<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, 1995
-------------
( ) 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)
Delaware 53-0242973
------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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, 1995, the registrant had 1,458,413 shares outstanding of Class
A Common Stock, $1.00 par value per share, and 302,952 shares outstanding of
Class B Common Stock, $1.00 par value per share. The Class B Stock is the only
voting stock and is not publicly traded.
Page 1 of 26 pages
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Certain 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, 1995.
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
-------------------------- --------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $156,777,000 $230,657,000 $302,158,000 $584,874,000
Income from bankers'
acceptances - 20,000 - 429,000
Real estate revenue 4,906,000 4,813,000 9,746,000 9,486,000
Other interest and
other income 2,806,000 3,046,000 5,415,000 5,308,000
------------ ------------ ------------ ------------
164,489,000 238,536,000 317,319,000 600,097,000
------------ ------------ ------------ ------------
Expenses:
Cost of sales,
store occupancy
and warehousing 120,719,000 182,572,000 233,614,000 469,847,000
Selling and
administrative 33,070,000 41,905,000 65,525,000 100,502,000
Depreciation and
amortization 4,062,000 5,543,000 8,053,000 12,397,000
Interest 4,069,000 3,248,000 8,026,000 6,428,000
Restructuring
charge (566,000) - (566,000) -
------------ ------------ ------------ ------------
161,354,000 233,268,000 314,652,000 589,174,000
------------ ------------ ------------ ------------
Income before income
taxes, equity in
affiliate and
minority interests 3,135,000 5,268,000 2,667,000 10,923,000
Income taxes 1,802,000 2,750,000 2,250,000 5,428,000
------------ ------------ ------------ ------------
Income before equity
in affiliate and
minority interests 1,333,000 2,518,000 417,000 5,495,000
Equity in affiliate 1,454,000 2,172,000 3,605,000 2,172,000
Minority interests
in income of
consolidated
subsidiaries and
partnerships (1,295,000) (1,827,000) (1,617,000) (3,707,000)
------------ ------------ ------------ ------------
Net income $ 1,492,000 $ 2,863,000 $ 2,405,000 $ 3,960,000
============ ============ =========== ============
</TABLE>
(continued on following page)
3
<PAGE> 4
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31 Six Months Ended July 31
-------------------------- -------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Earnings per common
share and common
share equivalents:
Net income $ .66 $ 1.34 $ .97 $ 1.85
============ ============ ============ ============
Weighted average
common share and
common share
equivalents
outstanding 1,890,000 1,856,000 1,889,000 1,868,000
============ ============ ============ ============
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
<TABLE>
<CAPTION>
(Unaudited) (Audited)
July 31, January 31,
1995 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 15,652,000 $ 17,984,000
Short-term instruments, including
$40,585,000 and $44,346,000 held
by majority owned subsidiaries at
July 31, 1995 and January 31, 1995,
respectively 90,497,000 84,390,000
Marketable debt securities 60,486,000 89,330,000
Accounts receivable 7,495,000 10,108,000
Merchandise inventories 184,525,000 195,675,000
Deferred income tax benefit 17,851,000 17,799,000
Other current assets 2,401,000 1,988,000
------------ ------------
Total Current Assets 378,907,000 417,274,000
------------ ------------
Property and Equipment, at cost:
Furniture, fixtures and equipment 82,831,000 76,713,000
Buildings and leasehold improvements 166,406,000 165,017,000
Land 33,396,000 33,396,000
Property under capital leases 27,129,000 27,129,000
------------ ------------
309,762,000 302,255,000
Accumulated Depreciation and
Amortization 83,405,000 76,451,000
------------ ------------
226,357,000 225,804,000
------------ ------------
Other Assets 8,648,000 8,643,000
------------ ------------
Share of Equity in Shoppers Food
Warehouse Corporation 44,581,000 40,983,000
------------ ------------
Excess of Purchase Price Over Net Assets
Acquired net of accumulated
amortization of $80,000 1,830,000 -
------------ ------------
Deferred Income Tax Benefit 10,786,000 13,785,000
------------ ------------
Total Assets $671,109,000 $706,489,000
============ ============
</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
<TABLE>
<CAPTION>
(Unaudited) (Audited)
July 31, January 31,
1995 1995
------------ ------------
<S> <C> <C>
Current Liabilities:
Current portion of mortgages payable $ 1,955,000 $ 1,981,000
Accounts payable, trade 88,503,000 106,292,000
Income taxes payable 4,239,000 7,148,000
Accrued salaries and employee benefits 17,544,000 17,934,000
Accrued taxes other than income taxes 12,896,000 9,475,000
Accrued judgement in favor of
Robert M. Haft 33,554,000 32,199,000
Current portion of reserve for closed
facilities and restructuring 10,558,000 11,330,000
Other accrued liabilities 41,596,000 50,132,000
Current portion of obligations under
capital leases 184,000 368,000
------------ ------------
