<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(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
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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 Identification No.)
incorporation or organization)
3300 75th Avenue, Landover, Maryland 20785
- ------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (301) 731-1200
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A 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 1,764,908 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 there 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 171 of this Form 10-K.
Page 1
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Table of Contents
<TABLE>
<CAPTION>
Page
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PART I
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<S> <C> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Part II
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Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . 51
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . 113
Part III
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Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . 133
Part IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . 135
</TABLE>
2
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PART I
Forward-looking Statements
Statements in this report that are not historical in nature, including
references to beliefs, anticipations or expectations, are forward-looking.
Such statements are subject to a wide variety of risks and uncertainties that
could cause actual results to differ materially from those projected, including
the results of ongoing litigation affecting the Company (defined below), the
Company's ability to open new stores and close other stores, the effect of
national and regional economic conditions, the availability of capital to fund
operations and other risks described from time to time in the Company's filings
with the Securities and Exchange Commission. The Company undertakes no
obligation and does not intend to update, revise or otherwise publicly release
the result of any revisions to these forward-looking statements, which
revisions may be made to reflect any future events or circumstances, other than
through its regular quarterly and annual financial statements, and through the
accompanying discussion and analysis contained in the Company's Quarterly
Reports on Form 10-Q and Annual Report on Form 10-K, which will contain
disclosure concerning the Company's actual results of operations and financial
condition during the period covered by such reports.
Item 1. Business
Dart Group Corporation ("Dart") was incorporated in Delaware in 1960 and
operates retail discount auto parts stores through Trak Auto Corporation ("Trak
Auto"), retail discount book stores through Crown Books Corporation ("Crown
Books"), retail discount beverage stores through Total Beverage Corporation
("Total Beverage"), a real estate company through Cabot-Morgan Real Estate
Company ("CMREC"), and until July 31, 1994, a financial business which
purchased bankers' acceptances through Dart Group Financial Corporation ("Dart
Financial"). Dart, Trak Auto, Crown Books, Total Beverage, CMREC, Dart
Financial and Dart's other direct and indirect wholly-owned and majority-owned
subsidiaries and majority owned partnerships are referred to collectively as
the "Company". Dart owns 67.3% of the common stock of Trak Auto, 51.4% of the
common stock of Crown Books, 100% of the common stock of Total Beverage, 100%
of the common stock of CMREC and 100% of the common stock of Dart Financial.
Dart engages in the retail discount grocery business through its ownership of
50% of the common stock of Shoppers Food Warehouse Corp. ("Shoppers Food").
The common stocks of Trak Auto and Crown Books are quoted on The Nasdaq
National Market ("Nasdaq") under the symbols TRKA and CRWN, respectively.
On January 31, 1996, there were 276 Trak Auto, 172 Crown Books, 34
Shoppers Food and four Total Beverage stores. CMREC owns interests in five
real estate joint ventures that own and operate four shopping centers and an
office building. Dart Financial currently holds no financial instruments.
3
<PAGE> 4
Item 1. Business
Trak Auto Operations
Trak Auto operates retail discount auto parts stores in the metropolitan
areas of Washington, D.C.; Richmond, Virginia; Chicago, Illinois; Los Angeles,
California; and Pittsburgh, Pennsylvania.
Trak Auto is engaged in the retail sale of a wide range of automobile
parts and accessories for the do-it-yourself market. Trak Auto's products
include "hard parts" (such as alternators, starters, shock absorbers, fan
belts, spark plugs, mufflers, thermostats, and wheel bearings), as well as
motor oil, oil filters, headlights, batteries, waxes, polishes, anti-freeze and
windshield wipers. A typical "Classic Trak" store carries 10,000 different
item numbers or SKU's. Trak Auto does not sell tires and does not provide
automotive service or installation.
Super Trak operates retail auto parts stores that offer more services and
merchandise than the "Classic Trak" stores described above. Super Trak stores
carry approximately 5,000 more SKU's, concentrated primarily in application
parts categories. Additionally, Super Trak stores feature special order
services that permit customers to access virtually any automotive part,
including engines. The stores also offer extensive technical assistance
through computerized parts look-up, instruction for repairs, free use of
specialized tools, and factory trained parts people.
During the year ended January 28, 1995, Trak Auto expanded its Super Trak
concept to include Super Trak Warehouse stores. These stores are typically
between 13,000 and 25,000 square feet and carry approximately 35,000 SKU's. The
added SKU's are composed of additional application parts.
Trak Auto has successfully opened or converted 113 Super Traks and 30
Super Trak Warehouse stores. Trak Auto plans to continue to convert Classic
Trak stores into Super Trak and Super Trak Warehouse stores and open new stores
as opportunities present themselves in Trak Auto's five metropolitan markets as
well as new markets.
Trak Auto's merchandise is generally purchased directly from a large
number of manufacturers and suppliers. Trak Auto's distribution system is
computerized utilizing an automated replenishment and perpetual inventory
system to generate shipments of product from distribution centers in Landover,
Maryland; Bridgeview, Illinois and Ontario, California. The required items are
generally assembled and packaged for delivery in the order in which they will
be unpacked and displayed on the shelves at the retail stores, promoting store
efficiency. Inventories are monitored both at stores and in the distribution
centers to determine purchase requirements. Trak Auto has a computerized point
of sale ("POS") register system in every store. Trak Auto uses scanners to
identify most merchandise at the register and uses a price look-up function to
price the sale. Most merchandise is pre-labeled with bar codes by the
manufacturers.
4
<PAGE> 5
Item 1. Business (Continued)
Trak Auto's merchandising philosophy is to develop strong consumer
recognition and acceptance of its name by use of mass-media advertising to
promote a broad selection of products at low prices. Trak Auto emphasizes
quality customer service through knowledgeable personnel and advanced
technology such as electronic parts look-up, POS and computerized
do-it-yourself aids in all stores.
Classic Trak stores range in size from approximately 5,000 to 6,000
square feet, Super Trak stores range in size from 6,000 to 11,000 square feet,
and Super Trak Warehouse stores range in size from approximately 13,000 to
25,000 square feet. Trak Auto's stores use modern fixtures and equipment and
the interiors have been standardized, so that the interiors of new stores can
be assembled quickly. The stores are open seven days a week. No store
contributed more than 1.0% to Trak Auto's consolidated sales during the year
ended February 3, 1996.
The following table sets forth by metropolitan area the locations of Trak
Auto's stores for each of the last five fiscal years.
<TABLE>
<CAPTION>
Number of Stores
at end of fiscal year
--------------------------------
Metropolitan Area 1992 1993 1994 1995 1996
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Baltimore, Maryland ......... 6 0 0 0 0
Chicago, Illinois ........... 99 99 97 86 79
Los Angeles, California ..... 121 119 116 104 96
Pittsburgh, Pennsylvania 0 0 0 0 14
Richmond, Virginia .......... 15 15 15 11 10
San Diego, California........ 11 0 0 0 0
Washington, D.C. ............ 81 84 86 81 77
---- ---- ---- ---- ----
Total .............. 333 317 314 282 276
</TABLE>
The following tables set forth the number of stores of each of Classic
Trak, Super Trak, and Super Trak Warehouse that were opened, closed or
remodeled during each of the last five fiscal years, as well as the total
number of such stores as of the end of each such fiscal year.
<TABLE>
Super Trak Stores 1992 1993 1994 1995 1996
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Opened during the year............ - 12 62 34 17
Closed or converted to Super Trak
Warehouse during the year....... - - 1 1 10
Super Trak Warehouse Stores
- ---------------------------
Opened during the year ........... - - - 7 23
</TABLE>
5
<PAGE> 6
Item 1. Business (Continued)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Classic Trak Stores
- -------------------
Opened during the year............ 19 6 1 - -
Closed or converted to Super Trak
or Super Trak Warehouse during
the year.......................... 17 34 65 72 36
Total Open at End of Year
- -------------------------
Super Trak Stores................. - 12 73 106 113
Super Trak Warehouse Stores....... - - - 7 30
Classic Trak Stores............... 333 305 241 169 133
</TABLE>
During the fourth quarter of fiscal 1996, Trak Auto acquired the assets
of 14 stores in Pittsburgh, PA, for approximately $6.2 million. This
acquisition places Trak Auto with the largest market share in a viable new
market. At this date, the stores are undergoing remodeling and should be
converted to the Trak Auto concept by mid-year. Additional sites are currently
being negotiated with the intention of growing this new market to over 20
stores over the next two years.
Trak Auto believes that its superstore concept presents significant
growth opportunities and intends to open new Super Trak and Super Trak
Warehouse stores in existing and possibly new markets. As of February 3, 1996,
Trak Auto had entered into lease agreements to open seven new stores and
amendments to existing lease agreements to convert two Classic Trak stores into
Super Trak or Super Trak Warehouse stores. In addition, Trak Auto may from
time to time expand its retail operations through acquisitions of existing
stores from third parties in existing and possibly new markets.
Trak Auto intends to continue its practice of reviewing the profitability
trends and prospects of existing stores. Trak Auto may from time to time
close, relocate or sell stores (or groups of stores) that are not satisfying
certain performance objectives.
Store Closings and Restructuring Costs
Trak Auto continually evaluates its store operations and the need to
close, relocate, or expand stores or convert existing Classic Trak stores into
Super Trak or Super Trak Warehouse stores. Trak Auto recognizes store closing
costs when management determines to close a store. In prior years, Trak Auto
has also recognized the anticipated costs for closing, relocating, expanding
and converting existing stores to the Super Trak and Super Trak Warehouse
concept. The costs associated with store closings and restructuring efforts are
primarily unrecoverable lease obligations (rent, real estate taxes and common
area charges, net of estimated sublease income) and the book value of leasehold
improvements as of the actual or estimated closing date of a store.
As of February 3, 1996, Trak Auto had reserves of $4,491,000 for store
closings and restructurings. The restructuring reserve relates to 21 stores
that have been closed or converted into Super Trak or Super Trak Warehouse
6
<PAGE> 7
Item 1. Business (Continued)
stores and an additional 15 stores identified to be closed or converted
but which have remained open. The closed store reserve relates to eight
Classic Trak stores that were closed apart from Trak Auto's restructuring
efforts. The activity in the closed store and restructuring reserves during the
last two years follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Reserve, beginning of year $ 6,945,000 $ 7,797,000
Less: Net provision recorded/(Charges) (2,454,000) (852,000)
----------- -----------
Reserve, end of year $ 4,491,000 $ 6,945,000
=========== ===========
</TABLE>
Included in the activity for fiscal 1996 is an additional closed store
and restructure reserve net provision of $673,000.
The lease obligation allocable to related party leases is approximately
$939,000. The closed store and restructuring reserves as of February 3, 1996
are expected to be utilized as follows:
<TABLE>
<CAPTION>
Fiscal
Year Total
------ -----
<S> <C>
1997 $1,324,000
1998 1,027,000
1999 976,000
2000 372,000
2001 327,000
2002-2005 465,000
----------
Total $4,491,000
==========
</TABLE>
The amount recorded for future lease obligations has been estimated at
95% of the total lease obligation after the closing date because Trak Auto
believes that certain alternatives (subleasing and favorable lease buy-outs) to
abandonment may be available. Since the recorded reserve represents an
estimate based upon anticipated closing dates and the book value of the
leasehold improvements at the time the store is closed, the ultimate amount of
costs associated with store closing is subject to change in the future.
Trak Auto will continue to evaluate the performance and future viability
of its stores and may close or convert additional stores in the future.
7
<PAGE> 8
Item 1. Business (Continued)
Crown Books Operations
Crown Books is a retailer operating discount specialty stores. These
stores offer popular hardback and paperback books, newspapers, magazines, books
on tape, videos, computer software, reference materials and other items and
accessories.
Crown Books responds to the demand for books at prices below the
publishers' and manufacturers' suggested retail prices and provides quality
service to its customers. Crown Books sells hardbacks on The New York Times
best seller list at 40% below the publishers' suggested retail prices,
paperbacks on The New York Times best seller list at 25% below the publishers'
suggested retail prices, other new books at 10% to 25% below the publishers'
suggested retail prices, and magazines at 10% below the publishers' suggested
retail prices. All other merchandise is sold at a discount from the
manufacturers' suggested retail price. Crown Books sells publishers'
over-stock, reprints and former best sellers at significant discounts from the
publishers' original suggested retail prices. In addition, Crown Books allows
customers at all stores to special order books not stocked in inventory at
discount pricing. Merchandise is generally purchased directly from a large
number of publishers and suppliers. Crown Books is not dependent on any single
publisher or supplier.
Crown Books advertises extensively, primarily through newspapers and
direct mail, stressing its discount pricing policy. Crown Books satisfies
regional and local consumer preferences by tailoring the selections and
quantities of books that it makes available in individual stores. Crown Books
also arranges for special appearances and book autograph sessions with
recognized authors to attract customers and to build and reinforce customer
awareness of its stores.
All major merchandising decisions concerning pricing, advertising and
promotional campaigns, as well as the initial ordering of inventory for each
store, are managed centrally at Crown Books' headquarters in Landover,
Maryland. Over 80% of the merchandise is shipped directly from publishers to
the stores. Best sellers and other books that are purchased in large quantities
are often shipped directly from the publishers to Crown Books' regional
warehouses for distribution to the stores. Inventories are monitored both at
stores and in the central office in Landover, Maryland, to determine purchase
requirements. In general, unsold books and magazines can be returned to the
publishers for credit.
Super Crown Books operates discount retail book superstores. The first
Super Crown Books store opened in 1990 and Crown Books has continued to expand
the Super Crown Books concept. The stores carry as many as 80,000 titles,
nearly eight times the number of titles as a "classic" Crown Books ("Classic
Crown Books") store. Super Crown Books stores also carry a wider selection of
non-book products and accessories.
8
<PAGE> 9
Item 1. Business (Continued)
Classic Crown Books stores range in size from approximately 2,000 to
3,000 square feet and Super Crown Books stores range in size from approximately
6,000 to 35,000 square feet. The Super Crown Books stores permit more
effective and economic utilization of space. The interior of the stores is
standardized, so that the stores can be assembled quickly. Most of the stores
are open seven days a week.
All Super Crown Books stores and all Classic Crown Books stores have
computerized point of sale and inventory management systems ("systems"). The
systems enable store personnel to scan bar coded merchandise resulting in less
time to process the sales transaction with more accurate pricing. The systems
are designed to provide detailed inventory information on an item basis to
store management.
In selecting specific store sites, Crown Books considers numerous
factors, including local demographics, desirability of available leasing
arrangements, proximity to existing Company operations and competitors, and
overall retail activity. Crown Books clusters its stores in selected market
areas to maximize advertising, distribution and management resources. Within a
selected market area, Crown Books generally locates its stores in strip
shopping centers and urban street locations. Compared to large enclosed malls,
Crown Books believes that the strip shopping centers and urban street locations
typically charge less rent and provide greater consumer awareness and
convenience.
The following table sets forth by metropolitan area the locations of
Crown Books' stores for each of the last five fiscal years:
<TABLE>
<CAPTION>
Number of Stores
at end of fiscal year
------------------------------------
Metropolitan Area: 1992 1993 1994 1995 1996
- ------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Washington, D.C. ........... 61 59 60 47 43
Los Angeles, California .... 79 76 68 59 51
Chicago, Illinois .......... 43 43 43 37 32
San Francisco, California .. 30 30 31 24 20
San Diego, California ...... 20 20 17 12 9
Houston, Texas ............. 5 3 6 6 6
Seattle, Washington ........ 16 16 15 11 11
---- ---- ---- ---- ---
Total..................... 254 247 240 196 172
==== ==== ==== ==== ====
</TABLE>
The following tables set forth the number of stores of each of Classic
Crown Books and Super Crown Books that were opened, closed or remodeled during
each of the last five fiscal years, as well as the total number of such stores
as of the end of each fiscal year.
9
<PAGE> 10
Item 1. Business (Continued)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Super Crown Books stores:
- -------------------------
Opened during the year.... 9 13 37 12 16
Closed during the year.... - - 4 3 2
Classic Crown Books stores:
- ---------------------------
Opened during the year.... 4 - 5 2 -
Closed during the year.... 18 20 45 55 38
Remodeled during the year. 7 2 - - -
Total Stores Open at January 31
- -------------------------------
Super Crown Books stores.. 15 28 61 70 84
Classic Crown Books stores 239 219 179 126 88
</TABLE>
Crown Books believes that its superstore concept presents significant
growth opportunities and intends to open new Super Crown Books stores in
existing and possibly new markets. As of February 3, 1996, Crown Books had
entered into lease agreements to open 14 new stores. In addition, Crown Books
intends to continue its practice of reviewing the profitability trends and
prospects of existing stores and may close or relocate under-performing stores.
Restructuring Reserves
In fiscal years 1993 and 1994, Crown Books determined that a number of
the smaller Crown Books stores were not competitive in the changing market
environment evidenced by an industry movement to larger stores. Consequently,
Crown Books recorded restructuring charges totaling $12,800,000 during the two
years for the anticipated costs for closing, relocating, expanding and
converting existing stores to the Super Crown Books concept. The costs
primarily represent unrecoverable lease obligations (net of estimated sublease
income) and the book value of leasehold improvements from the estimated closing
date. The activity in the restructuring reserves during the last two years
follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Restructuring Reserve, beginning of year $ 10,515,000 $ 11,960,000
Costs charged against the reserve (1,439,000) (1,445,000)
Reversal of reserves (2,051,000) -
------------ ------------
Restructuring Reserve, end of year $ 7,025,000 $ 10,515,000
============ ============
</TABLE>
In fiscal 1996, Crown Books reversed a portion of the restructuring
reserve as a result of (i) stores that were closed under negotiated lease
settlements that were more favorable than expected, (ii) the postponement of
certain store closings, and (iii) management's decision not to close one store
that had been scheduled for closing.
10
<PAGE> 11
Item 1. Business (Continued)
The remaining restructuring reserve relates to 27 stores, of which 10
have been closed as of February 3, 1996, with lease obligations ranging from
three to 108 months. The lease obligation allocable to related party leases is
approximately $623,000. The restructuring reserve as of February 3, 1996 is
expected to be utilized as follows:
<TABLE>
<CAPTION>
Leasehold
Fiscal Lease Improvements
Year Obligations & Fixtures Total
- ------ ----------- ------------ -----------
<S> <C> <C> <C>
1997 $ 760,000 $ 76,000 $ 836,000
1998 1,425,000 704,000 2,129,000
1999 1,246,000 - 1,246,000
2000 891,000 - 891,000
2001 629,000 - 629,000
2002-2005 1,294,000 - 1,294,000
----------- ------------ -----------
Total $ 6,245,000 $ 780,000 $ 7,025,000
=========== ============ ===========
</TABLE>
Since the recorded restructuring reserve represents an estimate based
upon anticipated closing dates and the book value of the leasehold improvements
at the time the store is closed, the actual amount of costs associated to store
closing in the future may be different from the reserve.
Store Closing Reserve
Crown Books continually evaluates its store operations and the need to
close stores that do not perform satisfactorily. Crown Books recognizes store
closing costs when management determines to close a store. The costs primarily
represent unrecoverable lease obligations (net of estimated sublease income)
and the book value of leasehold improvements from the estimated closing date.
The activity in the closed store reserves during the last two years is as
follows:
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Closed Store Reserve, beginning of year $ 20,241,000 $ 1,000,000
Add:
Closed store charges recorded - 19,768,000
Less:
Charges against the reserve (2,648,000) (527,000)
Reversal of reserves (6,743,000) -
------------ -------------
Closed Store Reserve, end of year $ 10,850,000 $ 20,241,000
============ =============
</TABLE>
11
<PAGE> 12
Item 1. Business (Continued)
In fiscal 1996, Crown Books reversed a portion of the closed store
reserve as a result of (i) stores that were closed under negotiated lease
settlements that were more favorable than expected, (ii) the postponement of
certain store closings, and (iii) management's decision not to close one store
that had been scheduled for closing.
The remaining closed store reserve relates to 112 stores, of which 31
have been closed as of February 3, 1996, with lease obligations ranging from
one to 92 months. The lease obligation allocable to related party leases is
approximately $1,674,000. The closed store reserve as of February 3, 1996 is
expected to be utilized as follows:
<TABLE>
<CAPTION>
Leasehold
Fiscal Lease Improvements
Year Obligations & Fixtures Total
- ------ ----------- ------------ -----------
<S> <C> <C> <C>
1997 $ 2,111,000 $ 779,000 $ 2,890,000
1998 2,118,000 665,000 2,783,000
1999 2,235,000 463,000 2,698,000
2000 835,000 - 835,000
2001 710,000 - 710,000
2002-2005 934,000 - 934,000
----------- ------------ -----------
Total $ 8,943,000 $ 1,907,000 $10,850,000
=========== ============ ===========
</TABLE>
Since the recorded closed store reserve represents an estimate based upon
anticipated store closing dates and the book value of the leasehold
improvements at the time the store is closed, the actual amount of costs
associated to store closing is subject to change in the future and may be
different from the reserve. Crown Books will continue to evaluate the
performance and future viability of its remaining stores and may close
additional stores in the future. Crown Books has not recorded any reserve for
any such possible future store closings.
Shoppers Food Operations
Shoppers Food operates retail discount grocery stores that sell groceries,
meats, produce, beer and wine, baked goods, cigarettes, health and beauty aids
and have a deli department. The stores are located in the Washington, D.C.
metropolitan area, a warehouse is located in Landover, Maryland and office
facilities are located in Lanham, Maryland. Dart owns 50% of the common stock
of Shoppers Food.
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 Dart's ownership to exactly 50%. As a result, the accounts of
Shoppers Food are consolidated with Dart's through May 28, 1994, but not
thereafter.
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<PAGE> 13
Item 1. Business (Continued)
Shoppers Food has a high volume discount pricing marketing strategy.
Shoppers Food stores are operated primarily on a self-service basis and
customers bag or box their own groceries. The stores sell popular brand names
at discount prices as well as manufacturers' or distributors' specials.
The following table sets forth the total number of open stores as of the
end of each of the last five fiscal years and the number of stores opened,
closed and remodeled during each of the last five years.
<TABLE>
<CAPTION>
Number of Stores
January 31,
------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Open..................... 31 34 35 33 34
Opened during the year......... 7 4 2 - 1
Closed during the year......... - 1 1 2 -
Remodeled during the year...... 1 1 2 - -
</TABLE>
Total Beverage Corporation
Total Beverage operates retail discount beverage superstores in the
Washington, D.C. metropolitan area. The stores carry a wide range of foreign
and domestic beers and wines as well as non-alcoholic beverages. Dart
organized Total Beverage Corporation on January 26, 1993 and purchased the
assets for the first store on February 27, 1993 from Shoppers Food for
approximately $1,494,000. In October 1993, Total Beverage opened two
additional stores and after 14 months of disappointing sales volume at one
location, closed that store. During the year ended January 31, 1995, Total
Beverage recorded a closed store reserve of approximately $5,595,000 for future
lease obligations associated with this store and, during the year ended January
31, 1996, reversed approximately $4,720,000 as a result of a negotiated buyout
of the lease. During the year ended January 31, 1996, Total Beverage opened two
new stores. During the fourth quarter of the year ended January 31, 1996,
management decided that it would close one of those stores in fiscal 1997 due
to disappointing sales volume and recorded a closed store reserve of
approximately $2,950,000 for future lease obligations.
13
<PAGE> 14
Item 1. Business (Continued)
The following table sets forth the number of stores open at the end of
each fiscal year and the number of stores opened or closed during each fiscal
year.
<TABLE>
<CAPTION>
Number of Stores
----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Total open at end of year.. 3 2 4
Opened during the year..... 3 - 2
Closed during the year..... - 1 -
</TABLE>
Cabot-Morgan Real Estate Company
CMREC, a wholly-owned subsidiary, owns the majority interest in five real
estate joint ventures that own four shopping centers and an office building in
the Washington, D.C. metropolitan area. The remaining partnership interests in
these joint ventures are owned by partnerships in which the partners are
members of the Haft family. As part of the RSH Settlement (defined below),
Ronald S. Haft and entities controlled by him receive 99% of the ordinary
income and loss generated from these properties. In addition, Dart and CMREC
agreed to the sale of the properties. The sale is to occur on terms to be
arranged by Ronald S. Haft prior to October 6, 2000. Under terms of the RSH
Settlement, CMREC will retain the first $2.0 million of its share of proceeds
from such sales and, if certain conditions relating to the RSH Settlement are
satisfied, the next $47.0 million of CMREC's share of proceeds will be payable
to Ronald S. Haft. Combined Properties, Inc., a Haft controlled entity,
manages the shopping centers and office building for the joint ventures. Trak
Auto, Crown Books, Shoppers Food and Total Beverage have stores in some of
these shopping centers.
Dart Financial Operations
Dart Financial bought and held bankers' acceptances until July 31, 1994,
when all the bankers' acceptances matured and Dart Financial discontinued
buying and holding such financial instruments. The funds were returned to Dart
in the form of United States Treasury Bills.
Competition
The market for the products offered by the Company's retail discount
specialty operations is highly competitive. The stores compete with retail
outlets, including drug stores, supermarkets, department stores, hardware
stores, variety stores, auto parts stores and book stores. Competitors range
from small independent stores to large regional and national chains, many of
which have greater resources than the Company. The stores encounter strong
competition with respect to the prices at which they sell their products and
services.
14
<PAGE> 15
Item 1. Business (Continued)
Seasonality
Crown Books' sales, net income and working capital for the quarter
ended January 31 have historically been substantially higher than for any of
the previous three quarters. Crown Books' inventory and accounts payable have
historically been higher at the end of the third quarter than for any other
quarter for the year. The fourth quarter results of operations have
historically been sufficient to satisfy to a substantial degree the third
quarter accounts payable requirements.
Trak Auto's business is somewhat seasonal in nature, with the highest
sales occurring in the second and third fiscal quarters (May through October).
Sales for the combined second and third quarters in each of the fiscal years
1996 and 1995 were 51% of total annual sales. Extremely hot or cold weather
tends to enhance sales by causing a higher incidence of parts failure, thus
increasing sales of seasonal products. Rain or snow, however, tends to reduce
sales by causing deferral of elective maintenance.
Management does not believe Dart's other partially or wholly-owned
businesses are affected by seasonality to any material extent.
Employees
On January 31, 1996, the Company employed approximately 3,600 full-time
and 3,150 part-time persons (excluding Shoppers Food). The Company considers
its relations with employees to be good.
Changes in Management
On September 7, 1994, the Board of Directors of Dart established an
Executive Committee comprised of Dart's outside directors to conduct the
affairs of Dart with respect to matters that were the subject of dispute
between the Chairman of the Board and Chief Executive Officer of Dart, Herbert
H. Haft, and the then President and Chief Operating Officer of Dart, Ronald S.
Haft. On October 11, 1994, the Board of Directors of Trak Auto, Crown Books
and Total Beverage each established an Executive Committee of their respective
Boards of Directors comprised of the same outside directors, with authority
parallel to that of Dart's Executive Committee. The disputes between Herbert
H. Haft and Ronald S. Haft concerning issues involving Dart have been
extensive. Accordingly, the Executive Committee assumed day-to-day involvement
in these disputed issues and other matters affecting Dart, in particular
matters relating to litigation to which Dart is a party. While the Executive
Committee remains involved in the day-to-day affairs of Dart, its continuing
role is dependent upon future developments.
In connection with the RSH Settlement (defined below), Ronald S. Haft
resigned his positions as a director and officer of Dart and each of its
15
<PAGE> 16
Item 1. Business (Continued)
subsidiaries. The Standstill Order (defined below) contemplates that Ronald S.
Haft will continue as a director of Dart while the Standstill Order is in
effect. (Herbert H. Haft contends that Ronald S. Haft is no longer a
director.)
In October 1994, Robert A. Marmon was appointed to serve on an interim
basis as Treasurer and Chief Financial Officer of Dart and Crown Books and as
Principal Financial Officer of Trak Auto. Effective February 29, 1996, Mr.
Marmon resigned as Treasurer and Chief Financial Officer of Dart and as an
officer of Dart's subsidiaries. Dart is currently seeking a new Treasurer and
Chief Financial Officer.
Settlement with Ronald S. Haft
On October 6, 1995, Dart and Ronald S. Haft entered into a settlement of
certain litigation and other related transactions (collectively, the "RSH
Settlement"). For a more detailed discussion of the RSH Settlement, see Note 6
to Dart's Consolidated Financial Statements (Item 8 - Financial Statements and
Supplementary Data) and Dart's Current Report on Form 8-K, dated October 10,
1995. The RSH Settlement transactions are subject to legal challenge. See
Item 3 - Legal Proceedings. If sustained, the RSH Settlement transactions were
intended to have the effect, by their terms, of transferring majority control
of Dart's voting stock to one or more voting trustees under a Voting Trust
Agreement (the "Voting Trust Agreement"), by and among Ronald S. Haft, Dart and
Larry G. Schafran and Sidney B. Silverman, as initial Voting Trustees. On
December 28, 1995, the initial Voting Trustees resigned and appointed Richard
B. Stone as successor Voting Trustee. If the RSH Settlement transactions are
not sustained, there could be a significant effect on the Company's financial
statements, the extent of which cannot be readily determined.
Standstill Order
In connection with legal challenges to the RSH Settlement, on December 6,
1995, the Delaware Court of Chancery entered a Standstill Order (the
"Standstill Order"), which restricts certain actions by Dart. Without further
order of the court, Dart may not (i) change its Certificate of Incorporation or
Bylaws; (ii) change the current composition of Dart's Board of Directors
(Herbert H. Haft, Ronald S. Haft, Larry G. Schafran, Bonita A. Wilson and
Douglas M. Bregman) or any of its subsidiaries; (iii) change the current Haft
family officers of Dart or any of its subsidiaries; or (iv) issue any
additional securities of Dart or any of its subsidiaries (except employee stock
options issued in the ordinary course of business). In addition, without first
giving Herbert H. Haft and certain other litigants not less than seven days'
written notice, Dart may not take any extraordinary actions, including but not
limited to actions that would result in (a) the liquidation of Dart or any of
its subsidiaries, (b) the sale of any major subsidiary of Dart or (c) the
disadvantage of any Class B stockholder of Dart through any debt transaction.
For purposes of the
16
<PAGE> 17
Item 1. Business (Continued)
Standstill Order, the phrase "extraordinary actions" means any transaction,
contract or agreement, the value of which exceeds $3 million. See Item 3 -
Legal Proceedings.
Segment Information
See Note 16 to the Consolidated Financial Statements.
17
<PAGE> 18
Item 2. Properties
Dart Group Corporation
Dart leases its headquarters building and distribution center
of approximately 271,000 square feet in Landover, Maryland from a private
partnership in which members of the Haft family own all of the beneficial
interests. The lease is for 30 years and six months, commenced in 1985, and
provides for increasing rental payments over the term of the lease. The
current annual rental is $2,014,000 and the lease requires the additional
payment of maintenance, utilities, insurance and real estate taxes. Dart has
sublet 210,000 square feet of the headquarters building and distribution center
to Trak Auto and 28,000 square feet to Crown Books.
In addition, Dart has a lease agreement with the aforementioned
partnership for land near the headquarters building and distribution center.
The lease is coterminous with the headquarters building and distribution center
lease and provides for current annual rental of $35,000 with increases of 3%
per year. Dart, Trak Auto and Crown Books each pay a pro-rata share of the rent
in proportion to their use of the headquarters building and distribution
center.
As part of the RSH Settlement, Ronald S. Haft agreed to transfer the real
estate and partnership interests controlled by him in the headquarters and
distribution center to Dart (or its subsidiaries) and to reduce the rent.
These transfers and rent reductions are subject to contingencies, including
bankruptcy court approval, mortgagee approval, challenges brought by Herbert H.
Haft concerning the extent of Ronald S. Haft's ownership interest in the
property and claims asserted by Robert M. Haft and Linda G. Haft regarding the
extent to which Ronald S. Haft controls the aforementioned partnerships. See
Note 6 to Dart's Consolidated Financial Statements (Item 8 - Financial
Statements and Supplemental Data).
Trak Auto
All of Trak Auto's 276 stores are leased. As of February 3, 1996, the
total minimum payments for Trak Auto's retail stores (excluding closed stores)
aggregated approximately $154,213,000 to lease expiration dates. The lease
expiration dates (without regard to renewal options) range from 1996 to 2015.
Twenty-three of these leases are with entities in which members of the Haft
family have all or substantially all the beneficial interest, two are with
CMREC shopping centers and two are subleased from Crown Books.
Trak Auto leases a 176,000 square foot warehouse located in Bridgeview,
Illinois from a private partnership in which Haft family members own all of the
partnership interests. The lease is for thirty years and six months, provides
for rental payments increasing approximately 15% every five years over the term
of the lease and commenced in 1984. The current annual rental is $728,000.
The lease also requires Trak Auto to pay for maintenance, utilities, insurance
and real estate taxes on the warehouse. Under the terms of the lease
agreement,
18
<PAGE> 19
Item 2. Properties (Continued)
Dart is jointly and severally liable for the lease obligations.
Trak Auto also leases a 317,000 square foot warehouse located in Ontario,
California from a private partnership in which Haft family members own all of
the partnership interests. The lease is for 20 years and provides for
increasing rental payments, based upon the Consumer Price Index for the Los
Angeles area, over the term of the lease. The lease commenced in 1989. The
current annual rental is $1,374,000. The lease also requires Trak Auto to pay
for maintenance, utilities, insurance and real estate taxes on the warehouse.
As part of the RSH Settlement, Ronald S. Haft agreed to transfer the real
estate and partnership interests controlled by him in the Bridgeview and
Ontario warehouses to Dart (or its subsidiaries) and to reduce Dart's rent.
These transfers and rent reduction are subject to contingencies, including
bankruptcy court approval, mortgagee approval, challenges brought by Herbert H.
Haft concerning the extent of Ronald S. Haft's ownership interest in the
property and claims asserted by Robert M. Haft and Linda G. Haft regarding the
extent to which Ronald S. Haft controls the partnership owning the Bridgeview
property. See Note 6 to Dart's Consolidated Financial Statements (Item 8 -
Financial Statements and Supplemental Data).
Crown Books
All of Crown Books' 172 stores are leased. As of February 3, 1996, the
total minimum payments for Crown Books' retail stores (excluding closed stores)
aggregated approximately $101,133,000 to the lease expiration dates. The lease
expiration dates (without regard to renewal options) range from 1996 to 2010.
Nine of these leases are with entities in which members of the Haft family have
all or substantially all the beneficial interest and three are with CMREC
shopping centers.
Crown Books leases 23,300 square feet of office and warehouse space in
Addison, Illinois. The lease commenced in January 1993 and has a term of ten
years with one five-year renewal option. The annual rent is $143,000 for the
each of the first five years and increases to $156,000 for each of the second
five years. The lease also obligates Crown Books to pay maintenance,
utilities, insurance and real estate taxes.
Shoppers Food
Shoppers Food leases 34 stores. As of July 1, 1995, the total minimum
payments for Shoppers Food's retail stores under lease aggregated approximately
$165,284,000 to the lease expiration dates. The lease expiration dates
(without regard to renewal options) range from 1996 to 2013. At July 1, 1995,
nine of these leases were with entities in which members of the Haft family
have all or substantially all the beneficial interest and one is with a CMREC
shopping center.
19
<PAGE> 20
Item 2. Properties (Continued)
Shoppers Food has a lease agreement with a limited partnership, in which
members of the Haft family and the owners of the other 50% interest in Shoppers
Food own all of the beneficial interests, for approximately 86,000 square feet
of space in an office building in Lanham, Maryland. The lease commenced
January 1991, is for 20 years and the current annual rental is $1,247,000.
Shoppers Food has sublet approximately 30,000 square feet of the office to
unaffiliated third parties.
Total Beverage
Total Beverage's four stores are leased. As of February 3, 1996, the
total minimum payments for Total Beverage's retail stores under lease
aggregated approximately $13,139,000 to the lease expiration dates. The lease
expiration dates (without regard to renewal options) range from 2002 to 2005.
Subsequent to February 3, 1996, Total Beverage closed one of the stores
included above. The three lease agreements for the open stores are with
partnerships in which members of the Haft family have all or substantially all
the beneficial interest.
CMREC
CMREC owns a majority interest in five real estate joint ventures that
own four shopping centers located in Greenbelt and Silver Spring, Maryland, and
Fairfax and Prince William County, Virginia and one office building located in
Fairfax, Virginia. Under the terms of the RSH Settlement, CMREC receives 1% of
the ordinary income and losses generated by the joint ventures. Ronald S.
Haft and entities controlled by him receive the remaining 99%. In addition,
Dart and CMREC agreed to the sale of the five properties. The sale is to occur
on terms to be arranged by Ronald S. Haft prior to October 6, 2000. Under
terms of the RSH Settlement, CMREC will retain the first $2.0 million of its
share of proceeds from such sales and, if certain conditions relating to the
RSH Settlement are satisfied, the next $47.0 million of CMREC's share of
proceeds will be payable to Ronald S. Haft. The non-CMREC interests in these
properties are owned by partnerships in which members of the Haft family own
all the beneficial interests. In the event the RSH Settlement is not
sustained, the accounting treatment of the transferred interests could be
significantly affected. See Note 6 to Dart's Consolidated Financial Statements
(Item 8 - Financial Statements and Supplemental Data) and Item 3 - Legal
Proceedings.
Pennsy Warehouse Facility
As previously disclosed, the Executive Committee undertook a legal review
of leases covering approximately 533,800 square feet of space in certain
warehouses located at 3301 Pennsy Drive, Landover, Maryland (the "Pennsy
Leases"). By their terms, the Pennsy Leases, which run to 2016, require annual
20
<PAGE> 21
Item 2. Properties (Continued)
rental payments of $855,000 subject to escalation in 1996 and
thereafter based on increases in the Consumer Price Index. The lease terms
also require the lessee to pay real estate taxes, insurance, utilities and
maintenance expenses. Trak Auto subleases 6,500 square feet of warehouse space
in Warehouse III Addition at an annual rental of $21,000. The Trak Auto
sublease continues on a month-to-month basis. Shoppers Food Warehouse sublets
20,000 square feet of warehouse space at approximately $6,000 per month.
As a result of the Executive Committee's review, on February 10, 1995,
Dart filed a complaint in Circuit Court for Prince George's County, Maryland,
alleging breaches of fiduciary duty, waste and other irregularities by certain
members of the Haft family and others in connection with the Pennsy Leases and,
in particular, with the resumption of rental payments for these warehouses in
1991 following the bankruptcy of the prior tenant. The complaint seeks
rescission of the Pennsy Leases, restitution of rent paid since 1991 and other
monetary damages. With respect to Pennsy Warehouse II, III and III Addition
(but not Pennsy Warehouse I), Dart is paying only that portion of its rent
necessary to cover debt service. The balance of the rent called for in these
leases is being paid into escrow, pending resolution of this litigation. See
Item 3. - Legal Proceedings and Notes 4, 5, 7 and 8 to the Consolidated
Financial Statements.
