<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED April 30, 1996
--------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO
__________
Commission file number 0-1946
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DART GROUP CORPORATION
- -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 53-0242973
- ------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3300 75th Avenue, Landover, Maryland, 20785
---------------------------------------------
(Address of principal executive offices)
(Zip Code)
(301) 731-1200
----------------------------------------------------
(Registrant's telephone number, including area code)
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
----- -----
At June 13, 1996, the registrant had 1,746,908 shares outstanding of Class A
Common Stock, $1.00 par value per share, and 327,270 shares outstanding of
Class B Common Stock, $1.00 par value per share. The Class B Stock is the only
voting stock and is not publicly traded.
Page 1 of 21 pages
1
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Certain consolidated financial statements included herein have been
prepared by Dart Group Corporation ("Dart"), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although Dart
believes that the disclosures are adequate to make the information presented
not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in Dart's report on Form 10-K for the fiscal year ended January 31,
1996.
2
<PAGE> 3
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
--------------------------
1996 1995
------------ -----------
<S> <C> <C>
Sales $156,528,000 $145,381,000
Real estate revenue - 4,840,000
Other interest and other income 1,408,000 2,609,000
------------ ------------
157,936,000 152,830,000
------------ ------------
Expenses:
Cost of sales, store occupancy and
warehousing 121,806,000 112,895,000
Selling and administrative 34,206,000 32,455,000
Depreciation and amortization 3,431,000 3,991,000
Interest 2,175,000 3,957,000
------------ ------------
161,618,000 153,298,000
------------ ------------
Loss before income taxes, equity in
affiliate and minority interests (3,682,000) (468,000)
Income taxes (benefit) (346,000) 448,000
------------ ------------
Loss before equity in affiliate and
minority interests (3,336,000) (916,000)
Equity in affiliate 2,384,000 2,151,000
Minority interests in (income) loss of
consolidated subsidiaries and
partnerships 485,000 (322,000)
------------ ------------
Net income (loss) $ (467,000) $ 913,000
============ ============
Net income (loss) per share $ (.36) $ .31
============ ============
Weighted average shares outstanding 2,208,000 1,889,000
============ ============
Dividends per share of Class A Common Stock $ .033 $ .033
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
April 30, January 31,
1996 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 18,085,000 $ 13,967,000
Short-term instruments 21,828,000 50,817,000
Marketable debt securities 33,421,000 22,544,000
Accounts receivable 9,626,000 8,965,000
Merchandise inventories 223,443,000 205,615,000
Deferred income tax benefit 13,958,000 13,915,000
Other current assets 6,785,000 2,199,000
------------ ------------
Total Current Assets 327,146,000 318,022,000
------------ ------------
Property and Equipment, at cost:
Furniture, fixtures and equipment 94,559,000 91,311,000
Buildings and leasehold improvements 29,256,000 28,105,000
Land 1,034,000 1,034,000
Property under capital leases 24,472,000 24,472,000
------------ ------------
149,321,000 144,922,000
Accumulated Depreciation and
Amortization 71,745,000 68,559,000
------------ ------------
77,576,000 76,363,000
------------ ------------
Other Assets 3,132,000 3,145,000
------------ ------------
Note Receivable - Ronald S. Haft 11,621,000 11,621,000
------------ ------------
Share of Equity in Shoppers Food
Warehouse Corp. 48,781,000 46,397,000
------------ ------------
Retained Interest in Cabot-Morgan Real
Estate Joint Ventures 2,000,000 2,000,000
------------ ------------
Excess of Purchase Price Over Net Assets
Acquired net of accumulated
amortization of $223,000 1,687,000 1,735,000
------------ ------------
Deferred Income Tax Benefit 12,437,000 11,282,000
------------ ------------
Total Assets $484,380,000 $470,565,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE> 5
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited) (Audited)
April 30, January 31,
1996 1996
------------ ------------
<S> <C> <C>
Current Liabilities:
Current portion of mortgages payable $ 1,046,000 $ 1,028,000
Accounts payable, trade 99,256,000 89,095,000
Income taxes payable 1,709,000 967,000
Accrued salaries and employee benefits 19,933,000 18,456,000
Accrued taxes other than income taxes 10,436,000 7,669,000
Accrued judgement in favor of
Robert M. Haft 35,095,000 34,579,000
Current portion of reserve for closed
facilities and restructuring 6,727,000 6,970,000
Other accrued liabilities 40,950,000 40,056,000
Current portion of obligations under
capital leases 101,000 101,000
------------ ------------
Total Current Liabilities 215,253,000 198,921,000
------------ ------------
Mortgages Payable 587,000 660,000
------------ ------------
Obligations Under Capital Leases 30,232,000 30,165,000
------------ ------------
Reserve for Closed Facilities and
Restructuring 35,573,000 36,816,000
------------ ------------
