<PAGE> 1
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 July 31, 1994
/ / 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 0-1946
DART GROUP CORPORATION
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 53-0242973
--------------------------------------------- ---------------
(State or other jurisdiction of incorporation (I.R.S.Employer
or organization) Identification No.)
</TABLE>
3300 75th Avenue, Landover, Maryland, 20785
-----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(301) 731-1200
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark 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 the past 90 days. Yes x No
---------- -----------
At September 13, 1994, registrant had 1,453,423 shares of Class A Common Stock
outstanding and 302,952 shares of Class B Common Stock outstanding. The Class
B Stock is the only voting stock and is not publicly traded.
Page 1 of 22
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements included herein have been prepared
by Dart Group Corporation (the "Corporation"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Corporation believes that the disclosures are adequate to make the information
presented not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Corporation's report on Form 10-K for the fiscal year ended
January 31, 1994.
2
<PAGE> 3
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31 Six Months Ended July 31
-------------------------- --------------------------
1994 1993 1994 1993
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Sales $230,657,000 $326,558,000 $584,874,000 $638,725,000
Income from bankers'
acceptances 20,000 712,000 429,000 1,324,000
Real estate revenue 4,813,000 4,412,000 9,486,000 8,895,000
Other interest and
other income 3,046,000 2,856,000 5,308,000 5,805,000
------------ ------------ ------------ ------------
238,536,000 334,538,000 600,097,000 654,749,000
------------ ------------ ------------ ------------
Expenses:
Cost of sales,
store occupancy
and warehousing 182,572,000 259,899,000 469,847,000 509,620,000
Selling and
administrative 41,905,000 57,431,000 100,502,000 112,415,000
Depreciation and
amortization 5,543,000 7,713,000 12,397,000 14,464,000
Interest 3,248,000 3,279,000 6,428,000 6,697,000
------------ ------------ ------------ ------------
233,268,000 328,322,000 589,174,000 643,196,000
------------ ------------ ------------ ------------
Income before income
taxes, equity in
affiliate and
minority interests 5,268,000 6,216,000 10,923,00 11,553,000
Income taxes 2,750,000 3,041,000 5,428,000 5,716,000
------------ ----------- ------------ ------------
Income before equity
in affiliate and
minority interests 2,518,000 3,175,000 5,495,000 5,837,000
Equity in affiliate 2,172,000 - 2,172,000 -
Minority interests
in income of
consolidated
subsidiaries and
partnerships (1,827,000) (2,493,000) (3,707,000) (4,605,000)
------------ ------------ ------------ ------------
Net income $ 2,863,000 $ 682,000 $ 3,960,000 $ 1,232,000
============ ============ ============ ============
</TABLE>
(continued on following page)
3
<PAGE> 4
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - (CONT'D)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31 Six Months Ended July 31
-------------------------------- -----------------------------
1994 1993 1994 1993
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Earnings per common
share and common
share equivalents:
Net income $ 1.34 $ .28 $ 1.85 $ .51
============ =========== =========== ===========
Weighted average
common share and
common share
equivalents
outstanding 1,856,000 1,864,000 1,868,000 1,865,000
=========== =========== ========== ===========
Dividends per share
of Class A Common
Stock $ .033 $ .033 $ .066 $ .066
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
<TABLE>
<CAPTION>
July 31, January 31,
------------ ------------
1994 1994
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 13,605,000 $ 17,955,000
Short-term instruments, including
$47,352,000 and $133,315,000 held
by majority owned subsidiaries at
July 31, 1994 and January 31, 1994 55,043,000 138,278,000
Marketable debt securities 143,018,000 68,837,000
Bankers' acceptances - 62,307,000
Accounts receivable, trade 5,763,000 15,351,000
Accounts receivable, other 1,827,000 1,044,000
Merchandise inventories 178,393,000 203,036,000
Deferred income tax benefit 4,875,000 6,522,000
Other current assets 1,367,000 4,048,000
------------ ------------
Total Current Assets 403,891,000 517,378,000
------------ ------------
Property and Equipment, at cost:
Furniture, fixtures and equipment 73,125,000 128,982,000
Building and leasehold improvements 165,421,000 166,250,000
Land 33,252,000 33,396,000
Property under capital leases 27,129,000 35,792,000
------------ ------------
298,927,000 364,420,000
Accumulated Depreciation and
Amortization 70,994,000 104,137,000
------------ ------------
227,933,000 260,283,000
Share of Equity in Shoppers Food
Warehouse Corporation 42,597,000 -
------------ ------------
Other Assets 9,260,000 9,369,000
------------ ------------
Excess of Purchase Price Over Net
Assets Acquired net of accumulated
amortization of $6,074,000 - 3,659,000
------------ ------------
Deferred Income Tax Benefit 11,154,000 12,209,000
------------ ------------
Total Assets $694,835,000 $802,898,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
5
<PAGE> 6
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
July 31, January 31,
------------ ------------
1994 1994
------------ ------------
<S> <C> <C>
Current Liabilities:
Current portion of mortgage payable $ 988,000 $ 988,000
Accounts payable, trade 99,327,000 154,926,000
Income taxes payable 4,870,000 4,968,000
Accrued salaries and employee benefits 18,501,000 22,791,000