As part of the RSH Settlement, Ronald S. Haft and Dart have agreed to
various transactions relating to the Pennsy Leases. The primary intent of
these transactions is to transfer ownership of Pennsy Warehouses II, III and
III Addition to a Dart-controlled company in which Ronald S. Haft retains an
interest, to later transfer Ronald S. Haft's interest in that company to Dart
and to reduce the excessive rents paid by Dart. The transactions may be
subject to challenges brought by Herbert H. Haft concerning the extent of
Ronald S. Haft's ownership interest in certain of the properties. In the event
the RSH Settlement is not sustained, the accounting treatment of the
transferred interests could be significantly affected. See Note 6 to Dart's
Consolidated Financial Statements (Item 8 - Financial Statements and
Supplemental Data) and Item 3 - Legal Proceedings.
The Executive Committees of Dart, Crown Books and Trak Auto have also
undertaken a legal review of other leasing arrangements and real estate related
transactions between the Company and Haft-owned entities. The Executive
Committees have not yet determined whether other actions will be taken as a
result of this legal review.
21
<PAGE> 22
Item 3. Legal Proceedings
Robert M. Haft Employment Litigation
In August 1993, Robert M. Haft, a former president of Crown Books and
Dart, filed a lawsuit in the United States District Court for the District of
Delaware, Robert M. Haft v. Dart Group Corporation, et al. (D. Del. Civ. A. No.
93-384), naming as defendants Dart and two of its subsidiaries, Crown Books and
Trak Auto. The complaint, as amended, alleged breach of contract regarding
various employment, stock option, stock incentive and loan agreements and
sought declaratory judgment regarding a stock incentive agreement and a
possible right by Robert M. Haft to acquire an interest in Total Beverage, all
in connection with the termination of Robert M. Haft's employment in June 1993.
The complaint, as amended, sought unspecified damages, costs and attorneys'
fees.
On September 20, 1994, a jury found that Dart had breached its employment
contract with Robert M. Haft and awarded him damages against Dart (equivalent
to the compensation projected to be due over a ten-year period) in the amount
of $18,856,964. The jury also found that Crown Books had breached an
employment agreement with Robert Haft and awarded him damages (equivalent to
the compensation projected to be due over a ten-year period) against Crown
Books in the amount of $12,800,910.
The jury also found that Robert M. Haft did not voluntarily terminate his
employment within the meaning of his Incentive Stock Agreement ("ISA") with
Crown Books. Under the terms of the ISA, a voluntary termination by Robert M.
Haft of his employment would have allowed Crown Books to repurchase all or a
portion of 100,000 shares of stock issued to Robert Haft by Crown Books
pursuant to the ISA, subject to certain transfer restrictions, in return for a
non- interest bearing promissory note, discounted at an effective rate of 11%,
for $203,750, due January 2, 2004. The jury's finding would preclude Crown
Books from making such a repurchase.
Robert M. Haft asked the judge presiding over the case to award him
additional damages in the amount of approximately $2.4 million based on the
failure of Crown Books to deliver 100,000 shares of unrestricted common stock
of Crown Books, which he would have a right to receive under the ISA in the
event of his termination without cause by Crown Books, when he demanded them in
August 1993. Robert M. Haft also requested a declaratory judgment on his claim
against Dart, Crown Books and Trak Auto arising from certain stock options
granted to him by those corporations and his claim that he has a purchase
option for an interest in Total Beverage.
On February 22, 1995, the federal district court in Robert M. Haft's
employment litigation made the following rulings against Dart, Crown Books and
Trak Auto:
22
<PAGE> 23
Item 3. Legal Proceedings (Continued)
(a) The court found that Robert M. Haft was entitled to damages in the amount
of $2,146,250, plus interest, based on the failure of Crown Books to
deliver 100,000 shares of unrestricted Crown Books Common Stock when he
demanded them in August of 1993;
(b) The court found that Robert M. Haft was entitled to exercise certain
employee stock options under the 1981 and 1992 Stock Option Plans of
Dart, the Crown Books Stock Option Plan adopted March 12, 1987, and the
Trak Auto Corporation Stock Option Plan adopted March 24, 1987. As to
options that had expired during the pendency of the case, the court
extended the time for exercise for a period equal to the period from June
30, 1993 to the expiration date. As to options that had not yet expired,
the court extended the exercise date for a period equal to the period
from June 30, 1993 until final judgment was entered. (Under the relevant
plans, Robert M. Haft would be entitled to exercise options for 50,000 of
Class A Common Stock of Dart having exercise prices of $71.50 - $104.50
per share, 80,000 shares of Crown Books Common Stock having exercise
prices of $21.45 - $23.93 per share and 40,000 shares of Trak Auto Common
Stock having exercise prices of $6.60 - $13.75 per share.); and
(c) The court found that Robert M. Haft has the right to purchase for
$149,400 ten percent of Dart's interest in the entity that acquired the
assets of Total Beverage's Chantilly, Virginia store.
The court entered final judgment on all claims in this lawsuit on March
23, 1995. On April 6, 1995, Dart and Crown Books filed with the court a motion
for a new trial and/or reduction of damages challenging the court's breach of
contract findings, damages awards and certain evidentiary rulings. In October
1995, the court denied such motion. On October 16, 1995, Dart, Crown Books and
Trak Auto filed a notice of appeal with the U.S. Court of Appeals for the Third
Circuit.
The Company has reserved approximately $34.6 million (including accrued
interest of $2.9 million) for these judgments.
Derivative Litigation
In September 1993, Alan R. Kahn and the Tudor Trust (the "Kahn Derivative
Plaintiffs"), shareholders of Dart, filed a lawsuit in the Delaware Court of
Chancery for New Castle County naming as defendants Herbert H. Haft, Ronald S.
Haft, Douglas M. Bregman, Bonita A. Wilson, Combined Properties, Inc. ("CPI"),
Combined Properties Limited Partnership and Capital Resources Limited
Partnership. The suit is brought derivatively and names as nominal defendants
Dart, Trak Auto, Crown Books, Shoppers Food, Total Beverage and CMREC.
23
<PAGE> 24
Item 3. Legal Proceedings (Continued)
The complaint, as amended on January 12, 1995, alleges waste, breach of
fiduciary duty, violation of securities laws and entrenchment in connection
with various lease agreements between the Combined Properties defendants and
Dart and its subsidiaries, the termination of Robert M. Haft, the compensation
paid to Ronald S. Haft and Herbert H. Haft, the employment agreement entered
into by Ronald S. Haft and Dart on August 1, 1993 (the "RSH Employment
Agreement"), the sale of 172,730 shares of Class B Common Stock by Herbert H.
Haft to Ronald S. Haft, and the compensation paid to the Executive Committee.
Plaintiffs seek an accounting of unspecified damages incurred by Dart, voiding
of the options sold to Ronald S. Haft, appointment of a temporary custodian to
manage the affairs of Dart or to oversee its recapitalization or sale and costs
and attorneys' fees.
On April 27, 1995, the Kahn Derivative Plaintiffs and the Special
Litigation Committee of Dart's Board of Directors filed a Stipulation and Order
which, if entered by the court, would (i) dismiss claims against Douglas M.
Bregman and Bonita A. Wilson and (ii) realign Dart as a party plaintiff to the
amended complaint. The court has not yet acted upon this Stipulation.
In November 1993, Robert M. Haft filed another lawsuit in the Delaware
Court of Chancery for New Castle County. The lawsuit names as defendants
Herbert H. Haft, Ronald S. Haft, Douglas M. Bregman, and Bonita A. Wilson, and
also names Dart as a nominal defendant. The complaint derivatively alleges
interested director transactions, breach of fiduciary duty and waste in
connection with the RSH Employment Agreement. Robert M. Haft also brings
individual claims for breach of contract and dilution of voting rights in
connection with the sale of shares of Class B Common Stock by Herbert H. Haft
to Ronald S. Haft and the RSH Employment Agreement. The complaint seeks
rescission of the sale of such shares and the RSH Employment Agreement,
unspecified damages from the individual directors, and costs and attorneys'
fees.
In January 1994, a Special Litigation Committee consisting of two
outside, independent directors of Dart, Crown Books and Trak Auto was appointed
by the Board of Directors to assess, on behalf of Dart, whether to pursue,
settle or abandon the claims asserted in these two derivative lawsuits. (Since
the death of one member in December 1994, the Special Litigation Committee has
consisted of one director.) In September 1994, the Special Litigation
Committee moved for dismissal of certain claims in those derivative lawsuits
and for realignment of the parties to permit Dart to prosecute other claims in
those derivative lawsuits. This motion is still pending before the court.
In connection with the RSH Settlement, on October 11, 1995, the plaintiff
shareholders, Ronald S. Haft, Combined Properties, Inc., Dart, Trak Auto and
Crown Books entered into a Stipulation and Agreement of Compromise, Settlement
and Release (the "Stipulation"). Pursuant to the Stipulation, the claims
against Ronald S. Haft and Combined Properties, Inc. will be dismissed on the
24
<PAGE> 25
Item 3. Legal Proceedings (Continued)
merits and with prejudice as against the shareholder plaintiffs and Dart and
its subsidiaries, if the RSH Settlement and dismissal of these claims are
approved by the Delaware Court of Chancery.
In September 1994, Jolien Lou, a purported shareholder of Crown Books,
filed a lawsuit in the Delaware Court of Chancery for New Castle County naming
as defendants Herbert H. Haft, Glenn E. Hemmerle, Ronald S. Haft, Douglas M.
Bregman, H. Ridgely Bullock, Larry G. Schafran and Bonita A. Wilson. The suit
is brought derivatively and names Crown Books as nominal defendant. The
complaint, as amended on February 24, 1995, alleges waste and breach of
fiduciary duty in connection with the termination of Robert M. Haft from his
position at Crown Books in 1993 and in connection with the management of Crown
Books. The amended complaint also alleges legal malpractice against a lawyer
advising Dart at that time. Plaintiff seeks unspecified damages incurred by
Crown Books, and costs and attorneys' fees. Ronald S. Haft and Glenn E.
Hemmerle have been dismissed without prejudice from this lawsuit. The amended
complaint does not name as a defendant H. Ridgely Bullock, who died subsequent
to the filing of the original complaint. Crown Books and other defendants have
filed a motion to dismiss this lawsuit.
Given that these derivative lawsuits are brought in the name of Dart and
its subsidiaries, recovery in them would inure to the benefit of Dart and its
subsidiaries if the claims are successfully litigated or settled. Therefore,
in the opinion of management, resolution of these actions will not have a
material adverse effect on the consolidated financial condition or results or
operations of the Company.
Pennsy Warehouse Litigation
In fiscal 1995, the Executive Committee of Dart's Board of Directors
undertook a legal review of the Pennsy Leases. By their terms, the Pennsy
Leases, which run to 2016, require annual rental payments of $855,000 subject
to escalation in 1996 and thereafter based on increases in the Consumer Price
Index. The lease terms also require the lessee to pay real estate taxes,
insurance, utilities, and maintenance expenses. At January 31, 1996, Dart had
reserved approximately $18.5 million for the obligations represented by the
Pennsy Leases.
As a result of this review, on February 10, 1995, Dart filed a complaint
(the "Pennsy Warehouse Litigation") in Circuit Court for Prince George's
County, Maryland, alleging breaches of fiduciary duty, waste and other
irregularities by certain members of the Haft family and others in connection
with the Pennsy Leases and, in particular, with the resumption of rental
payments for these warehouses in 1991 following the bankruptcy of the prior
tenant, Dart Drug Stores, Inc. The complaint seeks rescission of the Pennsy
Leases, restitution of approximately $4.2 million of rent paid since 1991 and
other monetary
25
<PAGE> 26
Item 3. Legal Proceedings (Continued)
damages.
Robert M. Haft Stock Option Litigation
On February 10, 1995, Robert M. Haft filed a complaint in the United
States District Court for the District of Delaware against Dart seeking
specific performance or damages in connection with the refusal of Dart to issue
shares of Class A Common Stock to him pursuant to his exercise of certain
options purportedly granted to him by Dart. Robert M. Haft allegedly received
these options on three separate occasions: (i) pursuant to the Dart Drug
Corporation Executive Non-Qualified Stock Option Plan (the "1983 Plan"), under
which Robert M. Haft allegedly received options to purchase 120,000 shares of
Class A Common Stock; (ii) pursuant to the Dart Drug Corporation 1987 Executive
Non-Qualified Stock Option Plan (the "1987 Plan"), under which Robert M. Haft
allegedly received options to purchase 99,750 shares of Class A Common Stock;
and (iii) pursuant to a Stock Option Agreement (the "1989 Agreement") dated as
of August 30, 1989, among Dart, Dart/SFW Corp. ("Dart/SFW") and Robert M. Haft,
under which Robert M. Haft allegedly received options to purchase 10 shares (or
10%) of common stock of Dart/SFW.
Dart is contesting the validity of the options granted to Robert M. Haft
pursuant to the 1983 Plan, the 1987 Plan and the 1989 Agreement. Dart filed a
counterclaim on July 17, 1995 asking that the stock option plans and stock
option agreement that are the subject of the litigation be declared void,
rescinded and unenforceable.
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 Dart seeking (i) an order declaring that a
claimed release bars Dart from bringing suit against him in the Pennsy
Warehouse Litigation, (ii) an injunction to bar Dart from filing certain other
categories of future complaints against him based on the so-called release and
(iii) compensation for the costs of defense of the Pennsy Warehouse Litigation.
The "release" relied upon in this litigation is also asserted by Robert M. Haft
and Gloria G. Haft in the Pennsy Warehouse Litigation. Accordingly, Dart has
moved to dismiss or stay the Superior Court case, asserting that the issue
should be resolved in the earlier-filed Pennsy Warehouse Litigation where Dart
contends that the "release" is ineffective for a variety of reasons. On
February 27, 1996, the Superior Court ruled that this action should be stayed
pending resolution of the Pennsy Warehouse Litigation.
26
<PAGE> 27
Item 3. Legal Proceedings (Continued)
Herbert H. Haft Proxy Litigation
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 "to the same extent and with the same
effect as Ronald S. Haft might or could do under any applicable laws or
regulations governing the rights and powers of shareholders of Dart," 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, Dart in the Delaware Court of Chancery for New Castle County
for Herbert H. Haft's alleged breach of contract and breach of fiduciary duties
to Ronald S. Haft and to Dart in connection with the Proxy (Ronald S. Haft v.
Herbert H. Haft, et al., Civ. A. No. 14425). In this action, Ronald S. Haft
seeks a declaration that the Proxy is revocable or would be revocable under
certain conditions, as well as costs and attorneys' fees. Ronald S. Haft also
requests that the court require Dart 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. On September
25, 1995, Dart filed its answer in this action. Both Ronald S. Haft and
Herbert H. Haft have moved for summary judgment in this lawsuit. On November
14, 1995, the court denied Ronald S. Haft's motion for summary judgment;
Herbert H. Haft's motion for summary judgment remains pending.
As part of the RSH Settlement, on October 6, 1995, Dart purchased from
Ronald S. Haft the 172,730 shares of Class B Common Stock that were subject to
the Proxy. See Note 6 to Dart's Consolidated Financial Statements (Item 8 -
Financial Statements and Supplemental Data).
Section 225 Action by Robert, Gloria and Linda Haft
On October 17, 1995, Robert M. Haft, Gloria G. Haft and Linda G. Haft
(collectively, "RGL") filed a lawsuit captioned Gloria G. Haft, et al. v. Larry
G. Schafran, et al., Del. Ch., Civ. A. No. 14620 (the "Section 225 Action"), in
the Delaware Court of Chancery for New Castle County naming as defendants Dart
and all of its directors. RGL seek an order, under Section 225 of the Delaware
General Corporation Law, declaring that RGL validly removed all of Dart's
directors and replaced them with three individuals (John L. Mason, Ellen V.
Sigal and Michael Ryan), whom RGL purport to have elected. Such purported
election is premised on RGL's contention that RGL own a majority of Dart's
voting stock because, they argue, (i) the 172,730 Class B shares subject to
Herbert H. Haft's proxy have been purchased by Dart and may not be voted and
27
<PAGE> 28
Item 3. Legal Proceedings (Continued)
(ii) the shares of Class B Common Stock placed in a voting trust (the "Trust
Shares") by Ronald S. Haft pursuant to the RSH Settlement also are not entitled
to vote because they have been unlawfully issued or they should be deemed to be
owned by Dart.
Dart's position is that this lawsuit is without merit and that the
purported action by RGL to reconstitute the Board of Directors is invalid. On
October 27, 1995, Dart filed a motion for summary judgment.
Challenge to RSH Settlement by Herbert H. Haft
On November 6, 1995, Herbert H. Haft filed a lawsuit captioned Herbert H.
Haft v. Dart Group Corporation, et al., Del. Ch., Civ. A. No. 14685, in the
Delaware Court of Chancery for New Castle County naming as defendants Dart, all
of its directors except Herbert H. Haft, RGL, John L. Mason, Ellen V. Sigal and
Michael Ryan. Herbert H. Haft seeks a judgment (i) declaring the RSH
Settlement unlawful, hence null and void; (ii) declaring either that 172,730
shares of Class B Common Stock belong to him, were wrongfully sold by Ronald S.
Haft to Dart, and that Herbert H. Haft is entitled to restitution of such
shares or, alternatively, that his purportedly irrevocable proxy on the 172,730
shares continues to be valid; (iii) declaring that Herbert H. Haft retains
voting control of Dart or, at a minimum, 34.55% of Dart's voting power; (iv)
declaring that the Trust Shares may not be lawfully voted; and (v) declaring
that defendants John L. Mason, Ellen V. Sigal and Michael Ryan are not duly
elected directors of Dart.
Dart's position is that this lawsuit, except for the declaration sought
that defendants John L. Mason, Ellen V. Sigal and Michael Ryan are not duly
elected directors of Dart, is without merit. Herbert H. Haft disagrees with
Dart's position. In the event Herbert H. Haft prevails, there could be a
significant effect in the accounting treatment for the RSH Settlement that has
been reflected in the Company's financial statements. See Note 6 to the
Consolidated Financial Statements (Item-8).
Standstill Order
In connection with the legal challenges to the RSH Settlement raised by
RGL and Herbert H. Haft, on December 6, 1995, the Delaware Court of Chancery
entered the Standstill Order, which restricts certain actions by Dart. Without
further order of the court, Dart may not (i) change its Certificate of
Incorporation or Bylaws; (ii) change the current composition of Dart's Board of
Directors (Herbert H. Haft, Ronald S. Haft, Larry G. Schafran, Bonita A. Wilson
and Douglas M. Bregman) or any of its subsidiaries; (iii) change the current
Haft family officers of Dart or any of its subsidiaries; or (iv) issue any
additional securities of Dart or any of its subsidiaries (except employee stock
options issued in the ordinary course of business). In addition, without first
giving Herbert H. Haft and the other parties to the Section 225 Action not less
than
28
<PAGE> 29
Item 3. Legal Proceedings (Continued)
seven days written notice, Dart may not take any extraordinary actions,
including but not limited to actions that would result in (a) the liquidation
of Dart or any of its subsidiaries, (b) the sale of any major subsidiary of
Dart or (c) the disadvantage of any Class B stockholder of Dart through any
debt transaction. For purposes of the Standstill Order, the phrase
"extraordinary actions" means any transaction, contract or agreement, the value
of which exceeds $3 million.
Other
Dart is engaged in discussions with Haft family members to explore
opportunities to settle litigation pending between the parties. There can be
no assurance that any settlement will be reached or as to the terms or timing
of any settlement, if one occurs.
Pursuant to an agreement between Dart and the Securities and Exchange
Commission ("SEC") resolving the SEC's investigation of Dart's status as an
investment company under the Investment Company Act of 1940 (the "1940 Act"),
on February 28, 1990, the SEC filed with the U.S. District Court for the
District of Columbia a complaint for injunction and other relief against Dart
alleging that Dart had been since June 30, 1984 an investment company as
defined in the 1940 Act and had engaged in certain activities prohibited by the
1940 Act without registering as an investment company. The SEC sought in the
complaint an injunction banning Dart and its representatives from engaging in
activities prohibited by the 1940 Act without first registering as an
investment company. At the same time, Dart, without admitting or denying these
allegations, consented to the entry of a final judgment (1) enjoining Dart,
should it become an investment company in the future, from engaging in certain
activities prohibited by the 1940 Act in the absence of an applicable exemption
or unless Dart is registered as an investment company, and (2) requiring Dart,
on a quarterly basis for a three year period, to provide the SEC with certain
information concerning the composition of its assets and income.
Dart and Trak Auto are defendants in litigation (Rollerson v. Dart Group
Corporation, et al., D.D.C. Civ. Action No. 95-CV-1172) involving a former
employee of Trak Auto alleging sexual harassment. The suit claims $30 million
in compensatory and punitive damages. Dart and Trak Auto have filed a motion
for summary judgment and are awaiting a decision. While both Dart and
Trak Auto are defending the suit vigorously and have made no accrual for this
litigation, it is not possible to assess the likelihood of plaintiff's
establishing liability against Dart or Trak Auto, nor predict the amount of
damages that might be awarded in the event the claim succeeds.
In the normal course of business, the Company is involved in various
claims and litigation. In the opinion of management, liabilities, if any, will
not have a material effect upon the consolidated financial condition and
results of operations of the Company.
The Company recorded expenses of approximately $7.2 million and $18.4
million during the years ended January 31, 1996 and 1995, respectively, for
legal expenses incurred during these years. These amounts include estimated
future expenses that likely will be necessary to resolve all litigation
discussed above.
29
<PAGE> 30
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Class A Common Stock is quoted on the Nasdaq under the symbol DARTA.
The following table sets forth the range of the high and low sale prices for
the Class A Common Stock, as reported by the Nasdaq, and the dividends declared
for the fiscal quarters indicated.
Class A Common Stock
<TABLE>
<CAPTION>
Dividends
Quarter Ended High Low Declared Per Share
- ------------- ---- --- ------------------
<S> <C> <C> <C>
April 30, 1994 87 78 .03 1/3
July 31, 1994 83 70 .03 1/3
October 31, 1994 90 71 3/4 .03 1/3
January 31, 1995 92 72 .03 1/3
April 30, 1995 98 73 .03 1/3
July 31, 1995 96 83 3/4 .03 1/3
October 31, 1995 100 79 .03 1/3
January 31, 1996 96 1/2 88 1/4 .03 1/3
</TABLE>
There were approximately 330 record holders of the Class A Common Stock
as of April 30, 1996.
No public trading market exists for the Class B Common Stock. Dart has
never paid dividends to the holders of Class B Common Stock and does not expect
to do so in the foreseeable future. There were 4 record holders of the Class B
Common Stock as of April 30, 1996. See Item 3 - Legal Proceedings.
30
<PAGE> 31
Item 6. Selected Financial Data
Income Statement Data: (in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ 678,136 $ 967,428 $1,376,543 $1,272,677 $1,195,148
Unusual items - - - 3,894 -
Income (loss) before
minority interests
and income from
unconsolidated
subsidiary (18,832) (78,022) (225) 11,652 18,113
Minority interests (1) (4,647) 4,235 (6,512) (8,143) (11,802)
Income (loss) from
unconsolidated
subsidiary 10,055 (5) - - -
Income (loss) before
extraordinary item
and cumulative
effect of accounting
change (13,424) (73,792) (6,737) 3,509 6,311
Extraordinary item:
Repurchase of
debentures - - - (885) (1,589)
Cumulative effect of
change in account-
ing principle (2) - - - 1,135 -
--------- --------- ---------- ---------- ----------
Net Income (loss) $ (13,424)$ (73,792)$ (6,737)$ 3,759 $ 4,722
========= ========= ========== ========== ==========
Per share data:
Income (loss) before
extraordinary item
and cumulative
effect of
accounting change $ (7.36)$ (39.57)$ (4.10)$ 1.91 $ 3.46
Extraordinary item:
Repurchase of
debentures - - - (.48) (.87)
Cumulative effect of
change in account-
ing principle (2) - - - .62 -
--------- --------- ---------- ---------- ----------
Net Income (loss) $ (7.36)$ (39.57)$ (4.10)$ 2.05 $ 2.59
========= ========= ========== ========== ==========
Cash dividends
declared per
share of Class A
common stock $ 0.13 $ 0.13 $ 0.13 $ 0.13 $ 0.13
========= ========= ========== ========== ==========
</TABLE>
31
<PAGE> 32
Item 6. Selected Financial Data (Continued)
<TABLE>
<CAPTION>
Balance Sheet Data: (in thousands)
- -------------------
Fiscal Year
------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Working capital $ 119,101 $ 180,415 $ 281,242 $ 267,801 $ 260,374
Total assets (1) 470,565 706,489 802,898 722,379 696,395
Long-term
Obligations 67,641 170,417 151,818 120,231 92,096
Stockholders'
Equity 134,576 199,363 274,307 279,239 276,476
</TABLE>
(1) As of January 31, 1996 Dart owned 67.3% of the common stock of Trak
Auto and 51.4% of the common stock of Crown Books.
The accounts of Shoppers Food are consolidated with Dart's through May
28, 1994, but not thereafter, as a result of a reduction of Dart's
ownership to 50%. Dart's investment in Shoppers Food is reflected in
the financial statements using the equity method of accounting for
periods subsequent to May 28, 1994.
On December 31, 1989, partnerships in which CMREC held a 75% interest
purchased two shopping centers. The operating results of these
partnerships are reported from January 1, 1990. On March 12, 1991,
CMREC acquired a 51% interest in two partnerships that own the
Greenbriar Town Center in Chantilly, Virginia. The operating results
of these partnerships are reported from March 12, 1991. In January
1993, CMREC acquired a 51% interest in a partnership that owns Bull
Run Plaza in Manassas, Virginia. The operating results of this
partnership are reported from January 1, 1993. As a result of the RSH
Settlement, CMREC's economic interests in these partnerships were
reduced and, accordingly, the operating results of the CMREC real
estate joint ventures are no longer reported as of October 6, 1995.
In the event the RSH Settlement is not sustained, the accounting
treatment of the transfer of the CMREC economic interests could be
significantly affected.
(2) The 1993 cumulative effect of a change in accounting principles was
the result of Trak Auto's adopting Statement of Financial Accounting
Standard No. 109, Accounting for Income Taxes.
32
<PAGE> 33
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General Information
Dart does not conduct operations except through its subsidiaries,
Trak Auto, Crown Books, Total Beverage and CMREC. Because Dart has no
operations other than through its subsidiaries, the results of operations for
Dart are reflected in the results of operations set forth below under headings
relating to each subsidiary. As a holding company, Dart has served primarily
to provide administrative support and strategic oversight and direction to its
subsidiaries and their businesses.
Dart's publicly traded Class A Common Stock has no right to vote.
Dart's voting stock, the Class B Common Stock, has been beneficially owned by
Haft family members.
The termination of Robert M. Haft as President and Chief Operating
Officer of Dart and as Chief Executive Officer and President of Crown Books in
1993, the appointment of Ronald S. Haft as President and Chief Operating
Officer of Dart and the ensuing disagreements between Ronald S. Haft and
Herbert H. Haft in 1994 has resulted in significant disputes over which Haft
family members control Dart. As a result of these disputes, Dart has been
involved in significant litigation involving Haft family members. See Item 3 -
Legal Proceedings.
On September 7, 1994, the Board of Directors of Dart established an
Executive Committee comprised of Dart's outside directors to conduct the
affairs of Dart with respect to matters that were the subject of dispute
between the Chairman of the Board and Chief Executive Officer of Dart, Herbert
H. Haft, and the then President and Chief Operating Officer of Dart, Ronald S.
Haft. On October 11, 1994, the Boards of Directors of Trak Auto, Crown Books
and Total Beverage each established an Executive Committee of their respective
Board of Directors comprised of the same outside directors, with authority
parallel to that of Dart's Executive Committee. The disputes between Herbert
Haft and Ronald Haft concerning issues involving Dart have been extensive.
Accordingly, the Executive Committee assumed day-to-day involvement in these
disputed issues and other matters affecting Dart, in particular matters
relating to litigation to which Dart is a party. While the Executive Committee
remains involved in the day-to-day affairs of Dart, its continuing role is
dependent upon future developments.
In connection with the RSH Settlement, Ronald S. Haft resigned his
positions as a director and officer of Dart and each of its subsidiaries. The
Standstill Order contemplates that Ronald S. Haft will continue as a director
of Dart while the Standstill Order is in effect. (Herbert H. Haft contends
that Ronald S. Haft is no longer a director.)
33
<PAGE> 34
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
On October 6, 1995, Dart and Ronald S. Haft entered into the RSH
Settlement. See Note 6 to Dart's Consolidated Financial Statements (Item 8 -
Financial Statements and Supplementary Data). The RSH Settlement transactions
are subject to legal challenge. See Item 3 - Legal Proceedings. If sustained,
the RSH Settlement transactions were intended to have the effect, by their
terms, of transferring majority control of Dart's voting stock to one or more
voting trustees under the Voting Trust Agreement. On December 28, 1995, the
initial Voting Trustees resigned and appointed Richard B. Stone as successor
Voting Trustee.
In connection with legal challenges to the RSH Settlement, on December
6, 1995, the Delaware Court of Chancery entered the Standstill Order, which
restricts certain actions by Dart. Without further order of the court, Dart
may not (i) change its Certificate of Incorporation or Bylaws; (ii) change the
current composition of Dart's Board of Directors (Herbert H. Haft, Ronald S.
Haft, Larry G. Schafran, Bonita A. Wilson and Douglas M. Bregman) or any of its
subsidiaries; (iii) change the current Haft family officers of Dart or any of
its subsidiaries; or (iv) issue any additional securities of Dart or any of its
subsidiaries (except employee stock options issued in the ordinary course of
business). In addition, without first giving Herbert H. Haft and certain other
litigants not less than seven days written notice, Dart may not take any
extraordinary actions, including but not limited to actions that would result
in (a) the liquidation of Dart or any of its subsidiaries, (b) the sale of any
major subsidiary of Dart or (c) the disadvantage of any Class B stockholder of
Dart through any debt transaction. For purposes of the Standstill Order, the
phrase "extraordinary actions" means any transaction, contract or agreement,
the value of which exceeds $3 million.
Management believes that litigation between the Company and Haft
family members has had an adverse impact on the Company's results of
operations, financial position and liquidity. During fiscal 1996, the RSH
Settlement reduced cash by approximately $50 million and shareholders' equity
by approximately $56 million. Also during fiscal 1996, in connection with the
RSH Settlement and litigation involving Haft family members, the Company paid
approximately $12.4 million in legal fees. During fiscal 1995, a jury awarded
approximately $32 million (plus interest) to Robert M. Haft in his lawsuit
against the Company for breach of contract claims (the "RMH Judgment"). If the
Company loses its appeal and is required to pay the RMH Judgment, the Company's
liquidity would be significantly reduced and, unless other sources of cash
become available, the liquidity of the Company could be impaired. In addition,
management believes that the continued uncertainty relating to the control of
Dart and the surrounding litigation has affected the Company's reputation among
banks, vendors and landlords and made the Company's efforts to recruit
highly-qualified personnel more difficult. The uncertainty surrounding control
of Dart (and the associated effects of such
34
<PAGE> 35
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
uncertainty) may continue until pending litigation is adjudicated or settled.
Dart is engaged in discussions with Haft family members to explore
opportunities to settle litigation pending between the parties. See Item 3 -
Legal Proceedings. There can be no assurance that any settlement will be
reached or as to the terms or timing of any settlement, if one occurs.
Outlook
Except for historical information, statements in this Management's
Discussion and Analysis of Financial Condition and Results of Operations are
forward-looking. Actual results may differ materially due to a variety of
factors, including the results of ongoing litigation affecting the Company, the
Company's ability to open new stores and close other stores, the effect of
national and regional economic conditions, and the availability of capital to
fund operations. The Company undertakes no obligation and does not intend to
update, revise or otherwise publicly release the result of any revisions to
these forward-looking statements that may be made to reflect future events or
circumstances.
The litigation involving the Haft family members or the loss on appeal
by the Company of the RMH Judgment could pose a threat to Dart's liquidity. See
"Liquidity and Capital Resources" below.
Dart has retained an investment banking firm to provide advice
concerning issues of shareholder value. The investment banking firm has
reviewed with members of the Executive Committee potential types of
transactions that might enhance value for Dart's stockholders. No final
decision has been made whether or not Dart will engage in any such
transactions, and there can be no assurance as to the timing or terms of such
transactions, if they occur. Any such transaction may require further order of
the Delaware Court of Chancery under the Standstill Order and may be opposed by
Herbert H. Haft or the other parties to the Section 225 Action.
Trak Auto and Crown Books believe that their superstore concepts
present significant growth opportunities and intend to open new superstores in
existing and possibly new markets. In the past, superstores have generated
higher sales at converted locations as well as higher gross margins as a result
of a change in product mix. Trak Auto and Crown Books believe that, as these
large stores mature, operating expenses as a percentage of sales will decrease.
In addition, Trak Auto may from time to time expand its retail operations
through acquisitions of existing stores from third parties in existing or new
markets.
Trak Auto, Crown Books and Total Beverage intend to continue their
practice of reviewing the profitability trends and prospects of existing
35
<PAGE> 36
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
stores. These companies may from time to time close, relocate or sell stores
(or groups of stores) that are not satisfying certain performance objectives.
Crown Books currently anticipates closing approximately 39 Classic Crown Books
stores and two Super Crown Books stores during fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash, including short-term instruments, and U.S. government and other
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 $104,376,000 to $87,328,000 at January
31, 1996 from $191,704,000 at January 31, 1995. This decrease was primarily due
to loans made to Ronald S. Haft as part of the RSH Settlement (see Note 6 to
the Consolidated Financial Statements), Trak Auto's purchase of the assets of
14 stores in the Pittsburgh market, Trak Auto's repurchase of approximately
310,000 shares of its outstanding common stock, capital expenditures,
extraordinary legal fees and operations.
For the year ended January 31, 1996, the Company realized a pre-tax yield
of approximately 5.6% on United States Treasury Bills and approximately 6.2% on
the marketable debt securities.
Operating activities used $30,718,000 of the Company's funds for the year
ended January 31, 1996 compared to $13,421,000 for the same period one year
ago. The primary use of operating cash for the year ended January 31, 1996 was
for payments for Trak Auto and Crown Books merchandise inventory and payments
against the Company's reserves for closed facilities and restructuring.
Investing activities provided $42,307,000 to the Company for the year ended
January 31, 1996, compared to using $36,303,000 of the Company's funds for the
same period last year. The Company's primary source of cash during the year
ended January 31, 1996 was the sale and maturity of marketable debt securities
(primarily Unites States Treasury Notes), the net disposition of United States
Treasury Bills, a cash dividend from Shoppers Food and cash distributions from
CMREC joint ventures prior to the RSH Settlement. The Company's capital
expenditures increased by $1,538,000 to $16,688,000 during the year ended
January 31, 1996 as a result of new store openings. In addition, Trak Auto
used $5.8 million for the purchase of the assets for 14 stores in Pittsburgh
and $6.9 million for the repurchase of 310,000 shares of its outstanding common
stock.
Financing activities used $49,179,000 of the Company's cash during the
year ended January 31, 1996 primarily due to distributions to Ronald S. Haft as
part of the RSH Settlement (see Note 6 to the Consolidated Financial
36
<PAGE> 37
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Statements).
In the past, Dart and each of its subsidiaries generally funded their
respective requirements for working capital and capital expenditures with net
cash generated from operations and existing cash resources. However, as
discussed above, the Company's cash decreased by approximately $104.4 million
in fiscal 1996.
In fiscal 1997, the Company will likely need other sources of
liquidity if Dart and Crown Books lose their appeal of the RMH Judgment and are
required to pay Robert M. Haft the $32 million judgment (plus interest) or if a
settlement of litigation is reached with members of the Haft family. In such
event, Dart will need a source of liquidity other than its existing cash
resources. If Crown Books loses its appeal of the RMH Judgment, Crown Books
expects to use existing cash to pay the RMH Judgment. In such an event, Crown
Books expects that it would either obtain third party debt financing or reduce
planned store openings.
If Dart is required to pay its share of the RMH Judgment and does not
obtain other sources of funds, then it may need additional cash to fund its
working capital needs, which primarily consist of funding any operating losses
of Total Beverage, payroll and legal fees. While Dart has considered various
potential transactions to generate funds, including the liquidation of its
interest in Shoppers Food, Dart presently has no definitive financing plans and
there can be no assurance that Dart will obtain sufficient working capital for
fiscal 1997. Any financing transaction or other extraordinary transaction that
would generate cash may require further order of the Delaware Court of Chancery
under the Standstill Order and may be opposed by Herbert H. Haft or other
parties to the Section 225 Action.
The primary capital requirements of Crown Books relate to new store
openings, remodelings and investments in management information systems. Crown
Books believes that the costs incurred in opening a new store generally
approximate $1.1 million, including purchases of inventory and the costs of
store fixtures and leasehold improvements. During fiscal 1997, Crown Books
expects to open approximately 30 Super Crown Books stores and that capital
expenditures would approximate $8.5 million. As of February 3, 1996, the
Company had entered into lease agreements to open 14 new Super Crown Books
stores. In fiscal 1997, Crown Books expects to make cash expenditures of
approximately $4.0 million related to actual and planned store closings.
37
<PAGE> 38
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Trak Auto funds its requirements for working capital and capital
expenditures with net cash generated from operations and existing cash
resources. Trak Auto's primary capital requirements relate to remodelings, new
store openings (including purchases of inventory and the costs of store
fixtures and leasehold improvements), and acquisitions. As of February 3,
1996, Trak Auto had entered into lease agreements to open seven new stores and
amendments to existing lease agreements to convert two Classic Trak stores into
Super Trak or Super Trak Warehouse stores.
Total Beverage is considering locations for new stores and, to the
extent sufficient capital becomes available, may open one or more new stores in
fiscal 1997.
At January 31, 1996:
Working capital decreased $61,314,000 to $119,101,000 during the year
ending January 31, 1996. The decrease was primarily due to loans made to
Ronald S. Haft in connection with the RSH Settlement capital expenditures for
new Trak Auto and Crown Books stores and Trak Auto's Pittsburgh acquisition and
common stock repurchase and was partially offset by Trak Auto's operating
results and cash dividend payments from Shoppers Food and CMREC joint
ventures.
