<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
(X) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required) for the fiscal year ended January 31, 1996
-------------------
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) 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 (I.R.S. Employer
incorporation or organization) Identification No.)
3300 75th Avenue, Landover, Maryland 20785
- ------------------------------------ ------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (301) 731-1200
-----------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
--------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $1.00 Per Share
- --------------------------------------------------------------------------------
(Title of Class)
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
At April 30, 1996, the registrant had 1,746,908 shares of Class A Common Stock
outstanding and the aggregate market value of such shares held by
non-affiliates of the registrant was approximately $98,664,000. The Class B
Common Stock, of which these are 327,270 shares outstanding, is the only voting
stock and is not publicly traded.
All of the Registrant's voting stock, Class B Common Stock, is held by
affiliates.
The exhibit index begins at page 18 of this Amendment No. 1.
1
<PAGE> 2
This Amendment No. 1 amends the registrant's Annual Report on Form 10-K (the
"Form 10-K") for the year ended January 31, 1996, which was filed on April 30,
1996. All capitalized terms not otherwise defined herein shall have the
meaning assigned to such terms in the Form 10-K.
Item 14(a)(1) of the Form 10-K is hereby amended and supplemented by adding the
audited financial statements of Shoppers Food Warehouse Corp. for its fiscal
year ended June 29, 1996, as follows:
2
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Shoppers Food Warehouse Corp.:
We have audited the accompanying consolidated balance sheets of Shoppers Food
Warehouse Corp. (a Delaware corporation) and subsidiaries as of June 29, 1996,
and July 1, 1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three fiscal years in the
period ended June 29, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Shoppers Food Warehouse Corp.
and subsidiaries as of June 29, 1996, and July 1, 1995, and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended June 29, 1996, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The Schedule of Valuation and Qualifying Accounts
is presented for the purpose of additional analysis and is not a required part
of the basic financial statements. This information has been subjected to the
auditing procedures applied in our audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
Washington, D.C.,
September 26, 1996
ARTHUR ANDERSEN LLP
3
<PAGE> 4
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 29, 1996 AND JULY 1, 1995
ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 29, JULY 1,
1996 1995
----------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,560 $ 38,650
Short-term investments 103,080 58,353
Accounts receivable 7,708 7,633
Merchandise inventories 28,342 27,253
Prepaid expenses 1,022 956
Income tax receivable 273 -
Due from affiliate 522 522
----------- ---------
Total current assets 144,507 133,367
----------- ---------
PROPERTY AND EQUIPMENT, at cost:
Land and buildings 9,120 9,120
Store and warehouse equipment 75,827 71,195
Office and automotive equipment 3,727 3,655
Leasehold improvements 2,655 2,477
----------- ---------
91,329 86,447
Accumulated depreciation
and amortization (69,944) (63,504)
----------- ---------
Net property and equipment 21,385 22,943
DEFERRED INCOME TAXES 4,289 4,577
OTHER ASSETS 841 1,116
----------- ---------
Total assets $171,022 $162,003
=========== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
4
<PAGE> 5
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 29, 1996 AND JULY 1, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 29, JULY 1,
1996 1995
---------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 39,865 $ 38,275
Accrued expenses-
Salaries and benefits 5,220 4,931
Taxes, other than income 1,996 1,934
Other 5,150 4,623
Income taxes payable - 2,152
---------- ---------
Total current liabilities 52,231 51,915
CAPITAL LEASE OBLIGATION 10,069 9,950
DEFERRED INCOME 412 1,218
DEFERRED RENT LIABILITY 4,277 3,590
---------- ---------
Total liabilities 66,989 66,673
---------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 6)
STOCKHOLDERS' EQUITY:
Class A common stock, nonvoting, par value
$5 per share, 25,000 shares authorized,
23,333-1/3 shares issued and outstanding 117 117
Class B common stock, voting, par value $5
per share, 25,000 shares authorized, 10,000
shares issued and outstanding 50 50
Retained earnings 103,866 95,163
---------- ---------