Total Current Liabilities 211,029,000 236,859,000
------------ ------------
Mortgages Payable 79,042,000 79,620,000
------------ ------------
Obligations Under Capital Leases 29,989,000 29,792,000
------------ ------------
Reserve for Closed Facilities and
Restructuring 54,396,000 61,005,000
------------ ------------
Commitments and Contingencies
Minority Interests 94,113,000 99,850,000
------------ ------------
Stockholders' Equity
Class A common stock, non-voting,
par value $1.00 per share; 3,000,000
shares authorized; 1,660,678 shares
issued 1,661,000 1,661,000
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 65,331,000 65,384,000
Unrealized losses on short-term
investments (103,000) (1,024,000)
Retained earnings 137,097,000 134,788,000
</TABLE>
6
<PAGE> 7
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited) (Audited)
July 31, January 31,
1995 1995
------------ ------------
<S> <C> <C>
Treasury Stock, 202,340 shares of Class
A common stock, at cost (1,749,000) (1,749,000)
------------ ------------
Total Stockholders' Equity 202,540,000 199,363,000
------------ ------------
Total Liabilities and Stockholders' Equity $671,109,000 $706,489,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
7
<PAGE> 8
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,405,000 $ 3,960,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 8,053,000 9,093,000
Equity in affiliate (3,598,000) (3,222,000)
Reversal of closed stores and
restructuring charges (2,709,000) (98,000)
Change in assets and liabilities:
Accounts receivable 3,239,000 4,606,000
Merchandise inventories 10,808,000 (2,317,000)
Other current assets (413,000) 1,257,000
Deferred tax benefits 2,310,000 (617,000)
Other assets 61,000 (224,000)
Accounts payable, trade (17,789,000) (22,428,000)
Income taxes payable (2,909,000) 158,000
Accrued salaries and employee benefits 965,000 (619,000)
Accrued taxes other than income taxes 3,421,000 (1,078,000)
Other accrued liabilities (8,346,000) (10,999,000)
Reserve for closed facilities (4,432,000) (1,569,000)
Minority interests 2,200,000 2,657,000
------------- -------------
Net cash used in
operating activities $ (6,734,000) $ (21,440,000)
------------ -------------
Cash Flows from Securities and Capital
Investment Activities:
Capital expenditures $ (8,490,000) $ (7,078,000)
Decrease in cash and cash equivalents
as a result of deconsolidation of
Shoppers Food Warehouse Corp. - (61,014,000)
Acquisition of treasury shares by subsidiary (6,904,000) -
Purchases of bankers' acceptances - (28,198,000)
Maturities of bankers' acceptances - 90,505,000
Sales of United States Treasury Bills - 17,676,000
Purchases of United States Treasury Bills (17,604,000) (100,313,000)
Maturities of United States Treasury Bills 22,810,000 34,242,000
Sales of marketable debt securities 20,120,000 130,805,000
Purchases of marketable debt securities - (160,150,000)
Maturities of marketable debt securities 4,450,000 2,985,000
</TABLE>
8
<PAGE> 9
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Proceeds from reverse repurchase
agreements and unsettled trades of
marketable debt securities - 17,079,000
------------- -------------
Net cash provided by (used in)
securities and capital
investment activities $ 14,382,000 $ (63,461,000)
------------- -------------
Cash Flows from Financing Activities:
Cash dividends $ (97,000) $ (97,000)
Stock options exercised - 10,000
Distributions paid to minority partner (2,988,000) (1,776,000)
Principal payments under mortgage
obligations (604,000) (648,000)
Principal payments under capital
lease obligations (184,000) (173,000)
------------- -------------
Net cash used in
financing activities $ (3,873,000) $ (2,684,000)
------------- -------------
Net Increase (Decrease) in Cash and
Equivalents $ 3,775,000 $ (87,585,000)
Cash and Equivalents at Beginning
of Year 102,374,000 156,233,000
------------- -------------
Cash and Equivalents at End of Period $ 106,149,000 $ 68,648,000
============= =============
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $ 6,071,000 $ 6,428,000
Income taxes 2,916,000 5,739,000
Reconciliation of Cash and Equivalents
to Balance Sheet Captions:
Cash $ 15,652,000 $ 13,605,000
Short-term investment of majority-owned
subsidiaries utilized in their 90,497,000 55,043,000
operating cash management ------------- -------------
$ 106,149,000 $ 68,648,000
============= =============
</TABLE>
9
<PAGE> 10
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995 AND 1994
(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"), Total Beverage Corporation ("Total Beverage"), Cabot-Morgan Real
Estate Company ("CMREC"), and Dart Group Financial Corporation ("Dart
Financial"). The accounts of Shoppers Food Warehouse Corp. ("Shoppers Food")
are consolidated with the Corporation's financial statements through May 28,
1994, but not thereafter, as a result of a reduction of the Corporation's
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. 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,
1995 and 1994 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, 1995 and 1994 and the results of operations and cash
flows for the periods indicated.