At January 31, 1995:
Working capital decreased $100,827,000 to $180,415,000 during the year
ending January 31, 1995. The decrease was primarily due to the deconsolidation
of Shoppers Food.
38
<PAGE> 39
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
RESULTS OF OPERATIONS
"Fiscal 1996" means the year ended January 31, 1996, with respect to
Dart, and the year ended February 3, 1996, with respect to Trak Auto, Crown
Books and Total Beverage. "Fiscal 1995" means the year ended January 31, 1995,
with respect to Dart, and the year ended January 28, 1995, with respect to Trak
Auto, Crown Books and Total Beverage. "Fiscal 1994" means the year ended
January 31, 1994, with respect to Dart, and the year ended January 29, 1994,
with respect to Trak Auto, Crown Books and Total Beverage.
Fiscal 1996 Compared to Fiscal 1995
Trak Auto
During fiscal 1996, Trak Auto opened or converted 17 Super Trak
stores and 23 Super Trak Warehouse stores and closed or converted 36 Classic
Trak stores and ten Super Trak stores. At February 3, 1996, Trak Auto had 276
stores, including 113 Super Trak stores and 30 Super Trak Warehouse stores.
Sales of $342,242,000 for fiscal 1996 decreased by $6,357,000 or 1.8%
compared to fiscal 1995. The decrease was primarily due to lower sales during
the 13 weeks ended April 29, 1995 compared to the 13 weeks ended April 30,
1994, as a result of the mild winter conditions in Chicago and Washington, D.C.
metropolitan areas. (Extremely cold weather tends to enhance sales by causing a
higher incidence of parts failure and the need for anti- freeze). In addition,
sales were down due to a net decrease in the number of stores. The sales
decrease was partially offset by 53 weeks of sales during fiscal 1996 compared
to 52 weeks of sales in fiscal 1995. The extra sales week was approximately
$6,000,000. Comparable sales (stores open more than one year) decreased 2.7%
in fiscal 1996 compared to the 53 weeks ended February 4, 1995. Sales for
comparable Super Trak stores increased 0.1% in fiscal 1996. Sales for
comparable Classic Trak stores decreased 3.9% in fiscal 1996. Sales for Super
Trak and Super Trak Warehouse stores represented 56.2% of total sales during
fiscal 1996 compared to 42.6% for fiscal 1995.
Interest and other income increased by $471,000 in fiscal 1996 when
compared to fiscal 1995. The increase was primarily due to higher interest
rates on Trak Auto's short-term investments.
Cost of sales, store occupancy and warehousing expenses (excluding
closed store reserves) as a percentage of sales were 74.0% in fiscal 1996
compared to 73.0% in fiscal 1995. The increases were primarily due to a
decrease in net advertising income as a result of increased advertising costs
39
<PAGE> 40
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
and increased occupancy costs for Super Trak and Super Trak Warehouse stores
and were partially offset by increased store margins. Trak Auto recorded
closed store reserves of $418,000 and $1,580,000 in fiscal 1996 and fiscal
1995, respectively. These reserves are for future lease obligations and net
book value of leasehold improvements for underperforming stores.
Selling and administrative expenses as a percentage of sales were
20.3% in fiscal 1996 compared to 19.9% in fiscal 1995. The increase was
primarily due to increased payroll costs as a percentage of sales (actual
payroll dollars remained almost the same) and to increased health benefit
costs.
Depreciation and amortization expenses increased $288,000 in fiscal
1996 compared to fiscal 1995. The increase was primarily the result of
increased fixed assets for new Super Trak and Super Trak Warehouse stores.
Interest expense decreased $211,000 in fiscal 1996 compared to fiscal
1995.
Net income decreased $2,975,000 (29.0%) from $10,265,000 in fiscal
1995 to $7,290,000 in fiscal 1996 as a result of the foregoing factors.
The effective income tax rate was 36.4% in fiscal 1996 compared to
32.3% in fiscal 1995. The increase was primarily the result of the valuation
allowance reversal in fiscal 1995 and is partially offset by a lower pre-tax
income in fiscal 1996 compared to fiscal 1995.
Crown Books
During fiscal 1996, Crown Books opened 16 Super Crown Books stores
while closing 38 Classic Crown Books stores and two Super Crown Books stores.
These Super Crown Books stores were closed as a result of opening larger stores
in the same area. At February 3, 1996, Crown Books had 172 stores, including
84 Super Crown Books stores.
Sales of $283,475,000 for fiscal 1996 decreased by $22,131,000 or 7.2%
compared to fiscal 1995. The decrease is primarily due to the net decrease in
the number of stores as a result of Crown Books's continuing transition to the
new superstore concept. Comparable sales (sales for stores open for fifteen
months) decreased 3.3% for fiscal 1996, however, comparable sales for the new
prototype superstore increased 11% during the 14 weeks ended February 3, 1996.
Sales for Super Crown Books stores represented 66.7% of total sales for fiscal
1996 compared to 54.7% of total sales for fiscal 1995. Super Crown Books sales
of $189,142,000 for fiscal 1996 increased 12.9% over the sales for fiscal 1995
and sales for comparable Super Crown Books stores decreased 1.8%. Sales for
comparable classic Crown Books stores decreased 5.7% during
40
<PAGE> 41
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
fiscal 1996.
Interest and other income increased by $647,000 during fiscal 1996
when compared to fiscal 1995. The increase is primarily due to higher interest
rates on Crown Books's short-term investments.
Cost of sales, store occupancy and warehousing expenses as a
percentage of sales were 81.8% for fiscal 1996 compared to 81.2% for fiscal
1995. The increases were primarily due to higher occupancy costs associated
with the Super Crown format and were partially offset by increased store
margins.
Selling and administrative expenses as a percentage of sales were
18.0% for fiscal 1996 compared to 20.4% for fiscal 1995. The decrease was
primarily due to the prior year accruals for Robert M. Haft's judgment and
legal costs. Excluding these accruals, selling and administrative expenses as
a percentage of sales were 16.2% for fiscal 1995. The increase in selling and
administrative expenses, excluding the accruals, was primarily due to increased
payroll and advertising costs and costs associated with Crown Books' Executive
Committee.
Depreciation expense increased $239,000 for fiscal 1996 compared to
fiscal 1995. The increase was primarily due to increased fixed assets for new
Super Crown Books stores, an upgrade in the point-of-sale register system and
additional computer hardware.
Interest expense increased by $314,000 primarily due to interest
accrued on the judgment against Crown Books in favor of Robert M. Haft.
The closed store reserve was reversed by $6,743,000 in fiscal 1996
compared to an increase (expense) in such reserve of $18,865,000 in fiscal
1995. In addition, the restructuring reserve was reversed by $2,051,000 in
fiscal 1996. The reversals in the store closing and restructuring reserves in
fiscal 1996 resulted from (i) stores that were closed under negotiated lease
settlements that were more favorable than expected, (ii) the postponement of
certain store closings and (iii) management's decision not to close two stores
that had been scheduled for closing.
Crown Books had net income of $3,704,000 in fiscal 1996 compared to a
net loss of $19,380,000 in fiscal 1995 as a result of the foregoing factors.
Crown Books has recorded income tax expense of $1,977,000 in fiscal
1996 as compared to tax benefit of $7,951,000 for fiscal 1995. In fiscal 1996,
the effective tax rate was 34.8% compared to (29.1)% in fiscal 1995 due
primarily to the $2,500,000 valuation recorded in the third quarter of fiscal
1995.
41
<PAGE> 42
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Total Beverage
During fiscal 1996, Total Beverage opened two new stores that
increased its number of stores to four.
Total Beverage sales were $29,444,000 during fiscal 1996 compared to
$23,925,000 for fiscal 1995. The increase was due primarily to additional
stores. Comparable store sales increased 2.4% when compared to fiscal 1995.
Cost of sales and store occupancy as a percentage of sales were 82.0%
during fiscal 1996 compared to 83.4% for fiscal 1995. The decrease was
primarily due to increased store margins and a decrease in store occupancy
costs, as a percentage of sales.
During fiscal 1996, Total Beverage reversed its closed store reserve
of $4,719,000 as a result of a buyout of the remainder of the lease term.
Total Beverage had recorded the closed store reserve of approximately $5.6
million during fiscal 1995. In addition, during fiscal 1996, management
concluded that one of the stores opened during that year would be closed in
fiscal 1997 due to disappointing sales volume. Total Beverage recorded a new
closed store reserve of approximately $3.0 million for the future lease
obligations at that location.
Before the reversal of the closed store reserve, Total Beverage
recorded a net operating loss of $2,377,000 (including the $3.0 million closed
store reserve) during fiscal 1996 compared to a net operating loss of
$8,167,000 (including the $5.6 million closed store reserve) during fiscal
1995.
Cabot Morgan Real Estate
During fiscal 1996, Dart recorded a loss of $14.6 million for the
write-down to fair market value of the five properties that CMREC owns through
joint ventures with partnerships in which the partners are members of the Haft
family.
As part of the RSH Settlement, Dart and CMREC agreed to the sale of
these five properties. The sales are to occur on terms to be arranged by
Ronald S. Haft prior to October 6, 2000. Under terms of the RSH Settlement,
CMREC will retain the first $2.0 million of its share of proceeds from such
sales and, if certain conditions relating to the RSH Settlement are satisfied,
the next $47.0 million of CMREC's share of proceeds will be payable to Ronald
S. Haft. As a result of these arrangements, the real estate joint ventures are
no longer consolidated with the Company's financial statements as of October 6,
1995.
42
<PAGE> 43
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Dart Group and Other Corporate
Income from unconsolidated subsidiary was $10,055,000 in fiscal 1996
as a result of an increase in Dart's equity interest in Shoppers Food which has
been reflected on Dart's financial statements using the equity method of
accounting.
Interest and other income increased $521,000 during fiscal 1996 when
compared to fiscal 1995. The increase was primarily due to Dart's decision to
invest in United States Treasury Bills as bankers' acceptances matured during
the first half of fiscal 1995. In addition, interest rates were higher on
Dart's short-term investments.
Administrative expenses (excluding $54.0 million in reserves recorded last
year) increased approximately $2.4 million during fiscal 1996, primarily due to
compensation expense for Ronald S. Haft's employment contract (see Note 6 to
the Consolidated Financial Statements) and costs associated with the Executive
Committee and continuing legal expenses.
Interest expense increased by $2,717,000 during fiscal 1996 compared to
fiscal 1995. The increase was due to interest accrued for the Robert M. Haft
judgment and Pennsy Lease reserve.
Trak Auto, Crown Books and Shoppers Food file separate income tax returns.
CMREC, Total Beverage and Dart Financial are included in Dart's income tax
returns.
As a result of Dart's operating loss for fiscal 1996, a net tax
operating loss carryforward of $26,140,000 and a capital loss carryforward of
$14,594,000 was created. Dart's cumulative total net tax operating loss
carryforward is $44,475,000. Dart has not completely utilized net operating
loss carryforwards from prior years and will carryforward its current net
operating loss. All net operating loss and capital loss carryforwards will
expire by fiscal 2011. In addition, Dart has an Alternative Minimum Tax credit
carryforward of approximately $1,010,000. Dart has a deferred tax valuation
allowance of $30,925,000 as of January 31, 1996. Management will continue to
evaluate the need for a valuation allowance on a periodic basis.
Fiscal 1995 Compared to Fiscal 1994
Trak Auto
During fiscal 1995, Trak Auto closed 58 Classic Trak stores and opened
20 Super Trak stores and 6 Super Trak Warehouse stores as well as converted 14
Classic Trak stores to Super Trak stores.
Sales of $348,599,000 for fiscal 1995 increased by $13,801,000 or 4.1%
compared to fiscal 1994. The increases were primarily attributable to
increased sales by Super Trak stores that had been converted from Classic Trak
stores as well as a 2.1% increase in sales for all stores open more than one
year for fiscal 1995. Sales for comparable Super Trak stores open more than
43
<PAGE> 44
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
one year increased 1.0% for fiscal 1995. Sales for comparable Classic Trak
stores open more than one year increased 2.5% for fiscal 1995. Sales for Super
Trak and Super Trak Warehouse stores represented 42.6% of total sales during
fiscal 1995 compared to 23.3% for fiscal 1994.
Interest and other income increased by $325,000 for fiscal 1995 when
compared to fiscal 1994. The increase was primarily due to rental income
resulting from a temporary sublease for a portion of the Ontario, California
warehouse. In addition, interest income increased during fiscal 1995 compared
to fiscal 1994 as a result of increased funds available for short- term
investment.
Cost of sales, store occupancy and warehousing expenses as a
percentage of sales were 73.0% for fiscal 1995 compared to 76.4%
for fiscal 1994. The decrease was primarily due to increased store margins as
a result of higher overall merchandise margins and a favorable change in sales
mix (increased hard parts and decreased motor oils).
Trak Auto recorded a charge of $1,580,000 for store closings, during
fiscal 1995 compared to a net income of $943,000 during fiscal 1994, which
resulted from early lease terminations, net of cash buyouts.
Selling and administrative expenses as a percentage of sales were
19.9% for fiscal 1995 compared to 21.1% for fiscal 1994. The decrease was
primarily due to lower payroll costs as a result of Trak Auto's efforts to
control store hours and administrative overhead and the maturity of Super Trak
stores.
Depreciation and amortization expenses decreased $752,000 for fiscal
1995 when compared to fiscal 1994. The decrease was primarily the result of
store closings and to the full depreciation of the point-of-sale register
systems.
The effective income tax rate was 32.3% for fiscal 1995. The
effective rate was lower than statutory rates primarily due to the reversal of
a $728,000 deferred tax valuation allowance.
Crown Books
During fiscal 1995, Crown Books opened 12 Super Crown Books stores and
two Classic Crown Books stores while closing 55 Classic Crown Books stores and
three Super Crown Books stores. These Super Crown Books stores were closed as
a result of opening larger stores in the same area. At January 28,
44
<PAGE> 45
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
1995, Crown Books had 196 stores including 70 Super Crown Books stores.
Sales of $305,606,000 for fiscal 1995 increased by $30,481,000 or
11.1% over fiscal 1994. Comparable sales (sales for stores open for fifteen
months) decreased 2.5% for fiscal 1995. Sales for Super Crown Books stores
represented 54.7% of total sales for fiscal 1995 compared to 39.8% of total
sales for fiscal 1994. Super Crown sales of $167,200,000 for fiscal 1995
increased 52.5% over fiscal 1994 sales and sales for comparable Super Crown
Books stores increased 0.2%. Sales for comparable classic Crown Books stores
decreased 4.0% during fiscal 1995.
Interest and other income decreased by $784,000 during fiscal 1995
when compared to fiscal 1994. The decrease was due to decreased funds
available for short-term investment resulting from the lower cash balances
discussed above.
Cost of sales, store occupancy and warehousing (excluding the closed
store reserve) as a percentage of sales was 81.1% for fiscal 1995 compared to
80.4% for fiscal 1994. The increase was primarily due to increased occupancy
costs for Super Crown Books stores and was partially offset by an increase in
store margins as a result of a positive turn in the sales mix during the
quarter ended January 28, 1995 and to an increase in overall store margins as a
result of controlling purchasing.
During fiscal 1995, Crown Books recorded a closed store reserve of
$18,963,000 for under performing stores while in the prior year Crown Book's
closed store reserve was reduced by $631,000 in the closed store reserve as a
result of the termination of three leases.
Selling and administrative expenses as a percentage of sales were
20.4% for fiscal 1995 compared to 17.1% for fiscal 1994. The increase was
primarily due to the accruals for a $12.8 million judgement against Crown Books
in connection with Robert M. Haft's claim for breach of his employment contract
and related legal costs. See Item 3. - Legal Proceedings. Excluding these
accruals, selling and administrative expenses as a percentage of sales
decreased to 16.2% for fiscal 1995, primarily the result of reduced payroll
costs.
Depreciation expense increased $1,190,000 for fiscal 1995 compared to
fiscal 1994. The increase was primarily due to the increase in fixed assets as
a result of the expansion of Super Crown Books stores.
Interest expense increased by $642,000 primarily due to interest
accrued on the judgment against Crown Books in favor of Robert M. Haft.
Crown Books recorded a tax benefit of $7,951,000 for fiscal 1995 net
of
45
<PAGE> 46
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
a deferred tax valuation allowance of $2,500,000 as compared to tax benefit of
$276,000 for fiscal 1994. The tax benefit was the result of taxable temporary
differences included in the $27,331,000 financial reporting net operating loss.
In management's opinion, a valuation allowance of $2,500,000 was necessary for
the uncertainty related to the timing of the reversal of certain of the taxable
temporary differences during periods when Crown Books has taxable income.
Shoppers Food
See Note 3 to the Consolidated Financial Statements for a description of a
change in accounting presentation for the Corporation's ownership for periods
subsequent to May 28, 1994.
Because Shoppers Food's accounts are not consolidated with the
Company's subsequent to May 28, 1994, comparisons with results of operations
included in the Company's consolidated financial statements for the period
ended January 31, 1994, would not be meaningful. Shoppers Food sales for the
four months ended May 28, 1994 were $258,476,000. Cost of sales, store
occupancy and warehousing, as a percentage of sales, was 84.3% during that
period. Selling and administrative expenses, as a percentage of sales, were
13.7% during that period.
Shoppers Food's net income for fiscal 1995 was $18,742,000 compared to
$12,407,000 for fiscal 1994. The Company includes 50% of the Shoppers Food net
income, after adjusting for the amortization of the difference between the
original fair value of the assets acquired and the purchase price and certain
tax contingencies recorded in Equity in Affiliate.
Total Beverage
Total Beverage operated three stores during most of fiscal 1995.
While two stores maintained sales volume, increased gross profit and controlled
expenses, the Bull Run Plaza store sales were disappointing and after 14 months
management decided to close that store.
During fiscal 1995, Total Beverage sales increased $8,652,000 to
$23,925,000 primarily as a result of the two stores that opened in October
1993. Store margins increased 2.9% compared to fiscal 1994 as a result of
improved control over purchasing and pricing.
Total Beverage recorded a net operating loss of $8,167,000 during
fiscal 1995, which loss included a $5.6 million closed store reserve for the
Bull Run Plaza store.
46
<PAGE> 47
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
Cabot-Morgan Real Estate
Revenues from real estate properties increased by $1,319,000 to
$19,977,000 during the year ended January 31, 1995, when compared to the prior
year. The increase was primarily the result of a higher occupancy rate at Bull
Run Plaza.
Administrative expenses for CMREC partnerships increased $659,000
during fiscal 1995 compared to the prior year, primarily due to increased
maintenance expenses at all four shopping centers and to increased real estate
taxes.
Depreciation expense increased $190,000 during fiscal 1995 when compared
to fiscal 1994. The increase was due to the increased basis of the building
and improvements at Bull Run Plaza as a result of the completed renovation of
the center.
Interest expense increased $600,000 during fiscal 1995 primarily due to the
mortgage obtained by Bull Run Plaza during fiscal 1994.
Dart Group and Other Corporate
Income from bankers' acceptances decreased $2,159,000 during fiscal 1995
when compared to fiscal 1994. The decrease was the result of Dart's decision
to no longer invest in bankers' acceptances. As bankers' acceptances matured
during fiscal 1995 they were reinvested in United States Treasury Bills and
Dart Financial currently has no assets.
Interest and other income increased $1,962,000 during fiscal 1995 compared
to fiscal 1994. The increase was primarily due to Dart investing in United
States Treasury Bills instead of bankers' acceptances.
Trak Auto and Crown Books file separate income tax returns. CMREC, Total
Beverage and Dart Financial are included in Dart's income tax returns. Dart's
current net operating loss was not tax benefitted.
As a result of Dart's operating loss for fiscal 1995, a tax net
operating loss carryforward of $9,692,000 was created. Dart's cumulative total
tax net operating loss carryforward is $18,335,000. All net operating loss
carryforwards will expire by fiscal 2010. In addition, Dart has an Alternative
Minimum Tax credit carryforward of approximately $1,010,000. Dart has recorded
a $26,700,000 valuation allowance at January 31, 1995 relating to the tax net
operating loss carryforward. Management believes that it is unlikely that
these tax benefits can be utilized. Management will continue to evaluate the
need for the valuation allowance. As a result of a
47
<PAGE> 48
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)
decrease in Dart's ownership of Shoppers Food to 50% (see Note 3 to the
Consolidated Financial Statements), Dart has provided for deferred taxes of
$9,321,000 and reduced its valuation allowance by the same amount.
EFFECTS OF INFLATION
Inflation in the past three years has had no significant impact on Dart's
business. Dart believes that Trak Auto, Crown Books, Shoppers Food and Total
Beverage will recover most cost increases due to inflation by increasing
selling prices.
48
<PAGE> 49
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Public Accountants 50
Consolidated Balance Sheets 51 - 53
Consolidated Statements of Income 54
Consolidated Statements of Stockholders' Equity 55 - 56
Consolidated Statements of Cash Flows 57 - 60
Notes to Consolidated Financial Statements 61 -112
</TABLE>
49
<PAGE> 50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO DART GROUP CORPORATION:
We have audited the accompanying consolidated balance sheets of Dart Group
Corporation (a Delaware corporation) and subsidiaries as of January 31, 1996
and 1995 and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three fiscal years in the period ended
January 31, 1996. These financial statements are the responsibility of Dart'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 Dart Group Corporation and
subsidiaries as of January 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended January 31, 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Washington, D. C.
April 26, 1996.
50
<PAGE> 51
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
January 31,
------------------------
1996 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 13,967,000 $ 17,984,000
Short-term instruments, including
$33,222,000 and $44,346,000 held
by majority owned subsidiaries
in 1996 and 1995, respectively 50,817,000 84,390,000
Marketable debt securities 22,544,000 89,330,000
Accounts receivable 8,965,000 10,108,000
Merchandise inventories 205,615,000 195,675,000
Deferred income tax benefit 13,915,000 17,799,000
Other current assets 2,199,000 1,988,000
------------ ------------
Total Current Assets 318,022,000 417,274,000
------------ ------------
Property and Equipment, at cost:
Furniture, fixtures and equipment 91,311,000 76,713,000
Buildings and leasehold improvements 28,105,000 165,017,000
Land 1,034,000 33,396,000
Property under capital leases 24,472,000 27,129,000
------------ ------------
144,922,000 302,255,000
Accumulated Depreciation and Amortization 68,559,000 76,451,000
------------ ------------
76,363,000 225,804,000
Other Assets 3,145,000 8,643,000
------------ ------------
Note Receivable - Ronald S. Haft 11,621,000 -
------------ ------------
Share of Equity in Shoppers Food
Warehouse Corporation 46,397,000 40,983,000
------------ ------------
Retained Interest in Cabot-Morgan
Real Estate Joint Ventures 2,000,000 -
------------ ------------
Excess of Purchase Price Over Net Assets
Acquired net of accumulated
amortization of $175,000 1,735,000 -
------------ ------------
Deferred Income Tax Benefit 11,282,000 13,785,000
------------ ------------
Total Assets $470,565,000 $706,489,000
============ ============
</TABLE>
See notes to the consolidated financial statements.
51
<PAGE> 52
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Current Liabilities:
Current portion of mortgages payable $ 1,028,000 $ 1,981,000
Accounts payable, trade 89,095,000 106,292,000
Income taxes payable 967,000 7,148,000
Accrued salaries and employee benefits 18,456,000 18,837,000
Accrued taxes other than income taxes 7,669,000 9,475,000
Accrued judgement in favor of
Robert M. Haft 34,579,000 32,199,000
Current portion of reserve for closed
facilities and restructuring 6,970,000 10,427,000
Other accrued liabilities 40,056,000 50,132,000
Current portion of obligations under
capital leases 101,000 368,000
------------ ------------
Total Current Liabilities 198,921,000 236,859,000
------------ ------------
Mortgages Payable 660,000 79,620,000
------------ ------------
Obligations Under Capital Leases 30,165,000 29,792,000
------------ ------------
Reserve for Closed Facilities and
Restructuring 36,816,000 61,005,000
------------ ------------
Commitments and Contingencies
Minority Interests 69,427,000 99,850,000
------------ ------------
Stockholders' Equity:
Class A common stock, non-voting, par
value $1.00 per share; 3,000,000
shares authorized; 1,949,223 and
1,660,678 shares issued, respectively 1,949,000 1,661,000
Class B common stock, voting, par value
$1.00 per share; 500,000 shares
authorized; 500,000 and 302,952 shares
issued, respectively 500,000 303,000
Paid-in capital 77,879,000 65,384,000
Notes receivable - shareholder (65,130,000) -
Unrealized gain (loss) on
short-term investments 246,000 (1,024,000)
Retained earnings 121,169,000 134,788,000
Treasury stock, 202,340 shares of
Class A common stock, at cost (1,749,000) (1,749,000)
</TABLE>
(Continued on following page)
52
<PAGE> 53
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Treasury stock, 172,730 shares of
Class B common stock, at cost (288,000) -
------------ ------------
Total Stockholders' Equity 134,576,000 199,363,000
------------ ------------
Total Liabilities and Stockholders' Equity $470,565,000 $706,489,000
============ ============
</TABLE>
See notes to the consolidated financial statements.
53
<PAGE> 54
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended January 31,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Sales $ 655,161,000 $ 936,606,000 $1,343,340,000
Income from bankers'
acceptances - 429,000 2,588,000
Real estate revenue 13,155,000 19,977,000 18,658,000
Other interest and
other income 9,820,000 10,416,000 11,957,000
-------------- -------------- --------------
678,136,000 967,428,000 1,376,543,000
-------------- -------------- --------------
Expenses:
Cost of sales, store
occupancy and
warehousing 509,136,000 735,010,000 1,081,127,000
Selling and
administrative 146,209,000 233,692,000 242,286,000
Depreciation and
amortization 15,453,000 19,086,000 28,022,000
Interest 13,175,000 13,448,000 13,513,000
Write-down of
Cabot-Morgan Real
Estate 14,562,000 - -
Restructuring charge (2,051,000) - 6,200,000
Closed facility reserve (5,665,000) 45,913,000 (1,574,000)
-------------- -------------- --------------
690,819,000 1,047,149,000 1,369,574,000
-------------- -------------- --------------
Income (loss) before income
taxes, equity in
affiliate and minority
interests (12,683,000) (79,721,000) 6,969,000
Income taxes (benefit) 6,149,000 (1,699,000) 7,194,000
-------------- -------------- --------------
Income (loss) before
equity in affiliate and
minority interests (18,832,000) (78,022,000) (225,000)
Equity in affiliate 10,055,000 (5,000) -
Minority interests in
(income) loss of con-
solidated subsidiaries
and partnerships (4,647,000) 4,235,000 (6,512,000)
-------------- -------------- --------------
Net Loss $ (13,424,000) $ (73,792,000) $ (6,737,000)
============== ============== ==============
Loss per share: $ (7.88) $ (39.57) $ (4.10)
============== ============== ==============
</TABLE>
See notes to the consolidated financial statements.
54
<PAGE> 55
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years Ended January 31,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Common Stock:
Class A:
Balance, beginning
of period $ 1,661,000 $ 1,656,000 $ 1,649,000
Stock options
exercised - 5,000 7,000
Shares issued 288,000 - -
-------------- -------------- --------------
Balance, end of period $ 1,949,000 $ 1,661,000 $ 1,656,000
============== ============== ==============
Class B:
Balance, beginning
of period $ 303,000 $ 303,000 $ 303,000
Stock option exercised 197,000 - -
-------------- -------------- --------------
Balance, end of period $ 500,000 $ 303,000 $ 303,000
============== ============== ==============
Paid-in Capital
Balance, beginning
of period $ 65,384,000 $ 65,323,000 $ 63,332,000
Stock options
exercised 18,000 368,000 469,000
Purchase (refund)
of (Class B) stock
option (Note 6) 985,000 (985,000) 985,000
RSH Settlement 10,701,000 - -
Effect of subsidiary
stock options
exercised 791,000 678,000 537,000
-------------- -------------- --------------
Balance, end of period $ 77,879,000 $ 65,384,000 $ 65,323,000
============== ============== ==============
Note Receivable-Shareholder
Balance, beginning of
period $ - $ - $ -
RSH Settlement (65,130,000) - -
-------------- -------------- --------------
Balance, end of period $ (65,130,000) $ - $ -
============== ============== ==============
Unrealized Investment gains
(losses) $ 246,000 $ (1,024,000) $ -
============== ============== ==============
Treasury Stock:
Class A:
Balance, beginning and
end of period $ (1,749,000) $ (1,749,000) $ (1,749,000)
============== ============== ==============
</TABLE>
55
<PAGE> 56
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
Years Ended January 31,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Treasury Stock:
Class B:
Balance, beginning of
period $ - $ - $ -
Common stock reacquired (288,000) - -
-------------- -------------- --------------
Balance, end of period $ (288,000) $ - $ -
============== ============== ==============
Retained Earnings:
Balance, beginning of
period $ 134,788,000 $ 208,774,000 $ 215,704,000
Net loss (13,424,000) (73,792,000) (6,737,000)
Dividends paid (195,000) (194,000) (193,000)
-------------- -------------- --------------
Balance, end of period $ 121,169,000 $ 134,788,000 $ 208,774,000
============== ============== ==============
Dividends paid per share
of Class A Common Stock $ .13 $ .13 $ .13
============== ============== ==============
Class B Common Stock $ - $ - $ -
============== ============== ==============
Common Stock Outstanding
Class A:
Balance, beginning of
period 1,458,338 1,453,423 1,446,673
Stock options
exercised 233 4,915 6,750
Shares issued 288,312 - -
-------------- -------------- --------------
Balance, end of
period 1,746,883 1,458,338 1,453,423
============== ============== ==============
Class B:
Balance, beginning
of period 302,952 302,952 302,952
Stock options
exercised 197,048 - -
Common stock
reacquired (172,730) - -
-------------- -------------- --------------
Balance, end of
period 327,270 302,952 302,952
============== ============== ==============
</TABLE>
See notes to the consolidated financial statements.
56
<PAGE> 57
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended January 31,
---------------------------------------------
1996 1995 1994
------------- -------------- --------------
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Net loss $ (13,424,000) $ (73,792,000) $ (6,737,000)
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 12,341,000 15,782,000 28,022,000
Write down Cabot-Morgan
Real Estate joint ventures 14,562,000 - -
Write-off deferred
compensation - 1,424,000 -
Equity in affiliate (10,414,000) (1,045,000) -
Provision for (reversal of)
closing facilities and
restructuring (6,125,000) 45,913,000 4,626,000
Change in assets and
liabilities:
Accounts receivable 1,518,000 2,088,000 (1,587,000)
Merchandise inventories (7,137,000) (19,099,000) (41,242,000)
Other current assets (579,000) 636,000 (931,000)
Deferred income tax
benefit 5,911,000 (16,172,000) (7,398,000)
Other assets 148,000 166,000 (1,288,000)
Accounts payable, trade (16,938,000) (15,463,000) 43,487,000
Income taxes payable (6,181,000) 2,436,000 2,696,000
Accrued salaries and
employee benefits 2,516,000 31,916,000 5,170,000
Accrued taxes other
than income taxes (1,806,000) (401,000) 2,202,000
Other accrued
liabilities (3,768,000) 20,552,000 6,589,000
Reserve for closed
facilities (7,680,000) (3,574,000) (1,719,000)
Minority interest 6,338,000 (4,788,000) 6,512,000
------------- ------------- --------------
Net cash provided
by (used for)
operating
activities $ (30,718,000) $ (13,421,000) $ 38,402,000
------------- ------------- --------------
</TABLE>
(continued on following page)
57
<PAGE> 58
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended January 31,
---------------------------------------------
1996 1995 1994
------------- -------------- --------------
<S> <C> <C> <C>
Cash Flows from Securities
and Capital Investment
Activities:
Capital expenditures $ (16,688,000) $ (15,150,000) $ (45,805,000)
Purchase of Pittsburgh
store assets (5,767,000) - -
Proceeds from Shoppers
Food dividend 5,000,000 - -
Distributions from
Cabot-Morgan Real Estate
joint ventures 4,888,000 - -
Decrease in cash and cash
equivalents as a result
of the deconsolidation of
Cabot-Morgan Real Estate
joint ventures and
Shoppers Food Warehouse
Corp., respectively (5,713,000) (61,014,000) -
Acquisition of treasury
stock by Trak Auto (6,904,000) - -
Purchase of subsidiary
common stock - - (1,094,000)
Maturities of bankers'
acceptances - 90,505,000 470,250,000
Purchase of bankers'
acceptances - (28,198,000) (442,188,000)
Sale of United
States Treasury Bills 12,328,000 35,020,000 296,962,000
Maturity of United States
Treasury Bills 22,810,000 179,393,000 -
Purchase of United States
Treasury Bills (27,819,000) (225,315,000) (290,671,000)
Purchases of marketable
debt securities (3,199,000) (223,509,000) (209,328,000)
Sale of marketable
debt securities 56,951,000 200,585,000 141,263,000
Maturities of marketable
debt securities 6,420,000 12,309,000 9,284,000
Disposition from reverse
repurchase agreements - (929,000) -
------------- -------------- --------------
Net cash used for
securities and
capital invest-
ment activities $ 42,307,000 $ (36,303,000) $ (71,327,000)
------------- -------------- --------------
</TABLE>
(continued on following page)
58
<PAGE> 59
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended January 31,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Cash Flows from Financing
Activities:
Borrowings from real
estate
mortgage $ - $ - $ 13,590,000
Cash dividends (195,000) (194,000) (193,000)
Loans to Ronald
S. Haft (49,547,000) - -
Stock options exercised 215,000 368,000 925,000
Contribution (distribution)
paid to minority
partner - (1,776,000) 3,418,000
Proceeds from (refund of)
option to acquire common
stock 985,000 (985,000) 985,000
Proceeds from redemption
of note receivable - - 833,000
Principal payments under
mortgage obligations (269,000) (1,202,000) (277,000)
Principal payments under
capital lease obli-
gations (368,000) (346,000) (484,000)
------------- -------------- --------------
Net cash provided by
(used for) financing
activities $ (49,179,000) $ (4,135,000) $ 18,797,000
------------- -------------- --------------
Net Increase (Decrease)
in Cash and Equivalents $ (37,590,000) $ (53,859,000) $ (14,128,000)
Cash and Equivalents
at Beginning of Year 102,374,000 156,233,000 170,361,000
------------- -------------- --------------
Cash and Equivalents
at End of Year $ 64,784,000 $ 102,374,000 $ 156,233,000
============= ============== ==============
</TABLE>
Supplemental Disclosures of Cash Flow Information:
Net Cash paid during the year for:
<TABLE>
<S> <C> <C> <C>
Interest $ 4,532,000 $ 12,799,000 $ 13,570,000
Income taxes 6,468,000 11,846,000 12,457,000
</TABLE>
59
<PAGE> 60
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Years Ended January 31,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Reconciliation of Cash and
Equivalents to Balance
Sheet Captions:
Cash $ 13,967,000 $ 17,984,000 $ 17,955,000
Short-term investment of
majority-owned sub-
sidiaries utilized in
their operating cash
management 50,817,000 84,390,000 138,278,000
------------- -------------- --------------
$ 64,784,000 $ 102,374,000 $ 156,233,000
============= ============== ==============
</TABLE>
See notes to consolidated financial statements.
60
<PAGE> 61
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements reflect the accounts
of Dart Group Corporation ("Dart") 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 Dart's
financial statements through May 28, 1994, but not thereafter, as a result of a
reduction of Dart's ownership to 50%. Dart'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 3). The accounts of CMREC's real
estate joint ventures are consolidated with Dart's financial statements through
October 5, 1995, but not thereafter, as a result of a settlement of certain
litigation between Dart and Ronald S. Haft (the "RSH Settlement") (see Note 6).
The accounts of Total Beverage are included from the date of its purchase on
February 28, 1993. Dart, Trak Auto, Crown Books, Shoppers Food (for periods
through May 28, 1994), Total Beverage, CMREC, Dart Financial and Dart'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 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 as of
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Accordingly, actual results could differ
from those estimates.
Risk Factors
In the past, Dart and each of its subsidiaries generally funded their
respective requirements for working capital and capital expenditures with net
cash generated from operations and existing cash resources. However, the
Company's cash and investments decreased by approximately $104.4 million in
fiscal 1996, as a result primarily of loans made to Ronald S. Haft in
connection with the RSH Settlement, expenditures by Crown Books in store
closings and the opening of new superstores, Trak Auto's expansion into the
61
<PAGE> 62
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
Pittsburgh market, the opening of two Total Beverage stores, the store
operating loss of Total Beverage and extraordinary legal and other fees.
In fiscal 1997, the Company will likely need other sources of liquidity
if Dart and Crown Books lose their appeal of the RMH Judgment and are required
to pay Robert Haft the $32 million judgment (plus interest) or if a settlement
of litigation is reached with members of the Haft family. In that event, Dart
will need a source of liquidity other than its existing cash resources. If
Crown Books loses its appeal of the RMH Judgment, Crown Books expects to use
existing cash to pay the RMH Judgment. In such an event, Crown Books expects
that it would either obtain third party debt financing or reduce planned store
openings.
If Dart is required to pay its share of the RMH Judgment and does not
obtain other sources of funds, then it may need additional cash to fund its
working capital needs, which primarily consist of funding any operating losses
of Total Beverage, payroll and legal fees. While Dart has considered
various transactions to generate funds, including the liquidation of its
interest in Shoppers Food, Dart presently has no definitive financing plans to
generate sufficient working capital for fiscal 1997. Any financing transaction
or other extraordinary transaction that would generate cash may require further
order of the Delaware Court of Chancery under the Standstill Order and may be
opposed by Herbert H. Haft or other parties to the Section 225 Action.
The primary capital requirements of Crown Books relate to new store
openings, remodelings and investments in management information systems. Crown
Books believes that the costs incurred in opening a new store generally
approximate $1.1 million, including purchases of inventory and the costs of
store fixtures and leasehold improvements. During fiscal 1997, Crown Books
expects to open approximately 30 Super Crown Books stores and that capital
expenditures would approximate $8.5 million. As of February 3, 1996, the
Company had entered into lease agreements to open 14 new Super Crown Books
stores. In addition, in fiscal 1997, Crown Books expects to make cash
expenditures of approximately $4.0 million related to actual and planned store
closings.
Trak Auto funds its requirements for working capital and capital
expenditures with net cash generated from operations and existing cash
resources. Trak Auto's primary capital requirements relate to remodelings, new
store openings (including purchases of inventory and the costs of store
fixtures and leasehold improvements), and acquisitions. As of February 3,
62
<PAGE> 63
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
1996, Trak Auto had entered into lease agreements to open seven new stores and
amendments to existing lease agreements to convert two Classic Trak stores into
Super Trak or Super Trak Warehouse stores.