Minority Interests 68,992,000 69,427,000
------------ ------------
Stockholders' Equity
Class A common stock, non-voting,
par value $1.00 per share; 3,000,000
shares authorized; 1,949,248 and
1,949,223 shares issued, respectively 1,949,000 1,949,000
Class B common stock, voting par value
$1.00 per share; 500,000 shares
authorized and issued 500,000 500,000
Paid-in capital 77,872,000 77,879,000
Notes receivable - shareholder (65,130,000) (65,130,000)
Unrealized (losses) gains on short-term
investments (55,000) 246,000
Retained earnings 120,644,000 121,169,000
</TABLE>
5
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DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY, (Continued)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
April 30, January 31,
1996 1996
------------ ------------
<S> <C> <C>
Treasury Stock, 202,340 shares of Class
A common stock, at cost (1,749,000) (1,749,000)
Treasury Stock, 172,730 shares of Class
B common stock, at cost (288,000) (288,000)
------------ ------------
Total Stockholders' Equity 133,743,000 134,576,000
------------ ------------
Total Liabilities and Stockholders' Equity $484,380,000 $470,565,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
6
<PAGE> 7
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (467,000) $ 913,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,431,000 3,991,000
Provision for closed facilities and
restructuring 483,000 450,000
Equity in affiliate (2,384,000) (2,151,000)
Change in assets and liabilities:
Accounts receivable (533,000) 220,000
Merchandise inventories (17,828,000) (4,948,000)
Other current assets (4,586,000) 328,000
Deferred income tax benefits (1,226,000) 1,717,000
Other assets 46,000 (21,000)
Accounts payable, trade 10,161,000 (1,647,000)
Income taxes payable 742,000 (4,822,000)
Accrued salaries and
employee benefits 1,993,000 (1,202,000)
Accrued taxes other than
income taxes 2,767,000 (761,000)
Other accrued liabilities 1,002,000 (4,088,000)
Reserve for closed facilities (1,893,000) (2,112,000)
Minority interest (442,000) 495,000
------------ ------------
Net cash used for
operating activities $ (8,734,000) $(13,638,000)
------------ ------------
Cash Flows from Securities and Capital
Investment Activities:
Capital expenditures $ (4,705,000) $ (4,541,000)
Acquisition of Treasury Shares by
subsidiary - (6,882,000)
Purchase of United States Treasury
Bills (18,857,000) (7,914,000)
Maturities of United States Treasury
Bills 7,579,000 22,810,000
</TABLE>
7
<PAGE> 8
DART GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 30,
---------------------------
1996 1995
------------- ------------
<S> <C> <C>
Dispositions of marketable debt
securities - 50,000
Maturities of marketable debt
securities - 2,200,000
------------ ------------
Net cash provided by (used for) securities
and capital investment activities $(15,983,000) $ 5,723,000
------------ ------------
Cash Flows from Financing Activities:
Cash dividends $ (58,000) $ (49,000)
Proceeds from stock options exercised 2,000 -
Principal payments under mortgage
obligations (73,000) (324,000)
Principal payments under capital
lease obligations (25,000) (93,000)
------------ ------------
Net cash used for financing
activities $ (154,000) $ ( 466,000)
------------ ------------
Net decrease in Cash and Equivalents $(24,871,000) $ (8,381,000)
Cash and Equivalents at Beginning of Year 64,784,000 102,374,000
------------ ------------
Cash and Equivalents at End of Period $ 39,913,000 $ 93,993,000
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the three months for:
Interest $ 1,077,000 $ 3,058,000
Income taxes 260,000 3,625,000
Reconciliation of Cash and Cash Equivalents
to Balance Sheet Captions:
Cash $ 18,085,000 $ 17,003,000
Short-term investments 21,828,000 76,990,000
------------ ------------
$ 39,913,000 $ 93,993,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE> 9
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996 AND 1995
(Unaudited)
(1) General:
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") and Cabot-Morgan Real Estate Company
("CMREC"). Dart's investment in Shoppers Food Warehouse Corp. ("Shoppers
Food") is reflected in the financial statements using the equity method of
accounting. The accounts of CMREC's real estate joint ventures were
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"). Dart, Trak Auto, Crown Books, Total
Beverage and CMREC 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 unaudited statements as of April 30,
1996 and 1995 reflect, in the opinion of management, all adjustments (normal
and recurring in nature) necessary to present fairly the consolidated financial
position as of April 30, 1996 and 1995 and the results of operations and cash
flows for the periods indicated.
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.
The results of operations for the three months ended April 30, 1996 are
not necessarily indicative of the results to be achieved for the full fiscal
year.
(2) Earnings Per Common Share and Common Share Equivalents:
Earnings per share is based on the weighted average number of Dart's Class
A and 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
9
<PAGE> 10
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996 AND 1995
(Unaudited)
stock options. The difference between primary earnings per share and fully
diluted earnings per share is not significant for either period.