The results of operations for the six months ended July 31, 1995 are not
necessarily indicative of the results to be achieved for the full fiscal year.
Certain reclassifications have been made to the January 31, 1995 balance
sheet in order to conform to the current period presentation.
(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 majority-owned
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.
10
<PAGE> 11
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995 AND 1994
(Unaudited)
(3) Short-term Instruments and Marketable Debt Securities:
At July 31, 1995, the Company's short-term instruments included United
States Treasury Bills and money market funds. Marketable debt securities
included United States Treasury Notes, corporate notes, municipal securities
and United States Agency Securities Acceptances.
Management determines the appropriate classification of its investments in
debt securities at the time of purchase and reevaluates such determination at
each balance sheet date. Debt securities for which the Company does not have
the intent or ability to hold to maturity are classified as available for sale.
Securities available for sale are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of stockholders'
equity. At July 31, 1995, market value of short-term instruments and
marketable debt securities was $103,000 less than cost (adjusted for income
taxes). At July 31, 1995, the Company had no investments that qualified as
trading or held to maturity.
The amortized cost of debt securities classified as available for sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and interest are included in interest income. Realized gains
and losses are included in other income or expense. The cost of securities
sold is based on the specific identification method.
(4) Interim Inventory Estimates:
Trak Auto inventories are priced at the lower of last-in, first-out
("LIFO") cost or market. At July 31, 1995 and January 31, 1995, Trak Auto
inventories determined on a lower of first-in, first-out ("FIFO") cost or
market basis would have been greater by $6,216,000 and $5,870,000,
respectively. 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. Complete physical inventories
were taken for the quarter ended July 31, 1995. The Company uses a gross
profit method combined with available perpetual inventory information to
determine Trak Auto's, Crown Books', and Total Beverage's inventories for
quarters when complete physical counts are not taken.
11
<PAGE> 12
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995 AND 1994
(Unaudited)
(5) Credit Agreement:
The Corporation has entered into a $10 million revolving credit
agreement with Trak Auto. The credit agreement is intended to be used for
Trak Auto's short-term working capital purposes. Any advance under this credit
agreement bears interest at an annual rate equal to the prime rate as set
forth in the "Money Rates" column of the Wall Street Journal, as such rate may
change from time to time, plus one percent (1%). Interest shall be paid
monthly in arrears and the agreement expires on May 1, 1996. At July 31, 1995,
there had been no borrowings under this credit agreement.
(6) Minority Interests:
The $94,113,000 of minority interests reflected in the Consolidated Balance
Sheet as of July 31, 1995 represents the minority portion of real estate
partnership equity owned by Haft family partnerships (CMREC owns the majority
interest in these partnerships) and the portion of Trak Auto and Crown Books
equity owned by the public shareholders of Trak Auto and Crown Books. Income
attributed to the minority shareholders of Trak Auto was $1,290,000 and
$2,081,000 for the six months ended July 31, 1995 and 1994, respectively and
$920,000 and $1,207,000 for the three months ended July 31, 1995 and 1994,
respectively. Income (loss) attributed to the minority shareholders of Crown
Books was $(65,000) and $498,000 for the six months ended July 31, 1995 and
1994, respectively and $122,000 and $296,000 for the three months ended July
31, 1995 and 1994, respectively. Income attributed to the minority ownership of
Shoppers Food was $1,050,000 for the six months ended July 31, 1994 (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 $392,000 and $78,000 for the six months ended July 31, 1995
and 1994, respectively and $253,000 and $21,000 for the three months under July
31, 1995 and 1994, respectively.
12
<PAGE> 13
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1995 AND 1994
(Unaudited)
(7) Transactions With Affiliate:
The following information reflects the results of Shoppers Food for the
six months and three months ended July 31, 1995.