Accrued taxes other than income taxes 8,798,000 11,831,000
Other accrued liabilities 39,752,000 40,287,000
Current portion of obligations under
capital leases 345,000 345,000
------------ ------------
Total Current Liabilities 172,581,000 236,136,000
------------ ------------
Mortgage Payable 81,167,000 80,709,000
------------ ------------
Obligations Under Capital Leases 29,695,000 39,295,000
------------ ------------
Reserve for Closed Facilities and
Restructuring 26,042,000 28,595,000
------------ ------------
Other Long-term Liabilities 1,190,000 3,219,000
------------ ------------
Commitments and Contingencies
Minority Interests 106,617,000 140,637,000
------------ ------------
Stockholders' Equity:
Class A common stock, non-voting,
par value $1.00 per share; 3,000,000
shares authorized; 1,655,763
shares issued 1,656,000 1,656,000
Class B common stock, voting, par
value $1.00 per share; 500,000
shares authorized; 302,952 shares
issued and outstanding 303,000 303,000
Paid-in capital 65,270,000 65,323,000
Unrealized losses on short-term
investments (574,000) -
Retained earnings 212,637,000 208,774,000
Treasury stock, 202,340 shares of
Class A common stock, at cost (1,749,000) (1,749,000)
------------ ------------
Total Stockholders' Equity 277,543,000 274,307,000
------------ ------------
Total Liabilities and
Stockholders' Equity $694,835,000 $802,898,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
6
<PAGE> 7
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31,
-----------------------------
1994 1993
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 3,960,000 $ 1,232,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 9,093,000 14,464,000
Equity in affiliate (3,222,000) -
Provision for closed facilities (98,000) (1,574,000)
Change in assets and liabilities:
Accounts receivable, trade 5,389,000 (1,275,000)
Accounts receivable, other (783,000) 3,553,000
Merchandise inventories (2,317,000) (20,222,000)
Other current assets 1,257,000 668,000
Deferred tax benefits (617,000) (982,000)
Other assets (224,000) (1,050,000)
Accounts payable, trade (22,428,000) 4,141,000
Income taxes payable 158,000 59,000
Accrued salaries and employee benefits (619,000) 3,987,000
Accrued taxes other than income taxes (1,078,000) (806,000)
Other accrued liabilities (10,999,000) (241,000)
Deferred income - 17,000
Reserve for closed facilities (1,569,000) (1,052,000)
Minority interests 2,657,000 7,123,000
------------- -------------
Net cash provided by (used in)
operating activities $ (21,440,000) $ 8,042,000
------------- -------------
Cash Flows from Securities and Capital
Investment Activities:
Capital expenditures $ (7,078,000) $ (19,678,000)
Decrease in cash and cash equivalents
as a result of deconsolidation of
Shoppers Food Warehouse Corp. (61,014,000) -
Purchases of bankers' acceptances (28,198,000) (222,500,000)
Maturities of bankers' acceptances 90,505,000 221,212,000
Sales of United States Treasury Bills 17,676,000 182,101,000
Purchases of United States Treasury Bills (100,313,000) (201,087,000)
Maturities of United States Treasury Bills 34,242,000 26,694,000
Sales of marketable debt securities 130,805,000 50,525,000
Purchases of marketable debt securities (160,150,000) (97,436,000)
Maturities of marketable debt securities 2,985,000 4,200,000
Proceeds from reverse repurchase
agreements and unsettled trades of
marketable debt securities 17,079,000 -
------------- -------------
Net cash used in
securities and capital
investment activities $ (63,461,000) $ (55,969,000)
------------- -------------
</TABLE>
(continued on following page)
7
<PAGE> 8
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31,
----------------------------
1994 1993
----------- -------------
<S> <C> <C>
Cash Flows from Financing Activities:
Borrowings from real estate mortgages $ - $ 9,750,000
Cash dividends (97,000) (96,000)
Stock options exercised 10,000 218,000
Distributions paid to minority partner (1,776,000) -
Principal payments under mortgage
obligations (648,000) (255,000)
Principal payments under capital
lease obligations (173,000) (179,000)
------------ ------------
Net cash provided by (used in)
financing activities $ (2,684,000) $ 9,438,000
------------ ------------
Net Decrease in Cash and Cash
Equivalents $(87,585,000) $(38,489,000)
Cash and Cash Equivalents at Beginning
of Year 156,233,000 170,361,000
------------ ------------
Cash and Cash Equivalents at End of Period $ 68,648,000 $131,872,000
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 6,428,000 $ 6,697,000
Income taxes 5,739,000 8,308,000
Reconciliation of Cash and Cash Equivalents
to Balance Sheet Captions:
Cash $ 13,605,000 $ 16,378,000
Overnight repurchase agreements - 950,000
Short-term investment of majority-owned
subsidiaries utilized in their
operating cash management 55,043,000 114,544,000
------------ ------------
$ 68,648,000 $131,872,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 9
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1994 AND 1993
(Unaudited)
(1) General:
The accompanying consolidated financial statements reflect the accounts of
Dart Group Corporation (the "Corporation") and its direct and indirect
wholly-owned and majority-owned subsidiaries and majority-owned partnerships,
including Trak Auto Corporation ("Trak Auto"), Crown Books Corporation ("Crown
Books"), Shoppers Food Warehouse Corp. ("Shoppers Food"), Total Beverage
Corporation ("Total Beverage"), Cabot-Morgan Real Estate Company ("CMREC"), and
Dart Group Financial Corporation ("Dart Financial). The accounts of Shoppers
Food are consolidated with the Corporation's through May 28, 1994, but not
thereafter, as a result of a reduction of the Corporations' ownership to 50%.
