<PAGE>
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 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 FEBRUARY 10, 1998
EXHIBIT INDEX ON PAGE 10.
THIS DOCUMENT CONSISTS OF 11 PAGES.
<PAGE>
NATIONAL RECORD MART, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheets: December 27, 1997 (unaudited) and March 29, 1997 3
Statements of Operations: Thirteen and Thirty-nine Weeks Ended
December 27, 1997 (unaudited) and December 28, 1996 (unaudited) 4
Statements of Cash Flows: Thirty-nine Weeks Ended December 27,1997
(unaudited) and December 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 7-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signature 10
<PAGE>
<TABLE>
NATIONAL RECORD MART, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 27, March 29,
1997 1997
------------- -----------
<S> <C> <C>
Assets (unaudited)
Current assets:
Cash and cash equivalents $ 1,845,895 $ 834,889
Merchandise inventory 43,639,636 37,510,462
Due from stockholder 412,642 370,725
Deferred income taxes 263,000 263,000
Refundable income taxes 1,507,812 1,523,139
Other current assets 1,769,755 1,205,309
----------- -----------
Total current assets 49,438,740 41,707,524
Property and equipment, at cost 24,712,505 23,037,427
Accumulated depreciation and amortization (14,449,579) (12,803,745)
----------- -----------
Property and equipment, net 10,262,926 10,233,682
Other assets:
Deferred income taxes 1,249,000 1,249,000
Long-term investments 262,884 262,884
Intangibles, net 988,396 1,098,984
Other 422,503 468,205
----------- -----------
Total other assets 2,922,783 3,079,073
----------- -----------
Total assets $62,624,449 $55,020,279
=========== ===========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $26,748,569 $14,535,131
Income Taxes Payable 733,341 -
Other liabilities and accrued expenses 4,467,475 3,049,032
Current maturities of long-term debt 108,877 159,301
----------- -----------
Total current liabilities 32,058,262 17,743,464
Long-term debt:
Notes payable 16,727 34,803
Revolving credit facility 13,298,344 21,176,204
----------- -----------
Total long-term debt 13,315,071 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
December 27, 1997 and March 29, 1997,
4,844,624 outstanding at December 27, 1997,
and March 29, 1997 50,379 50,379
Additional paid-in capital 14,057,288 14,057,288
Retained earnings 3,574,433 2,389,125
----------- -----------
17,682,100 16,496,792
Less treasury stock, 193,292 shares (430,984) (430,984)
----------- -----------
Total stockholders' equity 17,251,116 16,065,808
----------- -----------
Total liabilities and stockholders' equity $62,624,449 $55,020,279
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $41,706,057 $35,958,708 $86,409,793 $77,124,719
Cost of sales 26,311,654 22,601,490 54,010,869 47,934,616
----------- ----------- ----------- -----------
Gross profit 15,394,403 13,357,218 32,398,924 29,190,103
Selling, general and administrative expenses 9,605,104 8,561,684 27,021,496 25,781,110
Depreciation and amortization 695,967 699,842 2,098,931 2,004,422
Interest expense 535,573 466,454 1,484,350 1,355,358
Interest income (9,565) (8,548) (28,043) (25,490)
Other expenses (income) 60,473 (207,977) (29,851) (81,298)
---------- ----------- ---------- -----------
Total expenses 10,887,552 9,511,435 30,546,883 29,034,102
---------- ----------- ---------- -----------
Net income before income taxes 4,506,851 3,845,783 1,852,041 156,001
Income tax expense 1,622,466 1,384,482 666,733 56,161
----------- ----------- ---------- ----------
Net income $ 2,884,385 $ 2,461,301 $1,185,308 $ 99,840
=========== =========== ========== ==========
Basic net income per share $ 0.60 $ 0.51 $ 0.24 $ 0.02
=========== =========== ========== ==========
Diluted net income per share $ 0.56 $ 0.51 $ 0.23 $ 0.02
=========== =========== ========== ==========
Basic weighted average common shares
outstanding 4,844,624 4,844,624 4,844,624 4,844,624
=========== =========== ========== ==========
Weighted average number of common shares
and common equivalent shares
outstanding 5,151,044 4,844,624 5,054,736 4,844,624
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
NATIONAL RECORD MART, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Thirty-nine Thirty-nine
Weeks Ended Weeks Ended
December 27, December 28,
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1,185,308 $ 99,840
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,098,931 2,004,422
Loss from disposal of property and equipment 75,671 8,104
Other -- (219,500)
Changes in operating assets and liabilities:
Merchandise inventory (6,129,174) (7,000,221)
Other assets (540,470) 376,026
Accounts payable 12,213,438 13,771,408
Other liabilities and accrued expenses 1,392,703 1,501,592
Income taxes payable 733,341 -