Total Beverage is considering locations for new stores and, to the extent
sufficient capital becomes available, may open one or more new stores in fiscal
1997.
Fiscal Year
Dart's fiscal year ends on January 31 each year. Trak Auto, Crown Books,
Shoppers Food and Total Beverage are reported to the Saturday closest to
January 31. Trak Auto, Crown Books, Shoppers Food and Total Beverage fiscal
year ended February 3, 1996 included 53 weeks and the other fiscal years
presented included 52 weeks.
Cash and Equivalents
The Company considers the short-term instruments, consisting of United
States Treasury Bills, purchased with an original maturity of less than one
year held by its majority owned subsidiaries to be cash equivalents. The
Company's United States Treasury Bills primarily consist of instruments with a
maturity of less than four months.
Short-Term Instruments and Marketable Debt Securities
At January 31, 1996, 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. During the year ended January
31, 1995, all the remaining bankers' acceptances were converted to United
States Treasury Bills as they matured and Dart no longer purchases bankers'
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 January 31, 1996, market value of short-term
63
<PAGE> 64
DART GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
instruments and marketable debt securities was $246,000 greater than cost
(adjusted for income taxes). At January 31, 1996, 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. The following table
(which excludes money market funds) presents the estimated fair value of debt
securities available for sale by contractual maturity at January 31, 1996:
<TABLE>
<S> <C>
Due in one year or less $ 23,639,000
Due in one to three years 3,638,000
Due after three years 5,271,000
------------
$ 32,548,000
============
</TABLE>
Expected maturities will differ from contractual maturities because the
issuers of securities may have the right to prepay obligations without
prepayment penalties.
Fair Value of Financial Instruments
The fair values of current financial assets and liabilities are
approximately the reported carrying amounts. The carrying amounts of the
Company's mortgage payables are based on outstanding principal, and the fair
values of these mortgages were estimated based on borrowing rates currently
available for bank loans with similar terms (see Note 9). No value has been
placed on the Company's line of credit facility as any borrowings would bear
interest at market rates.
Merchandise Inventories and Cost of Sales
Trak Auto inventories are priced at the lower of last-in, first-out
(LIFO) cost or market. Crown Books' and Total Beverage's inventories are
priced at the lower of first-in, first-out, (FIFO) cost or market. At January
31, 1996, 1995 and 1994, the Company's inventories would have been greater by
$6,579,000, $5,870,000 and $7,187,000 respectively, if they had been valued on
the lower of FIFO cost or market basis.
64
<PAGE> 65
DART GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
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 was accounted for as a
change in accounting method in the accompanying financial statements. Due to
limitations in the availability of historical information, it is not possible
to determine the effect, if any, on net income for the year ending January 28,
1995 of the corresponding cumulative catch-up adjustment or on retained
earnings at January 28, 1995. Accordingly, the change in principle was
accounted for on a prospective basis from January 31, 1994 and the effect on
per share data, if any, is not available.
Property and Equipment and Depreciation
Property and equipment are recorded at cost. The Company depreciates
furniture, fixtures and equipment generally over a ten-year period using the
straight-line method. Computer software is charged to expense in the year of
acquisition. Computer equipment is depreciated over a five-year period using
the straight-line method. All stores and some equipment are leased.
Improvements to leased premises are amortized generally over a ten-year period,
or the term of the lease, whichever is shorter. Assets (primarily buildings)
financed through asset-based financing arrangements are depreciated over the
lives of the leases. Accumulated amortization for assets under capital lease
was $8,159,000 and $9,604,000 as of January 31, 1996 and 1995, respectively.
Preopening Expenses
All costs of a noncapital nature incurred in opening a new store are
charged to expense during the year as incurred.
Self Insurance Programs
The Company is self insured for certain levels of general liability,
workers compensation and employee medical coverage. Estimated costs of these
self insurance programs are accrued at the expected value of projected
settlements for known and anticipated claims.
65
<PAGE> 66
DART GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist primarily of short-term instruments, marketable debt securities and
accounts receivable from vendors. The Company restricts investment of
temporary cash investments to United States Treasury Notes and corporate notes
and municipal securities with a high credit standing. Credit risk on accounts
receivable is minimized as a result of deducting such receivables from amounts
payable to the vendors.
New Accounting Standards
The Company is required to adopt Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for Long Lived Assets and
Long-Lived Assets to be Disposed of and SFAS No. 123, Accounting for Stock
Based Compensation, no later than its fiscal year ending February 1, 1997. The
Company has determined that implementation of SFAS No. 121 will not have a
material impact on the Company's consolidated financial statements. The
Company expects to disclose the fair value of options granted in a footnote to
its consolidated financial statements, as permitted by SFAS No. 123.
Industry Segments
The Company operates specialty retail stores, grocery and beverage
stores, a real estate company and a financial business that purchased/sold
primarily bankers' acceptances.
Dividends
The holders of Class A Common Stock are entitled to receive, when and as
declared by the Board of Directors, noncumulative preferential dividends of up
to thirty cents per share. If Class A dividends reach thirty cents per share,
in any fiscal year, holders of Class B Common Stock are entitled to receive
dividends not exceeding thirty cents per share. Any dividends cumulatively in
excess of thirty cents per share would be shared as if they constituted a
single class of stock. During the years ended January 31, 1996, 1995 and 1994,
Dart paid dividends to the holders of Class A Common Stock at $.13 per share
and has not paid dividends to holders of Class B Common Stock.
Earnings Per Share
Earnings per share is based on the weighted average number of Dart's
Class A Common Stock, $1.00 par value per share ("Class A Common Stock") and
Class
66
<PAGE> 67
DART GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
B Common Stock, $1.00 par value per share ("Class B Common Stock") and common
stock equivalents (certain stock options) outstanding during the period. In
reporting earnings per share, Dart'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
any period. Weighted average shares and share equivalents for the three years
ended January 31, 1996, 1995 and 1994 were 1,994,000, 1,871,000 and 1,867,000,
respectively. The inclusion of the options for Class B Common Stock related to
Ronald S. Haft's employment agreement had no impact on reported earnings per
share in fiscal 1995 because they were anti-dilutive.
Reclassifications
Certain reclassifications have been made to prior year statements to conform to
current year presentation.
67
<PAGE> 68
DART GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
NOTE 2 - INCOME TAXES
Because of its percentage ownership, Dart does not report the results of
operations of Crown Books, Trak Auto or Shoppers Food in its Federal or state
tax returns. The Company's tax provision therefore, represents the combined
tax provisions of Dart, Crown Books, Trak Auto, Total Beverage and Shoppers
Food (through May 28, 1994).
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. This standard requires, among other things,
recognition of future tax benefits, measured by enacted tax rates, attributable
to deductible temporary differences between financial statement and income tax
bases of assets and liabilities and for tax net operating loss carryforwards,
to the extent that realization of such benefits is more likely than not.
The provision for income taxes on income before minority interests, equity
in affiliate and extraordinary items consists of the following:
<TABLE>
<CAPTION>
- In Thousands -
--------------------------------------
Fiscal Years
--------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ (241) $ 9,474 $ 8,590
State 3 1,839 2,236
-------- -------- --------
(238) 11,313 10,826
Deferred:
Federal 5,020 (11,076) (2,522)
State 1,367 (1,936) (1,110)
-------- -------- --------
$ 6,149 $ (1,699) $ 7,194
======== ======== ========
</TABLE>
68
<PAGE> 69
DART GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
The combined effective tax rate on income before income taxes and
minority interest is reconciled to the Federal statutory rate as follows:
<TABLE>
<CAPTION>
- In Thousands -
--------------------------------------
Fiscal Years
--------------------------------------
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Federal statutory rate 34% 34% 34%
Income taxes at Federal statutory
rate $ (4,312) $ (27,105) $ 2,439
Increase (decrease) in taxes
resulting from:
Federal and state net operating
loss carryforward not
benefitted 5,886 5,905 4,092
State income taxes, net of
Federal income tax benefit 685 (89) 838
Minority interest of CMREC
taxed at minority partner (168) (195) -
Exclusion of Shoppers Food
dividend (1,360) - -
Interest on note receivable-
shareholder 581 - -
CMREC interest in Total Beverage
closed store reserve 824 (970) -
Amortization of Goodwill 59 (154) -
Valuation allowance 4,225 21,279 -
Tax exempt municipal
bond interest income (255) (494) (295)
Utilization of former
Trak West net operating loss (225) (225) (219)
Other 209 349 339
---------- ---------- ----------
Income tax provision (benefit) $ 6,149 $ (1,699) $ 7,194
========== ========== ==========
Effective tax rate (48.5)% (2.1)% 103.2%
========== ========== ==========
</TABLE>
69
<PAGE> 70
DART GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
The effect of each type of temporary difference and carryforward is as
follows:
<TABLE>
<CAPTION>
(in thousands)
-------------------------
Gross Deferred Tax Assets: January 31, January 31,
- --------------------------
1996 1995
----------- -----------
<S> <C> <C>
Reserves for other liabilities $ 218 $ 361
Capitalized leases treated as operating
leases for tax purposes 2,832 2,721
Depreciation 2,215 1,894
Uniform capitalization of inventory
costs 2,996 2,661
Deferred gain from involuntary conversion - 206
Reserve for store closings and restructuring 15,291 26,993
Accrued rent 1,029 695
Deferred income 83 99
Certain officers bonuses 465 324
Tax loss carryforwards 15,740 6,735
Tax credit carryforwards 1,777 1,973
Basis adjustment as a result of purchase
accounting for Trak West 262 394
Unrealized investment losses 4 355
Accrued vacation 498 1,245
Accrued self insurance reserves 2,661 2,410
Accrued legal reserves 2,632 5,252
Reserve for stock options 3,298 -
Litigation accruals 12,992 16,159
Capital loss carryforward 5,229 -
Other 279 159
------- -------
Gross Deferred Tax Assets 70,501 70,636
Valuation allowance (33,425) (29,200)
------- -------
Net Deferred Tax Assets 37,076 41,436
Deferred Tax Liabilities:
- -------------------------
Basis difference in Shoppers Food investment 11,462 9,321
Book basis of assets acquired as a result
of involuntary conversion 417 531
------- -------
Gross Deferred Tax Liabilities 11,879 9,852
------- -------
Net Deferred Tax Asset $25,197 $31,584
======= =======
</TABLE>
70
<PAGE> 71
DART GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
A summary of the Company's valuation allowance as of January 31, 1996 and
1995 by Company is provided below:
<TABLE>
<CAPTION>
(in thousands)
--------------------------
Fiscal Years
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Crown Books $ 2,500 $ 2,500
Trak Auto - -
Dart Group Corporation 30,925 26,700
------------- ------------
$ 33,425 $ 29,200
============= ============
</TABLE>
During the year ended January 31, 1996, Dart recorded an increase in its
valuation allowance of $4,225,000 as a result of continuing net operating
losses.
Dart does not recognize deferred tax liabilities on the excess of the
amount for financial reporting over the tax basis of the investment in its
consolidated majority owned subsidiaries. In fiscal 1995, Shoppers Food was
deconsolidated and Dart announced that it had under consideration the
liquidation of its interest. Accordingly, as of January 31, 1996, Dart has
provided deferred taxes of $11,462,000 and reduced its valuation allowance by
the same amount.
As a result of Dart's operating loss for the year ended January 31, 1996,
a tax net operating loss carryforward of $26,140,000 was created. Dart's
cumulative total tax net operating loss carryforward is $44,475,000. All net
operating loss carryforwards will expire by fiscal 2011. In addition, Dart has
an Alternative Minimum Tax credit carryforward of approximately $1,010,000, and
a capital loss carryforward of $14,594,000 which will expire in 2011.
Dart will continue to evaluate the need for its valuation allowance on a
periodic basis.
NOTE 3 - TRANSACTIONS WITH AFFILIATES
Shoppers Food Warehouse Corp.
In fiscal 1989, Dart acquired in excess of 50% of the common stock of
Shoppers Food, which operates the Shoppers Food Warehouse discount grocery
71
<PAGE> 72
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
chain in the Washington, D.C. metropolitan area. 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 Dart's ownership to
exactly 50%. As a result, the accounts of Shoppers Food are consolidated with
Dart's through May 28, 1994, but not thereafter. Dart'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 included 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 was decreased by $61,014,000 (representing
cash and cash equivalents held by Shoppers Food at January 31, 1995) and net
income excluded Dart's share of Shoppers Food net income for the year ended
January 31, 1995.
72
<PAGE> 73
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
Summary Income Data for Deconsolidated Subsidiary:
The following information reflects the results of Shoppers Food for the
years ended January 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenue $841,701,000 $801,108,000
Gross Profit 143,481,000 141,197,000
Net Income 14,652,000 18,148,000
</TABLE>
The amounts included in net income above do not reflect the amortization
of the difference between Dart's original purchase price and the equity in net
assets or certain tax contingencies recorded by the Company.
The following information presents summarized balance sheet information of
Shoppers Food as of January 31, 1996 and 1995 (unaudited). Audited financial
statements of Shoppers Food for years ending June 30, 1995 and 1994 are
included in Item 14 - Exhibits, Financial Statement Schedules and Reports of
Form 8-K.
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Current Assets $139,734,000 $126,670,000
Total Assets 163,452,000 151,984,000
Current Liabilities 55,490,000 50,941,000
Total Liabilities 70,216,000 63,400,000
Stockholders' Equity 93,236,000 88,584,000
</TABLE>
Dart and the other 50% shareholder of Shoppers Food have a buy/sell
agreement whereby either shareholder has the right, at any time, to initiate
procedures under which the initiating party offers both to sell to or buy from
the other party the initiating party's or the other party's shares in Shoppers
Food at the offer price. The recipient of an offer under this buy/sell
agreement has the alternative of accepting the offer to sell or the offer to
buy. Dart is unable to determine the effect that would result if either party
initiates this procedure.
Dart's interest in Shoppers Food is held through a wholly-owned subsidiary
Dart/SFW Corp. ("Dart/SFW"), a Delaware corporation. Dart and Dart/SFW had
previously executed agreements which by their express terms
73
<PAGE> 74
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
provide for options to Herbert H. Haft and Robert M. Haft to each acquire up to
10% of the stock of Dart/SFW on a fully diluted basis. These agreements state
that the options became exercisable in August 1994 and expire in August 2004
and that the optionees have the right to require Dart to repurchase the shares
at their then fair market value at any time within three years after receipt of
the shares. Herbert H. Haft assigned his options equally to Ronald S. Haft and
Linda G. Haft. (See Note 5). As part of the RSH Settlement, Ronald S. Haft
consented to the termination of his options. See Note 6.
The Executive Committee of the Board of Directors (the "Executive
Committee") (see Note 5) has undertaken a legal review of these options and, as
a result, is contesting their validity. Robert M. Haft has filed a lawsuit
seeking specific performance of these options. See Notes 8 and 13. Pending
the outcome of this lawsuit, Dart accrues the estimated fair value of the stock
over the exercise price of the options provided for in these agreements ($9.7
million at January 31, 1996 net of Ronald S. Haft's options which were
terminated as a result of the RSH Settlement).
Exercise of Subsidiary Stock Options
Trak Auto and Crown Books stock options have been granted to officers,
directors and key employees. As these options are exercised, the number of
minority shares outstanding, and accordingly the minority share of the
ownership of Trak Auto and Crown Books, increases. The difference attributable
to Dart's change in ownership percentage for these subsidiaries is reflected in
Paid-in Capital.
74
<PAGE> 75
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
NOTE 4 - COMMITMENTS
Lease Commitments
The Company leases stores, warehouses, leasehold improvements, fixtures
and equipment. Renewal options are available on the majority of leases. In
some instances, store leases require the payment of contingent rentals and
license fees based on sales in excess of specified minimums. Certain
properties are subleased with various expiration dates. Certain capital leases
have purchase options at fair market value at the end of the lease.
Following is a schedule by fiscal year of future minimum payments under
capital leases, license agreements and non-cancelable operating leases having
initial or remaining terms in excess of one year at January 31, 1996 (excluding
Shoppers Food). The schedule below includes the operating leases of Dart and
its consolidated subsidiaries. The imputed interest rate on the capital leases
is 15.6% in the aggregate.
<TABLE>
<CAPTION>
- In Thousands -
---------------------------------------
Capital Leases
Fiscal -------------- Operating
Year Buildings Leases
- ------ --------- ---------
<S> <C> <C>
1997 $ 4,116 52,695
1998 4,344 49,220
1999 4,604 41,762
2000 4,630 32,401
2001 4,760 26,558
2002-2017 77,129 74,903
-------- ---------
99,583 $ 277,539
=========
Less-Imputed interest 69,317
--------
Present value of net minimum 30,266
lease payments
Less-Current maturities 101
--------
Long-term capital lease
obligations $ 30,165
========
</TABLE>
The table above includes $9,083,000 for store operating leases where the
stores have been closed and the lease obligation have been accrued in the
restructuring or store closing reserves. Minimum operating lease obligations
have not been reduced by total future minimum sublease rental of $3,058,000
receivable in the future under 13 leases. There are no sublease arrangements
75
<PAGE> 76
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
for the capital leases.
Rent expense for operating leases and license arrangements are as follows:
<TABLE>
<CAPTION>
Year Ended January 31,
-------------------------------------------
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
Minimum rentals $ 42,250,000 $ 41,200,000 $ 51,158,000
Contingent rentals 506,000 738,000 529,000
------------ ------------ ------------
$ 42,756,000 $ 41,938,000 $ 51,687,000
============ ============ ============
</TABLE>
Capital Lease Arrangements With Related Parties
Dart has a lease with a private partnership in which Haft family members
own all of the partnership interests, for a 271,000 square foot headquarters
building and distribution center in Landover, Maryland. The lease is for 30
years and six months, commenced in 1985 and provides for increasing rental
payments over the term of the lease. The current annual rental is $2,014,000.
The lease requires the payment for maintenance, utilities, insurance and taxes.
The distribution center was constructed by the partnership at a cost of
approximately $8,300,000. Dart has sublet approximately 238,000 square feet to
Trak Auto and Crown Books at a per square foot charge which is equal to Dart's
per square foot cost under the master lease. Dart has a lease agreement with
the aforementioned partnership for land near the headquarters building and
distribution center. The lease is coterminous with the headquarters building
and distribution center lease and provides for current annual rental of $35,000
with increases of three percent per year. Dart, Trak Auto and Crown Books each
pay a pro-rata share in proportion to their use of the headquarters building
and distribution center.
Dart's majority-owned subsidiary, Trak Auto, entered into an agreement to
lease a 176,000 square foot distribution center in Bridgeview, Illinois from a
private partnership in which Haft family members own all of the partnership
interests. The lease is for 30 years and six months, commenced in 1984 and
provides for rental payments increasing approximately 15% every five years over
the term of the lease. The current annual rental is $728,000. The lease
requires payment of maintenance, utilities, insurance and taxes. Dart is
jointly and severally liable for the lease obligations. The partnership
purchased the warehouse on March 12, 1984 for approximately $3,100,000.
76
<PAGE> 77
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
Trak Auto has an agreement to lease a distribution center in Ontario,
California from a private partnership in which Haft family members own all of
the partnership interests. The lease is for 20 years and commenced in 1989.
The lease also provides for increasing rental payments, based upon the Consumer
Price Index for the Los Angeles area, over the term of the lease. The current
annual rental is $1,374,000. The lease requires payment of maintenance,
utilities, insurance and taxes. The partnership purchased the distribution
center for approximately $10,800,000.
The capital lease arrangements described above are all included in the
lease commitment table.
Dart's affiliate, Shoppers Food, has a lease agreement for a 86,000
square foot office building in Lanham, Maryland from a private partnership in
which Haft family members and the other shareholders of Shoppers Food own all
of the partnership interests. The lease is for 20 years and commenced in 1991.
The lease provides for yearly increasing rental payments, based upon the
Consumer Price Index for the Washington, D.C. Metropolitan Statistical Area,
however the increases shall not be more than 6% or less than 3%. The current
annual rental is $1,247,000. The lease requires payment of maintenance,
utilities, insurance and taxes. The partnership purchased the office building
for approximately $8,700,000 in July 1990. There are currently three
unaffiliated subtenants in the office building. These subtenants are leasing
approximately 30,000 square feet for a current annual rent of $520,000.
Pennsy Warehouse Leases
For a description of Dart's obligations under leases for three warehouses
located at 3301 Pennsy Drive, Landover, Maryland (the "Pennsy Leases"), see
Note 7.
Store Operating Lease Payments to Related Parties
During the fiscal years ended January 31, 1996, 1995 and 1994,
respectively, Trak Auto made rental payments of approximately $2,914,000,
$2,893,000 and $2,180,000, Crown Books made rental payments of approximately
$2,136,000, $2,035,000 and $1,780,000, Shoppers Food made rental payments of
approximately $5,985,000, $5,327,000 and $3,940,000 (during Shoppers Food
fiscal years ended July 1, 1995, July 2, 1994 and July 3, 1993, respectively)
and Total Beverage made rental payments of approximately $984,000, $893,000
77
<PAGE> 78
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
and $361,000 to CMREC shopping centers and to partnerships in which members of
the Haft family own all or substantially all of the beneficial interests. None
of the stores involved were acquired by the partnerships within the past two
years.
In addition to the Executive Committee's legal review of the Pennsy
Leases, which resulted in litigation filed by Dart on February 10, 1995 (See
Note 8), the Executive Committees of Dart, Trak Auto and Crown Books have
undertaken a legal review of other leasing arrangements and real estate related
transactions between the Company, on the one hand, and Haft-owned entities, on
the other hand. The Executive Committees have not yet determined whether other
actions will be taken as a result of this legal review.
Future Minimum Lease Payments to Related Parties
Dart's subsidiaries and affiliate, Trak Auto, Crown Books, Shoppers Food
and Total Beverage lease certain real property from CMREC and Haft family owned
partnerships. The leased properties consist of 50 stores, three warehouses and
the Shoppers office building, excluding the Pennsy Leases. These leases (other
than the Pennsy Leases) provide for various termination dates, which, assuming
renewal options are exercised, range from 1996 to 2031 and require the payment
of minimum rentals aggregating approximately $267,648,000 to the lease
expiration dates. Minimum rentals under these leases are approximately
$129,498,000 to the expiration of their original terms. Certain of these
leases also require the payment of a percentage of sales in excess of a stated
minimum, as well as real estate taxes and Consumer Price Index increases.
NOTE 5 - INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
(See Notes 4 and 10)
Haft Family Employment Agreements and Other Compensation Arrangements
In April 1974, Dart entered into an employment agreement with Herbert H.
Haft, Chairman and Chief Executive Officer. The agreement, as amended, is
renewable each year for a successive ten-year term. The agreement, as amended,
provides for a base salary of $544,500 for the year ended January 31, 1986 and
for increases in base salary each year thereafter by the greater of (i) $12,000
plus ten percent of the base salary for the preceding fiscal year or (ii) the
increase in the cost of living. The agreement, as amended, further provides
for an annual bonus equal to 1 1/2% of Dart's consolidated
78
<PAGE> 79
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
pretax profit not reduced as a result of transactions which are not ordinary
and a supplemental bonus based on certain performance criteria for the three-
year period ended January 31, 1988 and each three-year period thereafter. The
supplemental bonus equals the greatest of (i) 3% of the increase in the
aggregate market value of the Class A Common Stock on the last day of the
three-year period over such market value on the first day of such period; (ii)
3% of any excess in Dart's consolidated stockholders' equity on the last day of
the three-year period over such stockholders' equity on the first day of such
period; (iii) 3% of the aggregate consolidated net income during the three-year
period; and (iv) his base salary and annual bonus for the last year of the
three-year period. Pursuant to the agreement, Herbert H. Haft may elect to
receive all or part of his compensation in the form of an option for shares of
the Class A Common Stock or defer receipt of all or part of such compensation.
The agreement, as amended, also provides that Dart must lend to Herbert H. Haft
the funds necessary to purchase a $3,000,000 life insurance policy on his life
and/or the life of his former wife, Gloria Haft. Dart has elected not to
charge interest on the loan. In 1993, a shareholder derivative action was
filed challenging certain aspects of this employment agreement. In 1994, the
Special Litigation Committee concluded that it is in the best interests of Dart
that claims challenging Herbert H. Haft's employment agreement be dismissed
except to the extent that the validity of the "evergreen" provision (successive
ten-year terms) of the agreement is challenged.
In fiscal 1990, Dart signed agreements with Herbert H. Haft and Robert M.
Haft that granted to each of them an option to purchase up to ten shares of the
common stock of Dart/SFW, or 10 percent of such stock on a fully diluted basis,
for approximately $192,688 per share. Under the agreements each such option is
exercisable in whole or in part during the period beginning on August 30, 1994
and ending on August 30, 2004; provided that such options become immediately
exercisable in the event of a Major Business Change (as defined in the option
agreements) and for a period of ten years thereafter. At any time within three
years after receipt of the Dart/SFW shares pursuant to the exercise of an
option, Herbert Haft or Robert Haft, as the case may be, may require Dart to
purchase all or part of such shares at their then fair market value, as
determined by an independent appraiser selected by Dart's Board of Directors.
Pursuant to agreements dated January 11, 1990, Herbert H. Haft assigned and
transferred his option to acquire ten shares of Dart/SFW to his two children,
Ronald S. Haft and Linda G. Haft, and Robert M. Haft assigned and transferred
his option to acquire six shares of Dart/SFW to Trusts established for the
benefit of his two children, Michael A. Haft and
79
<PAGE> 80
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
Nicholas G. Haft. As part of the RSH Settlement, Ronald S. Haft consented to
the termination of his Dart/SFW options.
The Executive Committee has undertaken a legal review of these options
and, as a result, is contesting their validity. Robert M. Haft has filed a
lawsuit seeking specific performance from Dart of these options. See Notes 8
and 13.
Dart accrues the estimated fair value of the Dart/SFW stock over the
exercise price of the options provided for in these agreements ($9.7 million at
January 31, 1996 net of Ronald S. Haft's options which terminated as a result
of the RSH Settlement).
A 1987 resolution of Dart's Board of Directors (the "1987 Resolution")
stated that it would be appropriate for Herbert H. Haft and Robert M. Haft each
to have the option to participate individually in acquisitions of other
companies by Dart on the same terms and conditions as management of the
acquired company might participate or by the purchase by each of ten percent of
Dart's interest in the acquired company on an equivalent basis as Dart.
On February 22, 1995, the United States District Court for the District
of Delaware, in the case of Robert M. Haft v. Dart Group Corporation, et al.
(D. Del. Civ. A. No. 93-384) (see Note 8) ruled that this resolution entitled
Robert M. Haft to purchase for $149,000 ten percent of Dart's interest in the
entity that acquired the assets of Total Beverage's Chantilly, Virginia store.
Dart has appealed this ruling of the court. In June 1995, Herbert H. Haft
advised the Board of Directors of his claim that the 1987 Resolution entitles
him to a call on a 10% interest in Total Beverage Corporation. The Executive
Committee has advised Herbert H. Haft of its opposition to this claim.
Incentive Stock Agreement
In fiscal 1990, Crown Books entered into an incentive stock agreement (the
"ISA") with Robert M. Haft, the former President of Crown Books. Under the
terms of the ISA, Crown Books issued 100,000 shares of stock to Robert M. Haft
in return for a non-interest bearing promissory note, discounted at an 11%
effective interest rate, of $203,750, due January 2, 2004. The ISA provides
that the stock certificate representing the 100,000 shares state that the
shares are subject to certain transfer restrictions. Crown Books has the
right, expiring ratably over the period from January 2, 1999 to January 2,
2001, to repurchase all or a portion of the shares, subject to certain
conditions, in the event Robert M. Haft voluntarily terminates employment with
80
<PAGE> 81
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
Crown Books. Pursuant to the terms of the ISA, if Crown Books terminates
Robert M. Haft without cause, it must issue 100,000 shares of unrestricted
common stock to him.
Crown Books recognized deferred compensation to Robert M. Haft under the
ISA with a combination of amortization of the discount on the note ($11,000
annually) and straight-line recognition of the difference between the market
price of Crown Books common stock on the date of grant and the purchase price
for the shares subject to the ISA ($194,000 annually).
When Robert M. Haft's employment with Crown Books terminated in June
1993, Crown Books maintained that he had voluntarily terminated his employment,
and therefore Crown Books had a right to repurchase these shares. In August
1993, Robert M. Haft filed a lawsuit against Dart, Crown Books and Trak Auto
that, among other claims, contested the right of Crown Books to repurchase the
shares, and alleged that Crown Books had terminated Robert M. Haft without
cause. The jury and the court in this litigation found in favor of Robert M.
Haft on these claims. On February 22, 1995, the court held that Robert M. Haft
was entitled to damages in the amount of $2,146,250, plus interest, for Robert
M. Haft's claims with respect to the ISA. Crown Books filed a notice of appeal
against this judgment. See Note 8 for further discussion of this litigation.
As a result of this litigation, however, Crown Books expensed the
remaining unamortized deferred compensation totaling $1,424,000 (before income
taxes) associated with the ISA in the year ending January 31, 1995.
Other Management Employment Agreements
In October 1994, Dart entered into a consulting agreement with RPF, Inc.,
a corporation wholly-owned by Robert A. Marmon, whereby RPF, Inc. supplied the
services of Mr. Marmon as Chief Financial Officer for Dart, each of its
wholly-owned subsidiaries and Crown Books, and as Principal Financial Officer
for Trak Auto. Mr. Marmon resigned effective February 29, 1996. The
agreement, as amended, provided for a monthly fee of $48,750.
On January 25, 1995, the Company entered into employment agreements with
several key employees, including R. Keith Green, President of Trak Auto and E.
Steve Stevens, President and Chief Executive Officer of Crown Books. The
agreements are for a one-year term (Mr. Green and Mr. Stevens' agreements are
for two years) and are automatically extended one year (two years for Mr.
81
<PAGE> 82
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
Green and Mr. Stevens) unless the individual is terminated with cause. The
agreements provide for annual increases following review and performance
appraisal by the Compensation Committee of the Board of Directors.
Executive Committee and Special Litigation Committee
On January 4, 1994, the Board of Directors of Dart established a Special
Litigation Committee to assess, on behalf of Dart, whether to pursue, settle or
abandon, claims raised in the derivative lawsuits filed against Dart. See Note
8 for a discussion of the derivative lawsuits.
The Board of Directors of Dart established an Executive Committee of the
Board of Directors on September 7, 1994. The Executive Committee has the
authority to conduct the affairs of Dart with respect to matters that are the
subject of dispute between the Chairman of the Board and Chief Executive
Officer, Herbert H. Haft, and the then President and Chief Operating Officer of
Dart, Ronald S. Haft. Members of the Executive Committee are Douglas M.
Bregman, Larry G. Schafran and Bonita Wilson, with Mr. Schafran as the Chairman
of the Executive Committee. Any and all actions of the Executive Committee are
required to be without a dissenting vote. On October 11, 1994, the Boards of
Directors of Trak Auto, Crown Books and Total Beverage each established an
Executive Committee of their respective Board of Directors with authority
parallel to that of Dart's Executive Committee.
Members of the Executive Committee are compensated at a rate of $275 per
hour plus reimbursement of expenses. Members of the Special Litigation
Committee of the Board of Directors have been compensated at a rate of $250 per
hour plus reimbursement of expenses. During the years ended January 31, 1996
and January 31, 1995, the compensation paid by Dart and its subsidiaries to
members of the respective Executive Committees for their services on those
committees totaled $1,263,000 and $666,000, respectively. Compensation paid by
Dart and its subsidiaries to members of the Special Litigation Committee for
their service on that committee during the year ended January 31, 1995 was
$269,000, exclusive of expense reimbursement. There were no fees paid to
members of the Special Litigation Committee in fiscal 1996.
NOTE 6 - SETTLEMENT WITH RONALD S. HAFT
On October 6, 1995, Dart and Ronald S. Haft entered into a settlement of
certain litigation and other related transactions (collectively, the "RSH
Settlement"). The RSH Settlement transactions are subject to legal challenge
82
<PAGE> 83
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
(See Note 8). If sustained, the RSH Settlement transactions were intended to
have the effect, by their terms, of transferring majority control of Dart's
voting stock to one or more voting trustees (the "Voting Trustees") under a
Voting Trust Agreement (the "Voting Trust Agreement"), by and among Ronald S.
Haft, Dart and Larry G. Schafran and Sidney B. Silverman as initial Voting
Trustees. On December 28, 1995, the initial Voting Trustees resigned and
appointed Richard B. Stone as successor Voting Trustee. If the RSH Settlement
is not sustained, it would significantly affect the accounting treatment for
the settlement as reflected in the accompanying financial statements as
described below.
Terms of Settlement with Ronald S. Haft
Dart has recorded the following RSH Settlement transactions.
Dart recorded the purchase of an option for 197,048 shares of Class B
Common Stock by Ronald S. Haft. These options had not previously been
recognized by Dart. In addition, the option to purchase such shares, pursuant
to Ronald S. Haft's employment agreement, was amended to increase the exercise
price from $89.65 to $140.00 per share. These 197,048 shares of Class B Common
Stock were issued to Ronald S. Haft pursuant to his exercise of the option in
exchange for $197,048 in cash and a secured promissory note from Ronald S. Haft
in the principal amount $27,389,672 (the "$27.4 Million Note"). The $27.4
Million Note is due June 30, 2000, subject to earlier prepayment in the event
of a disposition of the shares of stock held by the Voting Trustees. Interest
on the $27.4 Million Note accrues at 8% and is due at maturity. Immediately
after issuance of the 197,048 shares of Class B Common Stock to Ronald S. Haft,
he assigned to the Voting Trustees such shares as well as 25,246 shares of
Class B Common Stock that he owned previously.
Ronald S. Haft transferred to Dart 172,730 shares of Class B Common Stock
in exchange for 288,312 shares of Class A Common Stock. The 288,312 shares of
Class A Common Stock have been placed into the Voting Trust established under
the Voting Trust Agreement and the 172,730 shares of Class B Common Stock have
become treasury shares, which are not entitled to vote. Prior to the RSH
Settlement, Herbert H. Haft exercised voting rights with respect to such Class
B shares. (Among the pending legal challenges to the RSH Settlement
transactions is Herbert H. Haft's claim that he owned the 172,730 shares of
Class B Common Stock at the time of the RSH Settlement, so that their transfer
to Dart was invalid.) In addition, Ronald S. Haft assigned to the Voting Trust
86,173 shares of Dart Class A Common Stock (subject to competing claims
83
<PAGE> 84
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
as to 58,029 of those shares) and agreed to assign to the Voting Trust an
additional 33,333 shares of Dart Class A Common Stock currently pledged as
security for a bank debt of Ronald S. Haft.
Dart transferred $37,925,710 in cash to Ronald S. Haft and received from
him a $37,740,162 secured promissory note (the "$37.7 Million Note"), which is
due June 30, 2000, subject to earlier prepayment in the event of a disposition
of the shares of stock held by the Voting Trustees. Interest accrues at 8% and
is due at maturity.
A Buy/Sell/Offering Agreement between Dart and Ronald S. Haft governs the
ultimate disposition of the shares held by the Voting Trustee. That agreement
gives Ronald S. Haft the right to "put" to Dart the stock held by the Voting
Trustee at any time between January 1, 1997 and December 31, 1999, subject to
certain conditions. Dart has an option to "call" the shares held by the Voting
Trustee, if they have not previously been dosposed of as described above, at
any time during the first seven months of the year 2000.
The $37.7 Million Note and the $27.4 Million Note that Ronald S. Haft has
given to Dart in connection with the RSH Settlement both have a stated maturity
date of June 30, 2000, but will be due and payable upon the closing of a "put"
of "call" under the Buy/Sell/Offering Agreement. The price of the shares
purchased by Dart upon closing of a "put" or "call" would be offset against the
principal and interest due on these two promissory notes.
The $27.4 Million Note and the $37.7 Million Note are recourse subject to
certain limitations and recorded as Notes Receivable - Shareholder on the
Company's balance sheet and have been included as a component of Stockholders'
Equity.
Dart transferred an additional $11,621,276 in cash to Ronald S. Haft in
escrow, and such funds have been tendered to Herbert H. Haft (but such funds
had not been accepted by Herbert H. Haft as of January 31, 1996) as prepayment
of a Ronald S. Haft promissory note to Herbert H. Haft, which promissory note
was originally given as partial payment for the 172,730 shares of Class B
Common Stock discussed above. In exchange for a loan of $11,621,276 from Dart,
Ronald S. Haft has given Dart a secured promissory note of $11,621,276 (the
"$11.6 Million Note"), which is due June 30, 2000, subject to earlier
prepayment upon the sale of the CMREC properties (discussed below). The $11.6
Million Note bears interest at an annual rate of 6.61%, which is due December
31 of each year beginning December 31, 1995.
Dart and CMREC have agreed to the sale of the five properties which CMREC
owns through joint ventures with Haft-owned entities. The sales are to occur
on terms to be arranged by Ronald S. Haft prior to October 6, 2000. Under
terms of the RSH Settlement, CMREC will retain the first $2.0 million of its
share of proceeds from such sales and, if certain conditions relating to the
RSH Settlement are satisfied, the next $47.0 million of CMREC's share of
proceeds will be payable to Ronald S. Haft. He is required to apply his share
of the sale proceeds toward the payment of the $11.6 Million Note. As part of
the RSH Settlement, CMREC receives 1% of the ordinary income and losses
generated by the joint ventures and is a general partner in the joint ventures.
(Ronald S. Haft and entities controlled by him receive the remaining 99%.) As
a result of these arrangements, the real estate joint ventures are no longer
consolidated with the Company's financial statements as of October 6, 1995. In
addition, Dart recorded a loss of $14.6 million for the write-down of the CMREC
partnership interest to fair value.
84
<PAGE> 85
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
Ronald S. Haft and Dart have agreed to various transactions relating to
certain warehouse and office facility properties that Dart and/or Trak Auto
lease from Haft-owned entities (collectively, the "Warehouse Transactions").