The Corporation's investment in Shoppers Food is reflected in the financial
statements using the equity method of accounting for periods subsequent to May
28, 1994 (see Note 7). The accounts of Total Beverage are included from the
date of its purchase on February 28, 1993. The Corporation, Trak Auto, Crown
Books, Shoppers Food (for periods through May 28, 1994), Total Beverage, CMREC
and Dart Financial and the Corporation's other direct and indirect wholly-owned
and majority-owned subsidiaries and majority-owned partnerships are referred to
collectively as the "Company". All significant intercompany accounts and
transactions have been eliminated. The unaudited statements as of July 31,
1994 and 1993 reflect, in the opinion of management, all adjustments (normal
and recurring in nature) necessary to present fairly the consolidated financial
position as of July 31, 1994 and 1993 and the results of operations and cash
flows for the periods indicated.
(2) Earnings Per Common Share and Common Share Equivalents:
Earnings per share is based on the weighted average number of the
Corporation's Class A and Class B common stock and common stock equivalents
(certain stock options) outstanding during the period. In reporting earnings
per share, the Corporation's interest in the earnings of its subsidiaries is
adjusted for the dilutive effect, if any, of these subsidiaries' outstanding
stock options. The difference between primary earnings per share and fully
diluted earnings per share is not significant for either period.
(3) Short-term Instruments and Marketable Debt Securities:
At July 31, 1994, the Company's short-term instruments included United
States Treasury Bills (held by subsidiaries) and marketable debt securities
included United States Treasury Bills (held by the Corporation), United States
Treasury Notes, corporate notes, municipal securities and United States agency
securities. Additionally, approximately $13,482,000 of United States treasury
obligations serve as security for reverse repurchase agreements, the liability
for which has been included in other accrued liabilities in the accompanying
balance sheets. The Company adopted Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities, effective February 1, 1994. In accordance with the standard, these
short-term instruments and marketable debt securities are considered available
for sale securities. Accordingly, they are recorded at fair market value and
unrealized losses are classified as a component of stockholders' equity. At
July 31, 1994, market value was $574,000 less than cost, net of minority
interest and income taxes.
9
<PAGE> 10
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
July 31, 1994 AND 1993
(Unaudited)
(4) Inventory:
Trak Auto and Shoppers Food inventories are priced at the lower of last-in,
first-out (LIFO) cost or market. Effective January 30, 1994, Trak Auto changed
its method for determining the index used to calculate the cost basis of the
LIFO inventory for financial and income tax reporting purposes. Under the new
method, Trak Auto uses an index published by United States Bureau of Labor
Statistics. Previously an index determined by Trak Auto, based upon inventory
cost changes between financial reporting periods, was utilized. This change
has been accounted for as a change in accounting method in the accompanying
financial statements. Due to limitations in the availability in historical
information, it is not possible to determine the effect, if any, of the
corresponding cumulative catch-up adjustment required under Accounting
Principle Bulletin 20. Accordingly, the change in principle is being
accounting for on a prospective basis from January 31, 1994. The change in
LIFO inventory as of July 30, 1994 under the new method was not material to the
financial statements when compared to the LIFO inventory under the old method.
At July 31, 1994 and January 31, 1994, inventories determined on a lower of
first-in, first-out (FIFO) cost or market basis would have been greater by
$5,820,000 and $7,187,000, respectively. Shoppers Food inventory was included
at January 31, 1994 but not July 31, 1994. Crown Books' and Total Beverage's
inventories are priced at the lower of FIFO cost or market.
Trak Auto, Crown Books and Total Beverage take a physical count of their
store and warehouse inventories semi-annually, except for one Trak Auto
warehouse for which the count is taken annually. Shoppers Food takes an annual
physical count of its store and warehouse inventories. Complete physical
inventories were taken for the quarter ended July 31, 1994 for Trak Auto, Crown
Books and Total Beverage except for one Trak Auto warehouse. The Company uses
a gross profit method combined with available perpetual inventory information
to determine Trak Auto's, Crown Books', Shoppers Food's and Total Beverage's
inventories for quarters when complete physical counts are not taken.
(5) Credit Agreement:
The Corporation is party to a revolving credit agreement, together with
Trak Auto and Crown Books, for a $6,000,000 revolving line of credit. The
$6,000,000 is an aggregate amount and not specifically allocated to any of the
parties. The line is intended to be used for the issuance of standby and trade
letters of credit. At July 31, 1994, there had been no borrowings under the
credit agreement. This line of credit expires May 1, 1995.
(6) Minority Interests:
The $106,617,000 of minority interests reflected in the Consolidated
Balance Sheet as of July 31, 1994 represents the portion of real estate
partnership equity owned by Haft family partnerships and the portion of Trak
Auto and Crown Books equity owned by the public shareholders of Trak Auto and
Crown Books. The minority interests reflected in the Consolidated Balance
Sheets as of January 31, 1994, also included the portion of Shoppers Food
equity owned by the shareholders of Shoppers Food (other than the Corporation).