<TABLE>
<CAPTION>
Three months ended Six months ended
July 31, 1995 July 31, 1995
------------------ ----------------
<S> <C> <C>
Revenue $ 202,587,000 $ 401,978,000
Gross Profit 34,483,000 68,567,000
Net Income $ 3,458,000 $ 8,327,000
</TABLE>
(8) Tender Offer:
On December 21, 1994, Trak Auto offered to buy back from its
shareholders approximately 24% of its outstanding common stock, or 1,500,000
shares, at a price of $17.50 per share. On February 6, 1995, Trak Auto amended
the offer by increasing the purchase price to $20.50 per share, and made
certain other changes. When the offer expired on February 28, 1995, Trak Auto
had repurchased approximately 310,000 shares for a total consideration of
$6,363,000 plus expenses of approximately $541,000.
As a result of the repurchase, the Corporation's interest in Trak Auto
increased to 68.0%. The repurchase has been accounted for as a step
acquisition, minority interest decreased approximately $4,994,000 with a
related increase in goodwill of $1,910,000, which is being amortized over ten
years.
13
<PAGE> 14
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
securities, is the Company's primary source of liquidity. Cash, including
short-term instruments and U.S. government and other marketable debt securities
decreased by $25,069,000 to $166,635,000 at July 31, 1995 from $191,704,000 at
January 31, 1995. This decrease was primarily due to Trak Auto's repurchase of
approximately 310,000 shares of its outstanding common stock, capital
expenditures and operating results.
For the quarter ended July 31, 1995, the Company realized a pre-tax yield
of approximately 5.8% on United States Treasury Bills and approximately 6.3% on
the marketable debt securities.
Operating activities used $6,734,000 of the Company's funds for the six
months ended July 31, 1995 compared to $21,440,000 of the Company's funds for
the same period one year ago. The primary use of cash for the six months ended
July 31, 1995 was for payments for Trak Auto and Crown Books merchandise
inventory purchases and Crown Books payments on expense liabilities outstanding
at January 31, 1995.
Investing activities provided $14,382,000 to the Company for the six months
ended July 31, 1995, compared to using $63,461,000 for the same period last
year. The primary source of funds for the six months ended July 31, 1995 was
the sale of marketable debt securities and net disposition of United States
Treasury Bills and was partially offset by Trak Auto's repurchase of its
outstanding common stock and by capital expenditures. The primary use of funds
for the six months ended July 31, 1994 was due to the deconsolidation of
Shoppers Food.
The Company used $3,873,000 and $2,684,000 for net financing activities for
the six months ended July 31, 1995 and 1994, respectively. The primary use of
funds during the six months ended July 31, 1995 was due to CMREC's
partnerships' distribution of funds to minority partnership interests.
Crown Books Closed Store and Restructuring Reserves
During the past three fiscal years, Crown Books has recorded charges in
connection with store closings and restructurings. During the year ended
January 30, 1993, Crown Books recorded a restructuring charge of $6,600,000 for
anticipated costs associated with a restructuring plan to close, relocate,
expand and convert approximately 50 Classic Crown Books stores to a Super Crown
Books format. During the twenty-six weeks ended July 29, 1995, Crown Books
charged approximately $755,000 against this reserve in connection with the
closing, relocation, expansion or conversion of approximately 40 stores.
14
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
Liquidity and Capital Resources, Continued
These charges consisted primarily of unrecoverable lease costs (including
buyouts of remaining lease terms) and the remaining book value of leasehold
improvements and store fixtures for stores that have closed.
In the year ended January 29, 1994, Crown Books determined that seven
of the smaller Super Crown Books stores (typically 6,000 - 10,000 square feet)
opened in prior years were no longer competitive in the current market
environment and in light of the industry's movement to larger stores.
Accordingly, Crown Books recorded an additional restructuring charge of
$6,200,000 in the year ended January 29, 1994, representing the anticipated
costs (unrecoverable lease costs and the remaining book value of leasehold
improvements and store fixtures subsequent to management's estimate of the
stores' closing dates) associated with closing, relocating and converting these
stores to the new, larger prototype. At July 29, 1995, Crown Books had not
charged any costs in connection with this reserve. However, Crown Books has
concluded that one store originally scheduled for closure will no longer be
closed and has reversed approximately $566,000 of the restructuring reserve.
Crown Books presently expects to complete the restructuring related to these
six stores during the next 18 months.
The activity in restructuring reserve during the twenty-six weeks ending
July 29, 1995 is summarized as follows:
<TABLE>
<S> <C>
Restructuring Reserve as of January 28, 1995 $10,515,000
Less: Costs charged against reserve (755,000)
Reversal of reserve for store
not to be closed (566,000)
-----------
Restructuring reserve as of July 29, 1995 $ 9,194,000
===========
</TABLE>
During the twenty-six weeks ended July 29, 1995, Crown Books charged
certain costs for closed stores relating to unrecoverable lease costs and
leasehold improvements against the closed store reserve. Crown Books reversed
approximately $2,000,000 of the reserve for a store that will no longer be
closed in Houston, Texas, pursuant to a Crown Books Board of Directors August
10, 1995 decision to remain in the Houston market and due to improving
operating performance of that store. An additional $1,100,000 of the reserve
was reversed for costs relating to other stores that were closed under
negotiated lease settlement terms that were more favorable than originally
anticipated and changes in planned closing dates for other stores. The
reversal of the closed store reserve has been recorded as a reduction of cost
of sales, store occupancy and warehousing in the accompanying consolidated
statement of income.