The properties include Dart's headquarters in Landover, Maryland, Trak Auto's
distribution centers in Ontario, California and Bridgeview, Illinois (the
"Distribution Centers") and some of Dart's former warehouse and office facility
in Landover, Maryland (the "Pennsy Warehouses"). The primary intent of the
Warehouse Transactions is to transfer interests controlled by Ronald S. Haft in
some or all of the properties to entities controlled by Dart, and amend the
leases to reduce or, in the case of the Pennsy Warehouses, eliminate the rents
being paid by Dart or Trak Auto. The Warehouse Transactions are subject to
contingencies, including bankruptcy court and mortgagee approval to the extent
any is necessary, to challenges brought by Herbert H. Haft concerning the
extent of Ronald S. Haft's ownership interest in certain of the properties and
with respect to the properties in Landover, Maryland and Bridgeview, Illinois,
claims asserted by Robert M. Haft and Linda G. Haft regarding the extent to
which Ronald S. Haft controls the partnerships owning such properties. As of
January 31, 1996, Dart has only recorded its interest in three of the four
Pennsy Warehouses. These interests were recorded at an amount equal to the
mortgages on these warehouses. Dart has reduced the reserve for Pennsy
Warehouse Leases by approximately $14.0 million, recorded as additional
Paid-in-Capital. Dart and/or Trak Auto expect to continue to fund the rental
payments on the remaining properties until such time as the various
contingencies surrounding these transfers are resolved. Accordingly, Dart has
not recorded the buyout of the lease obligations for the Distribution Centers.
These properties continue to be accounted for as capital leases. Accordingly,
the capital lease obligation of $30.2 million and the net book value of $ 16.5
million have not been reversed and the corresponding fair value of the
Distribution Centers and related mortgages have not been recorded. Resolution
of the contingencies surrounding the Distribution Centers is not expected to
have a material effect on the Company's financial statements.
As part of the RSH Settlement, Ronald S. Haft resigned all of his
positions as a director and officer of Dart and all of its subsidiaries, and
consented to the termination of his employment agreement. The Standstill Order
(described below) contemplates that Ronald S. Haft will continue as a director
of Dart while the Standstill Order is in effect. (Herbert H. Haft contends
that Ronald S. Haft is no longer a director.) Dart recorded compensation
expense of $2.0 million for the present value of the remainder of the contract
and reversed all prior accruals under the employment contract resulting in
85
<PAGE> 86
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
additional Paid-in-Capital of approximately $2.5 million.
Ronald S. Haft consented to termination of all of his outstanding stock
options from Dart and its subsidiaries, including options for five shares of
Dart/SFW Corp., a subsidiary of Dart that owns 50% of Shoppers Food. As a
result, Dart reduced its accrual for its expense associated with the Dart/SFW
Corp. options of approximately $2.8 million, resulting in additional
Paid-in-Capital.
As a result of the RSH Settlement, Dart reduced its accrual for legal
expenses by approximately $2.0 million for litigation involving the Pennsy
Warehouses. However, Dart accrued or paid an additional $3.5 million for legal
and/or consulting services associated with the RSH Settlement.
The RSH Settlement is the subject of legal challenges raised by Robert M.
Haft, Gloria Haft and Linda Haft and, separately, by Herbert H. Haft. In
connection with such legal challenges, the Delaware Court of Chancery entered a
Standstill Order, which restricts certain actions of Dart until further order
of the court. See Note 8.
The documents implementing the RSH Settlement contain certain provisions
intended to protect Dart's interests if a challenge to the RSH Settlement is
accepted by the Delaware Chancery Court. In general terms, these provisions
include the following:
a) If the Delaware Chancery Court does not approve the settlement in the
Kahn action (see Note 8), Dart will have the right to cause the RSH
Settlement transactions to be reversed, except that (i) Ronald S. Haft
will have up to two years to repay the $37.7 Million Note and the $11.6
Million Note, (ii) the Warehouse Transactions will proceed and (iii) the
sale of CMREC joint venture properties will proceed, but without any
assignment to Ronald S. Haft of CMREC's portion of the sale proceeds.
b) If Herbert H. Haft succeeds through his rescission claim in reacquiring
ownership of the 172,730 shares of Class B Common Stock transferred by
Ronald S. Haft to Dart as part of the RSH Settlement, repayment of $24.2
million of the principal amount of the $37.7 Million Note will be due
within two years and the 288,312 shares of Dart Class A Common Stock
issued to Ronald S. Haft under the RSH Settlement will be returned to
Dart.
c) If a court rules that Ronald S. Haft cannot transfer the 172,730 shares
of
86
<PAGE> 87
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
Class B Common Stock to Dart because of the impact on Herbert H. Haft's
preexisting proxy from Ronald S. Haft to vote those shares, then $8.0
million of the CMREC sale proceeds will be held in escrow until the
transfer occurs and may, under certain circumstances be returned to Dart.
d) If a court determines that the 197,048 shares of Class B Common Stock
issued to Ronald S. Haft are not validly issued or that the Voting
Trustees are not entitled to vote the shares they hold, then Dart will
have the same rights (discussed above) as in the event that the Court
does not approve the settlement of the Kahn lawsuit. Alternatively, Dart
could elect that the 197,048 shares of Class B Common Stock be returned
to Dart, that the $27.4 million promissory note be canceled and that
Ronald S. Haft pay $8.0 million to Dart within two years.
NOTE 7 - PENNSY WAREHOUSE LEASES
The Pennsy Leases cover a 533,800 square foot facility consisting of
office space and three warehouses once occupied and used by the Dart Drugstore
chain, a predecessor of Dart. The warehouses and office space are not required
by Dart for its operations. These warehouses are owned by partnerships in
which members of the Haft family own all of the general and limited partnership
interests. The office space and warehouses were built by Haft partnerships
between 1965 and 1974: Warehouse I and the offices in 1965, Warehouse II in
1971 and Warehouse III in 1974. The facility is located at 3301 Pennsy Drive,
Landover, Maryland.
Trak Auto has an agreement with Dart to sublease 6,500 square feet of the
facility. The sublease is on a month-to-month basis and the annual rental is
$21,000. The sublease requires Trak Auto to pay for its share of common area
maintenance, real estate taxes and insurance premiums. In addition, Shoppers
Food has an agreement with Dart to rent (on a month to month basis) 20,000
square feet of the above facility for approximately $6,000 a month.
In 1984, Dart sold its drugstore chain to a new company owned by some
members of its former management, Dart Drug Stores, Inc. ("DDSI"). At that
time, the subject leases were assigned to a subsidiary (Dart Drug Corporation,
Maryland) whose stock was transferred to DDSI, and the Pennsy Leases were
extended to 2016 and modified. The leases were then assigned to DDSI itself.
Ownership of DDSI was subsequently transferred and it commenced operation
87
<PAGE> 88
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
under the name of Fantles in 1988. DDSI, dba Fantles, occupied the properties
through December of 1990, more than one year after DDSI filed bankruptcy.
After DDSI (Fantles) rejected the Pennsy Leases in its bankruptcy, Dart in
February 1991, resumed paying rent and other expenses to the Haft family owned
landlords on the theory that Dart's obligations to the landlords survived the
1984 transactions.
Since DDSI assumed control of the Pennsy warehouses in 1984, the buildings
have fallen into disrepair. Deferred maintenance is estimated at between $2
million and $3 million dollars. On November 21, 1994, Dart's Executive
Committee received a report indicating the presence of friable asbestos in
Warehouses I and II as well as the existence of asbestos located in certain
intact floor tiles in Warehouse III. Some asbestos-containing material has
fallen on particular store fixtures and material stored in Warehouse I.
However, tests demonstrated that the level of airborne asbestos did not exceed
the legal limits. With respect to Warehouse III, Dart has determined that the
presence of asbestos-containing materials in the floor tiles did not render
Warehouse III unsafe, because the materials were intact and the asbestos was
non-friable. No friable asbestos was located in the portion of Warehouse III
sublet to Trak Auto, Crown Books and Shoppers Food.
Dart did not permit the use of Warehouses I or II, nor did it allow
personnel in those warehouses. Dart secured Warehouses I and II to prevent
unauthorized entry. In January 1996, Dart started the process of removing all
asbestos from Warehouses II and III. The removal was completed in March 1996
and Dart is continuing to repair those facilities to a usable state.
The Pennsy Leases expire September 30, 2016 and provide for increasing
rental payments based on the Consumer Price Index. The leases are "triple net"
leases, in that, in addition to rental payments, Dart is responsible for all
expenses, including but not limited to real estate taxes, all utilities,
insurance and maintenance. These estimated outflows would substantially impair
the future cash flows of Dart. In 1994, Dart's Executive Committee undertook a
legal review of the subject leases from their inception. As a result of this
legal review, on February 10, 1995, Dart filed a complaint for rescission of
the Pennsy Leases and for the return of rent paid since the reassumption of the
Pennsy Leases. See Note 8. If the RSH Settlement is not sustained and the
leases remain enforceable, Dart will pay in excess of $68.2 million in rent to
the Haft interests, plus an additional $13.9 million in "triple net" expenses.
The net present value of future payments, discounted at
88
<PAGE> 89
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
a rate of 6%, and eliminating the effect of estimated future inflation of 4%,
included in the table above is approximately $32.3 million. At the end of the
lease term Dart retains no residual value in either the land or buildings.
During fiscal 1995, Dart revised its expectations of future sublease
income and increased the reserve for the obligations represented by these
leases to $32.3 million from $9.6 million, an increase of $22.7 million. As
part of the RSH Settlement (see Note 6), Ronald S. Haft agreed to transfer the
real estate and the partnership interests controlled by him in the Pennsy
Leases to Dart. The transfer of partnership interest reduced Dart's obligation
under the leases. Accordingly, Dart reversed $14.0 million of the reserve.
The following summarizes the activity in the reserve during fiscal 1996:
<TABLE>
<S> <C>
Reserve, beginning of year $ 31,892,000
Add: Interest accrued 1,655,000
Less: Payments made (1,080,000)
Reversal of reserve (14,000,000)
------------
Reserve, end of year $ 18,467,000
============
</TABLE>
This transfer is subject to contingencies, including bankruptcy court and
mortgagee approval to the extent any is necessary, and to challenges brought by
Herbert H. Haft concerning the extent of Ronald S. Haft's ownership interest in
certain of the properties. Depending upon the outcome of these contingencies,
the accounting treatment of the transfer (described above) in the financial
statements could be significantly affected.
NOTE 8 - LITIGATION
Robert M. Haft Employment Litigation
In August 1993, Robert M. Haft, a former president of Crown Books and
Dart, filed a lawsuit in the United States District Court for the District of
Delaware, Robert M. Haft v. Dart Group Corporation, et al. (D. Del. Civ. A. No.
93-384), naming as defendants Dart and two of its subsidiaries, Crown Books and
Trak Auto. The complaint, as amended, alleged breach of contract regarding
various employment, stock option, stock incentive and loan agreements and
sought declaratory judgment regarding a stock incentive agreement and a
possible right by Robert M. Haft to acquire an interest in Total Beverage, all
in connection with the termination of Robert M. Haft's employment in June 1993.
The complaint, as amended, sought unspecified damages, costs and attorneys'
fees.
89
<PAGE> 90
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
On September 20, 1994, a jury found that Dart had breached its employment
contract with Robert M. Haft and awarded him damages against Dart (equivalent
to the compensation projected to be due over a ten-year period) in the amount
of $18,856,964. The jury also found that Crown Books had breached an
employment agreement with Robert Haft and awarded him damages (equivalent to
the compensation projected to be due over a ten-year period) against Crown
Books in the amount of $12,800,910.
The jury also found that Robert M. Haft did not voluntarily terminate his
employment within the meaning of his Incentive Stock Agreement ("ISA") with
Crown Books. Under the terms of the ISA, a voluntary termination by Robert M.
Haft of his employment would have allowed Crown Books to repurchase all or a
portion of 100,000 shares of stock issued to Robert Haft by Crown Books
pursuant to the ISA, subject to certain transfer restrictions, in return for a
non-interest bearing promissory note, discounted at an effective rate of 11%,
for $203,750, due January 2, 2004. The jury's finding would preclude Crown
Books from making such a repurchase.
Robert M. Haft asked the judge presiding over the case to award him
additional damages in the amount of approximately $2.4 million based on the
failure of Crown Books to deliver 100,000 shares of unrestricted common stock
of Crown Books, which he would have a right to receive under the ISA in the
event of his termination without cause by Crown Books, when he demanded them in
August 1993. Robert M. Haft also requested a declaratory judgment on his claim
against Dart, Crown Books and Trak Auto arising from certain stock options
granted to him by those corporations and his claim that he has a purchase
option for an interest in Total Beverage.
On February 22, 1995, the federal district court in Robert M. Haft's
employment litigation made the following rulings against Dart, Crown Books and
Trak Auto:
(a) The court found that Robert M. Haft was entitled to damages in the amount
of $2,146,250, plus interest, based on the failure of Crown Books to
deliver 100,000 shares of unrestricted Crown Books Common Stock when he
demanded them in August of 1993;
(b) The court found that Robert M. Haft was entitled to exercise certain
employee stock options under the 1981 and 1992 Stock Option Plans of
Dart, the Crown Books Stock Option Plan adopted March 12, 1987, and the
Trak Auto Corporation Stock Option Plan adopted March 24, 1987. As to
90
<PAGE> 91
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
options that had expired during the pendency of the case, the court
extended the time for exercise for a period equal to the period from June
30, 1993 to the expiration date. As to options that had not yet expired,
the court extended the exercise date for a period equal to the period
from June 30, 1993 until final judgment was entered. (Under the relevant
plans, Robert M. Haft would be entitled to exercise options for 50,000 of
Class A Common Stock of Dart having exercise prices of $71.50 - $104.50
per share, 80,000 shares of Crown Books Common Stock having exercise
prices of $21.45 - $23.93 per share and 40,000 shares of Trak Auto Common
Stock having exercise prices of $6.60 - $13.75 per share.); and
(c) The court found that Robert M. Haft has the right to purchase for
$149,400 ten percent of Dart's interest in the entity that acquired the
assets of Total Beverage's Chantilly, Virginia store.
The court entered final judgment on all claims in this lawsuit on March
23, 1995. On April 6, 1995, Dart and Crown Books filed with the court a motion
for a new trial and/or reduction of damages challenging the court's breach of
contract findings, damages awards and certain evidentiary rulings. In October
1995, the court denied such motion. On October 16, 1995, Dart, Crown Books and
Trak Auto filed a notice of appeal with the U.S. Court of Appeals for the Third
Circuit.
The Company has reserved approximately $34.6 million (including accrued
interest of $2.9 million) for these judgments.
Derivative Litigation
In September 1993, Alan R. Kahn and the Tudor Trust (the "Kahn Derivative
Plaintiffs"), shareholders of Dart, filed a lawsuit in the Delaware Court of
Chancery for New Castle County naming as defendants Herbert H. Haft, Ronald S.
Haft, Douglas M. Bregman, Bonita A. Wilson, Combined Properties, Inc. ("CPI"),
Combined Properties Limited Partnership and Capital Resources Limited
Partnership. The suit is brought derivatively and names as nominal defendants
Dart, Trak Auto, Crown Books, Shoppers Food, Total Beverage and CMREC.
The complaint, as amended on January 12, 1995, alleges waste, breach of
fiduciary duty, violation of securities laws and entrenchment in connection
with various lease agreements between the Combined Properties defendants and
Dart and its subsidiaries, the termination of Robert M. Haft, the compensation
91
<PAGE> 92
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
paid to Ronald S. Haft and Herbert H. Haft, the employment agreement entered
into by Ronald S. Haft and Dart on August 1, 1993 (the "RSH Employment
Agreement"), the sale of 172,730 shares of Class B Common Stock by Herbert H.
Haft to Ronald S. Haft, and the compensation paid to the Executive Committee.
Plaintiffs seek an accounting of unspecified damages incurred by Dart, voiding
of the options sold to Ronald S. Haft, appointment of a temporary custodian to
manage the affairs of Dart or to oversee its recapitalization or sale and costs
and attorneys' fees.
On April 27, 1995, the Kahn Derivative Plaintiffs and the Special
Litigation Committee of Dart's Board of Directors filed a Stipulation and Order
which, if entered by the court, would (i) dismiss claims against Douglas M.
Bregman and Bonita A. Wilson and (ii) realign Dart as a party plaintiff to the
amended complaint. The court has not yet acted upon this Stipulation.
In November 1993, Robert M. Haft filed another lawsuit in the Delaware
Court of Chancery for New Castle County. The lawsuit names as defendants
Herbert H. Haft, Ronald S. Haft, Douglas M. Bregman, and Bonita A. Wilson, and
also names Dart as a nominal defendant. The complaint derivatively alleges
interested director transactions, breach of fiduciary duty and waste in
connection with the RSH Employment Agreement. Robert M. Haft also brings
individual claims for breach of contract and dilution of voting rights in
connection with the sale of shares of Class B Common Stock by Herbert H. Haft
to Ronald S. Haft and the RSH Employment Agreement. The complaint seeks
rescission of the sale of such shares and the RSH Employment Agreement,
unspecified damages from the individual directors, and costs and attorneys'
fees.
In January 1994, a Special Litigation Committee consisting of two
outside, independent directors of Dart, Crown Books and Trak Auto was appointed
by the Board of Directors to assess, on behalf of Dart, whether to pursue,
settle or abandon the claims asserted in these two derivative lawsuits. (Since
the death of one member in December 1994, the Special Litigation Committee has
consisted of one director.) In September 1994, the Special Litigation
Committee moved for dismissal of certain claims in those derivative lawsuits
and for realignment of the parties to permit Dart to prosecute other claims in
those derivative lawsuits. This motion is still pending before the court.
In connection with the RSH Settlement, on October 11, 1995, the plaintiff
shareholders, Ronald S. Haft, Combined Properties, Inc., Dart, Trak Auto and
Crown Books entered into a Stipulation and Agreement of Compromise, Settlement
92
<PAGE> 93
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
and Release (the "Stipulation"). Pursuant to the Stipulation, the claims
against Ronald S. Haft and Combined Properties, Inc. will be dismissed on the
merits and with prejudice as against the shareholder plaintiffs and Dart and
its subsidiaries, if the RSH Settlement and dismissal of these claims are
approved by the Delaware Court of Chancery.
In September 1994, Jolien Lou, a purported shareholder of Crown Books,
filed a lawsuit in the Delaware Court of Chancery for New Castle County naming
as defendants Herbert H. Haft, Glenn E. Hemmerle, Ronald S. Haft, Douglas M.
Bregman, H. Ridgely Bullock, Larry G. Schafran and Bonita A. Wilson. The suit
is brought derivatively and names Crown Books as nominal defendant. The
complaint, as amended on February 24, 1995, alleges waste and breach of
fiduciary duty in connection with the termination of Robert M. Haft from his
position at Crown Books in 1993 and in connection with the management of Crown
Books. The amended complaint also alleges legal malpractice against a lawyer
advising Dart at that time. Plaintiff seeks unspecified damages incurred by
Crown Books, and costs and attorneys' fees. Ronald S. Haft and Glenn E.
Hemmerle have been dismissed without prejudice from this lawsuit. The amended
complaint does not name as a defendant H. Ridgely Bullock, who died subsequent
to the filing of the original complaint. Crown Books and other defendants have
filed a motion to dismiss this lawsuit.
Given that these derivative lawsuits are brought in the name of Dart and
its subsidiaries, recovery in them would inure to the benefit of Dart and its
subsidiaries if the claims are successfully litigated or settled. Therefore,
in the opinion of management, resolution of these actions will not have a
material adverse effect on the consolidated financial condition or results or
operations of the Company.
Pennsy Warehouse Litigation
In fiscal 1995, the Executive Committee of Dart's Board of Directors
undertook a legal review of the Pennsy Leases. By their terms, the Pennsy
Leases, which run to 2016, require annual rental payments of $855,000 subject
to escalation in 1996 and thereafter based on increases in the Consumer Price
Index. The lease terms also require the lessee to pay real estate taxes,
insurance, utilities, and maintenance expenses. At January 31, 1996, Dart had
reserved approximately $18.5 million for the obligations represented by the
Pennsy Leases.
93
<PAGE> 94
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
As a result of this review, on February 10, 1995, Dart filed a complaint
(the "Pennsy Warehouse Litigation") in Circuit Court for Prince George's
County, Maryland, alleging breaches of fiduciary duty, waste and other
irregularities by certain members of the Haft family and others in connection
with the Pennsy Leases and, in particular, with the resumption of rental
payments for these warehouses in 1991 following the bankruptcy of the prior
tenant, Dart Drug Stores, Inc. The complaint seeks rescission of the Pennsy
Leases, restitution of approximately $4.2 million of rent and certain other
expenses paid since 1991 and other monetary damages.
Robert M. Haft Stock Option Litigation
On February 10, 1995, Robert M. Haft filed a complaint in the United
States District Court for the District of Delaware against Dart seeking
specific performance or damages in connection with the refusal of Dart to issue
shares of Class A Common Stock to him pursuant to his exercise of certain
options purportedly granted to him by Dart. Robert M. Haft allegedly received
these options on three separate occasions: (i) pursuant to the Dart Drug
Corporation Executive Non-Qualified Stock Option Plan (the "1983 Plan"), under
which Robert M. Haft allegedly received options to purchase 120,000 shares of
Class A Common Stock; (ii) pursuant to the Dart Drug Corporation 1987 Executive
Non-Qualified Stock Option Plan (the "1987 Plan"), under which Robert M. Haft
allegedly received options to purchase 99,750 shares of Class A Common Stock;
and (iii) pursuant to a Stock Option Agreement (the "1989 Agreement") dated as
of August 30, 1989, among Dart, Dart/SFW and Robert M. Haft, under which Robert
M. Haft allegedly received options to purchase 10 shares (or 10%) of common
stock of Dart/SFW.
Dart is contesting the validity of the options granted to Robert M. Haft
pursuant to the 1983 Plan, the 1987 Plan and the 1989 Agreement. Dart filed a
counterclaim on July 17, 1995 asking that the stock option plans and stock
option agreement that are the subject of the litigation be declared void,
rescinded and unenforceable.
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 Dart seeking (i) an order declaring that a
claimed release bars Dart from bringing suit against him in the Pennsy
Warehouse Litigation, (ii) an injunction to bar Dart from filing certain other
94
<PAGE> 95
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
categories of future complaints against him based on the so-called release and
(iii) compensation for the costs of defense of the Pennsy Warehouse Litigation.
The "release" relied upon in this litigation is also asserted by Robert M. Haft
and Gloria G. Haft in the Pennsy Warehouse Litigation. Accordingly, Dart has
moved to dismiss or stay the Superior Court case, asserting that the issue
should be resolved in the earlier-filed Pennsy Warehouse Litigation where Dart
contends that the "release" is ineffective for a variety of reasons. On
February 27, 1996, the Superior Court ruled that this action should be stayed
pending resolution of the Pennsy Warehouse Litigation. Thereafter, on April 11,
1996, the Court denied Robert M. Haft's motion to reconsider the order staying
the case.
Herbert H. Haft Proxy Litigation
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 "to the same extent and with the same
effect as Ronald S. Haft might or could do under any applicable laws or
regulations governing the rights and powers of shareholders of Dart," 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, Dart in the Delaware Court of Chancery for New Castle County
for Herbert H. Haft's alleged breach of contract and breach of fiduciary duties
to Ronald S. Haft and to Dart in connection with the Proxy (Ronald S. Haft v.
Herbert H. Haft, et al., Civ. A. No. 14425). In this action, Ronald S. Haft
seeks a declaration that the Proxy is revocable or would be revocable under
certain conditions, as well as costs and attorneys' fees. Ronald S. Haft also
requests that the court require Dart 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. On September
25, 1995, Dart filed its answer in this action. Both Ronald S. Haft and
Herbert H. Haft have moved for summary judgment in this lawsuit. On November
14, 1995, the court denied Ronald S. Haft's motion for summary judgment;
Herbert H. Haft's motion for summary judgment remains pending.
95
<PAGE> 96
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
As part of the RSH Settlement, on October 6, 1995, Dart purchased from
Ronald S. Haft the 172,730 shares of Class B Common Stock that were subject to
the Proxy.
Section 225 Action by Robert, Gloria and Linda Haft
On October 17, 1995, Robert M. Haft, Gloria G. Haft and Linda G. Haft
(collectively "RGL") filed a lawsuit captioned Gloria G. Haft, et al. v. Larry
G. Schafran, et al., Del. Ch., Civ. A. No. 14620 (the "Section 225 Action"), in
the Delaware Court of Chancery for New Castle County naming as defendants Dart
and all of its directors. RGL seek an order, under Section 225 of the Delaware
General Corporation Law, declaring that RGL validly removed all of Dart's
directors and replaced them with three individuals (John L. Mason, Ellen V.
Sigal and Michael Ryan), whom RGL purport to have elected. Such purported
election is premised on RGL's contention that RGL own a majority of Dart's
voting stock because, they argue, (i) the 172,730 Class B shares subject to
Herbert H. Haft's proxy have been purchased by Dart and may not be voted and
(ii) the shares of Class B Common Stock placed in a voting trust (the "Trust
Shares") by Ronald S. Haft pursuant to the RSH Settlement also are not entitled
to vote because they have been unlawfully issued or they should be deemed to be
owned by Dart.
Dart's position is that this lawsuit is without merit and that the
purported action by RGL to reconstitute the Board of Directors is invalid. On
October 27, 1995, Dart filed a motion for summary judgment.
Challenge to RSH Settlement by Herbert H. Haft
On November 6, 1995, Herbert H. Haft filed a lawsuit captioned Herbert H.
Haft v. Dart Group Corporation, et al., Del. Ch., Civ. A. No. 14685, in the
Delaware Court of Chancery for New Castle County naming as defendants Dart, all
of its directors except Herbert H. Haft, RGL, John L. Mason, Ellen V. Sigal and
Michael Ryan. Herbert H. Haft seeks a judgment (i) declaring the RSH
Settlement unlawful, hence null and void; (ii) declaring either that 172,730
shares of Class B Common Stock belong to him, were wrongfully sold by Ronald S.
Haft to Dart, and that Herbert H. Haft is entitled to restitution of such
shares or, alternatively, that his purportedly irrevocable proxy on the 172,730
shares continues to be valid; (iii) declaring that Herbert H. Haft retains
voting control of Dart or, at a minimum, 34.55% of Dart's voting power; (iv)
declaring that the Trust Shares may not be lawfully voted; and (v)
96
<PAGE> 97
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
declaring that defendants John L. Mason, Ellen V. Sigal and Michael Ryan are
not duly elected directors of Dart.
Dart's position is that this lawsuit, except for the declaration sought
that defendants John L. Mason, Ellen V. Sigal and Michael Ryan are not duly
elected directors of Dart, is without merit. Herbert H. Haft disagrees with
Dart's position.
Standstill Order
In connection with the legal challenges to the RSH Settlement raised by
RGL and Herbert H. Haft, on December 6, 1995, the Delaware Court of Chancery
entered a Standstill Order (the "Standstill Order"), which restricts certain
actions by Dart. Without further order of the court, Dart may not (i) change
its Certificate of Incorporation or Bylaws; (ii) change the current composition
of Dart's Board of Directors (Herbert H. Haft, Ronald S. Haft, Larry G.
Schafran, Bonita A. Wilson and Douglas M. Bregman) or any of its subsidiaries;
(iii) change the current Haft family officers of Dart or any of its
subsidiaries; or (iv) issue any additional securities of Dart or any of its
subsidiaries (except employee stock options issued in the ordinary course of
business). In addition, without first giving Herbert H. Haft and the other
parties to the Section 225 Action not less than seven days written notice, Dart
may not take any extraordinary actions, including but not limited to actions
that would result in (a) the liquidation of Dart or any of its subsidiaries,
(b) the sale of any major subsidiary of Dart or (c) the disadvantage of any
Class B stockholder of Dart through any debt transaction. For purposes of the
Standstill Order, the phrase "extraordinary actions" means any transaction,
contract or agreement, the value of which exceeds $3 million.
Other
Dart and Trak Auto are defendants in litigation (Rollerson v. Dart Group
Corporation, et al., D.D.C. Civ. Action No. 95-CV-1172) involving a former
employee of Trak Auto alleging sexual harassment. The suit claims $30 million
in compensatory and punitive damages. Dart and Trak Auto have filed a motion
for summary judgment and are awaiting a decision. While both Dart and Trak
Auto are defending the suit vigorously and have made no accrual for this
litigation, it is not possible to assess the likelihood of plaintiff's
establishing liability against Dart or Trak Auto, nor predict the amount of
damages that might be awarded in the event the claim succeeds.
In the normal course of business, the Company is involved in various
claims and litigation. In the opinion of management, liabilities, if any, will
not have a material effect upon the consolidated financial condition and
results of operations of the Company.
The Company recorded expenses of approximately $7.2 million and $18.4
million during the years ended January 31, 1996 and 1995, respectively, for
legal expenses incurred during these years. These amounts include estimated
accrued expenses of approximately $7.4 million that likely will be necessary to
resolve all litigation discussed above.
97
<PAGE> 98
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
NOTE 9 - CREDIT FACILITIES
On February 6, 1995, Dart entered into a $10 million revolving credit
agreement with Trak Auto. The credit agreement was 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 the rate
may change from time to time, plus one percent (1%). This credit agreement
expires on May 1, 1996.
The Company has two fully secured irrevocable standby letters of credit
for $5,000,000 and $900,000, respectively. These credit facilities are
required by underwriters to provide coverage for Directors and Officers
Liability insurance. The credit facilities were issued on April 5, 1995, the
$5,000,000 facility will expire on July 4, 1996 and the $900,000 facility will
expire March 31, 1997. Also, Trak Auto currently has a $750,000 commercial
letter of credit facility with NationsBank for use in importing of merchandise.
At January 31, 1996, there had been no borrowings under the credit agreement
and no borrowings under the letters of credit.
NOTE 10 - CABOT-MORGAN REAL ESTATE COMPANY
CMREC owns interests in real estate joint ventures (described below). As a
result of the RSH Settlement, CMREC no longer controls the real estate joint
ventures and has substantially reduced its economic interest so that it
receives 1% of the ordinary income and losses generated by the joint ventures.
Ronald S. Haft and entities controlled by him receive the remaining 99%. In
addition, Dart and CMREC have agreed to the sale of the five properties which
CMREC owns through joint ventures with Haft-owned entities. The sales are to
occur on terms to be arranged by Ronald S. Haft prior to October 6, 2000. Under
terms of the RSH Settlement, CMREC will retain the first $2.0 million of its
share of proceeds from such sales and, if certain conditions relating to the
RSH Settlement are satisfied, the next $47.0 million of CMREC's share of
proceeds will be payable to Ronald S. Haft. Ronald S. Haft is required to
apply his share of the sale proceeds toward payment of the $11.6 Million Note.
As a result of these arrangements, the real estate joint ventures are no longer
consolidated with the Company's financial statements after October 5, 1995. In
addition, Dart recorded a loss of $14.6 million for the write-down
98
<PAGE> 99
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
of the CMREC partnership interest to fair value. In the event the RSH
Settlement is not upheld, the accounting treatment reflected in the
accompanying financial statements could be significantly affected.
As general partner in these joint ventures, CMREC could be liable for
mortgages of the joint ventures if they were to default on the mortgages. These
mortgages were approximately $80.0 million at January 31, 1996.
CPI, which is controlled by members of the Haft family, provided certain
services to the shopping centers. CPI charged the four properties for
management and related services $1,053,000, $1,955,000, and $3,264,000 in
fiscal 1996, 1995 and 1994, respectively.
Trak Auto, Crown Books, Shoppers Food and Total Beverage have leases in
several of the properties in which CMREC has an interest.
NOTE 11 - RESTRUCTURING AND STORE CLOSING CHARGES
Trak Auto
Trak Auto continually evaluates its store operations and the need to
close, relocate, or expand stores or convert existing Classic Trak stores into
Super Trak or Super Trak Warehouse stores. Trak Auto recognizes store closing
costs when management determines to close a store. In prior years, Trak Auto
has also recognized the anticipated costs for closing, relocating, expanding
and converting existing stores to the Super Trak and Super Trak Warehouse
concept. The costs associated with store closings and restructuring efforts
are primarily unrecoverable lease obligations (rent, real estate taxes and
common area charges, net of estimated sublease income) and the book value of
leasehold improvements as of the actual or estimated closing date of a store.
As of February 3, 1996, Trak Auto had reserves of $4,491,000 for store
closings and restructurings. The restructuring reserve relates to 21 stores
that have been closed or converted into Super Trak or Super Trak Warehouse
stores and an additional 15 stores identified to be closed or converted which
have remained open. The closed store reserve relates to eight Classic Trak
stores that were closed apart from Trak Auto's restructuring efforts. The
activity in the closed store and restructuring reserves during the last two
years follows:
99
<PAGE> 100
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Reserve, beginning of year $ 6,945,000 $ 7,797,000
Less: Net provision recorded/(Charges) (2,454,000) (852,000)
----------- -----------
Reserve, end of year $ 4,491,000 $ 6,945,000
=========== ===========
</TABLE>
Included in the activity for fiscal 1996 is an additional closed store
and restructuring reserve net provision of $673,000.
The lease obligation allocable to related party leases is approximately
$939,000. The closed store and restructuring reserves as of February 3, 1996
are expected to be utilized as follows:
<TABLE>
<CAPTION>
Fiscal
Year Total
------ -----
<S> <C>
1997 $1,324,000
1998 1,027,000
1999 976,000
2000 372,000
2001 327,000
2002-2005 465,000
----------
Total $4,491,000
==========
</TABLE>
The amount recorded for future lease obligations has been estimated at
95% of the total lease obligation after the closing date because Trak Auto
believes that certain alternatives (subleasing and favorable lease buy-outs) to
abandonment may be available. Since the recorded reserve represents an
estimate based upon anticipated closing dates and the book value of the
leasehold improvements at the time the store is closed, the ultimate amount of
costs associated with store closing is subject to change in the future.
Trak Auto will continue to evaluate the performance and future viability
of its stores and may close or convert additional stores in the future.
100
<PAGE> 101
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
Crown Books
Restructuring Reserves
In fiscal years 1993 and 1994, Crown Books determined that a number of
the smaller Crown Books stores were not competitive in the changing market
environment evidenced by an industry movement to larger stores. Consequently,
Crown Books recorded restructuring charges totaling $12,800,000 during the two
years for the anticipated costs for closing, relocating, expanding and
converting existing stores to the Super Crown Books concept. The costs
primarily represent unrecoverable lease obligations (net of estimated sublease
income) and the book value of leasehold improvements from the estimated closing
date. The activity in the restructuring reserves during the last two years
follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Restructuring Reserve, beginning of year $ 10,515,000 $ 11,960,000
Costs charged against the reserve (1,439,000) (1,445,000)
Reversal of reserves (2,051,000) -
------------ ------------
Restructuring Reserve, end of year $ 7,025,000 $ 10,515,000
=========== ============
</TABLE>
In fiscal 1996, Crown Books reversed a portion of the restructuring
reserve as a result of (i) stores that were closed under negotiated lease
settlements that were more favorable than expected, (ii) the postponement of
certain store closings, and (iii) management's decision not to close one store
that had been scheduled for closing.
The remaining restructuring reserve relates to 27 stores, of which 10
have been closed as of February 3, 1996, with lease obligations ranging from
three to 108 months. The lease obligation allocable to related party leases is
approximately $623,000. The restructuring reserve as of February 3, 1996 is
expected to be utilized as follows:
101
<PAGE> 102
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Leasehold
Fiscal Lease Improvements
Year Obligations & Fixtures Total
- ------ ----------- ------------ -----------
<S> <C> <C> <C>
1997 $ 760,000 $ 76,000 $ 836,000
1998 1,425,000 704,000 2,129,000
1999 1,246,000 - 1,246,000
2000 891,000 - 891,000
2001 629,000 - 629,000
2002-2005 1,294,000 - 1,294,000
----------- ------------ -----------
Total $ 6,245,000 $ 780,000 $ 7,025,000
=========== ============ ===========
</TABLE>
Since the recorded restructuring reserve represents an estimate based
upon anticipated closing dates and the book value of the leasehold improvements
at the time the store is closed, the actual amount of costs associated to store
closing in the future may be different from the reserve.
Store Closing Reserve
Crown Books continually evaluates its store operations and the need to
close stores that do not perform satisfactorily. Crown Books recognizes store
closing costs when management determines to close a store. The costs primarily
represent unrecoverable lease obligations (net of estimated sublease income)
and the book value of leasehold improvements from the estimated closing date.
The activity in the closed store reserves during the last two years is as
follows:
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Closed Store Reserve, beginning of year $ 20,241,000 $ 1,000,000
Add:
Closed store charges recorded - 19,768,000
Less:
Charges against the reserve (2,648,000) (527,000)
Reversal of reserves (6,743,000) -
------------ -------------
Closed Store Reserve, end of year $ 10,850,000 $ 20,241,000
============ =============
</TABLE>
102
<PAGE> 103
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
In fiscal 1996, Crown Books reversed a portion of the closed store
reserve as a result of (i) stores that were closed under negotiated lease
settlements that were more favorable than expected, (ii) the postponement of
certain store closings, and (iii) management's decision not to close one store
that had been scheduled for closing.
The remaining closed store reserve relates to 112 stores, of which 31
have been closed as of February 3, 1996, with lease obligations ranging from
one to 92 months. The lease obligation allocable to related party leases is
approximately $1,674,000. The closed store reserve as of February 3, 1996 is
expected to be utilized as follows:
<TABLE>
<CAPTION>
Leasehold
Fiscal Lease Improvements
Year Obligations & Fixtures Total
- ------ ----------- ------------ -----------
<S> <C> <C> <C>
1997 $ 2,111,000 $ 779,000 $ 2,890,000
1998 2,118,000 665,000 2,783,000
1999 2,235,000 463,000 2,698,000
2000 835,000 - 835,000
2001 710,000 - 710,000
2002-2005 934,000 - 934,000
----------- ------------ -----------
Total $ 8,943,000 $ 1,907,000 $10,850,000
=========== ============ ===========
</TABLE>
Since the recorded closed store reserve represents an estimate based
upon anticipated store closing dates and the book value of the leasehold
improvements at the time the store is closed, the actual amount of costs
associated to store closing is subject to change in the future and may be
different from the reserve. Crown Books will continue to evaluate the
performance and future viability of its remaining stores and may close
additional stores in the future. Crown Books has not recorded any reserve for
any such possible future store closings.
Total Beverage
Due to poor operating performance, the Bull Run store was closed during
the fourth quarter of fiscal 1995. The store was located in CMREC's Bull Run
Plaza. Dart reserved approximately $2,800,000 for the future lease obligations
and a portion of the fixtures net of recoveries expected through CMREC. As a
result of a negotiated settlement of the lease obligation, Dart reversed
$2,420,000 of this reserve during the year ended January 31, 1996.
103
<PAGE> 104
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
In addition, management of Dart and Total Beverage concluded that a
store opened during fiscal 1996 would be closed during fiscal 1997. The
decision was based on the store's disappointing sales volume. Accordingly,
Total Beverage recorded a closed store reserve of approximately $3.0 million,
primarily for future lease obligations and the write-off of leasehold
improvements and a portion of the fixtures.