No such minority interests are included as of July 31, 1994. Income attributed
to the minority
10
<PAGE> 11
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
July 31, 1994 AND 1993
(Unaudited)
(6) Minority Interests (continued):
shareholders of Trak Auto was $2,081,000 and $147,000 for the six months ended
July 31, 1994 and 1993, respectively and $1,207,000 and $115,000 for the three
months ended July 31, 1994 and 1993, respectively. Income attributed to the
minority shareholders of Crown Books was $498,000 and $787,000 for the six
months ended July 31, 1994 and 1993, respectively and $296,000 and $273,000 for
the three months ended July 31, 1994 and 1993, respectively. Income attributed
to the minority ownership of Shoppers Food was $1,050,000 and $3,505,000 for
the six months ended July 31, 1994 and 1993, respectively; no income for
Shoppers Food was attributed to minority interest for periods after May 28,
1994. Income attributed to the minority ownership of the real estate
partnerships was $78,000 and $166,000 for the six months ended July 31, 1994
and 1993, respectively and $21,000 and $115,000 for the three months ended July
31, 1994 and 1993, respectively.
(7) Transaction with Affiliate:
In June 1994, one of the other shareholders of Shoppers Food exercised his
right to reacquire one share of Shoppers Food Class B common stock, thereby
reducing the Corporation's ownership to exactly 50%. As a result, the accounts
of Shoppers Food are consolidated with the Corporation's through May 28, 1994,
but not thereafter. The Corporation's investment in Shoppers Food is reflected
in the financial statements using the equity method of accounting for periods
subsequent to May 28, 1994. Under the equity method, the Company's investment
is shown in the balance sheet as a single line under Share of Equity in
Shoppers Food Warehouse. Accordingly, assets and liabilities of Shoppers Food
previously shown in the accounts of the Company have been aggregated and are
included in this item. The unamortized difference between the original
purchase price of Shoppers Food and the net assets acquired of $11,260,000 is
also in this item and continues to be amortized over ten years from the
acquisition date. Similarly, the sales and expenses of Shoppers Food which
were previously included in the accounts of the Company have been aggregated,
subsequent to May 28, 1994 and reflected in the caption Equity in Affiliate on
the Consolidated Statements of Income.
For purposes of the statements of cash flows only, the accounts of
Shoppers Food have been deconsolidated at January 31, 1994. Accordingly, the
Company's consolidated cash position decreased by $61,014,000 (representing
cash and cash equivalents held by Shoppers Food Warehouse at January 31, 1994)
and net income excluded the Corporation's share of Shoppers Food net income for
the six months ended July 31, 1994.
Summary Income Data for Deconsolidated Subsidiary:
The following information reflects the results of Shoppers Food from May
29, 1994 to July 30, 1994:
Revenue $140,255,000
Gross Profit 27,232,000
Net Income 4,344,000
11
<PAGE> 12
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
July 31, 1994 AND 1993
(Unaudited)
(8) Subsequent Events:
On August 4, 1994, the Corporation advanced $18,000,000 to Herbert H. Haft
in exchange for a promissory note from Mr. Haft. Mr. Haft returned the funds
to the Corporation on August 8, 1994. The outside directors of the Corporation
and their special counsel are reviewing the circumstances surrounding this
transaction.
On September 6, 1994, Ronald S. Haft tendered to the Corporation a letter
purporting:
(1) to exercise, effective immediately, options (the "Options") to
purchase, at an exercise price of $89.65 per share, 197,048 shares
(the "Option Shares") of the Corporation's Class B Common Stock
pursuant to Article 4(a) of the Employment Agreement (the "Employment
Agreement") dated August 1, 1993 between Ronald S. Haft and the
Corporation; and
(2) to exercise his right under the Employment Agreement, effective
immediately, to obtain a loan from the Corporation in the amount of
$17,665,353.20, for part of the exercise price of the Options.
Together with that letter, Ronald S. Haft tendered to the Corporation: a
check payable to the Corporation in the amount of $197,048 as payment of the
par value of the Option Shares; and an executed unsecured promissory note of
Ronald S. Haft payable to the order of the Corporation in the amount of
$17,665,353.20, the balance of the exercise price for the Option Shares under
the Options.
The Corporation has neither accepted nor rejected the validity of Ronald
S. Haft's purported exercise of the Options or the adequacy of the promissory
note tendered in connection therewith. Issuance of the Option Shares has not
been recorded in the stock records of the Corporation, and the Corporation has
not issued any stock certificate to Ronald S. Haft for the Option Shares.
A pending shareholders' derivative lawsuit (Alan R. Kahn, et al. v.
Herbert H. Haft, et al.), Del. Ch. No. 13154 (filed September 29, 1993), seeks
a judgment that would, inter alia, declare the Options to be null and void and
rescind their issuance. A special litigation committee of the Board of
Directors of the Corporation is currently reviewing the allegations in the
complaint filed in the lawsuit.
The Corporation's proper course with respect to the Options is being
evaluated in light of facts and circumstances that include the pending
shareholders' derivative lawsuit and the anticipated report of the special
litigation committee of the Board.