15
<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
Liquidity and Capital Resources, Continued
The activity in the closed store reserve during the twenty-six weeks
ending July 29, 1995 is summarized as follows:
<TABLE>
<S> <C>
Closed store reserve as of January 28, 1995 $20,241,000
Less: Cost charged against the reserve (1,376,000)
Reversal of reserve for closed stores (3,110,000)
-----------
Closed store reserve as of July 29, 1995 $15,755,000
===========
</TABLE>
Crown Books will continue to evaluate the performance and future
viability of its remaining stores and may close additional stores in the
future. No reserves for these stores have been recorded. The closings of
these small and underperforming stores may, where appropriate, be coordinated
with the opening of Super Crown Books stores in those markets where Crown Books
plans to maintain or expand its presence. A commitment has been made to
accelerate the opening of stores in the Super Crown Books format.
Management plans the opening of 28 Super Crown Books stores varying in
size from 12,000 to 18,000 square feet over the next 6-12 months. These stores
will total approximately 420,000 square feet of new space.
At July 31, 1995, Crown Books had eleven signed leases for Super Crown
stores and four signed amendments to existing leases for expansion to Super
Crown stores. Trak Auto had seven signed leases for new Super Trak or Super
Trak Warehouse stores and one signed amendment for additional space in an
existing store for a Super Trak store. Total Beverage had a signed lease for a
new store.
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 and existing current assets.
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
During the twenty-six weeks ended July 29, 1995, Trak Auto opened or
converted four Super Trak stores and seven Super Trak Warehouse stores, and
16
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
closed or converted four Super Trak stores and 18 classic Trak stores. At July
29, 1995, Trak Auto had 271 stores, including 106 Super Trak stores and 14
Super Trak Warehouse stores.
Sales of $166,018,000 during the twenty-six weeks ended July 29, 1995
decreased by $11,549,000 or 6.5% compared to the same period one year ago while
sales of $86,407,000 during the thirteen weeks ended July 29, 1995 decreased
$2,773,000 or 3.1% compared to the same period one year ago. The decreases were
primarily attributable to a net decrease in the number of stores and, during
the thirteen weeks ended April 29, 1995, to the overall mild winter conditions
in Chicago and Washington, D.C. and the rains and flooding in Los Angeles.
Comparable sales (stores open more than one year) decreased 5.5% and 3.1% for
the twenty-six weeks and thirteen weeks ended July 29, 1995. Sales for
comparable Super Trak Stores decreased 4.1% and 2.0% for the twenty-six weeks
and thirteen weeks ended July 29, 1995 and sales for comparable classic Trak
stores decreased 6.6% and 4.1% for the twenty-six weeks and thirteen weeks
ended July 29, 1995. Sales for Super Trak and Super Trak Warehouse stores
represented 54.1% and 55.4% of total sales during the twenty-six weeks and
thirteen weeks ended July 29, 1995 compared to 38.4% and 40.6% for the
twenty-six weeks and thirteen weeks ended July 30, 1994.
Interest and other income increased by $446,000 and $258,000 during the
twenty-six weeks and thirteen weeks ended July 29, 1995, respectively when
compared to the prior year, largely due to higher interest rates on Trak Auto's
short-term investments.
Cost of sales, store occupancy and warehousing expenses as a percentage
of sales were 74.0% and 73.7% for the twenty-six weeks and thirteen weeks ended
July 29, 1995 compared to 72.4% and 71.6% for the same periods in the prior
year. The increases were primarily due to higher occupancy costs for Super
Trak and Super Trak Warehouse stores. In addition, store margins decreased
during the thirteen weeks ended July 29, 1995 as a result of special pricing
and sales mix in conjunction with grand openings for new or converted stores.
Selling and administrative expenses were 20.2% and 19.3% as a
percentage of sales for the twenty-six weeks and thirteen weeks ended July 29,
1995 compared to 19.7% and 19.6% for the twenty-six weeks and thirteen weeks
ended July 30, 1994. The increase for the twenty-six weeks was due primarily
to increased payroll costs, as a percentage of sales (actual payroll dollars
decreased) and the decrease for the thirteen weeks was due primarily to
improved payroll leveraging against sales.
