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 DECEMBER 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 FEBRUARY 11, 1997
EXHIBIT INDEX ON PAGE 9.
THIS DOCUMENT CONSISTS OF 10 PAGES.
NATIONAL RECORD MART, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets: December 28, 1996 (unaudited)
and March 30, 1996 3
Statements of Operations: Thirteen and Thirty-nine Weeks Ended
December 28, 1996 and December 23, 1995 (unaudited) 4
Statements of Cash Flows: Thirty-nine Weeks Ended
December 28, 1996 and December 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 6. Exhibits and Reports on Form 8-K 9
Signature 9
</TABLE>
2
NATIONAL RECORD MART, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 28, March 30,
1996 1996
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,733,350 $ 560,337
Merchandise inventory 42,352,844 35,352,623
Due from stockholder 380,760 388,071
Deferred income taxes 319,000 319,000
Refundable income taxes 311,650 1,107,000
Other current assets 1,666,572 1,298,990
Total current assets 46,764,176 39,026,021
Property and equipment, at cost 22,929,779 20,503,860
Accumulated depreciation and amortization (12,414,675) (10,602,382)
Property and equipment, net 10,515,104 9,901,478
Other assets:
Deferred income taxes 1,739,000 1,739,000
Long-term investments 262,884 488,704
Intangibles, net 1,135,846 1,246,434
Other 483,096 521,954
Total other assets 3,620,826 3,996,092
Total assets $ 60,900,106 $ 52,923,591
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 27,166,811 $ 13,395,403
Other liabilities and accrued expenses 4,384,514 2,882,922
Current maturities of long-term debt 216,696 503,187
Total current liabilities 31,768,021 16,781,512
Long-term debt:
Notes payable 44,153 258,415
Revolving credit facility 11,819,213 18,705,943
Total long-term debt 11,863,366 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 December 28, 1996,
and March 30, 1996, respectively. 50,379 50,379
Additional paid-in capital 14,059,688 14,004,188
Retained earnings 3,589,636 3,489,796
17,699,703 17,544,363
Less treasury stock, 193,292 shares
and 166,200, respectively (430,984) (366,642)
Total stockholders' equity 17,268,719 17,177,721
Total liabilities and stockholders' equity $ 60,900,106 $ 52,923,591
</TABLE>
See accompanying notes to consolidated financial statements
3
NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
December 28, December 23, December 28, December 23,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $35,958,708 $33,857,128 $77,124,719 $73,739,412
Cost of sales 22,601,490 21,996,927 47,934,616 46,730,872
Gross profit 13,357,218 11,860,201 29,190,103 27,008,540
Selling, general and administrative expenses 8,561,684 7,971,944 25,781,110 24,605,373
Depreciation and amortization 699,842 790,072 2,004,422 2,282,750
Interest expense 466,454 444,115 1,355,358 1,291,086
Interest income (8,548) (9,637) (25,490) (23,732)
Other (income) expense (207,997) 128,657 (81,298) 313,603
Total expenses 9,511,435 9,325,151 29,034,102 28,469,080
Net income (loss) before income taxes 3,845,783 2,535,050 156,001 (1,460,540)
Income tax (expense) benefit (1,384,482) (912,618) (56,161) 525,794
Net income (loss) $2,461,301 $1,622,432 $ 99,840 $ (934,746)
Net income (loss) per share $ .49 $ .32 $ .02 $ (.19)
Weighted average number of common shares
and common equivalent shares outstanding 5,030,802 5,145,802 5,032,461 4,959,549
</TABLE>
See accompanying notes to consolidated financial statements
4
NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Thirty Nine Thirty Nine
Weeks Ended Weeks Ended
December 28, December 23,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 99,840 $ (934,746)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 2,004,422 2,282,750
Loss from disposal of property and equipment 8,104 21,216
Other (219,500) 91,349
Changes in operating assets and liabilities:
Merchandise inventory (7,000,221) (5,080,617)
Refundable income taxes and other assets 376,026 (205,142)
Accounts payable 13,771,408 15,764,595
Other liabilities and accrued expenses 1,501,592 1,564,417
Net cash provided by operating activities 10,541,671 13,503,822
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,454,399) (3,264,510)
Other long term assets 190,913 207,610
Amounts received from (advanced to) stockholder 7,311 (63,577)
Net cash used in investing activities (2,256,175) (3,120,477)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt (89,005,753) (82,731,424)
Borrowings on debt 81,893,270 76,235,375
Purchases of treasury stock - (153,897)
Net cash used in financing activities (7,112,483) (6,649,946)
Net increase in cash and cash equivalents 1,173,013 3,733,397
Cash and cash equivalents, beginning of period 560,337 407,463
Cash and cash equivalents, end of period $ 1,733,350 $ 4,140,860
</TABLE>
See accompanying notes to consolidated financial statements
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 third quarter ended
December 28, 1996 were of a normal recurring nature. The results of
operations for the third quarter ended December 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 third quarter ended December 28, 1996 and December 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 December 28, 1996) plus .50%, or Libor
(5.5625% at December 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 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 third quarter
(ended December 28, 1996) of the Company's fiscal year ending March 29, 1997
("fiscal 1997") by $2,102,000, or 6.21%, over the third quarter of fiscal
1996. Net comparable stores sales for the third quarter were up 5.75% or
$1,881,000. Sales for the thirty nine weeks ended December 28, 1996
increased $3.4 million or 4.59%. Net comparable store sales for the thirty
nine weeks ended December 28, 1996 were up 3.37% or $2.4 million compared to
the thirty nine weeks ended December 22, 1995. The Company believes that
comparable and total store sales gains for the quarter and thirty nine weeks,
can be in part attributable to the Company's strategy to capture additional
market share by increasing its emphasis on customer service and broadening
its inventory selection to appeal to the more mature demographics.