Ronald S. Haft has filed a lawsuit against the Corporation (Ronald S. Haft
v. Dart Group Corporation, Del. Ch. 13736 (filed September 12, 1994)) seeking a
court order that the Corporation issue the Option Shares to him and grant him a
loan of $17,665,353.30 to be used as part of the payment for the Option Shares.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
Cash, including short-term instruments, and U.S. government and other
marketable debt securities are the Company's primary source of liquidity.
Cash, including short-term instruments, U.S. government and other marketable
debt securities and bankers' acceptances, decreased by $75,711,000 to
$211,666,000 at July 31, 1994 from $287,377,000 at January 31, 1994. This
decrease was primarily due to the accounts of Shoppers Food no longer being
consolidated with the Company. Cash decreases for Crown Books' purchases of
merchandise inventory, payment of January 31, 1994 accounts payable and
purchases of United States Treasury Notes were partially offset by Trak Auto's
increased cash from current period operating results.
For the quarter ended July 31, 1994, the Company realized a pre-tax yield of
approximately 3.3% on the bankers' acceptances, approximately 2.8% on United
States Treasury Bills and approximately 5.4% on the marketable debt securities.
All of the Corporation's bankers' acceptances have matured in the normal
course.
Operating activities (not including Shoppers Food) used $21,440,000 of
the Company's funds for the six months ended July 31, 1994 compared to
providing $8,042,000 of the Company's funds (including Shoppers Food) for the
same period one year ago. The primary use of cash for the six months ended
July 31, 1994 was for payments on Crown Books January 31, 1994 accounts payable
balances.
Investing activities used $63,461,000 of the Company's funds for the six
months ended July 31, 1994, compared to $55,969,000 for the same period last
year. The primary use of cash during the six months ended July 31, 1994 was
due to the deconsolidation of Shoppers Food (see Note 7 to the Consolidated
Financial Statements). During the six months ended July 31, 1994, the
Company's net purchase/disposition of marketable debt securities was lower than
the same period last year, which was the Company's initial purchase of such
securities. The Corporation's bankers acceptances all matured and were
reinvested in United States Treasury Bills. Capital expenditures decreased
$12,600,000 to $7,078,000 compared to last year, primarily due to fewer Super
Crown Books and Super Trak stores opening this year.
The Company used $2,684,000 for net financing activities for the six months
ended July 31, 1994 compared to providing $9,438,000 for the six months ended
July 31, 1993. The change was primarily due to CMREC's Bull Run Plaza
obtaining a $9,750,000 mortgage last year.
The Corporation, together with Crown Books and Trak Auto, has a $6,000,000
revolving credit facility agreement. As of July 31, 1994 there has been no
borrowing under this credit agreement (see Note 6 to the Consolidated Financial
Statements).
At July 31, 1994, Crown Books had five signed leases for Super Crown
stores, Trak Auto had 13 signed leases for new stores and seven signed
agreements for additional space in existing stores for Super Trak stores and
CMREC's Bull Run Plaza had completed renovation and expansion.
13
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
Liquidity and Capital Resources, (Continued):
The Company anticipates that funds necessary to fund these capital
expenditures, as well as purchase inventory for new stores, meet the Company's
long-term lease obligations, and pay current liabilities will come from
operations, existing current assets and, if necessary, the aforementioned
credit agreement.
The Company believes that Shoppers Food's cash and short-term investments,
plus cash generated from operations, will be adequate to fund Shoppers Food's
capital expenditures, purchase inventory for new stores, and to meet its
current liabilities and long-term lease obligations.
The liquid assets maintained by the Company are intended to fund the
expansion of the Company's retail business through the opening of stores in new
markets, converting selected existing stores to superstores and opening
additional stores in existing markets.
Results of Operations
Trak Auto
Sales of $177,567,00 for the twenty-six weeks ended July 30, 1994 increased
by $15,330,000 or 9.4% compared to the twenty-six weeks ended July 31, 1993 and
sales of $89,180,00 for the thirteen weeks ended July 30, 1994 increased by
$4,826,000 or 5.7% compared to the thirteen weeks ended July 31, 1993. The
increases were primarily attributable to increased sales for Super Trak stores
converted from classic Trak stores and to increases of 5.6% and 3.8% in sales
for all stores open more than one year for the twenty-six and thirteen weeks
ended July 30, 1994, respectively. Sales for comparable Super Trak stores open
more than one year increased 4.2% and 2.5%, respectively, for the twenty -six
and thirteen weeks ended July 30, 1994. Sales for comparable classic Trak
stores open more than one year increased 6.0% and 4.2%, respectively, for the
twenty-six and thirteen weeks ended July 30, 1994. Sales for Super Trak stores
represented 38.4% and 40.6% of total sales during the twenty-six and thirteen
weeks ended July 30, 1994 compared to 31.6% and 33.4% for the twenty-six and
thirteen weeks ended July 31, 1993.
During the twenty-six weeks ended July 30, 1994, Trak Auto opened 13 new
Super Trak stores, and closed 32 classic Trak stores. At July 30, 1994, Trak
Auto had 295 stores, including 92 Super Trak stores and one Super Trak
Warehouse store.
