UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
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 28, 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,
4,844,624 SHARES OUTSTANDING AS OF NOVEMBER 11, 1996
EXHIBIT INDEX ON PAGE 9.
THIS DOCUMENT CONSISTS OF 10 PAGES.
NATIONAL RECORD MART, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets: September 28, 1996 (unaudited) and March 30, 1996 3
Statements of Operations: Thirteen and Twenty-six Weeks Ended
September 28, 1996 and September 23, 1995 (unaudited) 4
Statements of Cash Flows: Twenty-six Weeks Ended September 28, 1996
and September 23, 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 4. Submission of Matters to a Vote of Security Holders 8-9
Item 6. Exhibits and Reports on Form 8-K 9
Signature 9
</TABLE>
2
NATIONAL RECORD MART, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 28, March 30,
1996 1996
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 64,587 $ 560,337
Merchandise inventory 40,305,026 35,352,623
Due from stockholder 369,655 388,071
Deferred income taxes 319,000 319,000
Refundable income taxes 335,086 1,107,000
Other current assets 2,650,460 1,298,990
Total current assets 44,043,814 39,026,021
Property and equipment, at cost 21,372,530 20,503,860
Accumulated depreciation and amortization (11,787,478) (10,602,382)
Property and equipment, net 9,585,052 9,901,478
Other assets:
Deferred income taxes 1,739,000 1,739,000
Long-term investments 262,884 488,704
Intangibles, net 1,172,709 1,246,434
Other 489,820 521,954
Total other assets 3,664,413 3,996,092
Total assets $ 57,293,279 $ 52,923,591
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 17,864,080 $ 13,395,403
Other liabilities and accrued expenses 2,171,953 2,882,922
Current maturities of long-term debt 420,377 503,187
Total current liabilities 20,456,410 16,781,512
Long-term debt:
Notes payable 123,181 258,415
Revolving credit facility 21,924,770 18,705,943
Total long-term debt 22,047,951 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, and
4,844,624 shares and 4,871,716 shares
outstanding at September 28, 1996, and
March 30, 1996, respectively. 50,379 50,379
Additional paid-in capital 14,041,188 14,004,188
Retained earnings 1,128,335 3,489,796
15,219,902 17,544,363
Less treasury stock, 193,292 shares
and 166,200, respectively (430,984) (366,642)
Total stockholders' equity 14,788,918 17,177,721
Total liabilities and stockholders' equity $ 57,293,279 $ 52,923,591
See accompanying notes to consolidated financial statements
</TABLE>
3
NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
September 28, September 23, September 28, September 23,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $21,023,949 $20,864,928 $41,166,011 $39,882,284
Cost of sales 12,941,545 12,964,095 25,333,126 24,733,945
Gross profit 8,082,404 7,900,833 15,832,885 15,148,339
Selling, general and
administrative expenses 8,604,064 8,381,851 17,219,426 16,633,429
Depreciation and
amortization 657,602 746,907 1,304,580 1,492,678
Interest expense 459,281 399,867 888,904 846,971
Interest income (8,110) (8,211) (16,942) (14,095)
Other expenses 65,991 93,590 126,699 184,946
Total expenses 9,778,828 9,614,004 19,522,667 19,143,929
Net loss before
income taxes (1,696,424) (1,713,171) (3,689,782) (3,995,590)
Income tax benefit 610,712 616,741 1,328,321 1,438,412
Net loss $(1,085,712) $(1,096,430) $(2,361,461) $(2,557,178)
Net loss per share $ (.22) $ (.22) $ (.49) $ (.52)
Weighted average number of common
shares and common equivalent
shares outstanding 4,838,495 4,957,216 4,835,308 4,961,111
See accompanying notes to consolidated financial statements
</TABLE>
4
NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Twenty Six Twenty Six
Weeks Ended Weeks Ended
September 28, September 23,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net loss $ (2,361,461) $ (2,557,178)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,304,580 1,492,678
Loss from disposal of property and equipment - 5,304
Other 37,000 57,081
Changes in operating assets and liabilities:
Merchandise inventory (4,952,403) (4,138,246)
Refundable income taxes and other assets (641,232) (425,715)
Accounts payable 4,468,677 6,798,600
Other liabilities and accrued expenses (710,969) (478,196)
Net cash (used in) provided by operating activities(2,855,808) 754,328
Cash flows from investing activities
Purchase of property and equipment (868,670) (892,326)
Other long term assets 209,529 256,092
Amounts received from (advanced to) stockholders 18,416 (80,617)
Net cash used in investing activities (640,725) (716,851)
Cash flows from financing activities
Payments on debt (49,328,044) (48,511,849)
Borrowings on revolving line of credit 52,328,827 48,532,714
Purchases of treasury stock - (94,138)
Net cash provided by (used in) financing activities 3,000,783 (73,273)
Net decrease in cash and cash equivalents (495,750) (35,796)
Cash and cash equivalents, beginning of period 560,337 407,463
Cash and cash equivalents, end of period $ 64,587 $ 371,667
See accompanying notes to consolidated financial statements
</TABLE>
5
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 28, 1996 were of a normal recurring nature. The results of
operations for the second quarter ended September 28, 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.
NOTE 3 - INCOME TAXES
The Company provides for income taxes in interim periods on an estimated
basis. For the second quarter ended September 28, 1996 and September 23,
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 on October 17, 1996, are based upon eligible inventory
as defined therein, and may not exceed $26 million. The interest rate is the
bank's borrowing rate (8.25% at September 28, 1996) plus .50% or Libor
(5.4375% at September 28, 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, limit new store openings, additional indebtedness, and
to prohibit dividend distributions.
Borrowings are collateralized by substantially all assets of the Company,
including inventory, property and equipment.