Depreciation and amortization expenses decreased $846,000 and $566,000
for the twenty-six weeks and thirteen weeks ended July 29, 1995 compared to the
17
<PAGE> 18
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
same periods one year ago. The decreases were due to the store point-of-sale
register systems being fully depreciated.
The effective income tax rate was 36.7% for the twenty-six weeks ended
July 29, 1995 compared to 36.8% for the twenty-six weeks ended July 30, 1994.
Crown Books
Sales of $124,911,000 for the twenty-six weeks ended July 29, 1995
decreased by $12,910,000 or 9.4% over the same period one year ago while sales
of $63,873,000 for the thirteen weeks ended July 29, 1995 decreased by
$8,306,000 or 11.5% over the same period one year ago. The decreases were
primarily the result of closing 45 stores since January 1, 1995. Comparable
sales (sales for stores open for fifteen months) decreased 4.5% and 5.4% during
the twenty-six weeks and thirteen week periods. Sales for Super Crown Books
stores represented 62.7% and 52.8% of total sales for the twenty-six weeks
ended July 29, 1995 and July 30, 1994, respectively and 63.4% and 54.0% of
total sales for the thirteen weeks ended July 29, 1995 and July 30, 1994,
respectively. Super Crown Books stores' sales of $78,363,000 and $40,500,000
for twenty-six weeks and thirteen weeks ended July 29, 1995 increased 7.7% and
3.8% over the prior year and sales for comparable Super Crown Books stores
decreased 2.6% and 3.1%. Classic Crown Books stores' sales of $46,548,000 and
$23,373,000 for the twenty-six weeks and thirteen weeks ended July 29, 1995
decreased 28.4% and 28.5% from the prior year and sales for comparable classic
Crown Books stores decreased 7.1% and 8.7% during the twenty-six and thirteen
weeks ended July 29, 1995.
During the twenty-six weeks ended July 29, 1995, Crown Books closed eight
classic Crown Books stores. At July 29, 1995, Crown Books had 188 stores
including 70 Super Crown Books stores. Subsequent to July 29, 1995, Crown
Books closed eight additional classic stores and one Super Crown Books store
while opening four Super Crown Books stores.
Interest and other income increased by $384,000 and $137,000 during the
twenty-six and thirteen weeks ended July 29, 1995 when compared to the same
periods one year ago. The increases were primarily due to higher interest
rates on Crown Books' short-term investments.
Cost of sales, store occupancy and warehousing as a percentage of sales
were 81.4% and 80.9% for the twenty-six weeks and thirteen weeks ended July 29,
1995 compared to 82.6% and 82.9% for the same periods last year. The decreases
were primarily due to an increase in store margins as a result of a favorable
change in sales mix and improved controls over store shrink and purchasing.
The decreases were partially offset by increased store occupancy costs.
18
<PAGE> 19
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
Selling and administrative expenses as a percentage of sales were 17.7%
for both the twenty-six weeks and thirteen weeks ended July 29, 1995 compared
to 15.0% and 14.5% for the same period last year. The increases were due
primarily to increased payroll costs, costs associated with the executive
committee and costs incurred to identify and improve Crown Books' market share.
Depreciation expense increased $187,000 for the twenty-six weeks ended July
29, 1995 compared to the same period one year ago. The increase was primarily
due to increased fixed assets for new Super Crown Books stores, an upgrade to
the point-of-sale register systems and additional computer hardware at the
distribution centers.
Interest expense increased by $434,000 due to interest accrued for the
Robert M. Haft judgement.
Crown Books recorded a tax benefit of $75,000 for the twenty-six weeks
ended July 29, 1995, as compared to income tax expense of $576,000 for the same
period one year ago. Crown Books recorded a $2,500,000, valuation allowance in
fiscal year 1995 due to uncertainties relating to the timing of the reversal of
certain temporary tax differences. In management's opinion no additional
valuation allowance is necessary at this time.
Total Beverage
During the six months ended July 31, 1995, Total Beverage opened a new
store that returned its store count to three and subsequent to July 31, 1995
opened its fourth store.
Total Beverage sales were $11,229,000 and $6,496,000 during the six
months and three months ended July 31, 1995 compared to $11,010,000 and
$5,980,000 for the same periods one year ago. The increases were due to the
opening of a new store and a comparable sales increase of 5.0% and 6.8% for the
six months and three months ended July 31, 1995.
Cost of sales and store occupancy as a percentage of sales were 81.3%
and 82.4% during the six months and three months ended July 31, 1995 compared
to 85.8% and 87.5% for the same periods one year ago. The decreases were
primarily due to increased margins and to a lesser extent better leverage on
fixed costs due to increased sales.