Interest and other income decreased by $104,000 for the twenty-six weeks
ended July 30, 1994 and increased $28,000 for the thirteen weeks ended July 30,
1994 when compared to the same periods last year. The decrease for the
twenty-six weeks ended July 30, 1994 was primarily due to a decrease in the
average daily balance in funds available for short term investments during the
thirteen weeks ended April 30, 1994. During the thirteen weeks ended July 30,
1994, such balances increased as a result of funds generated by current
operating results.
Cost of sales, store occupancy and warehousing expenses as a percentage of
sales were 72.4% and 71.6% for the twenty-six weeks and thirteen weeks ended
July 30, 1994, respectively, compared to 75.4% and 76.6% for the twenty-six
weeks and thirteen weeks ended July 31, 1993, respectively. The decreases were
primarily due to increased store margins as a result of higher merchandise
14
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
Results of Operations (Continued):
margins and a favorable change in sales mix (increased hard parts and decreased
motor oils).
Selling and administrative expenses as a percentage of sales were 19.7% and
19.6% for the twenty-six weeks and thirteen weeks ended July 30, 1994 compared
to 21.4% and 20.0% for the twenty-six and thirteen weeks ended July 31, 1993.
The decreases were primarily due to lower payroll costs as a result of Trak
Auto's efforts to control store hours and administrative overhead and to Super
Trak store maturity.
Depreciation and amortization expenses increased $39,000 for the twenty-six
weeks ended July 30, 1994 and decreased $41,000 for the thirteen weeks ended
July 30, 1994 when compared to the same periods last year. The increase for the
twenty-six weeks was due to the increase in fixed assets for new and converted
Super Trak stores. The decrease for the thirteen weeks was due to a lower
depreciation adjustment this year, for fixed assets acquired in the first half
of the fiscal year, compared to last year.
The effective income tax rate was 36.8% for the twenty-six weeks ended
July 30, 1994 compared to 32.9% for the twenty-six weeks ended July 31, 1993.
The increase is primarily due to anticipated income before income taxes for
fiscal 1995 at a higher federal statutory rate and a lower portion of income
before taxes that is exempt.
Crown Books
Sales of $137,821,000 for the twenty-six weeks ended July 30, 1994
increased by $23,151,000 or 20.2% over the same period one year ago while sales
of $72,179,000 for the thirteen weeks ended July 30, 1994 increased by
$12,032,000 or 20.0% over the same period one year ago. Comparable sales
(sales for stores open for fifteen months) increased 2.6% and 3.1% for the
twenty-six and thirteen weeks ended July 30, 1994, respectively. Sales for
Super Crown Book stores represented 52.8% and 54.0% of total sales for the
twenty-six weeks and thirteen weeks ended July 30, 1994 compared to 32.2% and
34.2% of total sales for the twenty-six weeks and thirteen weeks ended July 31,
1993. Super Crown sales of $72,781,000 and $39,005,000 for the twenty-six
weeks and thirteen weeks ended July 30, 1994 increased 97.1% and 89.7%
respectively, over the prior year sales and sales for comparable Super Crown
Books stores increased 7.3% and 7.4%, respectively. Sales for comparable
classic Crown Books stores increased 0.6% and 1.2% during the twenty-six and
thirteen weeks ended July 30, 1994.
During the twenty-six weeks ended July 30, 1994, Crown Books opened eight
Super Crown Books stores while closing 13 classic Crown Books stores and one
Super Crown Books store. This Super Crown Books store was closed as a result
of opening a larger superstore in the same area. At July 30, 1994, Crown Books
had 234 stores including 66 Super Crown Books stores.
Interest and other income decreased by $361,000 and $146,000 during the
twenty-six weeks and thirteen weeks ended July 30, 1994, respectively, when
compared to the same periods one year ago. The decreases were due to decreased
funds available for short-term investments, resulting primarily from payments
on January 29, 1994 accounts payable balances and current inventory increases.
15
<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
Results of Operations, (Continued) :
Cost of sales, store occupancy and warehousing as a percentage of sales
were 82.6% and 82.9% for the twenty-six weeks and thirteen weeks ended July 30,
1994, respectively, compared to 79.7% and 79.9% for the same periods last year.
The increases were primarily due to a decrease in store margins as a result of
increased purchases from wholesalers and a less favorable sales mix, and to
increased store occupancy costs for Super Crown Books stores. In addition,
last year Crown Book's cost of sales, store occupancy and warehousing expenses
were reduced by a $631,000 reduction in the closed store reserve as a result of
the termination of three leases.
Selling and administrative expenses as a percentage of sales were 15.1%
and 14.7% for the twenty-six weeks and thirteen weeks ended July 30, 1994,
respectively, compared to 17.4% and 17.5% for the same periods last year. The
decreases were primarily due to reduced payroll costs at both the store and
administrative levels as a result of Crown Books's efforts to control store
hours and administrative overhead.
Depreciation expense increased $604,000 for the twenty-six weeks ended July
30, 1994 compared to the same period one year ago. The increase was primarily
due to the increase in fixed assets as a result of the expansion of Super Crown
Books stores.
Interest expense decreased by $15,000 due to the reduction of amounts owed
under capital lease obligations.
The effective income tax rate was 36.0% for the twenty-six weeks ended July
30, 1994, compared to 37.9% for the twenty six weeks ended July 31, 1993. The
decrease is primarily due to increased tax exempt interest income from
municipal securities as a percentage of total pre-tax income.