GROSS PROFIT: Gross profit, expressed as a percentage of net sales,
increased to 37.1% for the third quarter of fiscal 1997 from 35.0% in the
third quarter of fiscal 1996. Gross profit for the thirty nine weeks ended
December 28, 1996 was 37.8% compared to 36.6% for the thirty nine weeks ended
December 23, 1995. The increase in margin for the quarter and thirty-nine
weeks reflects in part the Company's efforts to realign its shelf pricing
format in many of its stores and shift the music inventory mix in favor of
catalog product which typically carries higher profit margins.
EXPENSES: Selling, general and administrative (SG&A) expenses increased
to $8.6 million or 23.8%, expressed as a percentage of net sales, during the
third quarter of fiscal 1997 from $8.0 million or 23.5% in the third quarter
of fiscal 1996. SG&A expenses for the thirty nine weeks ended December 28,
1996 increased to $25.8 million or 33.4% compared to $24.6 million or 33.4%
for the thirty nine weeks ending December 23, 1995. The increases for the
quarter and the thirty nine weeks are primarily attributable to planned
occupancy and presonnel related expenses.
7
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Interest expense increased to $466,000 in the third quarter of fiscal 1997
from $444,000 in the third quarter of fiscal 1996. The increase is due to
the increase in the average daily revolving line balance for the third
quarter of fiscal 1997, $21.2 million, compared to the average daily
revolving line balance of $18.5 million in fiscal 1996.
NET INCOME: The Company had net income of $2,461,000, or $0.49 per share,
in the third quarter of fiscal 1997 compared to net income of $1,622,000 or
$0.32 per share, in the same quarter of fiscal 1996. The net income for the
thirty nine weeks ended December 28, 1996 was $100,000 or $0.02 per share,
compared to ($935,000) or ($0.19) per share for the thirty nine weeks ended
December 23, 1995. The improvements in earnings per share are a reflection
of the increase in sales at a higher gross profit margin, partially offset by
an increase in selling, general and administrative expenses.
INCOME TAXES: The Company's effective tax rate in the third quarter of
fiscal 1997 and 1996 was 36%.
As of December 28, 1996 the Company had deferred tax assets of approximately
$2,300,000. The Company may need to earn approximately $6,765,000 of future
taxable income in order to realize the benefit of the net deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net cash provided by operating activities for the nine
months of fiscal 1997 of $10.5 million, due primarily to its net income,
depreciation and increases in operating liabilities in excess of operating
assets.
The Company made capital expenditures during the first nine months of fiscal
1997 of $2.5 million, which included upgrades to the Distribution Center,
installing new merchandising graphics and fixtures in the stores, development
and implementation of a new store design, and leasehold improvements for 6
new, 4 relocated and 2 remodeled units.
The Company has a revolving credit facility (the "Revolver") from an
institutional lender which expires in June of 1998. Advances under the
Revolver bear interest at a floating rate equal to the lender's base rate
(8.25% at December 28, 1996) plus .50%, or Libor rate (5.5625% at December
28, 1996) plus 2.75%. On October 17, 1996 the Company's revolving credit
facility was increased to $26 million from $22 million.
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.
8
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a) Exhibits:
Exhibit No. Description Page No.
11 Calculation of Net Income (Loss) Per Common
Share - For the thirteen and thirty nine weeks
ended December 28, 1996 and December 23, 1995 10
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the thirteen weeks
ended December 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: February 11, 1997
9
Exhibit 11
Page 1 of 1
NATIONAL RECORD MART, INC.
CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
FOR THE THIRTEEN AND THIRTY NINE WEEKS DECEMBER 28, 1996
AND DECEMBER 23, 1995
NET INCOME (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 Thirty Nine Weeks Ended
December 28, December 23, December 28, December 23,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 4,844,624 4,956,425 4,844,624 4,959,549
Common Stock Equivalents
which are dilutive 200,000 200,000 200,000 - *
Treasury stock assumed to
be repurchased using
proceeds from options and
warrants (13,822) (10,623) (12,163) -
Weighted average common
shares and equivalents
outstanding 5,030,802 5,145,802 5,032,461 4,959,549
Net income (loss) $2,461,301 $1,622,432 $99,840 ($934,746)
Net income (loss) per share $0.49 $0.32 $0.02 ($0.19)
</TABLE>
* Shares not included in calculation as the effects of such shares would be
anti-dilutive.
10
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000904535
<NAME> NATIONAL RECORD MART
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> DEC-28-1996
<CASH> 1,733,350
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 42,352,844
<CURRENT-ASSETS> 46,764,176
<PP&E> 22,929,779
<DEPRECIATION> 12,414,675
<TOTAL-ASSETS> 60,900,106
<CURRENT-LIABILITIES> 31,768,021
<BONDS> 0
0
0
<COMMON> 50,379
<OTHER-SE> 17,218,340
<TOTAL-LIABILITY-AND-EQUITY> 60,900,106
<SALES> 77,124,719
<TOTAL-REVENUES> 77,124,719
<CGS> 47,934,616
<TOTAL-COSTS> 47,934,616
<OTHER-EXPENSES> 27,678,744
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,355,358
<INCOME-PRETAX> 156,001
<INCOME-TAX> 56,161
<INCOME-CONTINUING> 99,840
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99,840
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