Total Beverage recorded net operating losses of $682,000 and $310,000
during the six months and three months ended July 31, 1995 compared to net
operating losses of $1,547,000 and $868,000 during the six months and three
months ended July 31, 1994. Management of the Corporation and Total Beverage
19
<PAGE> 20
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
believe that the Total Beverage concept is viable and that with more stores to
absorb overhead costs, Total Beverage will generate a reasonable return on
investment.
Cabot-Morgan Real Estate
Revenues from real estate properties increased by $260,000 to $9,746,000
during the six months ended July 31, 1995 when compared to the same period one
year ago. The increase was primarily the result of a higher occupancy rate at
Bull Run Plaza and to increased tenant reimbursements for certain maintenance
costs.
Administrative expenses for CMREC partnerships decreased $254,000 and
$267,000 during the six months ended July 31, 1995 compared to the six months
ended July 31, 1994 primarily due to decreased professional fees.
Depreciation expense was $2,283,000 during the six months ended July 31,
1995 compared to $2,277,000 for the same period one year ago and interest
expense decreased by $70,000 to $4,171,000 during the six months ended July 31,
1995 compared to the same period one year ago.
Dart Group and Other Corporate
Interest and other income increased $1,429,000 and $435,000 during the six
months and three months ended July 31, 1995 when compared to the same periods
in the prior year. The increases were primarily due to the Corporation's
decision to invest in United States Treasury Bills as its bankers' acceptances
matured during the first six months last year and to higher interest rates on
the Corporation's short-term investments.
Administrative expenses increased $869,000 and $389,000 during the six
months and three months ended July 31, 1995, primarily due to costs associated
with continuing shareholder litigation and executive committee activity.
Interest expense increased by $1,540,000 and $808,000 during the six months
and three months ended July 31, 1995 when compared to the same periods in the
prior year. The increases were the result of interest accrued for the Pennsy
Warehouse Lease reserve and the Robert M. Haft judgment.
Trak Auto, Crown Books and Shoppers Food 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.
20
<PAGE> 21
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
As a result of the Corporation's operating loss for the six months ended
July 31, 1995, a net tax operating loss carryforward of $6,832,000 was created.
The Corporation's cumulative total net tax operating loss carryforward is
$25,167,000. All net operating loss carryforwards will expire by fiscal 2011.
In addition, the Corporation has an Alternative Minimum Tax credit carryforward
of approximately $1,010,000. The Corporation has a deferred tax valuation
allowance of $26,603,000 as of July 31, 1995. Management will continue to
evaluate the need for a valuation allowance on a periodic basis.
Effect of New Financial Accounting Standard
The Company is required to adopt the Statement of Financial Accounting
Standards No. 114, ("SFAS No. 114") Accounting by Creditors for Impairment of
a Loan. Implementation of the standard is not expected to have a significant
impact on the financial statements.
The Company is required to adopt Statement of Financial Accounting
Standards No. 121, Accounting for Long Lived Assets, no later than its fiscal
year ending January 31, 1997. The Company has not determined the impact of
this recently issued accounting standard on the Company's consolidated
financial statements.
21
<PAGE> 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings pending against the Corporation
or its subsidiaries other than such proceedings described in the Corporation's
Annual Report on Form 10-K for the year ended January 31, 1995 (the "Annual
Report") and as described below.
Ronald S. Haft Stock Options
As discussed in the Annual Report, on September 12, 1994, Ronald S. Haft
filed a lawsuit against the Corporation (Ronald S. Haft v. Dart Group
Corporation, Del. Ch., C.A. No. 13736) (the "Options Lawsuit") in the Delaware
Court of Chancery for New Castle County seeking a court order that the
Corporation issue 197,048 shares of Class B Common Stock to him and grant him a
loan of $17,665,353.20 to be used as part of the payment for such shares.
Because of active settlement negotiations between the parties in the Options
Lawsuit, trial has been rescheduled for February 12, 1996.
Robert M. Haft Options Litigation
As discussed in the Annual Report, on February 10, 1995, Robert M. Haft
filed a complaint in the United States District Court for the District of
Delaware against the Corporation seeking specific performance or damages in
connection with the refusal of the Corporation to issue shares of Class A
Common Stock to him pursuant to his exercise of certain options purportedly
granted to him by the Corporation. The Corporation filed a counterclaim on
July 7, 1995 demanding that the stock option plans and stock option agreement
that are the subject of the litigation be declared void, rescinded and
unenforceable. The Corporation has filed a motion to join Herbert H. Haft,
Linda G. Haft, Ronald S. Haft and Robert M. Haft, in his capacity as trustee
for the Michael Alexander Haft Trust and the Nicholas Gabriel Haft Trust, as
party defendants to the Corporation's counterclaim.