Shoppers Food
See Note 1 and 7 to the Consolidated Financial Statements for a
description of a change in accounting for the Corporation's ownership of
Shoppers Food for periods subsequent to May 28, 1994. Shoppers Food sales for
the four months and one month ended May 28, 1994, were $258,476,000 and
$63,318,000, respectively. Cost of sales, store occupancy and warehousing, as
a percentage of sales, were 84.3% and 84.5%, respectively, during those
periods. Selling and administrative expenses, as a percentage of sales, were
13.7% and 14.3%, respectively, during those periods. Because Shoppers Food's
accounts are not consolidated with the Company's after May 28, 1994,
comparisons with the results included in the Company's consolidated financial
statements for the periods ended July 31, 1993, would not be meaningful.
Shoppers Food's reported net income for the two months ended July 31, 1994
was $4,344,000, 50 percent of which was included in the net income of the
Company for the thirteen and twenty-six week periods ended July 31, 1994,
pursuant to the equity method of accounting.
16
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
Total Beverage
Total Beverage purchased the assets of a discount beverage superstore in
February 1993 and opened two additional stores in October 1993. During the six
months and three months ended July 31, 1994 sales were $11,010,000 and
$5,980,000, respectively and Total Beverage recorded a net operating loss of
$1,547,000 and $868,000, respectively.
Cabot-Morgan Real Estate
Revenues from real estate properties increased by $591,000 to $9,486,000
and $401,000 to $4,813,000 during the six months and three months ended July
31, 1994, respectively when compared to the same periods one year ago. The
increases were primarily the result of a higher occupancy rate at Bull Run
Plaza.
Administrative expenses for CMREC partnerships increased $233,000 and
$213,000 during the six months and three months ended July 31, 1994 compared to
the same periods one year ago primarily due to increased maintenance charges
and management fees.
Depreciation expense increased $235,000 and $97,000 during the six months
and three months ended July 31, 1994 when compared to the same periods one year
ago. The increases were due to the increased basis of the building and
improvements at Bull Run Plaza as result of the recently completed renovation.
Interest expense increased $455,000 and $376,000 during the six months and
three months ended July 31, 1994 primarily due to the mortgage at Bull Run
Plaza and was partially offset by the refinancing of mortgages at Briggs
Chaney.
Dart Financial and Other Corporate
Income from bankers' acceptances decreased $895,000 during the six months
ended July 31, 1994 when compared to the same period in the prior year. The
decrease is the result of the Corporations' decision to no longer invest in
bankers' acceptances. As the bankers' acceptances matured during the six
months ended July 31, 1994 they were reinvested in United States Treasury
Bills. Dart Financial currently has no assets.
Interest and other income increased $447,000 during the quarter ended July
31, 1994 when compared to the same period in the prior year. The increase was
primarily due to the Corporation investing in United States Treasury Bills
instead of bankers' acceptances.
Administrative expenses decreased $632,000 and $136,000 during the six
months and three months ended July 31, 1994, due primarily to decreased payroll
costs which were partially offset by increased legal expenses during the three
months ended July 31, 1994.
Depreciation expense decreased by $68,000 during the six months ended July
31, 1994 when compared to the same period in the prior year. The decrease was
the result of a capital lease obligation that expired in January 1994.
Trak Auto and Crown Books file separate income tax returns. CMREC, Total
Beverage and Dart Financial are included in the Corporation's income tax
returns. The Corporation's current net operating loss was not tax benefitted
as a result of the complete utilization of all available carrybacks.
17
<PAGE> 18
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
As a result of the Corporation's operating loss for the six months ended
July 31, 1994, a net tax operating loss carryforward of $5,225,000 was created.
The Corporation's cumulative total net tax operating loss carryforward is
$13,868,000. All net operating loss carryforwards will expire by fiscal 2010.
In addition, the Corporation has an Alternative Minimum Tax credit carryforward
of approximately $1,010,000.
Effect of New Financial Accounting Standards
The Company does not offer any of the benefits covered under Statement of
Financial Accounting Standards ("SFAS") No. 106, Employers' Accounting of
Postretirement Benefits Other Than Pensions, and as such the standard will have
no impact on the Company.
The Company has adopted SFAS No. 112, Employer's Accounting for
Postemployment Benefits. Implementation of the standard has not had a
significant impact on the financial statements.
18
<PAGE> 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See the Corporation's Annual Report on Form 10-K for the fiscal year ended
January 31, 1994, at pages 50-51, and the Corporation's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1994, at page 16 for a description of
certain litigation.
On August 17, 1994, the District Court in Robert M. Haft v. Dart Group
Corporation, et al. denied plaintiff's and defendants' motions for summary
judgment. Trial in this case commenced on September 6, 1994.
See Item 5 for a description of other litigation.
Item 5. Other Information
Stock Options:
On September 6, 1994, Ronald S. Haft tendered to the Corporation a letter
purporting:
(1) to exercise, effective immediately, options (the "Options") to
purchase, at an exercise price of $89.65 per share, 197,048 shares
(the "Option Shares") of the Corporation's Class B Common Stock
pursuant to Article 4(a) of the Employment Agreement (the "Employment
Agreement") dated August 1, 1993 between Ronald S. Haft and the
Corporation; and
(2) to exercise his right under the Employment Agreement, effective
immediately, to obtain a loan from the Corporation in the amount of
$17,665,353.20, for part of the exercise price of the Options.