Total stockholders' equity 104,033 95,330
---------- ---------
Total liabilities and stockholders' equity $171,022 $162,003
========== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
5
<PAGE> 6
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED JUNE 29, 1996, JULY 1, 1995 AND JULY 2, 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 29, JULY 1, JULY 2,
1996 1995 1994
------------ ----------- ------------
(52 weeks) (52 weeks) (52 weeks)
<S> <C> <C> <C>
SALES $835,971 $790,842 $750,340
COST OF SALES 651,986 616,521 593,063
------------ ----------- ------------
Gross profit 183,985 174,321 157,277
SELLING AND ADMINISTRATIVE EXPENSES 149,570 136,798 127,643
DEPRECIATION AND AMORTIZATION 8,913 8,529 10,785
------------ ----------- ------------
Operating income 25,502 28,994 18,849
INTEREST INCOME 5,789 4,682 2,189
INTEREST EXPENSE 1,771 1,451 1,426
------------ ----------- ------------
Income before income taxes and extraordinary item 29,520 32,225 19,612
PROVISION FOR INCOME TAXES 10,593 13,938 7,541
------------ ----------- ------------
Income before extraordinary item 18,927 18,287 12,071
EXTRAORDINARY GAIN (LOSS)- Insurance proceeds from
fire, net of income tax (benefit) provision of
($131), $826 and $502 in 1996, 1995 and 1994,
respectively (see Note 6) (224) 1,239 858
------------ ----------- ------------
Net income $ 18,703 $ 19,526 $ 12,929
============ =========== ============
EARNINGS PER COMMON SHARE DATA:
Earnings per share before extraordinary item $ 567.81 $ 548.61 $ 362.13
Extraordinary item, net of income tax benefit (6.72) 37.17 25.74
------------ ----------- ------------
Earnings per common share $ 561.09 $ 585.78 $ 387.87
============ =========== ============
Weighted average number of common shares outstanding 33,333-1/3 33,333-1/3 33,333-1/3
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
6
<PAGE> 7
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JUNE 29, 1996, JULY 1, 1995 AND JULY 2, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------
CLASS "A" CLASS "B" RETAINED
NONVOTING VOTING EARNINGS TOTAL
-------------- -------------- ---------- --------
<S> <C> <C> <C> <C>
BALANCE, July 3, 1993 $117 $50 $ 62,708 $ 62,875
Net income - - 12,929 12,929
------- ------- ----------- ----------
BALANCE, July 2, 1994 117 50 75,637 75,804
Net income - - 19,526 19,526
------- ------- ----------- ----------
BALANCE, July 1, 1995 117 50 95,163 95,330
Net income - - 18,703 18,703
Shareholder distribution - - (10,000) (10,000)
------- ------- ----------- ----------
BALANCE, June 29, 1996 $117 $50 $103,866 $104,033
======= ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
7
<PAGE> 8
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JUNE 29, 1996, JULY 1, 1995 AND JULY 2, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 29, JULY 1, JULY 2,
1996 1995 1994
------------ ------------- ------------
(52 weeks) (52 weeks) (52 weeks)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $18,703 $19,526 $12,929
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 8,913 8,529 10,785
Increase in deferred income taxes 288 (1,058) (594)
Loss (gain) on disposition of assets - 34 (15)
Effect of insurance receivable on income - - (104)
Interest expense in excess of capital lease payments 119 208 240
Increase in deferred rent liability 687 553 1,082
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (75) 1,028 (3,952)
(Increase) decrease in merchandise inventories (1,089) 1,810 (2,455)
Increase in prepaid expenses (66) (63) (53)
Decrease in due from affiliate - 490 -
Decrease (increase) in other assets 275 (252) (354)
Increase in accounts payable 1,590 2,009 1,544
Increase (decrease) in accrued expenses 878 (1,023) 241
(Decrease) increase in income taxes payable (2,425) 1,307 144
Decrease in deferred income (806) (1,191) (1,177)
---------- ---------- ----------
Net cash provided by operating activities 26,992 31,907 18,261
---------- ---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (7,355) (4,693) (5,112)
Proceeds from sale of fixed assets - - 15
Increase in short-term investments (44,727) (55,781) (1,962)
---------- ---------- ----------
Net cash used in investing activities (52,082) (60,474) (7,059)
---------- ---------- ----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Shareholder distribution (10,000) - -
---------- ---------- ----------
Net cash used in financing activities (10,000) - -
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (35,090) (28,567) 11,202
CASH AND CASH EQUIVALENTS, beginning of fiscal year 38,650 67,217 56,015
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of fiscal year $ 3,560 $38,650 $67,217
========== ========== ==========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the fiscal year for-