Herbert H. Haft's Proxy
In connection with Herbert H. Haft's sale of 172,730 shares of Class B
Common Stock to Ronald S. Haft on July 28, 1993 (the "Stock Sale Agreement"),
Ronald S. Haft purportedly granted Herbert H. Haft an irrevocable proxy (the
"Proxy") to vote these shares of stock until Herbert H. Haft's death or
incapacitation. On June 30, 1995, Ronald S. Haft sent a letter to Herbert H.
Haft purportedly revoking this proxy.
On July 18, 1995, Ronald S. Haft filed a lawsuit against Herbert H.
Haft, and, nominally, the Corporation in the Delaware Court of Chancery for New
Castle County for Herbert H. Haft's alleged breach of contract and breach of
22
<PAGE> 23
PART II - OTHER INFORMATION (Continued)
fiduciary duties to Ronald S. Haft and to the Corporation in connection with
the Proxy (Ronald S. Haft v. Herbert H. Haft, et al., C.A. No. 14425). In this
action, Ronald S. Haft seeks a declaration that the Proxy is revocable or will
be revocable under certain conditions, as well as costs and attorneys' fees.
Ronald S. Haft also requests that the Court require the Corporation to refuse
to recognize the validity of the Proxy. On August 9, 1995, Herbert H. Haft
filed an Answer and Counterclaim denying liability and requesting rescission of
the Stock Sale Agreement because of Ronald S. Haft's alleged breach of contract
and other grounds. The Corporation has not yet filed an answer in this action.
Both Ronald S. Haft and Herbert H. Haft have moved for summary judgment in this
lawsuit. Herbert Haft has also moved to have this action consolidated with the
Options Lawsuit under certain conditions.
Robert M. Haft Release Litigation
On June 12, 1995, Robert M. Haft filed a complaint in the Superior Court
of the District of Columbia against the Corporation seeking a declaratory
judgment determining that a claimed release bars the Corporation from bringing
suit against him in the Pennsy Warehouse litigation, which is described in the
Annual Report. The complaint also seeks an injunction to bar the Corporation
from filing certain other categories of future complaints against him based on
the so-called release. Compensation for the costs of defense of the Pennsy
Warehouse litigation is also sought. The "release" relied upon in this
litigation is also set up by Robert M. Haft in the Pennsy Warehouse
litigation. Accordingly, the Corporation has moved to dismiss the Superior
Court case, asserting that the issue should be resolved in the earlier-filed
Pennsy Warehouse litigation where the Corporation contends that the "release"
is ineffective for a variety of reasons.
Item 4. Submission of Matters to a Vote of Security Holders
Herbert H. Haft, as holder by irrevocable proxy of the right to vote
more than fifty percent of the outstanding voting capital stock of the
Corporation, took action on June 4, 1995, to re-elect all five incumbent
Directors to the Corporation's Board of Directors by less than unanimous
written consent in lieu of taking such action at an annual meeting of
stockholders. These Directors are as follows:
Herbert H. Haft
Ronald S. Haft
Larry G. Schafran
Bonita A. Wilson
Douglas M. Bregman
23
<PAGE> 24
PART II - OTHER INFORMATION (Continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Document
------- --------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Corporation has filed one Current Report on Form 8-K during the
quarter ended July 31, 1995.
1. The Corporation filed a Current Report on Form 8-K on July 13,
1995, reporting certain correspondence between Ronald S. Haft
and Herbert H. Haft.
24
<PAGE> 25
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, 1995 By Herbert H. Haft
-------------------- -----------------------------
HERBERT H. HAFT
Chief Executive Officer
Date September 14, 1995 Robert A. Marmon
-------------------- -----------------------------
ROBERT A. MARMON
Senior Vice President and
Chief Financial Officer
25
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JUL-31-1995
<CASH> 106,149
<SECURITIES> 60,486
<RECEIVABLES> 7,495
<ALLOWANCES> 0
<INVENTORY> 184,525
<CURRENT-ASSETS> 378,907
<PP&E> 309,762
<DEPRECIATION> 83,405
<TOTAL-ASSETS> 671,109
<CURRENT-LIABILITIES> 211,029
<BONDS> 109,031
<COMMON> 1,964
0
0
<OTHER-SE> 200,576
<TOTAL-LIABILITY-AND-EQUITY> 671,109
<SALES> 302,158
<TOTAL-REVENUES> 317,319
<CGS> 233,614
<TOTAL-COSTS> 233,614
<OTHER-EXPENSES> 73,012
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,026
<INCOME-PRETAX> 2,667
<INCOME-TAX> 2,250
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