------------ ------------
Net cash provided by operating activities 11,029,748 10,541,671
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (2,001,885) (2,454,399)
Other long term assets (28,580) 190,913
Amounts (loaned to) received from stockholders (41,917) 7,311
------------ ------------
Net cash used in investing activities (2,072,382) (2,256,175)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt (97,758,500) (89,005,753)
Borrowings on revolving line of credit 89,812,140 81,893,270
------------ ------------
Net cash provided by financing activities (7,946,360) (7,112,483)
------------ ------------
Net increase in cash and cash equivalents 1,011,006 1,173,013
Cash and cash equivalents, beginning of period 834,889 560,337
------------ ------------
Cash and cash equivalents, end of period $ 1,845,895 $ 1,733,350
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
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 27, 1997 were
of a normal recurring nature. The results of operations for the third quarter
ended December 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 third quarter ended December 27, 1997 and December 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
December 27, 1997) plus .50% or Libor (6.00% at December 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.
<PAGE>
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.
NOTE 6 - ACCOUNTING FOR EARNINGS PER SHARE
The Company has changed its method of computing earnings per share with the
adoption of Financial Accounting Standards Board Statement No. 128, "Earnings
per Share" ("Statement No. 128"), issued in February 1997 and effective for
financial statements for both interim and annual periods ending after December
15, 1997. This statement establishes and simplifies the standards for computing
and presenting earnings per share ("EPS") and makes them comparable to
international EPS standards. Statement No. 128 replaces the presentation of
primary EPS with a presentation of basic EPS and requires dual presentation of
basic and diluted EPS on the face of the income statement.
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 third quarter
(ended December 27, 1997) of the Company's fiscal year ending March 28, 1998
("fiscal 1998") by $5.7 million, or 16.0%, over the third quarter of fiscal
1997. Net comparable store sales for the third quarter were up 14.7% or $5.0
million. Sales for the thirty-nine weeks ended December 27, 1997 increased $9.3
million or 12.0%. Net comparable store sales for the thirty-nine weeks ended
December 27, 1997 were up 12.6% or $9.2 million compared to the thirty-nine
weeks ended December 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, consumer
demand and the success of vendors' product releases. The increase in total sales
were attributable to the performance of the Company's new stores combined with
the increase in same store sales.
GROSS PROFIT: While gross profit increased $2.0 million or 15.3% from the
same quarter in the previous year, as a percentage of net sales, gross profit
decreased to 36.9% for the third quarter of fiscal 1998 from 37.1% in the third
quarter of fiscal 1997. Gross profit for the thirty-nine weeks ended December
27, 1997 was 37.5% compared to 37.9% for the thirty-nine weeks ended December
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 23.0% or $9.6 million during the
third quarter of fiscal 1998 from 23.8% or $8.6 million in the third quarter of
fiscal 1997. SG&A expenses, expressed as a percentage of sales decreased to
31.3% for the thirty-nine weeks ended December 27, 1997 from 33.4% for the
thirty-nine weeks ended December 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 $535,573 in the third quarter of fiscal 1998 from
$466,454 in the third quarter of fiscal 1997. The increase is due to an increase
in net borrowings on the Company's revolving line of credit, as the Company's
net borrowings increased to $7.9 million from $7.1 million for the same period
in the prior year.
NET INCOME: The Company had a net income of $2.9 million, or earnings per
share computed basic and diluted respectively of $0.60 and $0.56 per share in
the third quarter of fiscal 1998 compared to a net income of $2.5 million, or
earnings per share basic and diluted of $0.51, in the same quarter of fiscal
1997. Net income for the thirty-nine weeks ended December 27, 1997 was $1.2
million, or $0.24 per share basic and $0.23 per share diluted, compared to $0.1
million, or $0.02 per share basic and diluted, for the thirty-nine weeks ended
December 28, 1996. The increase of net income 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 third quarter and
thirty-nine weeeks ended December 27, 1997 and the third quarter and thirty-nine
weeks ended December 28, 1996 was 36%.