Income taxes $12,487 $12,091 $ 8,525
Interest $ 1,771 $ 1,451 $ 1,456
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY:
In fiscal year 1994, the Company recorded an
insurance receivable and wrote-off certain assets
with a net book value of $708,000 due to fire damage
(See Note 6)
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
8
<PAGE> 9
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 29, 1996 AND JULY 1, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
The consolidated financial statements include Shoppers Food Warehouse Corp. (a
Delaware corporation) and its subsidiaries, collectively the "Company." All
significant intercompany accounts and transactions have been eliminated. As of
June 29, 1996, and July 1, 1995, the Company operated 34 and 33 warehouse-style
grocery stores, respectively, in Maryland and Virginia.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to June 30, resulting in
a 52- or 53-week year. The fiscal years ended June 29, 1996, July 1, 1995, and
July 2, 1994, contained 52 weeks.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary cash investments with
maturities of three months or less when purchased to be cash equivalents. The
majority of these are invested in U.S. Treasury Notes.
SHORT-TERM INVESTMENTS
Effective July 1994, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The Company carries debt securities at amortized cost as
it has both the positive intent and ability to hold these investments to
maturity. The effect of adopting SFAS No. 115 did not materially impact the
Company's financial position or results of its operations. At June 29, 1996,
and July 1, 1995, short-term investments consisted of U.S. Government Treasury
Notes with original maturities of more than three months that were intended by
management to be held to maturity. These investments mature at various dates
from July 1996 to February 1997.
MERCHANDISE INVENTORIES
The Company's inventories are priced at the lower of cost or market. Cost is
determined using the last-in, first-out method. If replacement cost (which
approximates the first-in, first-out method) had been used, inventories would
have been greater by approximately $3,845,000 and $2,940,000 as of June 29,
1996, and July 1, 1995, respectively. Net income would have been higher by
approximately $905,000 in 1996, $877,000 in 1995, and $364,000 in 1994.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company depreciates property
and equipment using accelerated methods over the estimated useful lives of the
asset, generally five to seven years.
ACCRUED INSURANCE CLAIMS
The Company maintains self-funded coverage with respect to general, workers'
compensation, and health insurance liabilities. Claims for general and
workers' compensation are administered through insurance companies, which
estimate the obligation of reported claims. An estimate of the obligation for
health insurance claims is accrued at year-end and is based on historical data.
Expenses arising from claims are accrued as claims become subject to
estimation. Self-insurance liabilities are based on claims filed. These
liabilities are not discounted.
INCOME TAXES
The Company provides a deferred tax expense or benefit equal to the change in
the net deferred tax asset during the year in accordance with SFAS No. 109,
"Accounting for Income Taxes." Deferred income taxes represent tax credit
carryforwards and future net tax effects resulting from temporary differences
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
STORE OPENING AND CLOSING COSTS
9
<PAGE> 10
All costs of a noncapital nature incurred in opening a new store are charged to
expense as incurred. The Company opened one new store during each of the
fiscal years ended June 29, 1996, and July 2, 1994. No stores were opened
during the year ended July 1, 1995.
The costs associated with store closings are charged to selling and
administrative expense when management makes the decision to close a store.
Such costs consist primarily of lease payments and other costs of holding the
facility, net of estimated sublease income.
DEFERRED INCOME
During the fiscal year ended June 27, 1992, the Company entered into an
agreement with Super Rite Foods, Inc. ("Super Rite") which, as modified,
provided for the Company to acquire two Basics supermarkets in the greater
Washington, D.C., metropolitan area. In connection with the purchase of the
Basics supermarkets, the Company entered into a separate multiyear wholesale
grocery supply agreement with Super Rite and received cash and other
considerations valued at approximately $4,400,000. This amount was amortized
over the 51-month term of the supply agreement. Deferred income also includes
promotional amounts received from other vendors for future periods.