Together with that letter, Ronald S. Haft tendered to the Corporation: a
check payable to the Corporation in the amount of $197,048 as payment of the
par value of the Option Shares; and an executed unsecured promissory note of
Ronald S. Haft payable to the order of the Corporation in the amount of
$17,665,353.20, the balance of the exercise price for the Option Shares under
the Options.
The Corporation has neither accepted nor rejected the validity of Ronald
S. Haft's purported exercise of the Options or the adequacy of the promissory
note tendered in connection therewith. Issuance of the Option Shares has not
been recorded in the stock records of the Corporation, and the Corporation has
not issued any stock certificate to Ronald S. Haft for the Option Shares.
A pending shareholders' derivative lawsuit (Alan R. Kahn, et al. v.
Herbert H. Haft, et al.), Del. Ch. No. 13154 (filed September 29, 1993), seeks
a judgment that would, inter alia, declare the Options to be null and void and
rescind their issuance. A special litigation committee of the Board of
Directors of the Corporation is currently reviewing the allegations in the
complaint filed in the lawsuit.
The Corporation's proper course with respect to the Options is being
evaluated in light of facts and circumstances that include the pending
shareholders' derivative lawsuit and the anticipated report of the special
litigation committee of the Board.
19
<PAGE> 20
PART II - OTHER INFORMATION (continued)
Ronald S. Haft has filed a lawsuit against the Corporation (Ronald S. Haft
v. Dart Group Corporation, Del. Ch. 13736 (filed September 12, 1994)) seeking a
court order that the Corporation issue the Option Shares to him and grant him a
loan of $17,665,353.30 to be used as part of the payment for the Option Shares.
Shoppers Food Warehouse Corp.:
See Notes 1 and 7 to the Consolidated Financial Statements for a
description of events resulting in the Corporation's ownership of Shoppers Food
being reduced to 50% and the resulting change in the method of accounting for
the Corporation's ownership of Shoppers Food.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
99(a) Letter dated September 6, 1994 from
Ronald S. Haft to Herbert H. Haft
relating to the exercise of options for
Class B stock of Dart Group Corporation.
(b) Reports on Form 8-K
During the second quarter ended July 31, 1994, the Corporation
filed one Current Report on Form 8-K on May 25, 1994 reporting
certain litigation developments. The report did not
contain financial statements.
20
<PAGE> 21
SIGNATURES
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 thereunto duly authorized.
DART GROUP CORPORATION
Date September 14, 1994 By /s/Herbert H. Haft
------------------------ ----------------------------------
HERBERT H. HAFT
Chief Executive Officer
Date September 14,1994 /s/Ron Marshall
------------------------ ---------------------------------
RON MARSHALL
Senior Vice President and
Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JUL-31-1994
<CASH> $68,648
<SECURITIES> $143,018
<RECEIVABLES> $7,590
<ALLOWANCES> 0
<INVENTORY> $178,393
<CURRENT-ASSETS> $403,891
<PP&E> $298,927
<DEPRECIATION> $70,994
<TOTAL-ASSETS> $694,835
<CURRENT-LIABILITIES> $172,581
<BONDS> $110,862
<COMMON> $1,959
0
0
<OTHER-SE> $275,584
<TOTAL-LIABILITY-AND-EQUITY> $694,835
<SALES> $584,874
<TOTAL-REVENUES> $600,097
<CGS> $469,847
<TOTAL-COSTS> $469,847
<OTHER-EXPENSES> $112,899
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $6,428
<INCOME-PRETAX> $10,923
<INCOME-TAX> $5,428
<INCOME-CONTINUING> $3,960
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $3,690
<EPS-PRIMARY> $1.85
<EPS-DILUTED> $1.85
</TABLE>
<PAGE> 1
Exhibit 99(a)
September 6, 1994
BY HAND AND BY REGISTERED MAIL
(RETURN RECEIPT REQUESTED)
Mr. Herbert H. Haft
Dart Group Corporation
3300 75th Avenue
Landover, Maryland 20785
Dear Mr. Haft:
Pursuant to Article 4(a) of my Employment Agreement with Dart Group
Corporation ("Dart"), I hereby exercise, effective immediately, in whole, the
options to purchase 197,048 shares of Class B common stock of Dart.
Pursuant to Article 4(b) of my Employment Agreement with Dart, I hereby
exercise my right, effective immediately, to obtain a loan from Dart for the
exercise price of the options to purchase the 197,048 shares of Class B common
stock of Dart. Enclosed is a check for $197,048, representing the par value of
the stock, and an executed term note for $17,665,353.20, representing the full
exercise price of the stock. The form of the note is the same as that used most
recently by Dart in connection with the exercise of options.
I demand delivery of the shares and the appropriate recording of this
transaction on Dart's books and records, including in Dart's stock ledger, by
the close of business today, September 6, 1994.
Very truly yours,
/s/ Ronald S. Haft
------------------
Ronald S. Haft
Enclosures: check for $197,048
term note for $17,665,353.20
cc (without enclosures):
Mr. Elliot Arditti
Mr. Ronald Marshall