NOTE 12 - MINORITY INTERESTS
The $69,427,000 of minority interests reflected in the Consolidated
Balance Sheet as of January 31, 1996 represents the minority 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, 1995, also included the portion of real estate joint
ventures equity owned by Haft family partnerships (CMREC owned the majority
interest in these partnerships) and the portion of Shoppers Food equity owned
by the shareholders of Shoppers Food (other than Dart). No such minority
interests for CMREC and Shoppers Food are included as of January 31, 1996.
Income attributed to the minority shareholders of Trak Auto was $2,351,000,
$3,569,000 and $27,000 for the years ended January 31, 1996, 1995 and 1994,
respectively. Income (loss) attributed to the minority shareholders of Crown
Books was $1,802,000, $(9,428,000), and $(101,000) for the years ended January
31, 1996, 1995 and 1994, respectively. Income attributed to the minority
ownership of Shoppers Food for the year ended January 31, 1995 and 1994 was
$1,050,000 and $6,203,000, 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 CMREC real estate joint ventures
was $494,000, $574,000, and $383,000 for the years ended January 31, 1996, 1995
and 1994, respectively (no income for the real estate joint ventures was
attributed to the minority interest for periods after October 5, 1995).
NOTE 13 - STOCK OPTION PLANS
Dart Group Corporation 1992 Stock Option Plan
Dart has adopted a stock option plan (the "1992 Plan") for officers, key
employees and directors. The total number of shares that may be issued under
the 1992 Plan is 400,000 and the 1992 Plan will terminate June 2, 2002. Options
granted pursuant to the 1992 Plan may be incentive stock options, as defined in
Section 422 of the Internal Revenue Code or may be non-qualified options.
Based on options outstanding at January 31, 1996, the maximum shares
104
<PAGE> 105
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
issuable under options exercisable over the next five years are: 55,724 in
1997, 66,842 in 1998, 64,492 in 1999, 46,642 in 2000, and 25,950 in 2001.
Information concerning stock options under the 1992 Plan is as follows:
<TABLE>
<CAPTION>
No. of Option Price
Shares Per Share
-------- ---------------
<S> <C> <C>
Outstanding at January 31, 1994 55,750 $ 74.00 - 89.65
Granted 6,000 73.00
Exercised (2,333) 74.00 - 81.50
Expired (5,067) 74.00 - 81.50
-------- ---------------
Outstanding at January 31, 1995 54,350 73.00 - 89.65
Granted 19,400 73.00 - 85.75
Exercised (233) 73.00 - 81.50
Expired (11,750) 73.00 - 89.65
-------- ---------------
Outstanding at January 31, 1996 61,767 $ 73.00 - 89.65
======== ===============
</TABLE>
Options for 334,167 shares remain available for grant and 38,580 options
were exercisable at January 31, 1996. Employee stock options granted by the
Board of Directors (pending court approval) in December 1994 were approved by
the Delaware Court of Chancery in April 1995.
Dart Group Corporation 1981 Stock Option Plan
Dart has a 1981 stock option plan (the "1981 Plan") in which directors,
officers and key employees participate. Based on outstanding options, on
January 31, 1996 the maximum number of shares of Class A Common Stock subject
to options exercisable in each of the next three years is 40,000 in 1997,
20,000 in 1998 and 10,000 in 1999. The 1981 Plan terminated December 4, 1991
and no more options may be granted under the 1981 Plan.
105
<PAGE> 106
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
Information concerning stock options under the 1981 Plan is as follows:
<TABLE>
<CAPTION>
No. of Option Price
Shares Per Share
-------- ---------------
<S> <C> <C>
Outstanding at January 31, 1994 82,500 $ 65.00 -104.50
Exercised (2,582) 65.00 - 90.00
Expired (18,418) 67.25 -104.50
-------- ---------------
Outstanding at January 31, 1995 61,500 71.50 -104.50
Exercised - -
Expired (21,500) 84.97 - 99.00
-------- ---------------
Outstanding at January 31, 1996 40,000 $ 71.50 -104.50
======== ===============
</TABLE>
At January 31, 1996 there were 40,000 options exercisable under the
1981 Plan.
The Board of Directors of Dart has authorized certain officers and
directors of Dart to apply for loans from Dart to exercise their vested stock
options. Under the plan approved by the Board of Directors, the loans must
bear interest at the prime rate, adjusted annually, must be secured by all of
the stock acquired by exercise of the options, must be repaid out of the first
proceeds of sale of stock or at the end of three years, whichever is earlier,
and the borrower must demonstrate to Dart's chief financial officer both that
it would be difficult to dispose of the number of shares on the open market and
that he or she presents a reasonable credit risk to Dart. The Board of
Directors for both Trak Auto and Crown Books have authorized such loans to
certain officers and directors of Trak Auto and Crown Books.
1983 Executive Non-Qualified Stock Option Plan
The discussion in the next paragraph regarding the 1983 Plan (defined
below) is qualified in its entirety by the succeeding paragraph, which
discusses Dart's challenge to the validity of the 1983 Plan and the options
granted thereunder.
In 1983, the Board of Directors of Dart voted to approve an executive
non-qualified stock option plan (the "1983 Plan"), the terms of which provide
that a total of 199,500 shares of Class A Common Stock may be issued. Options
for 177,500 shares were purportedly granted under the 1983 Plan in 1983. The
exercise price at the time of the grant was equal to 100% of the fair market
106
<PAGE> 107
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
value ($82.50 per share) of the Class A Common Stock. The 1983 Plan provides
that in the event of a "major business change" the exercise price of options
held by persons who are employees of Dart on the day immediately preceding such
a change is reduced to $20.00 per share. The Board of Directors previously
determined that the sale of Dart's drug store division in 1985 constituted a
major business change under the terms of the amended version of the 1983 Plan
adopted in September 1983. According to this determination, outstanding
options for 154,400 shares would be exercisable at $20.00 per share and options
for 3,990 shares would be exercisable at $82.50 per share. Options granted
under the 1983 Plan purport to be exercisable until 1998. No options were
exercised in fiscal 1996, 1995 and 1994.
Robert M. Haft has attempted to exercise options to purchase 120,000
shares under the 1983 Plan. The Executive Committee has undertaken a legal
review of the 1983 Plan. Based upon this legal review, the Executive Committee
has determined to cause Dart to contest the validity of the options purportedly
granted to Robert Haft under the 1983 Plan, on the grounds, inter alia, that
the grants did not conform with Delaware law, that they are a waste of
corporate assets, and that they were obtained by interested directors in breach
of their fiduciary duties to Dart, without the approval of fully-informed,
disinterested directors. Robert Haft has instituted litigation to enforce his
alleged options under the 1983 Plan. See Note 8. Dart makes no assurance
regarding the ultimate resolution to its challenge to the validity of these
options.
1987 Executive Non-Qualified Stock Option Plan
The discussion in the next paragraph regarding the 1987 Plan (defined
below) is qualified in its entirety by the succeeding paragraph, which
discusses Dart's challenge to the validity of the 1987 Plan and the options
granted thereunder.
In September 1987, the Board of Directors of Dart voted to approve the
1987 Executive Non-Qualified Stock Option Plan (the "1987 Plan"). The terms of
the 1987 Plan provide for the granting of options to purchase, in the
aggregate, 199,500 shares of Class A Common Stock and the purported granting to
each of Herbert H. Haft and Robert M. Haft of options to purchase 99,750 shares
of Class A Common Stock at an exercise price of $148.50 per share, or fair
market value at the time of the grant, which exercise price is reduced to $36
per share in the event of a "major business change". On December 9, 1987, the
Board of Directors adopted a resolution stating that these options are to
107
<PAGE> 108
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
be canceled and new options in the same amount issued with an exercise price of
$68.25 per share, which would be reduced to $16.40 per share in the event of a
"major business change", as defined under the 1987 Plan. Options granted under
the 1987 Plan purportedly are exercisable on or after April 1, 1988 and prior
to September 30, 2002. The options are only transferable by will or by the
laws of descent and distribution.
Robert M. Haft has attempted to exercise options under the 1987 Plan.
The Executive Committee has undertaken a legal review of the 1987 Plan. Based
upon this legal review, the Executive Committee has determined to cause Dart to
contest the validity of 1987 Plan and the option grants thereunder, on the
grounds, inter alia, that the grants did not conform with Delaware law, and
that they were obtained by interested directors and Haft family members in
breach of their fiduciary duties to Dart, without the approval of fully
informed, disinterested directors.
Robert M. Haft has initiated litigation to enforce his alleged options
under the 1987 Plan. In his complaint, Robert M. Haft contends that Dart's
June 30, 1988 purchase of its interest in Shoppers Food and Robert M. Haft's
June 1993 termination each constituted a major business change under the 1987
Plan allowing him to exercise his options for a price of $16.40 per share. See
Note 8. Dart makes no assurance regarding the ultimate resolution to its
challenge to the validity of these options.
Stock options granted for Trak Auto would not, if exercised, have a
material dilutive effect on Dart's equity interest.
Stock options granted for Crown Books would, if all were exercised,
reduce Dart's ownership percentage to 48.6%.
NOTE 14 - EMPLOYEES' PROFIT-SHARING PLAN
Dart, Trak Auto and Crown Books maintain separate non-contributory
profit-sharing plans for all full-time employees with one year of continuous
employment. Annual contributions to the plans are based on a discretionary
percentage of net income, as defined in the respective plan, and as determined
by the respective board of directors. Contributions are allocated to
individual employees based on each employee's salary in relation to the total
salaries of all eligible employees. Contributions paid or accrued for Dart's,
Trak Auto's and Crown Books' plans for the years ended January 31, 1996, 1995
and 1994 were $420,000, $1,040,000, and $115,000, respectively.
108
<PAGE> 109
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
In June 1995, the Company established a 401(k) retirement plan for all
employees projected to work 1,000 hours and 90 days of continuous employment.
The Company is obligated to contribute an amount equal to 25% of the employees'
deferrals up to 6%. The Company's contribution was $330,000 for the year ended
February 3, 1996.
NOTE 15 - 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, Dart's interest in Trak Auto increased to
68.0% at that time. The repurchase has been accounted for as a step
acquisition, resulting in a decrease in minority interest of approximately
$4,994,000 and an increase in goodwill of $1,910,000, which is being amortized
over 10 years.
109
<PAGE> 110
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
NOTE 16 - SEGMENT INFORMATION
The Company's four primary business segments are retail specialty, retail
grocery, a real estate company and a financial company. Revenue, income from
operations and depreciation for Shoppers Food is included through May 28, 1994
and for CMREC through October 6, 1995. The following is a summary of selected
consolidated information for the business segments during January 31, 1996,
1995 and 1994:
<TABLE>
<CAPTION>
(in thousands)
Year Ended January 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Retail, specialty $ 631,011 $ 658,381 $ 614,558
Retail, grocery and beverage 29,508 284,706 739,081
Real estate 13,426 20,645 19,011
Financial company - 429 2,588
Other 4,191 3,267 1,305
------------ ------------ ------------
$ 678,136 $ 967,428 $ 1,376,543
============ ============ ============
Income from operations:
Retail, specialty (3) $ 18,178 $ (10,308) $ (670)
Retail, grocery and beverage 373 (5,013) 14,680
Real estate 6,356 9,722 8,458
Financial company (1) - 384 2,322
Other (2) (32,603) (67,954) (11,121)
------------ ------------ ------------
Total operating profit (7,696) (73,169) 13,669
Interest income 8,507 7,457 6,813
Interest expense (13,494) (14,009) (13,513)
------------ ------------ ------------
Earnings (loss) before
unusual item and
income taxes $ (12,683) $ (79,721) $ 6,969
============ ============ ============
Identifiable assets:
Retail, specialty $ 368,352 $ 400,801 $ 389,426
Retail, grocery and beverage 8,382 7,314 136,839
Real estate - 168,802 172,808
Financial company - - 226,803
Other (2) 93,831 129,572 (122,978)
------------ ----------- ------------
$ 470,565 $ 706,489 $ 802,898
============ =========== ============
</TABLE>
110
<PAGE> 111
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
(in thousands)
Year Ended January 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Depreciation and Amortization
Expense:
Retail, specialty $ 11,707 $ 11,180 $ 10,742
Retail, grocery and beverage 223 2,453 11,587
Real estate 3,112 4,528 4,338
Other (2) 411 925 1,355
------------ ------------ ------------
$ 15,453 $ 19,086 $ 28,022
============ ============ ============
Capital Expenditures:
Retail, specialty $ 14,651 $ 11,669 $ 27,403
Retail, grocery and beverage 887 489 6,152
Real estate - 2,457 12,491
Other 1,150 171 193
------------ ------------ ------------
$ 16,688 $ 14,786 $ 46,239
============ ============ ============
</TABLE>
(1) Includes income from bankers' acceptances.
(2) Includes Dart and consolidating eliminations and adjustments.
(3) Includes reversal of closed store and restructuring reserves.
111
<PAGE> 112
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995, AND 1994
NOTE 17 - INTERIM FINANCIAL DATA (Unaudited)
Selected interim financial data for the fiscal years ended 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
-- In Thousands Except Per Share Data --
Three months ended: JANUARY 31, OCTOBER 31, JULY 31, APRIL 30,
1996 1995 1995 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 199,333 $ 161,484 $ 164,489 $ 152,830
Gross profit (1) 45,751 33,936 33,852 32,486
Net Income (Loss) $ (501) $ (15,328) $ 1,492 $ 913
========== ========== ========== ==========
Earnings per share
Net Income (Loss) (3) $ ( .57) $ (8.16) $ .66 $ .31
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Three months ended: JANUARY 31, OCTOBER 31, JULY 31, APRIL 30,
1995 1994 1994 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue $ 197,681 $ 169,650 $ 238,536 $ 361,561
Gross profit (1) 50,839 35,828 47,987 66,942
Net Income (Loss) (2) $ (9,155) $ (68,597) $ 2,863 $ 1,097
========== ========= ========= ==========
Earnings per share
Net Income (Loss) (3) $ (4.87) $ (36.91) $ 1.34 $ .52
========== ========= ========= ==========
</TABLE>
(1) After deduction for cost of sales, store occupancy and warehousing
expenses.
(2) After deduction in 3rd Quarter for Pennsy Leases, Crown Books store
closing and reserve, Robert M. Haft judgment and legal accruals.
(3) The sum of these amounts may not equal the annual amount because of the
changes in the average number of shares outstanding during the year.
112
<PAGE> 113
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Inapplicable.
113
<PAGE> 114
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of Dart are as follows.
<TABLE>
<CAPTION>
Name Age Position with the Registrant
- ---- --- ----------------------------
<S> <C> <C>
Herbert H. Haft 75 Chairman of the Board of Directors
and Chief Executive Officer
Dennis N. Weiss 50 Executive Vice President, Real Estate
Robert F. Ampula 55 Senior Vice President of Research Planning
and Information Services
Elliot R. Arditti 41 Senior Vice President, Secretary and
Corporate Counsel
Bonita A. Wilson 54 Director
Douglas M. Bregman 46 Director
Larry G. Schafran 57 Director
Ronald S. Haft 37 Director
</TABLE>
Subject to the Standstill Order, directors are elected annually by the
holders of the Class B Common Stock. All of the foregoing officers have served
in the positions stated in the previous table for more than five years, except
as stated below. Subject to the Standstill Order, officers serve at the
discretion of the Board of Directors. For a discussion of the Standstill
Order, see Item 3 - Legal Proceedings.
Herbert H. Haft, the founder of Dart, has been Chief Executive Officer and
Chairman of the Board of Dart since 1960. He was Co-Chairman or Chairman of
the Board of Directors of Crown Books from its organization until December
1991, when he became Chairman of Crown Books previous Executive Committee. Mr.
Haft became Chairman of the Board of Directors of Crown Books, again, in June
1993. Mr. Haft has been Chairman of the Board of Directors and Chief Executive
Officer of Trak Auto since its organization in March 1983. Mr. Haft has been a
director of Shoppers Food since April 1989. Herbert H. Haft is or claims to
be a general partner in approximately 15 partnerships that are
debtors-in-possession under Title 11, Chapter 11 of the U.S. Bankruptcy Code.
Dennis N. Weiss joined Dart in August 1981, as Director of Real Estate.
He was appointed Vice President, Real Estate, in June 1983, Senior Vice
President, Real Estate, in September 1986, and Executive Vice President, Real
Estate in December 1987.
114
<PAGE> 115
Item 10. Directors and Executive Officers of the Registrant (Continued)
Elliot R. Arditti has been Senior Vice President, Secretary and
Corporate Counsel since June 1995. He joined Dart in January 1984 as Associate
Counsel. He was appointed Assistant Vice President, Corporate Counsel in
September 1986 and Vice President, Corporate Counsel in December 1987.
Robert F. Ampula rejoined Dart in November 1988 as Vice President,
Information Services, a position he held from January 1985 until July 1986. In
December 1995, Mr. Ampula was made Senior Vice President of Research, Planning
and Information Services.
Bonita A. Wilson has been a retailing executive with Dalton Brody since
October 1993. Ms. Wilson was a Sales Manager with Saks Jandel from January
1994 until June 1994 and prior to that she was a retailing executive with the
May Company. Ms. Wilson serves on the board of directors of Wedgewood
Financial Management, Inc. Ms. Wilson was elected to serve as a director of
each of Dart, Trak Auto and Crown Books in June 1993.
Douglas M. Bregman is a partner in the law firm of Bregman, Berbert &
Schwarts, specializing in commercial real estate law. Mr. Bregman is also an
Adjunct Professor of Law at the Georgetown University Law Center. Mr. Bregman
was elected to serve as a director of each of Dart, Trak Auto and Crown Books
in June 1993.
Larry G. Schafran is managing general partner of L.G. Schafran and
Associates, a New York based investment advisory firm, and is the Chairman of
Delta Omega Technologies, Inc. and is a director of Publicker Industries, Inc.,
Capsure Holdings, Corp. and OXIGENE, Inc. Mr. Schafran has previously held the
positions of vice president and director of Webb & Knapp, Inc. and its
successor General Property Corp. Mr. Schafran was elected a director of Dart,
Trak Auto and Crown Books on December 20, 1993.
Ronald S. Haft was Dart's President and Chief Operating Officer from
August 1, 1993 until November 1995 when he resigned all his positions as a
director and officer of Dart and all of its subsidiaries. The Standstill Order
(see Item 3 - Legal Proceedings) contemplates that Ronald S. Haft will continue
as a director of Dart while that Standstill Order is in effect. (Herbert H.
Haft contends that Ronald S. Haft is no longer a director). Prior to joining
Dart, Mr. Haft was President of Combined Properties, Inc., a real estate
management company, from 1984, and continues to hold that position. Mr. Haft
was elected a director of Dart, Trak Auto, and Crown Books on July 28, 1993.
Subsequently, Mr. Haft was elected a director of Shoppers Food. Ronald S. Haft
is a general partner in approximately 15 partnerships that are
debtors-in-possession under Title 11, Chapter 11 of the U.S. Bankruptcy Code.
Pursuant to the terms of the Bylaws of Dart, the term of each director
expires at the 1996 Annual Meeting of Stockholders or until a successor is
115
<PAGE> 116
Item 10. Directors and Executive Officers of the Registrant (Continued)
elected and qualified. The Standstill Order provides, however, that until
further order of the Delaware Chancery Court, Dart may not (nor may it
recognize any stockholder action that would), (i) change the current
composition of the board of directors of Dart or any of its subsidiaries or
(ii) change the current Haft family officers of Dart or any of its
subsidiaries. See Item 3. - Legal Proceedings.
The other officers of Dart are:
Ronald T. Rice joined Dart in October 1981. He was appointed Assistant
Vice President in 1987 and Controller in December 1992. Mr. Rice was appointed
Assistant Vice President of Crown Books in December 1994.
Terrance J. Sharp joined Dart in June 1995 as Vice President of Human
Resources. Prior to joining Dart, Mr. Sharp was Director of Personnel
Operations at Circuit City Stores, Inc. from 1988 to June 1995.
Kenneth M. Sobien joined Dart in August 1988. He was appointed
Assistant Treasurer in July 1994.
Herbert H. Haft is the father of Ronald S. Haft. There is no other
family relationship between any director and executive officer of Dart.
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires Dart's officers and directors, and persons who beneficially own
more than ten percent of a registered class of Dart's equity securities, to
file reports of ownership of Dart's securities and changes in such ownership
with the Securities and Exchange Commission (the "SEC"). Officers, directors
and ten percent shareholders are required by SEC regulations to furnish Dart
with copies of all Section 16(a) forms they file.
Based solely upon its review of such forms received by it, Dart believes
that during the fiscal year ended January 31, 1996, all filing requirements
applicable to its officers, directors and ten percent shareholders were
complied with.
116
<PAGE> 117
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth in summary form all compensation for all
services rendered in all capacities to Dart and its subsidiaries for the three
years ended January 31, 1996 to (i) the Chief Executive Officer of Dart, (ii)
the members of the Executive Committee of Dart, (iii) the other most highly
compensated executive officer of Dart and (iv) two former executive officers of
Dart who would have been among Dart's five most highly compensated current
executive officers had they not resigned (collectively, the "Named Executive
Officers").
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
----------------------------- -------------
Other All
Annual Stock Other
Name of Compen- Options Compen-
Principal Fiscal sation Granted sation
Position Year Salary($) Bonus($) ($) (1) (#) ($) (2)
- --------------- ---- --------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Herbert H. Haft 1996 1,531,000 - 69,000(3) - 30,000
Chief Executive 1995 1,531,000 1,334,000 76,000(4) - 25,000(5)
Officer 1994 1,491,000 3,000 386,000(6) 50,000 37,000
Dennis N. Weiss 1996 301,000 - 8,650 1,000
Executive Vice 1995 245,000 - - - 2,000
President 1994 240,000 - - 2,825 5,000
Larry G.Schafran 1996 - - 1,059,500(7) 5,500 -
Chairman of the 1995 - - 533,500(8) 5,000 -
Executive
Committee (18)
Bonita A. Wilson 1996 - - 205,800(9) 5,500 -
Member of the 1995 - - 118,000(10) 5,500 -
Executive
Committee(18)
Douglas M. 1996 - - 231,000(11) 5,500 -
Bregman 1995 - - 128,100(12) 5,500 -
Member of the
Executive
Committee (18)
</TABLE>
117
<PAGE> 118
Item 11. Executive Compensation (Continued)
Former executive officers
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Ronald S. Haft 1996 328,000 - 37,000(14) - -
President (13) 1995 400,000 50,000 63,000(15) - 15,000
1994 185,000 3,000 128,000(16) 30,000(11) -
Robert A. Marmon 1996 - - 540,000 - -
Chief Financial 1995 - - 195,000 - -
Officer (17)
</TABLE>
(1) Excludes perquisites and other personal benefits, unless the aggregate
amount of such compensation is at least $50,000 or 10% of the total
annual salary and bonus reported for the Named Executive Officer.
(2) Includes allocations to the accounts of the Named Executive Officers
pursuant to the profit-sharing and 401(k) plans of the Company and,
with respect to Herbert H. Haft in each fiscal year, $30,000 imputed
interest on life insurance loans.
(3) Includes fees received as a director of Dart ($15,000), Trak Auto
($15,000), Crown Books ($15,000) and Dart Financial ($2,500), auto
usage ($16,000) and health, life and disability insurance ($5,000).
(4) Includes fees received as a director of Dart ($15,000), Trak Auto
($15,000), Crown Books ($15,000) and Dart Financial ($10,000), auto
usage ($16,000) and health, life and disability insurance ($5,000).
(5) Excludes $147,000, which represents the payments by Dart to Gloria
Haft and the cost to Dart of certain health benefits for her. Gloria
Haft ceased to be an employee of Dart in June 1993. Dart continued to
pay her compensation at the rate, and provide her with benefits and
health insurance as, provided in her employment agreement with the
Company until October 1994. Gloria Haft contends that a contract
between Herbert H. Haft and Gloria Haft, requires that if the Company
failed to continue paying Gloria Haft under her employment agreement
before May 31, 2004, then Herbert H. Haft would pay Gloria Haft the
amounts she would have been entitled to receive under the employment
agreement. A controversy exists concerning whether Gloria Haft is
entitled to any payments and, if so, whether these payments and
benefits were obligations of Dart or Herbert H. Haft. Herbert H. Haft
denies that these payments and benefits are his obligations.
(6) Includes fees received as a director of Dart ($15,000), Trak Auto
($12,500), Crown Books ($12,500), Dart Financial ($10,000) and
Shoppers Food ($320,000) and auto usage ($16,000).
118
<PAGE> 119
Item 11. Executive Compensation (Continued)
(7) Includes fees received as a member of the Executive Committee of Dart
($325,000), Trak Auto ($325,000) and Crown Books ($325,000); fees
received as a director of Dart ($19,200), Trak Auto ($17,200) and
Crown Books ($16,700); apartment usage ($26,400) and health insurance
($5,000).
(8) Includes fees received as a member of the Executive Committee of Dart
($157,600), Trak Auto ($92,400) and Crown Books ($92,400); fees
received as a member of the Special Litigation Committee of Dart
($59,300), Trak Auto ($13,200) and Crown Books ($59,300); fees
received as a director of Dart ($17,000), Trak Auto ($17,000) and
Crown Books ($17,000); apartment usage ($6,600) and health insurance
($1,700).
(9) Includes fees received as a member of the Executive Committee of Dart
($45,100), Trak Auto ($45,100) and Crown Books ($45,100); fees
received as a director of Dart ($22,500), Dart Financial ($2,500),
Trak Auto ($20,500) and Crown Books ($20,000); and health insurance
($5,000).
(10) Includes fees received as a member of the Executive Committee of Dart
($20,400), Trak Auto ($12,500) and Crown Books ($12,500); fees
received as a director of Dart ($20,300), DGFC ($10,000), Trak Auto
($20,300) and Crown Books ($20,300); and health insurance ($1,700).
(11) Includes fees received as a member of the Executive Committee of Dart
($53,500), Trak Auto ($53,500) and Crown Books ($53,500); fees
received as a director of Dart ($22,500), Dart Financial ($2,500),
Trak Auto ($20,500) and Crown Books ($20,000); and health insurance
($5,000).
(12) Includes fees received as a member of the Executive Committee of Dart
($32,500), Trak Auto ($11,500) and Crown Books ($11,500); fees
received as a director of Dart ($20,300), Dart Financial ($10,000),
Trak Auto ($20,300) and Crown Books ($20,300); and health insurance
($1,700).
(13) Ronald S. Haft became President of Dart on August 1, 1993 and resigned
effective November 1995.
(14) Includes fees received as a director of Dart ($11,250), Trak Auto
($11,250), Crown Books ($11,250) and Dart Financial ($2,500) and auto
usage ($700).
(15) Includes fees received as a director of Dart ($15,000), Trak Auto
($15,000), Crown Books ($15,000) and Dart Financial ($10,000) and auto
usage ($8,400).
(16) Includes fees received as a director of Dart ($7,500), Trak Auto
($7,500), Crown Books ($7,500), Dart Financial ($5,000) and Shoppers
Food ($96,000) and auto allowance ($4,200).
119
<PAGE> 120
Item 11. Executive Compensation (Continued)
(17) Pursuant to a consulting agreement between Dart and RPF, Inc., Robert
A. Marmon became interim Chief Financial Officer of Dart, each of its
wholly-owned subsidiaries and Crown Books, and Principal Financial
Officer of Trak Auto in October 1994. Mr. Marmon resigned all of his
positions with Dart and its subsidiaries effective February 29, 1996.
(18) In 1994, Larry G. Schafran, Bonita A. Wilson and Douglas M. Bregman
were appointed members of the Executive Committees of Dart, Trak Auto,
Crown Books and Total Beverage. Members of the Executive Committee
are compensated at a rate of $275 per hour. See Item 11 - Executive
Compensation - Compensation of Directors.
120
<PAGE> 121
Item 11. Executive Compensation (Continued)
Option Grants in Last Fiscal Year
This table provides information with respect to grants of options for
shares of common stock of Dart and its subsidiaries to the Named Executive
Officers during fiscal 1996 and the exercise or base price,
expiration date and estimates of the potential realizable values of such
options.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------- Potential Real-
% of Total izable Value at
Options Assumed Annual
Granted Rates of Stock
to Emp- Exer- Price Appreci-
loyees cise Market ation for Option
Options in or Base Price Expir- Term (8)
Granted Fiscal Price Date of ation -----------------
Name (#) (7) Year ($/Sh) Grant Date 5% ($) 10% ($)
---- ------- ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Herbert H.
Haft None
Dennis N. 800(1) 6.4 85.75 85.75 7/31/00 19,000 41,900
Weiss 800(2) 6.2 73.00 73.00 7/31/99 16,100 35,700
2,500(3) 2.0 16.125 16.125 7/31/00 11,100 24,600
1,125(4) 1.3 14.00 14.00 7/31/99 4,400 9,600
2,500(5) 2.4 11.00 11.00 7/31/00 7,600 16,800
800(6) 1.5 17.00 17.00 7/31/99 3,800 8,300
Larry G. 1,500(1) 11.6 85.75 85.75 7/31/00 35,500 78,500
Schafran 1,500(3) 1.2 16.125 16.125 7/31/00 6,700 14,800
2,500(5) 2.4 11.00 11.00 7/31/00 7,600 16,800
Bonita A. 1,500(1) 11.6 85.75 85.75 7/31/00 35,500 78,500
Wilson 1,500(3) 1.2 16.125 16.125 7/31/00 6,700 14,800
2,500(5) 2.4 11.00 11.00 7/31/00 7,600 16,800
Douglas M. 1,500(1) 11.6 85.75 85.75 7/31/00 35,500 78,500
Bregman 1,500(3) 1.2 16.125 16.125 7/31/00 6,700 14,800
2,500(5) 2.4 11.00 11.00 7/31/00 7,600 16,800
Ronald S.
Haft None
Robert A.
Marmon None
</TABLE>
121
<PAGE> 122
Item 11. Executive Compensation (Continued)
(1) Represents options for Class A Shares.
(2) Represents options for Class A Shares granted last year but not
approved by court action until this year.
(3) Represents options for Trak Auto Common Stock.
(4) Represents options for Trak Auto Common Stock granted last year but
not approved by court action until this year.
(5) Represents options for Crown Books Common Stock.
(6) Represents options for Crown Books Common Stock granted last year but
not approved by court action until this year.
(7) Class A, Trak Auto and Crown Books options become exercisable over
time. One-third become exercisable one year from the date of grant, an
additional one-third become exercisable two years from the date of
grant and the last third become exercisable three years from the date
of grant. Options expire five years from the date of grant. Options
are granted at market price on the date of grant. All options granted
to executive officers are ISO's under the Internal Revenue Code.
ISO's entitle the option holder to special tax treatment provided that
the option holder satisfies certain holding periods with respect to
shares acquired on the exercise of options. In general, if the
holding periods are satisfied, the option holder will incur no taxable
income by reason of exercise of the option, and Dart will not receive
an income tax deduction by reason of the exercise. The option holder
will recognize gain or loss upon a subsequent sale of the common
stock, based on the difference between the amount for which the stock
is sold, and the option price paid. Options granted to members of the
Executive Committee are non-qualified options. The stock option plans
of each of Dart, Trak Auto and Crown Books specify that each director
who is not an employee shall receive 1,500, 1,500 and 2,500 options,
respectively, each year. The options expire five years from the date
of grant.
(8) Potential realizable value is based on an assumption that the price of
the Common Stock appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the five year option
term. These numbers are calculated based on the rules and regulations
promulgated by the Securities and Exchange Commission and do not
reflect the Company's estimate of future stock price growth.
122
<PAGE> 123
Item 11. Executive Compensation (Continued)
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-
End Option Values
For each of the Named Executive Officers, the following table sets
forth information about stock options exercised during fiscal 1996 and the
value of unexercised options as of January 31, 1996.
<TABLE>
<CAPTION>
Number of Value of
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- --------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Herbert H. Haft - (1) - 136,414 3,805,022
3,336 40,328
73,332 (2) 277,464 - -
6,668 16,670
- (3) - 33,332 -
6,668 -
Larry G. Schafran - (1) - 1,125 19,406
1,875 25,969
- (2) - 3,000 1,500
- -
- (3) - 5,000 -
- -
Bonita A. Wilson - (1) - 2,250 34,031
2,250 30,844
- (2) - 4,500 5,250
- -
- (3) - 7,500 -
- -
Douglas M. Bregman - (1) - 2,250 34,031
2,250 30,844
- (2) - 4,500 5,250
- -
- (3) - 7,500 -
- -
Dennis N. Weiss - (1) - 1,048 17,760
1,602 21,965
- (2) - 1,498 3,121
3,752 1,879
- (3) - 798 -
3,302 -
Ronald S. Haft 197,048 (4) (4) - -
Robert A. Marmon None
- -------------------
</TABLE>
123
<PAGE> 124
Item 11. Executive Compensation (Continued)
(1) Represents options for Class A Common Stock.
(2) Represents options for Trak Auto common stock.
(3) Represents options for Crown Books common stock.
(4) In fiscal 1994, under the RSH Employment Agreement, Dart granted to
Ronald S. Haft an option to purchase up to 197,048 shares of Class B
Common Stock. No public trading market exists for the Class B Common
Stock. In fiscal 1996, under the RSH Settlement Agreement, the RSH
Employment Agreement was amended to increase the exercise price of the
option from $89.65 to $140.00 per share. Under the RSH Employment
Agreement, as amended, Ronald S. Haft exercised the option in exchange
for $197,048 in cash and a secured promissory note in the principal
amount of $27,389,672.
124
<PAGE> 125
Item 11. Executive Compensation (Continued)
Compensation of Directors
Members of the Board of Directors of Dart, Trak Auto and Crown Books are
each paid $15,000 per year. Members of the Board of Directors of Dart
Financial were each paid $10,000 per year until April 1995, when Dart Financial
became inactive. Bonita A. Wilson and Douglas M. Bregman are members of the
profit sharing and audit committees for Dart, Trak Auto and Crown Books and are
compensated $5,000 per year for each such committee assignment. Douglas M.
Bregman, Larry G. Schafran and Bonita A. Wilson are members of the compensation
committee of Dart, Trak Auto and Crown Books and, at this time, are not
compensated for their work on those committees.
On September 7, 1994, the Board of Directors of Dart established an
Executive Committee comprised of Dart's outside directors to conduct the
affairs of Dart with respect to matters that were the subject of dispute
between the Chairman of the Board and Chief Executive Officer of Dart, Herbert
H. Haft, and the then President and Chief Operating Officer of Dart, Ronald S.
Haft. On October 11, 1994, the Boards of Directors of Trak Auto, Crown Books
and Total Beverage each established an Executive Committee of their respective
Board of Directors comprised of the same outside directors, with authority
parallel to that of Dart's Executive Committee. The Executive Committee
currently consists of Douglas M. Bregman, Larry G. Schafran and Bonita A.
Wilson, with Mr. Schafran as the Chairman of the Executive Committee. The
disputes between Herbert H. Haft and Ronald S. Haft concerning issues involving
Dart have been extensive. Accordingly, the Executive Committee assumed
day-to-day involvement in these disputed issues and other matters affecting
Dart, in particular matters relating to litigation to which Dart is a party.
While the Executive Committee remains involved in the day-to-day affairs of
Dart, its continuing role is dependent upon future developments.
In connection with the RSH Settlement, Ronald S. Haft resigned his
positions as a director and officer of Dart and each of its subsidiaries. The
Standstill Order contemplates that Ronald S. Haft will continue as a director
of Dart while the Standstill Order is in effect. (Herbert H. Haft contends
that Ronald S. Haft is no longer a director.)
Members of the Executive Committee are compensated at a rate of $275 per
hour plus reimbursement of expenses. Members of the Special Litigation
Committee of the Board of Directors, which was established in January 1994,
have been compensated at a rate of $250 per hour plus reimbursement of
expenses. For the years ended January 31, 1996 and 1995, the aggregate
compensation paid by Dart and its subsidiaries to members of the respective
Executive Committees for their services on those committees approximated
$1,263,000 and $666,000, respectively. The aggregate compensation paid by Dart
and its subsidiaries to members of the respective Special Litigation Committees
for their services on those committees approximated $269,000 for the year ended
January 31, 1995, exclusive of expense reimbursement. There
125
<PAGE> 126
Item 11. Executive Compensation (Continued)
were no fees paid to the Special Litigation Committee in fiscal 1996. See Item
11 - Executive Compensation - Summary Compensation Table.
The stock option plans of each of Dart, Trak Auto and Crown Books specify
that each director who is not an employee shall receive 1,500, 1,500 and 2,500
options, respectively, each year. The options expire five years from the date
of grant.
In September 1987, Dart adopted the 1988 Dart Group Corporation Deferred
Compensation Plan for Directors, effective January 1, 1988 (the "Compensation
Plan"). The Compensation Plan permits Dart's directors to defer the payment of
all or a specified part of future compensation payable for services as
director, including fees for serving on or attending meetings of committees of
the board of directors. Each director may elect, on or before January 31 of
any year to defer payment of compensation, payable on or after the first day of
February following such election, for services to be performed during the
twelve-month period commencing on such February 1 and ending on January 31 of
the following calendar year (the "Plan Year"). After such an election, all
subsequent compensation will be deferred until the director notifies Dart,
prior to the commencement of any Plan Year, that compensation for future Plan
Years is to be paid on a current basis.
Deferred compensation will not be paid to the director as earned, but will
be held in Dart's general funds and credited to a bookkeeping account
maintained by Dart in the name of the director. Each participating director
will be treated as a creditor of Dart with respect to such funds. Deferred
compensation will be paid to directors in a lump sum on the fifteenth day of
February of the Plan Year after retirement, unless the director elects, at the
time he exercises the deferral option, to be paid in up to ten annual
installments.
Employment Contracts
In April 1974, Dart entered into an employment agreement with Herbert H.
Haft, Chairman and Chief Executive Officer. The agreement, as amended, is
renewable each year for a successive ten-year term. The agreement, as amended,
provides for a base salary of $544,500 for the year ended January 31, 1986 and
for increases in base salary each year thereafter by the greater of (i) $12,000
plus ten percent of the base salary for the preceding fiscal year or (ii) the
increase in the cost of living. The agreement, as amended, further provides
for an annual bonus equal to 1 1/2% of Dart's consolidated pretax profit not
reduced as a result of transactions that are not ordinary and a supplemental
bonus based on certain performance criteria for the three year period ended
January 31, 1988 and each three-year period thereafter. The supplemental bonus
equals the greatest of (i) 3% of the increase in the aggregate market value of
the Class A Common Stock on the last day of the
126
<PAGE> 127
Item 11. Executive Compensation (Continued)
three-year period over such market value on the first day of such period; (ii)
3% of any excess in Dart's consolidated stockholders' equity on the last day of
the three-year period over such stockholders' equity on the first day of such
period; (iii) 3% of the aggregate consolidated net income during the three-year
period; and (iv) his base salary and annual bonus for the last year of the
three-year period. Pursuant to the agreement, Herbert H. Haft may elect to
receive all or part of his compensation in the form of an option for shares of
the Class A Common Stock or defer receipt of all or part of such compensation.