EARNINGS PER SHARE
Earnings per share of common stock were computed based on the weighted average
number of common shares outstanding during each period.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," effective for fiscal years that begin after December 15, 1995.
SFAS No. 121 will be implemented in fiscal year 1997. The Company does not
expect the implementation of SFAS No. 121 to have a material effect on fiscal
year 1997 earnings.
CONCENTRATION OF CREDIT RISK
The Company's assets that are exposed to credit risk consist primarily of cash
and cash equivalents, short-term investments, and accounts receivable. The
Company maintains cash and cash equivalents with major banks in its
marketplaces. The Company performs periodic evaluations of the relative credit
standing of the financial institutions. The Company's short-term investments
are invested in U.S. Government Treasury Notes. The Company's accounts
receivable balance results primarily from amounts due from its vendors for
various promotional programs. The Company periodically reviews its accounts
receivable balance and allowances are made for uncollectable accounts.
CURRENT ASSETS AND CURRENT LIABILITIES
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
the disclosure of the fair value of a financial instrument for which it is
practicable to estimate the value and the methods and significant assumptions
used to estimate that value. At June 29, 1996, the carrying amount of current
assets and current liabilities approximates fair value due to the short
maturity of those instruments.
2. DISPOSITION OF TOTAL BEVERAGE CORP.:
In October 1992, the Company opened Total Beverage Corp. ("Total Beverage"), a
discount beverage retail store. On February 27, 1993, the Company entered into
an Asset Purchase Agreement (the "Agreement") to sell Total Beverage to an
entity (the "Buyer") owned by stockholders of the Company.
As proceeds from the sale, the Company received approximately $1,493,000 in a
note receivable (the "Note"). Under the terms of the Agreement, the Company is
required to reimburse the Buyer for 25 percent of future operating losses of
Total Beverage, as defined in the Agreement, over a three-year period. To the
extent of such losses, the Company will remit funds first by reducing amounts
due under the Note and then by remitting payment to the Buyer. The Note and
accrued interest was due in February 1995. Additionally, the Buyer claims it
is due amounts for back rent and plans to offset the Note for amounts that it
claims are due. The Company has reflected the Note, net of a $1,000,000
reserve, in the accompanying balance sheets as of June 29, 1996 and July 1,
1995, respectively. Management believes the reserve is adequate to provide for
any reductions in the Note, including the Buyer's claim for additional rent.
The Note has been turned over to the Company's legal counsel for collection.
3. OTHER ACCRUED EXPENSES:
Other accrued expenses consist of the following (in thousands):
10
<PAGE> 11
<TABLE>
<CAPTION>
JUNE 29, 1996 JULY 1, 1995
------------------- -------------------
<S> <C> <C>
Accrued insurance $2,719 $2,262
Reserve for store closings and other 853 853
Gift certificates outstanding 928 815
Other 650 693
-------- ---------
Total $5,150 $4,623
======== =========
</TABLE>
4. ACCOUNTS RECEIVABLE:
Accounts receivable include amounts due from vendors for coupons remitted,
cooperative advertising, and merchandise rebates. Approximately $675,000 is
included in accounts receivable as of July 1, 1995, for insurance proceeds
related to fire damage incurred at one of the Company's stores (see Note 6).
11
<PAGE> 12
5. INCOME TAXES:
The Company files consolidated Federal income tax returns. The provision for
income taxes is comprised of the following (in thousands).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------
JUNE 29, 1996 JULY 1, 1995 JULY 2, 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Current income tax provision:
Federal $ 9,624 $13,422 $7,582
State 681 1,574 1,088
Deferred income tax provision (benefit)
288 (1,058) (1,129)
---------- ---------- ----------
$10,593 $13,938 $7,541
========== ========== ==========
</TABLE>
The components of the deferred income tax provision are as follows (in
thousands).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------
JUNE 29, 1996 JULY 1, 1995 JULY 2, 1994
----------------- --------------- -----------------
<S> <C> <C> <C>
Difference between income
tax and financial
reporting of:
Depreciation $ (81) $ (43) $ 691
Loss on disposition of
Total Beverage (7) 145 (24)
Reserve for store closings
and remodeling (6) (291) -
Deferred rent 167 306 409
Capital lease (429) 74 91
Employee benefits and other 471 1,149 184
Deferred income (403) (282) (222)
------ ------- -------
Deferred income tax
provision (benefit) $(288) $1,058 $1,129
====== ======= =======
</TABLE>
12
<PAGE> 13
The effective income tax rate is reconciled to the Federal statutory rate as
follows.