As of December 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.
IMPACT OF THE YEAR 2000: Some of the Company's computer programs were
written using two digits rather than four to define the applicable year. As a
result, those computer programs have time-sensitive software that recognizes a
date using "00" as the year 1900 rather than the year 2000. This could cause a
system failure or miscalculations causing disruptions of operations, including
among other things, a temporary inability to process transactions or engage in
simple normal business activities.
The Company has initiated its assessment of the year 2000 issues and has
determined that it will have to modify its current software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The Company expects to internally reprogram its software sometime
during its fiscal year 1999 and does not expect to incur any material costs in
doing so. The Company's current point of sale equipment must be upgraded at an
estimated cost of $10,000 per store (currently the Company operates 150 stores).
The cost of the transition is expected to be capitalized in its fiscal year
1999. The Company believes that with modifications to existing software and
upgrading its point of sale equipment, the Year 2000 Issue will not pose
significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Company.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in the area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 1998 and 1997 the Company had net
cash provided by operating activities of $11.0 million and $10.5 million, due
primarily to its net income and increases in operating liabilities in excess of
operating assets.
The Company made capital expenditures during the first nine months of
fiscal 1998 of $2.0 million, relating to store equipment, fixtures and
leaseholds for ten 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 bear interest at a
floating rate equal to the lender's base rate (8.50% at December 27, 1997) plus
.50% or Libor rate (6.00% at December 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.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits:
Exhibit No. Description Page No.
----------- ----------- --------
11 Calculation of Net Income Per Common
Share - For the thirteen and thirty-nine
weeks ended December 27, 1997 and
December 28, 1996 11
(b)Reports on Form 8-K:
There were no reports on Form 8-K filed during the thirteen weeks
ended December 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
---------------
Theresa Carlise
Senior Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
Date: February 10, 1998
-----------------
<PAGE>
<TABLE>
EXHIBIT 11
PAGE 1 OF 1
NATIONAL RECORD MART, INC.
CALCULATION OF NET INCOME PER COMMON SHARE
FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED
DECEMBER 27, 1997 AND DECEMBER 28, 1996
<CAPTION>
NET INCOME PER COMMON SHARE
The computation of weighted average common shares and equivalents outstanding
for the periods presented is as follows:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------------- ----------------------------
December 27, December 28, December 27, December 28,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding 4,844,624 4,844,624 4,844,624 4,844,624
Common Stock Equivalents
which are dilutive 501,100 - 501,100 -
Treasury stock assumed to
be repurchased using
proceeds from options and
warrants (194,680) - (290,988) -
------------ ------------ ------------ ------------
Weighted average common
shares and equivalents
outstanding 5,151,044 4,844,624 5,054,736 4,844,624
============ ============ ============ ============
Net income $2,884,385 $2,461,301 $1,185,308 $99,840
============ ============ ============ ============
Basic net income per share $0.60 $0.51 $0.24 $0.02
============ ============ ============ ============
Diluted net income per share $0.56 $0.51 $0.23 $0.02
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000904535
<NAME> NATIONAL RECORD MART
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-28-1998
<PERIOD-START> SEP-28-1997
<PERIOD-END> DEC-27-1997
<CASH> 1,845,895
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 43,639,636
<CURRENT-ASSETS> 49,438,740
<PP&E> 24,712,505
<DEPRECIATION> 14,449,579
<TOTAL-ASSETS> 62,624,449
<CURRENT-LIABILITIES> 32,058,262
<BONDS> 0
0
0
<COMMON> 50,379
<OTHER-SE> 17,200,737
<TOTAL-LIABILITY-AND-EQUITY> 62,624,449
<SALES> 41,706,057
<TOTAL-REVENUES> 41,706,057
<CGS> 26,311,654
<TOTAL-COSTS> 26,311,654
<OTHER-EXPENSES> 10,351,979
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 535,573
<INCOME-PRETAX> 4,506,851
<INCOME-TAX> 1,622,466
<INCOME-CONTINUING> 2,884,385
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,884,385
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.56
</TABLE>