6
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 second quarter
(ended September 28, 1996) of the Company's fiscal year ending March 29, 1997
("fiscal 1997") by $159,000, or .76%, over the second quarter of fiscal 1996.
Net comparable stores sales for the second quarter were up .57% or $113,000.
The increase in total sales were attributable to 3 additional stores (net),
opened subsequent to the second quarter of fiscal 1996. Sales for the twenty
six weeks ended September 28, 1996 increased $1.3 or 3.22%. Net comparable
store sales for the twenty six weeks ended were up 1.36% or $525,000 compared
to the twenty six weeks ended September 23, 1995. The Company believes that
its continued focus on its core stores and limiting growth is contributing to
the increase in comparable store sales.
GROSS PROFIT: Gross profit, expressed as a percentage of net sales,
increased to 38.4% for the second quarter of fiscal 1997 from 37.9% in the
second quarter of fiscal 1996. Gross profit for the twenty six weeks ended
September 28, 1996 was 38.5% compared to 38.0% for the twenty six weeks ended
September 23, 1995. The increase in margin for the quarter and twenty six
weeks 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 increased slightly to 40.9% or $8.6 million during
the second quarter of fiscal 1997 from 40.2% or $8.4 million in the second
quarter of fiscal 1996. SG&A expenses for the twenty six weeks ended
September 28, 1996 increased to 41.8% or $17.2 million compared to 41.7% or
$16.6 million for the twenty six weeks ending September 23, 1995. This
slight change is related to three additional stores (net) and marginal cost
increases at the corporate level.
Interest expense increased slightly to $459,000 in the second quarter of
fiscal 1997 from $400,000 in the second quarter of fiscal 1996. The
increase is due to the increase in borrowings to $21.9 million fiscal 1997
from $19.0 million in fiscal 1996 as the revolving line of credit facility is
tied to the bank's base rate. This increase in the lending facility was
offset by the reduction of the bank's base rate at September 28, 1996 to
8.25% from 9.0% at September 23, 1995.
7
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NET LOSS: The Company had a net loss of ($1,086,000), or ($0.22) per share,
in the second quarter of fiscal 1997 compared to a net loss of ($1,096,000)
or ($0.22) per share, in the same quarter of fiscal 1996. The net loss for
the twenty six weeks ended September 28, 1996 was ($2,361,000) or ($.49) per
share, compared to ($2,557,000) or ($.52) per share for the twenty six weeks
ended September 23, 1995. The decreases being primarily attributable to the
increase in sales at a higher gross profit margin, which were partially
offset by an increase in selling, general and administrative expenses.
INCOME TAXES: The Company's effective tax rate in the first quarter of
fiscal 1997 and 1996 was 36%.
As of September 28, 1996 the Company had net deferred tax assets of
$2,058,000. The Company may be required to earn approximately $6,053,000 of
future taxable income in order to realize the benefit of the net deferred
tax assets.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of fiscal 1997 the Company had net cash used in
operating activities of $2,856,000, 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
1997 of $868,670, relating to upgrading the Company's Distribution center,
redeveloping store design and store equipment, fixtures and leaseholds for
three new stores.
The Company has a revolving credit facility (the "Revolver") from an
institutional lender which expires in June of 1998. Advances under the
Revolver bears interest at a floating rate equal to the lender's base rate
(8.25% at September 28, 1996) plus .50% or Libor rate (5.4375% at September
28, 1996) plus 2.75%. On October 17, 1996 the Company's revolving credit
facility was increased to $26 million from $22 million. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on Wednesday September
18, 1996 at 9:30 a.m. at PNC Plaza, Fifth and Wood Street, 16th Floor,
Pittsburgh, Pennsylvania at which time the following matters were voted upon:
1. Four directors were voted on for reappointment to the Board. All four
were appointed by virtue of the vote as follows:
William A. Teitelbaum 4,514,260 for 26,625 against
Theresa Carlise 4,514,260 for 26,625 against
Samuel S. Zacharais 4,514,260 for 26,625 against
Irwin B. Goldstein 4,514,260 for 26,625 against
8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
2. Resolution approving the appointment of Ernst & Young LLP to serve as the
independent auditors for the Company for the fiscal year ended March 29,
1997 received 4,519,285 votes for such appointment. Shares voted against
the appointment totaled 18,800 and 2,800 abstained from the vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a) Exhibits:
EXHIBIT NO. DESCRIPTION PAGE NO.
11 Calculation of Net Loss Per
Common Share - For the thirteen and
twenty six weeks ended September 28,
1996 and September 23, 1995 10
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the thirteen weeks
ended September 28, 1996.
</TABLE>
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
Theresa Carlise
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
Date: November 11, 1996
9
Exhibit 11
Page 1 of 1
NATIONAL RECORD MART, INC.
CALCULATION OF NET LOSS PER COMMON SHARE
FOR THE THIRTEEN AND TWENTY SIX WEEKS ENDED
SEPTEMBER 28, 1996 AND SEPTEMBER 23, 1995
Net Loss Per Common Share
The computation of weighted average common shares and equivalents outstanding
for the periods presented is as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty six Weeks Ended
September 28, September 23, September 28, September 23,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 4,838,495 4,957,216 4,835,308 4,961,111
Common Stock Equivalents
which are dilutive * * * *
Treasury stock assumed to
be repurchased using
proceeds from options and
warrants - - - -
Weighted average common
shares and equivalents
outstanding 4,838,495 4,957,216 4,835,308 4,961,111
Net loss ($1,085,712) ($1,096,430) ($2,361,461) ($2,557,178)
Net loss per share ($0.22) ($0.22) ($0.49) ($0.52)
</TABLE>
* Shares not included in calculation as the effects of such shares would
be anti-dilutive.
10