<TABLE>
<CAPTION>
JUNE 29, 1996 JULY 1, 1995 JULY 2, 1994
----------------- ------------------ -----------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
Increase in taxes resulting from:
State income taxes, net of
Federal income tax benefit 2.0 3.1 3.0
Revision of estimate for tax
accruals - 3.7 -
Other (1.1) 1.5 0.4
------- ------- --------
Effective tax rate 35.9% 43.3% 38.4%
======= ======= ========
</TABLE>
Temporary differences which give rise to the deferred tax assets and
liabilities on a consolidated basis are as follows (in thousands).
<TABLE>
<CAPTION>
JUNE 29, 1996 JULY 1, 1995
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Loss on disposition of Total Beverage $ 374 $ 381
Reserves for store closings and other 319 325
Deferred rent 1,600 1,433
Capital lease 517 946
Employee benefits 1,843 1,472
Deferred income 154 557
Other 89 -
--------- ---------
4,896 5,114
Deferred tax liabilities:
Depreciation (607) (526)
Other - (11)
--------- ---------
(607) (537)
--------- ---------
Net deferred tax asset $4,289 $4,577
========= =========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company
believes that no valuation allowance is necessary as of June 29, 1996, and July
1, 1995 due to its history of profitable operations.
6. COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' AGREEMENT
The Company's stockholders are party to a stockholders' agreement dated June
28, 1988, that specifies how a stockholder can transfer ownership of their
interest in the Company's stock.
PROFIT SHARING PLAN
The Company maintains a noncontributory profit sharing plan (the "Plan") for
all employees with one year of full-time continuous service. Discretionary
contributions are made by the Company in trust for the exclusive benefit of
employees who qualify under the Plan. The Board of Directors authorized
contributions of $300,000 to the Plan for the fiscal year ended July 2, 1994.
During fiscal 1995, the Company replaced the Plan with a defined contribution
401(k) plan (the "New Plan"). The New Plan is available to substantially all
employees over the age of 21 who have completed one year of continuous service.
Discretionary contributions are made by the Company in trust for the exclusive
benefit of employees who participate in the New Plan. The Board of Directors
authorized a contribution of $400,000 to the New Plan for the fiscal year ended
July 1, 1995. The Company estimates its contribution for the fiscal year ended
June 29, 1996, will be approximately $400,000. This contribution has not been
made as of June 29, 1996. All amounts contributed to the Plan and the New Plan
are included in accrued salaries and benefits on the accompanying financial
statements.
13
<PAGE> 14
MULTIEMPLOYER PLANS
The Company makes contributions to multiemployer plans for its union employees.
Such contributions totaled approximately $838,000, $10,373,000 and $466,000
for the pension, health and welfare and legal benefit plans, respectively, for
the year ended June 29, 1996. Contributions to the pension, health and welfare
and legal benefit plans totaled approximately $787,000, $8,701,000 and
$408,000, respectively, for the year ended July 1, 1995 and $745,000,
$7,437,000, and $382,000, respectively, for the year ended July 2, 1994.
LEASE COMMITMENTS
The Company leases warehouse and retail store facilities under noncancelable
lease agreements ranging from 1 to 20 years. Renewal options are available on
the majority of the leases for one or more periods of five years each. Most
leases require the payment of taxes and maintenance costs, and some leases
provide for additional rentals based on sales in excess of specified minimums.
Several store leases have stated annual rental increases. These increases are
amortized over the lives of the leases. Rent expense includes approximately
$687,000, $802,000 and $832,000 of amortized rental increases for the fiscal
years ended June 29, 1996, July 1, 1995, and July 2, 1994, respectively.
14
<PAGE> 15
Following is a schedule of annual future minimum payments under the capital
lease for office space, assuming future annual increases of 6 percent, and
noncancelable operating leases, which have initial or remaining terms in excess
of one year at June 29, 1996 (in thousands).
