quarter this year, compared to $46.2 million for the first quarter last
year. Since SG&A expenses were relatively level year-over-year even though sales
increased 10%, SG&A expenses as a percentage of net sales decreased to 21.8%
from 23.8%. This was the fourth consecutive fiscal quarter where the Company
achieved a year-over-year decrease in SG&A expenses as a percentage of net
sales.
Interest expense, net of interest income, for the first quarter this year and
last year was $1.5 million. Average borrowings were lower this year, offset by
an increase in the average interest rate.
The decrease in accounts receivable at July 30, 1994 compared to April 30, 1994
was attributable to the seasonally lower sales level in the first quarter this
year compared to the fourth quarter last year. The decrease in accounts payable
as of July 30, 1994 compared to April 30, 1994 resulted from reduced purchases
during the first quarter of fiscal 1995. The increase in debt, non-current at
July 30, 1994 compared to April 30, 1994 related to inventory financing
requirements.
-7-
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PART II - OTHER INFORMATION
Item 6. Exhibits or Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
SIGNATURES: Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
HANDLEMAN COMPANY
DATE: September 12, 1994 BY: /s/ Stephen Strome
------------------------------- --------------------------------
STEPHEN STROME
President and
Chief Executive Officer
DATE: September 12, 1994 BY: /s/ Richard J. Morris
------------------------------- --------------------------------
RICHARD J. MORRIS
Senior Vice President/Finance-
Chief Financial Officer and
Secretary
-8-
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<PAGE>
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<MULTIPLIER> 1,000
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<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> APR-29-1995
<PERIOD-START> MAY-01-1994
<PERIOD-END> JUL-30-1994
<CASH> 13469
<SECURITIES> 0
<RECEIVABLES> 213200
<ALLOWANCES> 0
<INVENTORY> 238672
<CURRENT-ASSETS> 469767
<PP&E> 185683
<DEPRECIATION> 77201
<TOTAL-ASSETS> 631680
<CURRENT-LIABILITIES> 235203
<BONDS> 95247
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0
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