The agreement, as amended, also provides that Dart must lend to Herbert H. Haft
the funds necessary to purchase a $3,000,000 life insurance policy on his life
and/or the life of his former wife, Gloria Haft. Dart has elected not to
charge interest on the loan. In 1993, a shareholder derivative action was
filed challenging certain aspects of this employment agreement. In 1994, the
Special Litigation Committee concluded that it is in the best interests of Dart
that claims challenging Herbert H. Haft's employment agreement be dismissed
except to the extent that the validity of the "evergreen" provision (successive
ten-year terms) of the agreement is challenged. See Item 3. - Legal
Proceedings - Derivative Litigation.
In August 1993, Dart entered into the RSH Employment Agreement with
Ronald S. Haft, President and Chief Operating Officer, for a term initially
ending on January 31, 1997. Under the RSH Employment Agreement, Dart granted
Ronald S. Haft an option to purchase 197,048 shares of Class B Common Stock.
Under the RSH Settlement, the RSH Employment Agreement was amended to increase
the exercise price of the option from $89.65 to $140.00 per share. Under the
RSH Employment Agreement, as amended, Ronald S. Haft exercised the option in
exchange for $197,048 in cash (i.e., $1.00 par value per share) and a secured
promissory note in the principal amount of $27,389,672. The RSH Employment
Agreement provided for an annual base salary of $400,000, subject to annual
increases as agreed to by Ronald S. Haft and the Board of Directors, with a
minimum annual increase equal to the Consumer Price Index (as defined) to the
base salary unless Dart chose not to increase the compensation of any
executive. The RSH Employment Agreement provided for a supplemental bonus for
the three-year period beginning February 1, 1994 and ending January 31, 1997,
and each subsequent three-year period thereafter, with terms similar to Herbert
H. Haft's supplemental bonus and provided for an annual bonus equivalent to
Herbert H. Haft's. Under the RSH Settlement, Ronald S. Haft agreed to the
termination of the RSH Employment Agreement.
In October 1994, Dart entered into a consulting agreement with RPF, Inc.,
a corporation wholly-owned by Robert A. Marmon, whereby RPF, Inc. supplied the
services of Mr. Marmon as Chief Financial Officer for Dart, each of its
wholly-owned subsidiaries and Crown Books, and as Principal Financial Officer
for Trak Auto. Mr. Marmon resigned effective February 29, 1996. The
agreement, as amended, provided for a monthly fee of $48,750.
127
<PAGE> 128
Item 11. Executive Compensation (Continued)
In January 1995, Dart entered into a two-year employment agreement with
Dennis Weiss, Executive Vice President - Real Estate of Dart, for a term
initially ending on January 31, 1997. The agreement is renewable for
successive two-year terms. The agreement provides for an annual base salary of
$260,000, subject to annual increases as determined by the board of Directors.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee comprises Dart's outside, non-employee
Directors (Douglas M. Bregman, Larry G. Schafran and Bonita A. Wilson). Dart's
Chief Executive Officer is to consult with the Compensation Committee prior to
exercising such officer's authority to fix the compensation of Dart's officers.
The Compensation Committee also advises the Board of Directors as to the
compensation of the Chief Executive Officer.
128
<PAGE> 129
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 31, 1996, certain information
with respect to the following persons: (i) all stockholders known by the
Company to be the beneficial owners of more than five percent of Class B Common
Stock, (ii) each of Dart's current Directors, (iii) the Named Executive
Officers, and (iv) the Directors and Named Executive Officers as a group.
Certain information in the table is based upon information contained in filings
made by the beneficial owner of Class A Common Stock with the Securities and
Exchange Commission.
<TABLE>
<CAPTION>
Directors and Executive Officers:
- ---------------------------------
Approximate
Title of No. of Percentage
Name Class Shares of Class
- ---- -------- ------- -----------
<S> <C> <C> <C>
Herbert H. Haft Class A (1) 259,161 13.76(2)
3300 75th Avenue Class B (3) - -
Landover, MD 20785 Trak Auto 500 .01
Crown Books (4) 33,832 .62
Ronald S. Haft Class A (5)(6) 408,688 23.39(2)
Class B (5)(7) 222,294 67.92
Dennis N. Weiss Class A (8) 1,048 .06(2)
Trak Auto (9) 1,498 .03
Crown Books (10) 798 .01
Bonita A. Wilson Class A (11) 2,250 .13(2)
Trak Auto (12) 4,500 .08
Crown Books (13) 7,500 .14
Douglas M. Bregman Class A (11) 2,250 .13(2)
Trak Auto (12) 4,500 .08
Crown Books (13) 7,500 .14
Larry G. Schafran Class A (14) 1,125 .06(2)
Trak Auto (15) 3,000 .05
Crown Books (16) 5,000 .09
Robert A. Marmon None
- -----------------
All Directors and Class A (17) 674,522 35.69(2)
Executive Officers as Class B 222,294 67.92
a group (7 persons) Trak Auto (18) 13,998 .24
Crown Books (19) 54,630 1.00
</TABLE>
129
<PAGE> 130
Item 12. Security Ownership of Certain Beneficial Owners and Management
(Continued)
<TABLE>
<CAPTION>
Other Beneficial Owners:
- ------------------------
Approximate
Title of No. of Percentage
Name Class Shares of Class
- ---- ------------ ------- -----------
<S> <C> <C> <C>
Richard B. Stone, Class A(5)(6) 374,485 21.44
as Voting Trustee Class B(5)(7) 222,294 67.92
for Ronald S. Haft
4508 Foxhall Crescents
Court, N.W.
Washington, D.C. 20007
Robert M. Haft Class B (7) 25,246 7.71
Trak Auto (20) 40,000 .67
Crown Books (21) 230,100 4.21
Gloria G. Haft Class B 54,484 16.65
Trak Auto 500 .01
Crown Books 500 .01
Linda G. Haft Class B (7) 25,246 7.71
Crown Books 500 .01
Quest Advisory Corp. Class A (22) 88,700 5.08(2)
1414 Ave. of the Americas
New York, New York 10019
</TABLE>
(1) Includes 136,414 shares subject to exercisable stock options. These
stock options include options for 10,000 shares under the 1983 Plan
and 99,750 shares under the 1987 Plan, the validity of which is
subject to challenge by Dart. See Item 3. - Legal Proceedings.
(2) Calculated based upon a class including shares subject to exercisable
stock options under the 1983 Plan and the 1987 Plan, which Plans are
subject to challenge by Dart. See Item 3. - Legal Proceedings.
(3) Herbert H. Haft has filed a lawsuit seeking a judgement declaring that
172,730 shares of Class B Common Stock belong to him, that they were
wrongfully sold by Ronald S. Haft to Dart and that Herbert H. Haft is
entitled to restitution of such shares or, alternatively, that his
purported irrevocable proxy on the 172,730 shares continues to be
valid. See Item 3 - Legal Proceedings.
(4) Includes 33,332 shares subject to exercisable stock options.
(5) Under the Voting Trust Agreement, Richard B. Stone, as Voting Trustee,
has sole voting power over 374,485 Class A shares and 222,294 Class B
shares and Ronald S. Haft has sole investment power over such shares,
subject to (i) the rights of Dart to exercise a call option to
purchase the shares, as provided in the Buy/Sell/Offering Agreement
entered into
130
<PAGE> 131
Item 12. Security Ownership of Certain Beneficial Owners and Management
(Continued)
by Ronald S. Haft and Dart, and (ii) the rights of Dart and CMREC
under a Stock and Trust Certificate Pledge Agreement made by Ronald S.
Haft in favor of the initial Voting Trustees, as collateral agents and
bailees for Dart and CMREC. The Voting Trustee may vote the shares in
such manner as he deems to be "in the best interests of Dart and all
of its shareholders as a single class." The Voting Trust Agreement
will terminate on August 1, 2000, unless terminated earlier or later
pursuant to the terms of the Voting Trust Agreement. The RSH
Settlement transactions, including the Voting Trust Agreement, are
subject to legal challenge. See Item 3 - Legal Proceedings and Dart's
Current Report of Form 8-K, dated October 8, 1995.
(6) 58,029 Class A shares are subject to competing claims of Robert M.
Haft and Linda G. Haft.
(7) In a letter dated February 6, 1996, Donald R. Bourassa, Executive Vice
President of Combined Properties, Inc., wrote Dart, purportedly on
behalf of Haft-Equities General Limited Partnership ("Haft-Equities"),
claiming that 25,246 Class B shares held by each by each of Robert M.
Haft, Linda G. Haft and the Voting Trustee may belong to
Haft-Equities. Mr. Bourassa also claimed that Ronald S. Haft is the
sole general partner of Haft-Equities. Ronald S. Haft claims
beneficial ownership of such 25,246 Class B shares held by the Voting
Trustee but he does not claim beneficial ownership of 25,246 Class B
shares owned by each of Robert M. Haft and Linda G. Haft.
(8) Includes 1,048 shares subject to exercisable stock options.
(9) Includes 1,498 shares subject to exercisable stock options.
(10) Includes 798 shares subject to exercisable stock options.
(11) Includes 2,250 shares subject to exercisable stock options.
(12) Includes 4,500 shares subject to exercisable stock options.
(13) Includes 7,500 shares subject to exercisable stock options.
(14) Includes 1,125 shares subject to exercisable stock options.
(15) Includes 3,000 shares subject to exercisable stock options.
(16) Includes 5,000 shares subject to exercisable stock options.
(17) Includes 143,087 shares subject to exercisable stock options.
(18) Includes 13,498 shares subject to exercisable stock options.
(19) Includes 54,130 shares subject to exercisable stock options.
(20) Includes 40,000 shares subject to exercisable stock options.
(21) Includes 80,000 shares subject to exercisable stock options and 100
shares of Crown Books held by his wife.
(22) Includes 82,600 shares beneficially owned by Quest Advisory Corp.
("Quest") and 6,100 shares beneficially owned by Quest Management
Company ("QMC"). Charles M. Royce may be deemed to be a controlling
person of Quest and QMC and, consequently, may be deemed to
beneficially own these shares.
131
<PAGE> 132
Item 12. Security Ownership of Certain Beneficial Owners and Management
(Continued)
Potential Change in Control
The RSH Settlement transactions are subject to pending litigation and,
through such litigation each of RGL and Herbert H. Haft seeks control of Dart.
See Item 3 - Legal Proceedings. If sustained, the RSH Settlement transactions
were intended to have the effect, by their terms, of transferring majority
control of Dart's voting stock to one or more voting trustees under the Voting
Trust Agreement. On December 28, 1995, the initial Voting Trustees resigned and
appointed Richard B. Stone as successor Voting Trustee.
If the RSH Settlement is sustained by the Delaware Court of Chancery,
a Buy/Sell/Offering Agreement between Dart and Ronald S. Haft will govern the
ultimate disposition of the shares held by the Voting Trustee. That agreement
gives Ronald S. Haft the right to "put" to Dart the stock held by the Voting
Trustee at any time between January 1, 1997 and December 31, 1999, subject to
certain conditions. With respect to the 222,294 shares of Class B Common Stock
held by the Voting Trustee, Ronald S. Haft may (instead of including them in
the "put") exchange them for 244,523 shares of Class A Common Stock (i.e., a
1.1 to 1 exchange ratio) and offer those 244,523 shares of Class A Common Stock
to the public. Dart has an option to "call" the shares held by the Voting
Trustee, if they have not previously been disposed of as described above, at
any time during the first seven months of the year 2000.
All of the 222,294 Class B shares in the Voting Trust, as well as the
related voting trust certificates issued to Ronald S. Haft under the Voting
Trust Agreement, have been pledged to Dart and CMREC as security for certain
loans made to Ronald S. Haft and other obligations of Ronald S. Haft arising
under the RSH Settlement.
132
<PAGE> 133
Item 13. Certain Relationships and Related Transactions
On October 6, 1995, Dart and Ronald S. Haft entered into a settlement
agreement and various related agreements comprising the RSH Settlement. The
RSH Settlement transactions are briefly described in Item 5 of Dart's Form 8-
K, dated October 10, 1995, which is incorporated herein by reference. See also
Note 6 to Dart's Consolidated Financial Statements (Item 8 - Financial
Statements and Supplementary Data). The RSH Settlement transactions are
subject to legal challenge. See Item 3 - Legal Proceedings.
Under the terms of the Voting Trust Agreement, the Voting Trustee is
entitled to compensation at a rate of $275.00 per hour for time reasonably
spent in rendering services under the Voting Trust Agreement. Such
compensation is to be paid from funds available in the Voting Trust and, to the
extent such funds are insufficient, by Dart. From December 28, 1995 (when
Richard B. Stone was appointed Voting Trustee) through March 31, 1996, Dart
paid $85,000 in such compensation to Richard B. Stone, as Voting Trustee.
(Larry G. Schafran and Sidney B. Silverman, the initial Voting Trustees,
received no compensation from Dart as Voting Trustees.)
Dart, Trak Auto, Crown Books, Shoppers Food and Total Beverage lease
certain real property from Haft family-owned partnerships. Rental payments
related to such leases approximated $15.3 million during the year ended January
31, 1996. The leased properties consist of 50 stores, three warehouses and the
Shoppers Food headquarters building, but excluding the Pennsy Leases. These
leases (excluding the Pennsy Leases), which have expiration terms ranging from
1996 to 2031, require the payment of minimum rentals aggregating approximately
$129.5 million (excluding option periods). Certain of these leases also require
the payment of a percentage of sales in excess of a stated minimum, real estate
tax, insurance, maintenance and utilities.
On February 10, 1995, after a legal review by the Executive Committee,
Dart filed a complaint for rescission of the Pennsy Leases and for the return
of rent paid since 1991 on such leases. See Item 3. - Legal Proceedings. The
Executive Committees of Dart, Crown Books and Trak Auto have also undertaken a
legal review of other leasing arrangements and real estate related transactions
involving the Company and Haft-owned entities. See Item 2. - Properties. The
Executive Committees have not yet determined whether other actions will be
taken as a result of this legal review.
CMREC owns the majority interest in five real estate partnerships that
own four shopping centers and an office building in the Washington, D.C.
metropolitan area. The remaining partnership interests are owned by
partnerships in which the partners are members of the Haft family. As part of
the RSH Settlement, Dart and CMREC agreed to the sale of these five properties.
See Note 6 to the Company's Consolidated Financial Statements. Combined
Properties, Inc., a Haft-controlled entity, manages the shopping
133
<PAGE> 134
Item 13. Certain Relationships and Related Transactions (Continued)
centers and office building for the partnerships. Trak Auto, Crown Books,
Shoppers Food and Total Beverage lease eight stores in some of these shopping
centers and made aggregate rental payments to CMREC of approximately $1,578,000
during the year ended January 31, 1996. These leases, which have expiration
terms ranging from 1996 to 2013, require the payment of minimum rentals
aggregating approximately $6,114,000 million. Certain of these leases also
require the payment of a percentage of sales in excess of a stated minimum,
real estate tax, insurance, maintenance and utilities.
134
<PAGE> 135
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
See Item 8 for Dart Group Corporation Consolidated
Financial Statements (Shoppers Food Warehouse Corp. is
included on an equity basis for periods after May 28,
1994).
Set forth below are the most recent audited financial
statements of Shoppers Food Warehouse Corp., in which Dart
owns a 50% interest.
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 July 1, 1995
and July 2, 1994, 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 July 1, 1995. 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 positions of Shoppers Food Warehouse Corp.
and subsidiaries as of July 1, 1995 and July 2, 1994, and the results of their
operations and their cash flows for each of the three fiscal years in the
period ended July 1, 1995, in conformity with generally accepted accounting
principles.
Washington, D.C.,
September 29, 1995
Arthur Andersen LLP
135
<PAGE> 136
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Dollars in thousands)
------------------------------
July 1, 1995 July 2, 1994
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 38,650 $ 67,217
Short-term investments 58,353 2,572
Accounts receivable 7,633 8,661
Merchandise inventories 27,253 29,063
Prepaid expenses 956 893
Due from affiliate 522 1,012
------------ -----------
Total Current Assets 133,367 109,418
------------ -----------
Property and equipment, at cost:
Land and buildings 9,120 9,120
Store and warehouse equipment 71,195 66,073
Office and automotive equipment 3,655 3,536
Leasehold improvements 2,477 2,753
------------ -----------
86,447 81,482
Accumulated depreciation and amortization (63,504) (54,669)
------------ -----------
Net property and equipment 22,943 26,813
Deferred income taxes 4,577 3,519
------------ -----------
Other Assets 1,116 864
------------ -----------
Total Assets $ 162,003 $ 140,614
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
136
<PAGE> 137
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands,
except per share amounts)
----------------------------
July 1, 1995 July 2, 1994
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 38,275 $ 36,266
Accrued expenses
Salaries and benefits 4,931 4,649
Taxes, other than income 1,934 2,507
Other 4,623 5,355
Income taxes payable 2,152 845
------------ ------------
Total current liabilities 51,915 49,622
------------ ------------
Capital lease obligation 9,950 9,742
Deferred income 1,218 2,409
Deferred rent liability 3,590 3,037
------------ ------------
Total liabilities 66,673 64,810
------------ ------------
Commitments and contingencies
(See 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 95,163 75,637
------------ ------------
Total Stockholders' Equity 95,330 75,804
------------ ------------
Total Liabilities and Stockholders' Equity $ 162,003 $ 140,614
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
137
<PAGE> 138
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands,
except per share amounts)
<TABLE>
<CAPTION>
July 1, July 2, July 3,
1995 1994 1993
---------- ---------- ----------
(52 weeks) (52 weeks) (53 weeks)
---------- ---------- ----------
<S> <C> <C> <C>
Sales $ 790,842 $ 750,340 $ 718,967
Cost of sales 616,521 593,063 562,461
---------- ---------- ----------
Gross Profit 174,321 157,277 156,506
Selling and administrative expenses 136,798 127,643 124,509
Depreciation and amortization 8,529 10,785 12,045
Loss on disposition of Total
Beverage Corp. - - 1,012
---------- ---------- ----------
Operating income 28,994 18,849 18,940
Interest income 4,682 2,189 1,474
Interest expense 1,451 1,426 1,576
---------- ---------- ----------
Income before income taxes and
extraordinary item 32,225 19,612 18,838
Provision for income taxes 13,938 7,541 7,205
---------- ---------- ----------
Income before extraordinary item 18,287 12,071 11,633
Extraordinary item - insurance
proceeds from fire, net of income
Tax benefit of $826 and $502 in
1995 and 1994, respectively
(See Note 6) 1,239 858 -
---------- ---------- ----------
Net income $ 19,526 $ 12,929 $ 11,633
========== ========== ==========
Earnings per common share data:
Earnings per share before
extraordinary item $ 548.61 $ 362.13 $ 348.99
Extraordinary item, net of
income tax benefit $ 37.17 $ 25.74 $ -
---------- ---------- ----------
Earnings per common share $ 585.78 $ 387.87 $ 348.99
========== ========== ==========
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.
138
<PAGE> 139
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands)
-----------------------------------------
Class A Class B Retained
Nonvoting Voting Earnings Total
--------- ------- -------- --------
<S> <C> <C> <C> <C>
Balance, June 27, 1992 $ 117 $ 50 $ 51,075 $ 51,242
Net income - - 11,633 11,633
---------- ------- -------- --------
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
========== ======= ======== ========
</TABLE>
139
<PAGE> 140
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands)
-------------------------------------
July 1, July 2, July 3,
1995 1994 1993
---------- ---------- ----------
(52 weeks) (52 weeks) (53 weeks)
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 19,526 $ 12,929 $ 11,633
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation and amortization 8,529 10,785 12,045
Increase in deferred income
taxes (1,058) (594) (2,190)
Loss (gain) on disposition
of assets 34 (15) 11
Disposition of Total Beverage
Corp. - - 1,012
Effect of insurance receivable
on income - (104) -
Interest expense in excess of
capital lease payments 208 240 293
Increase in deferred rent
liability 553 1,082 742
Changes in operating assets
and liabilities:
Decrease (increase) in
accounts receivable 1,028 (3,952) (39)
Decrease (increase) in
merchandise inventories 1,810 (2,455) (3,637)
(Increase) decrease in
prepaid expenses (63) (53) 328
Decrease in due from affiliate 490 - -
Decrease in income tax
refund receivable - - 385
Increase in other assets (252) (354) (817)
Increase (decrease) in
accounts payable 2,009 1,544 (6,316)
(Decrease) increase in
accrued expenses (1,023) 241 4,303
Increase in accounts payable 1,307 144 701
Decrease in deferred income (1,191) (1,177) (1,060)
---------- ---------- ----------
Net cash provided by
operating activities 31,907 18,261 17,394
---------- ---------- ----------
</TABLE>
(Continued on following page)
140
<PAGE> 141
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
(Dollars in thousands)
------------------------------------
July 1, July 2, July 3,
1995 1994 1993
---------- ---------- ----------
(52 weeks) (52 weeks) (53 weeks)
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows used in investing
activities:
Capital expenditures (4,693) (5,112) (6,909)
Proceeds from sale of fixed assets - 15 6
Increase in short-term investments (55,781) (1,962) -
Increase in long-term marketable
securities - - 611
---------- ---------- ----------
Net cash used in investing
activities (60,474) (7,059) (6,292)
---------- ---------- ----------
Net (decrease) increase in cash
and cash equivalents (28,567) 11,202 11,102
Cash and cash equivalents,
beginning of fiscal year 67,217 56,015 44,913
---------- ---------- ----------
Cash and cash equivalents,
end of fiscal year $ 38,650 $ 67,217 $ 56,015
========== ========== ==========
Supplementary disclosures of
cash flow information
Cash paid during the fiscal
year for:
Income taxes $ 12,091 $ 8,525 $ 8,309
Interest 1,451 1,456 1,576
Supplemental disclosure of
noncash financing activity:
In fiscal year 1993, the Company
sold Total Beverage and its
assets to a related entity.
The Company received consider-
ation of $1,493,000 in the form
of a note receivable (See Note 2)
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.
141
<PAGE> 142
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Years Ended July 1, 1995, July 2, 1994 and July 3, 1993
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 July 1, 1995, the Company operated 33 warehouse-style
grocery stores in Maryland and Virginia. As of July 2, 1994, the Company
operated 35 warehouse-style stores 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 July 1, 1995, July
2, 1994, and July 3, 1993, contained 52, 52 and 53 weeks, respectively.
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 bills.
Short-Term Investments
Effective July 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities ("SFAS No. 115"). Debt securities that the Company has both
the positive intent and the ability to hold to maturity are carried at
amortized cost. The effect of adopting SFAS No. 115 did not materially impact
the Company's financial position and results of operations. At July 1, 1995,
short-term investments consisted of U.S. government Treasury bills 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
1995 to December 1995.
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 $2,940,000 and $2,062,000 at July 1,
1995 and July 2, 1994, respectively. Net income would have been higher by
approximately $877,000 in 1995, $364,000 in 1994, and $436,000 in 1993.
142
<PAGE> 143
Property and Equipment
The Company depreciates property and equipment using both accelerated
and straight-line methods over the estimated useful lives of the asset,
generally five to seven years. Assets financed through asset-based financing
arrangements are amortized over the terms of the lease.
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 implemented Statement of Financial Accounting Standards
No.109, Accounting for Income Taxes, effective July 4, 1993. Adoption of the
new standard did not have a significant effect on reported financial position.
Prior to that date, the Company accounted for income taxes under Accounting
Principles Board Opinion No. 11.
Store Opening and Closing Costs
All costs of a noncapital nature incurred in opening a new store are
charged to expense as incurred. The Company opened one and three new stores
during the fiscal years ended July 2, 1994 and July 3, 1993, respectively. 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 is being
amortized over the 51-month term of the supply agreement. Deferred income also
includes promotional amounts received from other vendors for future periods.
143
<PAGE> 144
Earnings Per Share
Earnings per share of common stock were computed based on the weighted
average number of common shares outstanding during each period.
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.
The net losses from the operations of Total Beverage for fiscal 1993
are included in the consolidated statements of income as a component of
operating income. Revenues from such operations in 1993 were approximately
$4,841,000. All assets of Total Beverage were sold in the transaction.
The loss on disposition of Total Beverage in the fiscal year ended
July 3, 1993 reflects the disposition of inventory and fixed assets with a net
book value of approximately $2,005,000. 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 is reflected net of a $1,000,000 and
$500,000 reserve in the accompanying balance sheets as of July 1, 1995 and July
2, 1994, respectively, and was due on February 27, 1995.
3. OTHER ACCRUED EXPENSES:
Other accrued expenses consists of the following as of (in thousands):
<TABLE>
<CAPTION>
July 1, 1995 July 2, 1994
------------ ------------
<S> <C> <C>
Accrued insurance $ 2,262 $ 2,500
Reserve for store closing 243 1,000
Gift certificates outstanding 815 799
Other 1,303 1,056
------------ ------------
Total $ 4,623 $ 5,355
============ ============
</TABLE>
4. ACCOUNTS RECEIVABLE:
Accounts receivable include amounts due from vendors for coupons
remitted, cooperative advertising, and merchandise rebates. Approximately
$675,000 and $1,982,000 is included in accounts receivable as of July 1, 1995
and July 2, 1994, respectively, for insurance proceeds related to fire damage
incurred at one of the Company's stores (see Note 6).
144
<PAGE> 145
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
-----------------------------------------------
July 1, 1995 July 2, 1994 July 3, 1993
------------ ------------ ------------
<S> <C> <C> <C>
Current income tax
provision:
Federal $ 13,422 $ 7,582 $ 7,934
State 1,574 1,088 1,461
Deferred income tax
provision (1,058) (1,129) (2,190)
------------ ------------ ------------
$ 13,938 $ 7,541 $ 7,205
============ ============ ============
</TABLE>
The components of the deferred income tax provision are as follows (in
thousands).
<TABLE>
<CAPTION>
Fiscal year ended
-----------------------------------------------
July 1, 1995 July 2, 1994 July 3, 1993
------------ ------------ ------------
<S> <C> <C> <C>
Difference between
income tax and financial
reporting of:
Depreciation $ (43) $ 691 $ 1,161
Loss on disposition
of Total Beverage 145 (24) 387
Reserve for store
closings (291) - 383
Deferred rent 306 409 256
Capital lease 74 91 114
Employee benefits and
other 871 184 123
Deferred income (282) (222) (234)
Extraordinary gain on
fire 278 - -
------------ ------------ -----------
Deferred income tax
benefit $ 1,058 $ 1,129 $ 2,190
============ ============ ===========
</TABLE>
145
<PAGE> 146
The effective income tax rate is reconciled to the Federal statutory
rate as follows:
<TABLE>
<CAPTION>
July 1, 1995 July 2, 1994 July 3, 1993
------------ ------------ ------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 34.0%
Increase in taxes resulting
from:
State income taxes, net of
Federal income tax
benefit 3.1 3.0 4.1
Revision of estimate for
tax accruals 3.7 - -
Other 1.5 0.4 0.1
----------- ------------ ------------
Effective tax rate 43.3% 38.4% 38.2%
=========== ============ ============
</TABLE>
146
<PAGE> 147
Temporary differences which give rise to the deferred tax assets and
liabilities on a consolidated basis are as follows (in thousands):
<TABLE>
<CAPTION>
July 1, 1995 July 2, 1994
------------ ------------
<S> <C> <C>
Deferred Tax Assets:
Loss on disposition of
Total Beverage $ 381 $ 236
Reserves for store
closings and
remodelings 325 616
Deferred rent 1,433 1,127
Capital lease 946 872
Employee benefits 1,472 591
Deferred income 557 839
Other 246 256
------------ -----------
5,360 4,537
Deferred tax liabilities:
Depreciation (526) (483)
Extraordinary gain on fire (257) (535)
------------ -----------
(783) (1,018)
Net Deferred Tax Asset $ 4,577 $ 3,519
============ ===========
</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 July 1, 1995 and July
2, 1994 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 years ended July 2, 1994
and July 3, 1993. The Company estimates its contribution for the fiscal year
ended July 1, 1995 will be approximately $400,000. This contribution has not
been made as of July 1, 1995. These amounts are included in accrued salaries
and benefits in the accompanying financial statements.
147
<PAGE> 148
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.
No contributions were made to the New Plan during fiscal 1995
Multiemployer Plans
The Company makes contributions to multiemployer plans for its union
employees. Such contributions totaled approximately $800,000, $9,020,000 and
$415,000 for the pension, health and welfare and legal benefit plans,
respectively, for the year ended July 1, 1995. Contributions to the pension,
health and welfare and legal benefit plans totaled approximately $745,000,
$7,437,000 and $382,000, respectively, for the year ended July 2, 1994 and
$644,000, $5,862,000, and $344,000, respectively, for the year ended July 3,
1993.
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 $553,000, $1,082,000 and $742,000 of amortized rental increases
for the fiscal years ended July 1, 1995, July 2, 1994 and July 3, 1993,
respectively. Store and warehouse equipment leases are for terms of five
years.
148
<PAGE> 149
Following is a schedule of annual future minimum payments under the capital
lease for office space and noncancelable operating leases, which have initial
or remaining terms in excess of one year at July 1, 1995 (in thousands).
<TABLE>
<CAPTION>
Fiscal Capital Operating
Year Lease Leases
------ ------- ---------
<S> <C> <C>
1996 $ 1,265 $ 11,114
1997 1,341 11,546
1998 1,421 11,359
1999 1,506 11,432
2000 1,597 11,146
Thereafter 23,780 108,687
------- --------
Total 30,910 $165,284
========
Less - Imputed interest 20,960
-------
Present value of net
minimum lease
payments 9,950
Less - Current
maturities -
-------
Long-term capital
lease obligations $ 9,950
=======
</TABLE>
Rent expense for operating leases charged to operations is as follows (in
thousands).
<TABLE>
<CAPTION>
Fiscal year ended
-----------------------------------------------
July 1, 1995 July 2, 1994 July 3, 1993
------------ ------------ ------------
<S> <C> <C> <C>
Minimum rentals $ 10,925 $ 11,034 $ 9,469
Contingent rentals 4,524 4,052 3,906
------------ ------------ ------------
Total $ 15,449 $ 15,086 $ 13,375
============ ============ ============
</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 July 1, 1995, July 2, 1994 and July 3, 1993 were
approximately $1,210,000, $1,175,000 and $1,141,000, respectively, and total
payments over the life of the lease total approximately $36,000,000. 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
149
<PAGE> 150
payments by approximately $292,000, $321,000 and $293,000 for the fiscal years
ended July 1, 1995, July 2, 1994 and July 3, 1993, respectively. 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 $2,200,000. 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 July 1, 1995, July 2, 1994 and July 3, 1993,
the Company made rental payments of approximately $5,985,000, $5,327,000 and
$3,940,000, respectively on leases to partnerships related to stockholders of
the Company. As of 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 $76,725,000 and expire through 2014. The Company made payments
of approximately $246,000 during each of the fiscal years ended July 1, 1995,
July 2, 1994 and July 3, 1993, for a warehouse operating lease to a partnership
owned by stockholders of the Company. As of July 1, 1995, the remaining future
minimum annual payments under these leases are approximately $407,000 and
expire in fiscal year 1997.
Subleasing Arrangements
The Company subleases space within one store for the sale of beverages to
an entity affiliated with its officers. The Company received rental income of
approximately $153,000, $124,000 and $138,000 in the fiscal years ended July 1,
1995, July 2, 1994 and July 3, 1993, respectively, from this entity, which is
included in selling and administrative expenses.
As of July 1, 1995, there are currently three unaffiliated subtenants in
the office building. The subtenants are leasing approximately 30,000 square
feet at a current minimum annual rent of approximately $520,000. The subleases
expire between February 1996 and December 1998. The Company received rental
income of approximately $530,000 in the fiscal year ended July 1, 1995 from
these subtenants.
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 July 1, 1995 and July 2, 1994, the Company's
line-of-credit was reduced by outstanding letters of credits of approximately
$6,135,000 and $5,140,000, 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, 1995.
150
<PAGE> 151
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 Company's receivable from the insurance settlement was
$675,000 at July 1, 1995.
7. SUBSEQUENT EVENT:
In August 1995, the Company declared a $10,000,000 cash dividend
payable to its shareholders. The dividend was distributed in September 1995.
151
<PAGE> 152
Item 14. Exhibits: Financial Statements Schedules, and Reports on Form 8-K
(Continued)
2. Schedules (Consolidated) -
All schedules are omitted because the required information is
inapplicable or it is presented in the consolidated financial statements or
related notes.
3. Exhibits...............................................
2.1 Purchase agreement dated October 12, 1989 between Greenway
Center Associates Limited Partnership and KANAM Grundbesitz
Gmbh, tenants in common and Mr. Ronald S. Haft, acting on
behalf of CM/CP Greenway Center Joint Venture. The exhibit
includes a list identifying the schedules to the agreement,
but does not include the schedules themselves. Copies of
the omitted schedules will be furnished supplementally to
the Commission upon request (incorporated by reference to
Exhibit 2a to Dart Fiscal Year 1990 10-K).
2.2 Purchase agreement dated October 12, 1989 between Briggs
Chaney Associates Limited Partnership and Mr. Ronald S.
Haft, acting on behalf of CM/CP Briggs Chaney Plaza Joint
Venture. The exhibit includes a list identifying the
schedules to the agreement, but does not include the
schedules themselves. Copies of the omitted schedules will
be furnished supplementally to the Commission upon request
(incorporated by reference to Exhibit 2b to Dart Fiscal Year
1990 10-K).
2.3 Purchase agreement dated March 12, 1991 between (i) Robert
M. Haft, Ronald S. Haft and Linda G. Haft and (ii)
Cabot-Morgan Real Estate Company ("CMREC"). Amended and
restated agreement of Limited Partnership dated March 12,
1991 by and among (i) CM/CP Greenbriar Retail Joint Venture
("CM/CP Greenbriar Retail"), (ii) CP Greenbriar Retail, Inc.
and (iii) Robert M. Haft, Ronald S. Haft and Linda G. Haft.
Joint venture agreement dated March 12, 1991 between CMREC
and CP/Greenbriar Retail Investments Limited Partnership.
Exclusive development, leasing management agreement dated
March 12, 1991 between Combined Properties/Greenbriar
Limited Partnership ("CP/Greenbriar LP") and Combined
Properties Incorporated ("Combined"). Contribution
agreement dated March 12, 1991 between CP/Greenbriar LP,
CMREC and Linda G. Haft, Ronald S. Haft and Robert M. Haft
(incorporated by reference to Exhibit 2c to Dart Fiscal Year
1991 10-K).
152
<PAGE> 153
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
2.4 Purchase agreement dated March 12, 1991 between (i) Robert
M. Haft, Ronald S. Haft and Linda G. Haft and (ii) CMREC.
Amended and restated agreement of Limited Partnership dated
March 12, 1991 by and among (i) CM/CP Greenbriar Office
Joint Venture ("CM/CP Greenbriar Office"), (ii)
CP/Greenbriar Office, Inc. and (iii) Robert M. Haft, Ronald
S. Haft and Linda G. Haft. Joint venture agreement dated
March 12, 1991 between CMREC and CP/Greenbriar Office
Investments Limited Partnership. Exclusive development,
leasing and management agreement dated March 12, 1991
between Combined Properties/Greenbriar Office Limited
Partnership ("CP/Greenbriar Office LP") and Combined.
Contribution agreement dated March 12, 1991 between
CP/Greenbriar Office LP, CMREC and Linda G. Haft, Ronald S.
Haft and Robert M. Haft (incorporated by reference to
Exhibit 2d to Dart Fiscal Year 1991 10-K).
2.5 Purchase agreement dated January 18, 1993 between PS-One
Real Estate Limited Partnership and CM/CP Bull Run Joint
Venture. Joint venture agreement dated January 18, 1993
between CMREC and CP/Bull Run Limited Partnership.
Exclusive leasing and management agreement dated January 18,
1993 between CM/CP Bull Run Joint Venture and Combined.
Promissory note agreement between CMREC and CM/CP Bull Run
Joint Venture dated January 18, 1993 (incorporated by
reference to Exhibit 2 to Dart Fiscal Year 1993 10-K).
2.6 Purchase agreement dated February 27, 1993 between Total
Beverage G.B., Inc. (a wholly-owned subsidiary of Dart) and
Total Beverage VA Corp. (a wholly-owned subsidiary of
Shoppers Food Warehouse Corp.). Promissory Note between
Total Beverage VA Corp. and Total Beverage G.B. Inc.
(incorporated by reference to Dart Fiscal Year 1994 10-K).
3.1 Certificate of Incorporation, incorporated herein by
reference to Exhibit #3a to the Company's Form S-1
Registration Statement (File #2-99831) filed with the
Securities and Exchange Commission ("Dart 1985 S1").
3.2 Certificate of Amendment of the Certificate of Incorporation
of Dart Group Corporation dated January 13, 1987
(incorporated by reference to Dart Fiscal Year 1987 10-K).
3.3 Bylaws, amended and restated as of September 14, 1993
(incorporated by reference to Dart Fiscal Year 1987 10-K).
153
<PAGE> 154
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
9 Voting Trust Agreement, dated as of October 6, 1995, by and
among Ronald S. Haft, Dart Group Corporation and Larry G.
Schafran and Sidney B. Silverman, as initial voting trustees
(incorporated by reference to Exhibit 9 to the Current
Report of Dart Group Corporation on Form 8-K filed on
October 10, 1995).
10.1 Employment agreement with Mr. Herbert H. Haft, as amended
(incorporated by reference to Dart Fiscal Year 1988 10-K).
10.2 Employment agreement with Mr. Robert M. Haft, as amended
(incorporated by reference to Dart Fiscal Year 1988 10-K).
10.3 Indemnity Agreement dated March 10, 1983 between Dart Drug
Corporation and Trak Auto Corporation, incorporated by
reference to exhibit 10(b) filed with the Trak S-1.
10.4 Agreement for the Allocation of United States and State
Income Tax Liability and Benefits Among Members of the Dart
Drug Corporation Group, incorporated by reference to exhibit
10(d) filed with the Trak S-1.
10.5 Agreement, dated March 31, 1983, between Dart Drug
Corporation and Trak Auto East Corporation, incorporated by
reference to exhibit 10(ffff) filed with the Trak S-1.