<TABLE>
<CAPTION>
CAPITAL
FISCAL YEAR LEASE OPERATING LEASES
- -------------------------------------- -------------- -----------------------
<S> <C> <C>
1997 $ 1,303 $ 12,446
1998 1,380 12,315
1999 1,464 12,258
2000 1,552 11,816
2001 1,644 11,561
Thereafter 21,463 104,907
---------- -----------
Total 28,806 $165,303
===========
Less- Imputed interest 18,737
----------
Present value of net minimum lease payments 10,069
Less- Current maturities -
----------
Long-term capital lease obligations $10,069
==========
</TABLE>
Rent expense for operating leases charged to operations is as follows (in
thousands).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------------------------------
JUNE 29, 1996 JULY 1, 1995 JULY 2, 1994
---------------- --------------- ---------------
<S> <C> <C> <C>
Minimum rentals $12,021 $10,925 $11,034
Contingent rentals 3,748 4,524 4,052
--------- ---------- ----------
Total $15,769 $15,449 $15,086
========= ========= ==========
</TABLE>
RELATED-PARTY LEASES
In July 1990, the Company entered into an agreement to lease an 86,000 square
foot office building in Lanham, Maryland, from a private partnership (the
"Partnership") which is owned by stockholders of the Company. The lease is for
20 years and commenced December 10, 1990. The lease provides for yearly
increasing rental payments, based upon the Consumer Price Index for the
Washington, D.C., metropolitan statistical area; however, the annual increases
will not be more than 6 percent or less than 3 percent. Rental payments for
the fiscal years ended June 29, 1996, July 1, 1995, and July 2, 1994, were
approximately $1,246,000, $1,210,000, and $1,175,000, respectively, and total
payments over the life of the lease total approximately $35,000,000. The
Company is accounting for the lease as a capital lease. Due to fixed rental
increases during the term of the lease, interest expense exceeded lease
payments by approximately $254,000, $292,000, and $321,000 for the fiscal years
ended June 29, 1996, July 1, 1995, and July 2, 1994, respectively. Assuming
future annual rental increases of 6 percent, the capital lease obligation will
continue to increase through December 2001, at which time accumulated interest
expense recognized for financial reporting purposes will exceed lease payments
by approximately $2,015,000. The lease requires the Company to pay for
maintenance, utilities, insurance, and taxes. The Partnership purchased the
office building for approximately $8,663,000 in July 1990.
During the fiscal years ended June 29, 1996, July 1, 1995, and July 2, 1994,
the Company made rental payments of approximately $5,384,000, $5,985,000, and
$5,327,000, respectively on leases to partnerships related to stockholders of
the Company. As of June 29, 1996, and July 1, 1995, the Company had ten
operating leases to partnerships related to stockholders of the Company. The
remaining future minimum payments under these leases exclusive of option
periods are approximately $73,835,000 and expire through 2014.
The Company made payments of approximately $278,000, $246,000, and $246,000
during each of the fiscal years ended June 29, 1996, July 1, 1995, and July 2,
1994, for warehouse operating leases to a partnership owned by stockholders of
the Company and to a corporation related to stockholders of the Company. As of
June 29, 1996, the remaining future minimum annual payments under these leases
are approximately $1,232,000 and expire in 2002.
15
<PAGE> 16
SUBLEASING ARRANGEMENTS
The Company subleases space within one store for the sale of beer and wine to
an entity affiliated with its officers. The Company received rental income of
approximately $155,000, $155,000 and $123,000 in the fiscal year ended June 29,
1996, July 1, 1995, and July 2, 1994, respectively, from this entity, which is
included in selling and administrative expenses.
As of June 29, 1996, there are currently two unaffiliated subtenants in the
office building. The subtenants are leasing approximately 30,000 square feet
at a current minimum annual rent of approximately $533,000. The subleases
expire between January and December 1998. The Company received rental income
of approximately $551,000 and $530,000 in the fiscal years ended June 29, 1996
and July 1, 1995, respectively, from its subtenants.
During the fiscal year ended June 29, 1996, the Company began leasing space to
a corporation related to stockholders of the Company. The Company received
rental income of approximately $140,000 during fiscal year ended June 29, 1996.
LINE-OF-CREDIT AGREEMENT/LETTERS OF CREDIT
The Company has a $35,000,000 line-of-credit agreement with a local bank, with
interest payable at the prime rate. The Company has authorized a local bank to
issue letters of credit in connection with the Company's workers' compensation
insurance. As of June 29, 1996, and July 1, 1995, the Company's line of credit
was reduced by outstanding letters of credits of approximately $6,424,000 and
$6,135,000, respectively. These letters of credit will remain outstanding for
as long as the Company has outstanding workers' compensation claims. The line
of credit expires December 31, 1996.
LEGAL PROCEEDINGS
The Company is involved in routine litigation incidental to operations. In the
opinion of management, it is unlikely that any exposure from these actions will
have a material impact on the Company's financial position.
OTHER
In June 1994, the Company had one store which incurred significant fire damage.
The Company recorded the insurance settlement on the store's inventory, fixed
assets, reimbursable payroll costs and other business interruption costs. This
resulted in the recognition of an extraordinary gain, net of taxes, in the
accompanying financial statements of $1,239,000 and $858,000, during the fiscal
years ended July 1, 1995 and July 2, 1994, respectively. The extraordinary
gain recorded in fiscal year 1994 was net of associated costs to write-off
assets with a net book value of $708,000. During fiscal year ended June 29,
1996, the insurance claim was settled in full and the Company recorded an
extraordinary loss, net of taxes, of $224,000 to reflect the remaining amount
received for insurance proceeds, net of associated costs.
7. SUBSEQUENT EVENT:
Effective September 15, 1996, the Company declared a $10,000,000 cash dividend
payable to its shareholders.
16
<PAGE> 17
SHOPPERS FOOD WAREHOUSE CORP.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
FOR THE YEAR ENDED JULY 2, 1994:
Deducted from asset accounts-
Reserve for store closings and other
$1,610 $ - $ - $1,610
Reserve for note receivable 500 - 500
FOR THE YEAR ENDED JULY 1, 1995:
Deducted from asset accounts-
Reserve for store closings and other
1,610 - 757(a) 853
Reserve for note receivable 500 500 - 1,000
FOR THE YEAR ENDED JUNE 29, 1996:
Deducted from asset accounts-
Reserve for store closings and other
853 - - 853
Reserve for note receivable 1,000 - - 1,000
</TABLE>
(a) Includes $257 in costs incurred on closed stores and $500 in change in
estimate.
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
23 Consent of Independent Public Accountants.
</TABLE>
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C>
DART GROUP CORPORATION
Date: September 27, 1996 By: Herbert H. Haft
---------------------------- ---------------------------------
Herbert H. Haft
Chairman of the Board of Directors
and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Date: September 27, 1996 Herbert H. Haft
---------------------------- ---------------------------------
Herbert H. Haft
Chairman of the Board of Directors
and Chief Executive Officer
Date: September 27, 1996 Ronald S. Haft
---------------------------- ----------------------------------
Ronald S. Haft
Director
Date: September 27, 1996 Bonita A. Wilson
---------------------------- ---------------------------------
Bonita A. Wilson
Director
Date: September 27, 1996 Douglas M. Bregman
---------------------------- ---------------------------------
Douglas M. Bregman
Director
Date: September 27, 1996 Larry G. Schafran
---------------------------- ---------------------------------
Larry G. Schafran
Director
Date: September 27, 1996 Ronald T. Rice
---------------------------- ---------------------------------
Ronald T. Rice
Assistant Vice President and
Controller
Date: September 27, 1996 Kenneth M. Sobien
---------------------------- ---------------------------------
Kenneth M. Sobien
Assistant Treasurer
</TABLE>
19
<PAGE> 1
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
dated September 26, 1996 included in Amendment No. 1 to the Form 10-K of Dart
Group Corporation. It should be noted that we have not audited any financial
statements of Shoppers Food Warehouse Corp. subsequent to June 29, 1996 or
performed any audit procedures subsequent to the date of our report.
Washington, D.C.
September 26, 1996 Arthur Andersen LLP