10.6 Dart Drug Corporation Executive Non-Qualified Stock Option
Plan, incorporated herein by reference to exhibit (10o) to
the Company's Form 10-K filed with the SEC on May 1, 1984.
10.7 Agreement of Sale dated May 25, 1984 among Dart Drug
Corporation, Dart Delaware Corporation and Dart Drug
Acquisition Corporation, incorporated herein by reference to
exhibit (2) to the Company's Form 8-K filed with the SEC on
July 16, 1984.
10.8 Lease dated December 26, 1984 between Dart Group Corporation
and Seventy-Fifth Avenue Associates (incorporated by
reference to Dart Fiscal Year 1986 10-K).
10.9 Sublease dated December 26, 1984 between Dart Group
Corporation and Trak Auto Corporation (incorporated by
reference to Dart Fiscal Year 1986 10-K).
10.10 Sublease dated December 26, 1984 between Dart Group
Corporation and Crown Books Corporation (incorporated by
154
<PAGE> 155
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
reference to Dart Fiscal Year 1986 10-K).
10.11 Lease dated April 27, 1984 between Trak Chicago Limited
Partnership I and Trak Auto Corporation (incorporated by
reference to Dart Fiscal Year 1986 10-K).
10.12 Dart Group Corporation 1981 Stock Option Plan, as amended
(incorporated by reference to Dart Fiscal Year 1987 10-K).
10.13 Indemnity Agreement by and between Dart Group Corporation
and Crown books Corporation dated June 9, 1986 incorporated
herein by reference to Exhibit 10(zzzz) to the Crown 10-K.
10.14 Employment Agreement between Crown Books Corporation and Mr.
Robert M. Haft dated February 28, 1987 incorporated herein
by reference to Exhibit 10(xxxx) to the Crown 10-K.
10.15 Agreement of Amendment, dated June 9, 1986, among Dart Group
Corporation, Trak Auto Corporation, Trak Auto West, Inc. and
Thrifty Corporation, of the stockholders Agreement dated
March 17, 1982 herein incorporated by reference to Exhibit
10(oooo) to the Trak 10-K.
10.16 Indemnity Agreement, dated June 9, 1986, by and between Dart
Group Corporation and Trak Auto Corporation herein
incorporated by reference to Exhibit 10(pppp) to the Trak
10- K.
10.17 Agreement of Merger dated May 28, 1987 between Trak Auto
East Corporation and Trak Auto West, Inc. herein
incorporated by reference to Exhibit 10(qqqq) filed with
Trak Auto Corporation Fiscal Year 1988 Form 10-K, No.
0-12202 ("Fiscal 1988 Trak 10- K").
10.18 Dart Group Corporation Deferred Compensation Plan for
Directors, effective January 1, 1988 (incorporated by
reference to Dart Fiscal Year 1988 10-K).
10.19 Lease agreement dated November 22, 1988 between Dart Group
Corporation and Seventy-Fifth Avenue Associates
(incorporated by reference to Dart Fiscal Year 1989 10-K).
10.20 Lease agreement dated January 27, 1989 between Trak Auto
Corporation and Combined Properties/Ontario Limited
Partnership herein incorporated by reference to Exhibit
10(tttt) filed with Trak Auto Corporation Fiscal Year 1989
155
<PAGE> 156
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Form 10-K, No. 0-12202 ("Fiscal 1989 Trak 10-K").
10.21 Lease agreement dated February 27, 1988 between Trak
Corporation and Haft/Equities-General, herein incorporated
by reference to Exhibit 10(uuuu) filed with Fiscal 1989 Trak
10- K.
10.22 Lease agreement dated June 17, 1987 between Trak Auto West,
Inc. and Haft/Equities/Rose Hill Limited Partnership, herein
incorporated by reference to Exhibit 10(vvvv) filed with
Fiscal 1989 Trak 10-K.
10.23 Agreement dated May 17, 1988 among Dart Group Corporation,
Shoppers Food Warehouse Corp., Kenneth M. Herman and Robert
N. Herman incorporated herein by reference to Exhibit 1
filed with Dart's Report on Form 8-K on July 15, 1988
(incorporated by reference to Dart Fiscal Year 1989 10-K).
10.24 Amendment No. 1 to Stockholders' Agreement (Exhibit D to
Stock Purchase Agreement dated May 17, 1988, attached as
Exhibit 1 to Dart's Report on Form 8-K filed July 15, 1988)
dated as of August 24, 1988 herein (incorporated by
reference to Dart Fiscal Year 1989 10-K).
10.25 Assignment and Assumption agreement dated December 30, 1989
between Greenway Center Associates Limited Partnership and
CM/CP Greenway Center Joint Venture, and lease agreement
dated March 13, 1980, between Greenway Center Associates
Limited Partnership and Trak Auto (612), herein incorporated
by reference to Exhibit 10(wwww) filed with Trak Auto
Corporation Fiscal Year 1990 Form 10-K, No. 0-12202 ("Fiscal
1990 Trak 10- K").
10.26 Assignment and Assumption agreement dated December 30, 1989
between Briggs Chaney Associates Limited Partnership and
CM/CP Briggs Chaney Plaza Joint Venture, and lease agreement
dated June 26, 1981, between Western Development Corporation
and Trak Auto Corporation (641), herein incorporated by
reference to Exhibit 10(xxxx) filed with Fiscal 1990 Trak
10-K.
10.27 Trak Auto Amended Stock Option Plan, herein incorporated by
reference to Exhibit 10(yyyy) filed with Fiscal 1990 Trak
10- K.
10.28 Incentive stock agreement between Mr. Robert M. Haft and
Crown Books Corporation and promissory note from Mr. Haft to
Crown
156
<PAGE> 157
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Books Corporation, both dated September 5, 1989, herein
incorporated by reference to Exhibit 10(ddddd) filed with
Crown Books Corporation Fiscal Year 1990 Form 10-K No.
0-11457 ("Fiscal 1990 Crown 10-K").
10.29 Assignment and Assumption Agreement dated December 30, 1989
between Briggs Chaney Associates Limited Partnership and
CM/CP Briggs Chaney Plaza Joint Venture, and lease agreement
dated June 26, 1981 between Crown Books Corporation and
Western Development Corporation, herein incorporated by
reference to Exhibit 10(ggggg) filed with Fiscal 1990 Crown
10-K.
10.30 Lease agreement dated January 5, 1990 between Combined
Properties Limited Partnership and Crown Books Corporation
re: Turnpike Shopping Center (815), herein incorporated by
reference to Exhibit 10(iiiii) filed with Fiscal 1990 Crown
10-K.
10.31 Lease agreement dated January 5, 1990 between Combined
Properties Limited Partnership and Crown Books Corporation
re: the Plaza at Landmark (165), herein incorporated by
reference to Exhibit 10(jjjjj) filed with Fiscal 1990 Crown
10-K.
10.32 Lease agreement dated January 5, 1990 between Combined
Properties Limited Partnership and Crown Books Corporation
re: Manaport Plaza Shopping Center (804), herein
incorporated by reference to Exhibit 10(kkkkk) filed with
Fiscal 1990 Crown 10-K.
10.33 Stock option agreement dated August 8, 1989 between Dart/SFW
Corp. and Mr. Herbert H. Haft (incorporated by reference to
Dart Fiscal Year 1989 10-K).
10.34 Stock option agreement dated August 8, 1989 between Dart/SFW
Corp. and Mr. Robert M. Haft (incorporated by reference to
Dart Fiscal Year 1989 10-K).
10.35 Lease agreement dated October 31, 1990 between CP
Acquisitions Limited Partnership and Crown Books Corporation
re: McLean Shopping Center (803), herein incorporated by
reference to Exhibit 10(lllll) Crown Books Corporation
Fiscal Year 1991 Form 10-K No. 0-11457 ("Fiscal 1991 Crown
10-K").
10.36 Lease agreement dated May 11, 1990 between CM/CP Greenway
Center Joint Venture and Crown Books Corporation re:
Greenway Center (822), herein incorporated by reference to
Exhibit
157
<PAGE> 158
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
10(mmmmm) Fiscal 1991 Crown 10-K.
10.37 Lease agreement dated March 20, 1991 between Charles County
Associates Limited Partnership and Crown Books Corporation
re: Charles County Plaza (833), herein incorporated by
reference to Exhibit 10(nnnnn) Fiscal 1991 Crown 10-K.
10.38 Lease agreement dated May 11, 1990 between Combined
Properties/Greenbriar Limited Partnership and Crown Books
Corporation, the First Amendment dated September 13, 1990
and the Second Amendment dated March 14, 1991 re:
Greenbriar Town Center (104), herein incorporated by
reference to Exhibit 10(ooooo) Fiscal 1991 Crown 10-K.
10.39 Lease agreement dated May 18, 1990 between Combined
Properties Limited Partnership and Trak Corporation and
Lease Termination Agreement dated March 31, 1990 between
Combined Properties Limited Partnership, Retail Lease
Acquisition Limited Partnership and Trak Corporation re:
Fair City Mall (605), herein incorporated by reference to
Exhibit 10(zzzz) Trak Auto Corporation Fiscal Year 1991 Form
10-K No. 0-12202 ("Fiscal 1991 Trak 10-K").
10.40 Lease agreement dated May 18, 1990 between Retail Lease
Acquisition Limited Partnership and Trak Corporation and
License Termination Agreement dated March 31, 1990 between
Retail Lease Acquisition Limited Partnership and Trak
Corporation re: Chantilly Plaza (609), herein incorporated
by reference to Exhibit 10(aaaaa) Fiscal 1991 Trak 10-K.
10.41 Lease agreement dated May 18, 1990 between Retail Lease
Acquisition Limited Partnership and Trak Corporation and
License Termination Agreement dated March 31, 1990 between
Retail Lease Acquisition Limited Partnership and Trak
Corporation re: College Plaza (610), herein incorporated by
reference to Exhibit 10(bbbbb) Fiscal 1991 Trak 10-K.
10.42 Lease agreement dated May 18, 1990 between Retail Lease
Acquisition Limited Partnership and Trak Corporation and
License Termination Agreement dated March 31, 1990 between
Retail Lease Acquisition Limited Partnership and Trak
Corporation re: Enterprise (614), herein incorporated by
reference to Exhibit 10(ccccc) Fiscal 1991 Trak 10-K.
10.43 Lease agreement dated May 18, 1990 between Retail Lease
Acquisition Limited Partnership and Trak Corporation and
158
<PAGE> 159
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
License Termination Agreement dated March 31, 1990 between
Retail Lease Acquisition Limited Partnership and Trak
Corporation re: Rolling Valley (630), herein incorporated by
reference to Exhibit 10(ddddd) Fiscal 1991 Trak 10-K.
10.44 Lease agreement dated May 18, 1990 between Combined
Properties Limited Partnership and Trak Corporation and
Lease Termination Agreement dated March 31, 1990 between
Combined Properties Limited Partnership, Retail Lease
Acquisition Limited Partnership and Trak Corporation re:
White Flint (632), herein incorporated by reference to
Exhibit 10(eeeee) Fiscal 1991 Trak 10-K.
10.45 Lease agreement dated November 6, 1990 between CP
Acquisition Limited Partnership and Trak Corporation and
Settlement Agreement dated November 6, 1990 between CP
Acquisitions Limited Partnership and Trak Corporation re:
Aspen Manor (615), herein incorporated by reference to
Exhibit 10(fffff) Fiscal 1991 Trak 10-K.
10.46 Lease agreement dated November 6, 1990 between CP
Acquisition Limited Partnership and Trak Corporation and
Settlement Agreement dated November 6, 1990 between CP
Acquisitions Limited Partnership and Trak Corporation re:
Lee and Harrison (633), herein incorporated by reference to
Exhibit 10(ggggg) Fiscal 1991 Trak 10-K.
10.47 Lease agreement dated November 6, 1990 between CP
Acquisition Limited Partnership and Trak Corporation and
Settlement Agreement dated November 6, 1990 between CP
Acquisitions Limited Partnership and Trak Corporation re:
Penn Daw (642), herein incorporated by reference to Exhibit
10(hhhhh) Fiscal 1991 Trak 10-K.
10.48 Lease agreement dated November 6, 1990 between Combined
Properties Limited Partnership and Trak Corporation and
Settlement Agreement dated November 6, 1990 between Combined
Properties Limited Partnership and Trak Corporation re:
Fairfax Circle (656), herein incorporated by reference to
Exhibit 10(iiiii) Fiscal 1991 Trak 10-K.
10.49 Lease agreement dated March 23, 1990 between Combined
Properties/Silver Hill Limited Partnership and Trak
Corporation and Termination Agreement dated April 13, 1990
between Combined Properties/Silver Hill Limited Partnership
and Trak Corporation re: Silver Hill (619), herein
159
<PAGE> 160
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
incorporated by reference to Exhibit 10(jjjjj) Fiscal 1991
Trak 10-K.
10.50 Lease agreement dated November 6, 1990 between
Haft/Equities- Bladen Limited Partnership and Trak
Corporation and Lease Termination Agreement dated November
6, 1990 between Haft/Equities-Bladen Limited Partnership and
Trak Corporation re: Bladen Plaza (662), herein
incorporated by reference to Exhibit 10(kkkkk) Fiscal 1991
Trak 10-K (incorporated by reference to Dart Fiscal Year
1991 10-K).
10.51 Lease agreement dated July 19, 1990 between Combined
Properties/4600 Forbes Limited Partnership and Shoppers Food
Warehouse Corp. (incorporated by reference to Dart Fiscal
Year 1991 10-K).
10.52 Lease Agreement dated December 27, 1982 between Combined
Properties Limited Partnership and Jumbo Food Stores VA,
Inc., Amendment dated September 8, 1988 and Amendment dated
September 25, 1990 re: Fair City Mall (incorporated by
reference to Dart Fiscal Year 1991 10-K).
10.53 Lease Agreement dated June 28, 1983 between Combined
Properties Limited Partnership and Jumbo Food Stores VA,
Inc., Amendment dated September 8, 1988, Amendment May 10,
1990 and Amendment dated September 25, 1990 re: Rolling
Valley Mall (incorporated by reference to Dart Fiscal Year
1991 10-K).
10.54 Lease Agreement dated September 11, 1987 between Combined
Properties Limited Partnership and Jumbo Food Stores Md.,
Inc., Amendment dated September 25, 1990 re: Maryland City
Plaza (incorporated by reference to Dart Fiscal Year 1991
10- K).
10.55 Lease Agreement dated July 7, 1989 between Combined
Properties/Silver Hill Limited Partnership and Jumbo Food
Stores Md., Inc., Amendment dated May 10, 1990 and Amendment
dated September 25, 1990 re: Silver Hill Plaza
(incorporated by reference to Dart Fiscal Year 1992 10-K).
10.56 Lease agreement dated June 21, 1988 between Combined
Properties Limited Partnership and Jumbo Food Stores Md.,
Inc., First Amendment dated July 7, 1989, Second Amendment
dated September 25, 1990, re: Enterprise Plaza
(incorporated by reference to Dart Fiscal Year 1992 10-K).
160
<PAGE> 161
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
10.57 Letter of Agreement dated February 27, 1992 between Dart
Group Corporation and Shoppers Food Warehouse Corp., re:
Whse 3, Pennsy Drive (incorporated by reference to Dart
Fiscal Year 1992 10-K).
10.58 Lease agreement dated December 23, 1991 between Combined
Properties Limited Partnership and Trak Corporation, re:
Manaport Plaza (607), herein incorporated by reference to
Exhibit 10(lllll) Trak Auto Corporation Fiscal Year 1992
Form 10-K No. 0-12202 ("Fiscal 1992 Trak 10-K").
10.59 Amendment of lease dated December 24, 1991 between
Haft/Equities-Bladen Limited Partnership and Trak
Corporation, re: Bladen Plaza (662), herein incorporated by
reference to Exhibit 10(mmmmm) filed with Fiscal 1992 Trak
10-K.
10.60 Sublease agreement dated February 19, 1992 between Crown
Books Corporation and Trak Corporation, re: Vienna (616),
herein incorporated by reference to Exhibit 10 (nnnn) filed
with Fiscal 1992 Trak 10-K
10.61 Sublease agreement dated February 12, 1992 between Crown
Books Corporation and Trak Corporation, re: McLean Shopping
Center (627), herein incorporated by reference to Exhibit
10(ooooo) filed with Fiscal 1992 Trak 10-K.
10.62 Sublease agreement dated April 20, 1992 between Dart Group
Corporation and Trak Corporation, re: Whse 3 Pennsy Drive,
herein incorporated by reference to Exhibit 10(ppppp) filed
with Fiscal 1992 Trak 10-K.
10.63 Lease agreement dated May 8, 1991 between Combined
Properties Limited Partnership and Crown Books Corporation,
re: Montgomery Village (827), herein incorporated by
reference to Exhibit 10(qqqqq) filed with Crown Books
Corporation Fiscal Year 1992 Form 10-K No. 0-11457.
10.64 Dart Group Corporation 1992 Stock Option Plan incorporated
herein by reference to Dart 1993 S-8 file No. 33-57010.
10.65 Amendment of lease dated December 11, 1992 between Combined
Properties Limited Partnership and Super Trak Corporation
re: Oxon Hill (606), herein incorporated by reference to
Exhibit 10(qqqqq) filed with Trak Auto Corporation Fiscal
Year 1993 Form 10-K No. 0-12202 ("Fiscal 1993 Trak 10-K").
161
<PAGE> 162
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
10.66 Amendment of lease dated December 1, 1992 between
Haft/Equities-Bladen Limited Partnership and Super Trak
Corporation re: Bladen Plaza (662), herein incorporated by
reference to Exhibit 10(rrrrr) filed with Fiscal 1993 Trak
10- K.
10.67 Amendment of lease dated January 8, 1993 between Retail
Lease Acquisition Limited Partnership and Trak Corporation
re: Chantilly Plaza (609), herein incorporated by reference
to Exhibit 10(sssss) filed with Fiscal 1993 Trak 10-K.
10.68 Amendment of lease dated December 1, 1992 between Combined
Properties/Montebello Limited Partnership and Super Trak re:
Montebello (520), herein incorporated by reference to
Exhibit 10(uuuuu) filed with Fiscal 1993 Trak 10-K.
10.69 Third Amendment dated June 4, 1992 and Fourth Amendment
dated June 15, 1992 to the Lease agreement between Combined
Properties Limited Partnership and Crown Books Corporation
re: Greenbriar Town Center (104), herein incorporated by
reference to Exhibit 10(sssss) filed with Crown Books
Corporation Fiscal Year 1992 Form 10-K No. 0-11457 ("Fiscal
1993 Crown 10-K").
10.70 Third Amendment dated June 17, 1992 to the Lease agreement
between Combined Properties Limited Partnership and Jumbo
Food Stores MD., Inc., Re: Enterprise Plaza (incorporated
by reference to Dart Fiscal Year 1993 10-K).
10.71 Lease agreement dated January 21, 1993 between CM/CP Bull
Run Joint Venture and Shoppers Food Warehouse VA Corporation
Re: Festival at Bull Run (incorporated by reference to Dart
Fiscal Year 1993 10-K).
10.72 Lease agreement dated November 1, 1990 between Penn Daw
Associates Limited Partnership (A Haft Controlled Entity)
and Shoppers Food Warehouse VA Corporation, the First
Amendment dated February 13, 1991 Re: Penn Daw Shopping
Center (incorporated by reference to Dart Fiscal Year 1993
10-K).
10.73 Amendment of lease dated February 4, 1993 between Retail
Lease Acquisition Limited Partnership and Super Trak re:
College Plaza (610), herein incorporated by reference to
Exhibit 10 (wwwww) filed with Trak Auto Corporation Fiscal
Year 1994 Form 10-K No 0-12202 ("Fiscal 1994 Trak 10-K").
10.74 Amendment of lease dated September 13, 1993 between Combined
162
<PAGE> 163
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
Properties Limited Partnership and Super Trak re: Fair City
Mall (605), herein incorporated by reference to Exhibit
10(xxxxx) filed with Fiscal 1994 Trak 10-K.
10.75 Amendment of lease dated September 13, 1993 between Combined
Properties Limited Partnership and Super Trak re: Maryland
City (623), herein incorporated by reference to Exhibit
10(yyyyy) filed with Fiscal 1994 Trak 10-K.
10.76 Second Amendment of lease dated March 31, 1994 between
Combined Properties Limited Partnership and Super Trak
Corporation re: Oxon Hill (606), herein incorporated by
reference to Exhibit 10 (zzzzz) filed with Fiscal 1994 Trak
10-K.
10.77 Lease Amendment dated November 22, 1993 between Combined
Properties Limited Partnership and Super Trak Corporation
re: Landmark (658), herein incorporated by reference to
Exhibit 10(A) filed with Fiscal 1994 Trak 10-K.
10.78 Second Amendment of Lease dated August 19, 1993 and Third
Amendment of lease dated August 30, 1993 between Combined
Properties Limited Partnership and Super Crown Books
Corporation re: Landmark (165), herein incorporated by
reference to Exhibit 10(wwwww) filed with Crown Books
Corporation Fiscal Year 1994 Form 10-K No. 0-11457 ("Fiscal
1994 Crown 10-K").
10.79 Lease Agreement dated August 19, 1993 between Retail Lease
acquisition Limited Partnership and Super Crown Books
Corporation re: White Flint Plaza (132), herein incorporated
by reference to Fiscal 1994 Crown 10-K.
10.80 Employment Agreement dated August 1, 1993, between Ronald S.
Haft and Dart Group Corporation (incorporated by reference
to Dart Fiscal Year 1994 Form 10-K).
10.81 Lease Agreement dated April 2, 1991 between Combined
Properties/Greenbriar Limited Partnership and Total Beverage
Corp. First Amendment dated February 15, 1993 between
Combined Properties/Greenbriar Limited Partnership and Total
Beverage VA Corp. Second amendment dated September 29, 1993
between Combined Properties/Greenbriar Limited Partnership
and Total Beverage G.B., Inc. re: Chantilly (201)
(incorporated by reference to Dart Fiscal Year 1994 Form
10-K).
163
<PAGE> 164
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
10.82 Agreement dated August 16, 1993 between Combined Properties
Limited Partnership and Total Beverage Corp. and First
Amendment of Lease dated February 24, 1994 re: Landmark
(203) (incorporated by reference to Dart Fiscal Year 1994
Form 10- K).
10.83 Lease Agreement dated August 16, 1993 between CM/CP Bull Run
Joint Venture and Total Beverage Corp. and First Amendment
dated February 7, 1994 re: Bull Run Plaza (202)
(incorporated by reference to Dart Fiscal Year 1994 Form
10-K).
10.84 Loan Agreement dated May 21, 1993 between Cabot-Morgan Real
Estate Company and CM/CP Bull Run Joint Venture
(incorporated by reference to Dart Fiscal Year 1994 Form
10-K).
10.85 Trak Auto 1993 Stock Option Plan, herein incorporated by
reference to Exhibit 10(vvvvv) filed with Fiscal 1994 10-K.
10.86 Crown Books 1993 Stock Option Plan, herein incorporated by
reference to Exhibit 10(yyyyy) filed with Fiscal 1994 Crown
10-K.
10.87 Lease agreement dated June 8, 1993 between Combined
Properties/Greenbriar Office Limited Partnership and Total
Beverage Total Beverage Corp. (incorporated by reference to
Dart Fiscal Year 1994 Form 10-K).
10.88 Consulting Agreement dated October 1, 1994 between RPF Inc.
and Dart Group Corporation relating to the appointment of
Robert A. Marmon, as Treasurer and Chief Financial Officer
of Dart Group and its subsidiaries (excluding Shoppers Food
Warehouse Corp.), Chief Financial Officer of Crown Books
Corporation and its subsidiaries and Principal Financial
Officer of Trak Auto Corporation, herein incorporated by
reference to Exhibit 10(mmmmm) filed with Dart Group
Corporation Form 10-Q filed December 15, 1994.
10.89 Amendment of lease dated June 30, 1994 between Combined
Properties Limited Partnership and Super Trak Corporation
re: Bradlick (629), herein incorporated by reference to
Exhibit 10.45 filed with Trak Auto Corporation Fiscal Year
1995 Form 10-K No. 0-12202 ("Fiscal 1995 Trak 10-K").
10.90 Employment Agreement between R. Keith Green and Trak Auto
Corporation dated January 25, 1995, herein incorporated by
reference to Exhibit 10.46 to Fiscal 1995 Trak 10-K.
164
<PAGE> 165
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
10.91 Tax Allocation Agreement dated December 27, 1994 between
Dart Group Corporation and Trak Auto Corporation, herein
incorporated by reference to Exhibit 10.47 to Fiscal 1995
Trak 10-K.
10.92 Loan Agreement dated February 6, 1995 between Dart Group
Corporation and Trak Auto Corporation, herein incorporated
by reference to Exhibit 99(a)(16) to Amendment No. 2 to Trak
Auto Corporation Statement on Schedule 13E-4/A, Commission
File No. 5-34497, filed with the Commission on February 6,
1995.
10.93 Employment Agreement between E. Steve Stevens and Crown
Books Corporation dated January 25, 1995, herein
incorporated by reference to Exhibit 10.28 filed with Crown
Books Corporation Fiscal year 1995 Form 10-K No. 0-11457.
10.94 Employment Agreement between Dennis N. Weiss and Dart Group
Corporation dated January 25, 1995, herein incorporated by
reference to Exhibit 10.94 filed with Dart Group Corporation
Fiscal year 1995 Form 10-K ("Fiscal 1995 Dart 10-K").
10.95 Amendment to Consulting Agreement dated March 20, 1995
between RPF, Inc. and Dart Group Corporation, herein
incorporated by reference to Exhibit 10.95 filed with Fiscal
1995 Dart 10-K.
10.96 Form of Indemnification Agreement dated as of September 21,
1994 by and between Dart Group Corporation and each of
Ronald S. Haft, Herbert H. Haft, Douglas M. Bregman, Bonita
Wilson, H. Ridgely Bullock and Larry G. Schafran, herein
incorporated by reference to Exhibit 10.95 filed with Fiscal
1995 Dart 10- K.
10.97 Standstill Agreement executed on behalf of Dart and Ronald
S. Haft and ordered on September 14, 1994 by the Court in
Ronald S. Haft v. Dart Group Corporation, Del Ch. 13736
(filed September 12, 1994) (incorporated by reference to
Exhibit 99(b) to the Current Report of Dart on Form 8-K of
September 6, 1994 and filed on September 16, 1994).
10.98 Settlement Agreement, dated as of October 6, 1995, by and
between Dart Group Corporation and Ronald S. Haft
(incorporated by reference to Exhibit 10.1 to the Current
Report of Dart Group Corporation on Form 8-K filed on
October 10, 1995).
10.99 Buy/Sell/Offering Agreement, dated as of October 6, 1995, by
165
<PAGE> 166
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
and between Dart Group Corporation and Ronald S. Haft
(incorporated by reference to Exhibit 10.2 to the Current
Report of Dart Group Corporation on Form 8-K filed on
October 10, 1995).
10.100 Amendment No. 1 to Employment Agreement, dated October 6,
1995, by and between Dart Group Corporation and Ronald S.
Haft (incorporated by reference to Exhibit 10.3 to the
Current Report of Dart Group Corporation on Form 8-K filed
on October 10, 1995).
10.101 Promissory Note, dated October 6, 1995, executed by Ronald
S. Haft in favor of Dart Group Corporation in the principal
amount of $37,740,162.00 (incorporated by reference to
Exhibit 10.4 to the Current Report of Dart Group Corporation
on Form 8-K filed on October 10, 1995).
10.102 Promissory Note, dated October 6, 1995, executed by Ronald
S. Haft in favor of Dart Group Corporation in the principal
amount of $27,389,672.00 (incorporated by reference to
Exhibit 10.5 to the Current Report of Dart Group Corporation
on Form 8-K filed on October 10, 1995).
10.103 Promissory Note, dated October 6, 1995, executed by Ronald
S. Haft in favor of Dart Group Corporation in the principal
amount of $11,621,276.00 (incorporated by reference to
Exhibit 10.6 to the Current Report of Dart Group Corporation
on Form 8-K filed on October 10, 1995).
10.104 Restricted Account Security Agreement, dated as of October
6, 1995, by and among Ronald S. Haft, Dart Group
Corporation and Settlement Corp., as escrow agent
(incorporated by reference to Exhibit 10.7 to the Current
Report of Dart Group Corporation on Form 8-K filed on
October 10, 1995).
10.105 Escrow Agreement [$11.6 Million], dated as of October 6,
1995, by and among Ronald S. Haft, Dart Group Corporation
and Settlementcorp, as escrow agent (incorporated by
reference to Exhibit 10.8 to the Current Report of Dart
Group Corporation on Form 8-K filed on October 10, 1995).
10.106 Stock and Trust Certificate Pledge Agreement, dated as of
October 6, 1995, made by Ronald S. Haft in favor of Larry
G. Schafran and Sidney B. Silverman, as collateral agents
and bailees for Dart Group Corporation and Cabot-Morgan Real
Estate Company (incorporated by reference to Exhibit 10.9 to
166
<PAGE> 167
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
the Current Report of Dart Group Corporation on Form 8-K
filed on October 10, 1995).
10.107 Pledge of Undisputed Partnership Interests, dated as of
October 6, 1995, executed by Ronald S. Haft and certain of
his affiliates in favor of Dart Group Corporation
(incorporated by reference to Exhibit 10.10 to the Current
Report of Dart Group Corporation on Form 8-K filed on
October 10, 1995).
10.108 Pledge of Disputed Partnership Interests, dated as of
October 6, 1995, executed by Ronald S. Haft and certain of
his affiliates in favor of Dart Group Corporation
(incorporated by reference to Exhibit 10.11 to the Current
Report of Dart Group Corporation on Form 8-K filed on
October 10, 1995).
10.109 Partnership Stock Pledge Agreement, dated as of October 6,
1995, in favor of Dart Group Corporation (incorporated by
reference to Exhibit 10.12 to the Current Report of Dart
Group Corporation on Form 8-K filed on October 10, 1995).
10.110 Mutual Release, dated as of October 6, 1995, by and between
each of Dart Group Corporation, Crown Books Corporation,
Trak Auto Corporation, Cabot-Morgan Real Estate Company,
Dart/SFW Corporation, and each of Ronald S. Haft and
Combined Properties, Inc. (incorporated by reference to
Exhibit 10.13 to the Current Report of Dart Group
Corporation on Form 8-K filed on October 10, 1995).
10.111 Real Estate Master Agreement, dated as of October 6, 1995,
by and among Ronald S. Haft, Dart Group Corporation and
Cabot-Morgan Real Estate Company (incorporated by reference
to Exhibit 10.14 to the Current Report of Dart Group
Corporation on Form 8-K filed on October 10, 1995).
10.112 Escrow and Security Agreement, dated as of October 6, 1995,
by and among Ronald S. Haft, certain of his affiliates, Dart
Group Corporation, Cabot-Morgan Real Estate Company and
Settlementcorp, as escrow agent (incorporated by reference
to Exhibit 10.15 to the Current Report of Dart Group
Corporation on Form 8-K filed on October 10, 1995).
10.113 Purchase Agreement [Pennsy Drive Warehouse], dated October
6, 1995, by and between Ronald S. Haft and Dart Group
Corporation (incorporated by reference to Exhibit 10.16 to
the Current Report of Dart Group Corporation on Form 8-K
filed on October 10, 1995).
167
<PAGE> 168
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
10.114 Purchase Agreement [Warehouse Partnership Interests], dated
October 6, 1995, by and between Ronald S. Haft and Dart
group Corporation (incorporated by reference to Exhibit
10.17 to the Current Report of Dart Group Corporation on
Form 8-K filed on October 10, 1995).
10.115 Disputed Partnership Interest Purchase Agreement, dated
October 6, 1995, by and between Ronald S. Haft and Dart
group Corporation (incorporated by reference to Exhibit
10.18 to the Current Report of Dart Group Corporation on
Form 8-K filed on October 10, 1995).
10.116 Termination of Employment Agreement, dated as of October 6,
1995, by and between Dart Group Corporation and Ronald S.
Haft (incorporated by reference to Exhibit 10.19 to the
Current Report of Dart Group Corporation on Form 8-K filed
on October 10, 1995).
10.117 Subscription Agreement, dated as of October 6, 1995, by and
between Dart Group Corporation and Ronald S. Haft
(incorporated by reference to Exhibit 10.20 to the Current
Report of Dart Group Corporation on Form 8-K filed on
October 10, 1995)
10.118 Standstill Order entered on December 6, 1995 by the Delaware
Chancery Court in Gloria G. Haft, et al. v. Larry G.
Schafran, et al. (Del. Ch. Civ. A. No. 14620) and Herbert H.
Haft v. Dart Group Corporation, et al. (Del. Ch. Civ. A. No.
14685) (incorporated by reference to Exhibit 99.1 to the
Quarterly Report of Dart Group Corporation on Form 10-Q for
the period ended October 28, 1995).
11 Statement on Computation of Per Share Earnings.
21 Subsidiaries of Dart.
23 Consent of Independent Public Accountants.
27 Financial Statement Schedules
Note: Dart Drug Corporation changed its name to Dart Group Corporation on July
3, 1984.
168
<PAGE> 169
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(Continued)
(b) Reports on Form 8-K
During the fourth quarter of fiscal year end January 31, 1996, Dart
filed two Current Reports on Form 8-K.
1. Dart filed a Current Report on Form 8-K on November 1, 1995
reporting under Item 1 (Changes in Control of Registrant) and Item
5 (other Events) a lawsuit filed on October 17, 1995 against Dart
and its directors by Gloria G. Haft, Robert M. Haft and Linda G.
Haft.
2. Dart filed a Current Report on Form 8-K on December 29, 1995
reporting under Item 1 (Changes in Control of Registrant) and Item
5 (Other Events) the appointment of Richard B. Stone as Voting
Trustee.
169
<PAGE> 170
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.
DART GROUP CORPORATION
Date: April 30, 1996 By: Herbert H. Haft
---------------------------- ---------------------------------
Herbert H. Haft
Chairman of the Board of Directors
and Chief Executive Officer
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.
Date: April 30, 1996 Herbert H. Haft
--------------------------- ---------------------------------
Herbert H. Haft
Chairman of the Board of Directors
and Chief Executive Officer
Date:
-------------------------- ---------------------------------
Ronald S. Haft
Director
Date: April 30, 1996 Bonita A. Wilson
--------------------------- ---------------------------------
Bonita A. Wilson
Director
Date: April 30, 1996 Douglas M. Bregman
--------------------------- ---------------------------------
Douglas M. Bregman
Director
Date: April 30, 1996 Larry G. Schafran
--------------------------- ---------------------------------
Larry G. Schafran
Director
Date: April 30, 1996 Ronald T. Rice
--------------------------- ---------------------------------
Ronald T. Rice
Assistant Vice President and
Controller
Date: April 30, 1996 Kenneth M. Sobien
--------------------------- ----------------------------------
Kenneth M. Sobien
Assistant Treasurer
170
<PAGE> 171
DART GROUP CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Exhibit Number Exhibit Index
- -------------- -------------
<S> <C>
11 Statement on Computation of
Per Share Earnings.
21 Subsidiaries of Dart Group
Corporation.
23 Consent of Independent Public
Accountants.
27 Financial Data Schedules
171
</TABLE>
<PAGE> 1
Exhibit 11 Statement on Computation of
Per Share Earnings
<TABLE>
<CAPTION>
Years Ended January 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average common
shares outstanding
during the year 1,862,000 1,758,000 1,752,000
Effect of dilutive stock
options; net of shares
assumed repurchased at
average market - 113,000 115,000
------------ ------------ ------------
Weighted average common
share and common
share equivalents 1,862,000 1,871,000 1,867,000
============ ============ ===========
Net Loss as reported $(13,424,000) $(73,792,000) $(6,737,000)
============ ============ ===========
Adjustment for dilutive effect
of subsidiary stock options (1,249,000) (244,000) (918,000)
------------ ------------ -----------
Net (Loss) Income Per Earnings
Per Share Calculation $(14,673,000) $(74,036,000) $(7,655,000)
============ ============ ===========
Earnings per share:
Net Loss as reported $ (7.88) $ (39.57) $ (4.10)
============ ============ ===========
</TABLE>
(1) Not dilutive.
See Note 1 to the Consolidated Financial Statements regarding the earnings per
share calculation.
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF DART GROUP CORPORATION
State of Incorporation
----------------------
<TABLE>
<S> <C> <C>
Trak Auto Corporation (67%) Delaware
Crown Books Corporation (51%) Delaware
Shoppers Food Warehouse Corp. (50%) Delaware
Dart Delaware Corporation (100%) Delaware
Dart/SFW Corporation (100%) Delaware
Discount Books East, Inc. (100%) Delaware
Trak Auto East Holding Corporation (100%) Delaware
Dart Group Financial Corporation (100%) Delaware
Cabot-Morgan Real Estate Company (100%) Delaware
Trak Corporation (100%)(1) Delaware
Super Trak Corporation (100%)(1) Delaware
Trak DHC Corporation (100%)(1) Delaware
Trak Acquisition Corp (100%)(1) Delaware
Crown Books East Corporation (100%)(2) Delaware
Crown Books West Corporation (100%)(2) Delaware
Crown DHC Corporation (100%)(2) Delaware
Super Crown Books Corporation (100%)(2) Delaware
Total Beverage Corp. (100%) Delaware
Total Beverage G.B. (100%)(3) Delaware
</TABLE>
(1) Wholly-owned by Trak Auto Corporation
(2) Wholly-owned by Crown Books Corporation.
(3) Wholly-owned by Total Beverage Corp.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into Dart Group Corporation's
previously filed registration statements on Forms S-8, File Number 33-57010 and
File Number 33-12149.
ARTHUR ANDERSEN LLP
Washington, D.C.
April 26, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 64,784
<SECURITIES> 22,544
<RECEIVABLES> 8,965
<ALLOWANCES> 0
<INVENTORY> 205,615
<CURRENT-ASSETS> 318,022
<PP&E> 144,922
<DEPRECIATION> 68,559
<TOTAL-ASSETS> 470,565
<CURRENT-LIABILITIES> 198,921
<BONDS> 30,825
0
0
<COMMON> 2,449
<OTHER-SE> 132,127
<TOTAL-LIABILITY-AND-EQUITY> 470,565
<SALES> 655,161
<TOTAL-REVENUES> 678,136
<CGS> 509,136
<TOTAL-COSTS> 509,136
<OTHER-EXPENSES> 168,508
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,175
<INCOME-PRETAX> (12,683)
<INCOME-TAX> 6,149
<INCOME-CONTINUING> (13,424)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,424)
<EPS-PRIMARY> (7.36)
<EPS-DILUTED> (7.36)
</TABLE>