(3) Short-term Instruments and Marketable Debt Securities:
At April 30, 1996, the Company's short-term instruments included money
market funds and United States Treasury Bills held by Crown Books and Trak
Auto. Marketable debt securities included United States Treasury Notes,
corporate notes, municipal securities, United States Agency Securities
Acceptances and United States Treasury Bills held by Dart.
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 April 30, 1996, market value of short-term
instruments and marketable debt securities was $55,000 less than cost (adjusted
for income taxes). At April 30, 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.
Included in short-term instruments and marketable debt securities were
$32,587,000 and $46,091,000 held by majority-owned subsidiaries at April 30,
1996 and January 31, 1996, respectively.
(4) Interim Inventory Estimates:
Trak Auto inventories are priced at the lower of last-in, first-out
("LIFO") cost or market. At April 30, 1996 and January 31, 1996, Trak Auto
inventories determined on a lower of first-in, first-out ("FIFO") cost or
market basis would have been greater by $6,641,000 and $6,579,000,
respectively. Crown Books' and Total Beverage's inventories are priced at the
lower of FIFO cost or market.
10
<PAGE> 11
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996 AND 1995
(Unaudited)
Trak Auto and Total Beverage take a physical count of their store and
warehouse inventories semi-annually. Crown Books takes a physical count of its
inventories annually. Complete physical inventories were not taken for the
quarter ended April 30, 1996. The Company uses a gross profit method combined
with available perpetual inventory information to determine Trak Auto's, Crown
Books', and Total Beverage's inventories for quarters when complete physical
counts are not taken.
(5) Credit Agreement:
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.
On February 27, 1996, the boards of directors of Dart and Trak Auto
approved a resolution authorizing a credit facility. As of June 14, 1996, Dart
and Trak Auto have not established the facility pending a reconsideration of
its needs. If Dart and Trak Auto establish the credit facility as authorized
on February 27, 1996, Dart would be able to borrow up to $15 million from Trak
Auto on a short-term, secured basis. The credit facility would expire March
31, 1998. Trak Auto expects that it would fund any loans under the credit
facility from cash on hand. Any advances under the credit facility would bear
interest at an annual rate equal to the prime rate as set forth in the "Money
Rates" column of The Wall Street Journal, as such rate may change from time to
time, plus one percent. Any advances under the credit facility would be
secured by a pledge of shares of Trak Auto owned by Dart.
At April 30, 1996, there had been no borrowings under these existing or
proposed credit agreements.
(6) Minority Interests:
The $68,992,000 of minority interests reflected in the Consolidated
Balance Sheet as of April 30, 1996 represents the minority portion of Trak
11
<PAGE> 12
DART GROUP CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1996 AND 1995
(Unaudited)
Auto and Crown Books equity owned by the public shareholders of Trak Auto and
Crown Books. The minority interest reflected in the Consolidated Balance Sheet
as of April 30, 1995, also included the portion of real estate joint ventures
equity owned by Haft family partnerships (CMREC owned the majority interest in
these partnerships). No such minority interest for CMREC are included as of
January 31, 1996 or April 30, 1996. The accounts of CMREC's real estate joint
ventures were consolidated with Dart's financial statements through October 5,
1995, but not thereafter, as a result of the RSH Settlement. Income attributed
to the minority shareholders of Trak Auto was $386,000 and $370,000 for the
three months ended April 30, 1996 and 1995, respectively. Loss attributed to
the minority shareholders of Crown Books was $871,000 and $187,000 for the
three months ended April 30, 1996 and 1995, respectively. Income attributed to
the minority ownership of the real estate partnerships was $139,000 for the
three months ended April 30, 1995.
(7) Sale of CMREC Joint Ventures:
Subsequent to April 30, 1996, five properties owned by the CMREC real
estate joint ventures were sold pursuant to the terms of the RSH Settlement. As
a result of the sale and pursuant to the terms of the RSH Settlement, Dart
received $2.0 million of the proceeds for its retained interest in the joint
ventures and Ronald S. Haft repaid a $11.6 million note to Dart plus accrued
interest. In addition, approximately $32.6 million of CMREC's share of the net
proceeds from the sale of the properties are held in escrow and will be payable
to Ronald S. Haft if certain transactions contemplated by the RSH Settlement
are effected.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
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 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 Dart's 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 a Standstill Order by the court and may be
opposed by Herbert H. Haft or certain other parties to the litigation pending
before the court.
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. 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
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 closed seven Classic Crown Books stores and one Super Crown Books
store during the quarter ended April 30, 1996 and currently anticipates closing
approximately 30 additional Classic Crown Books stores and one Super Crown
Books store during the remainder of fiscal 1997.
13
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
Liquidity and Capital Resources
Cash, including short-term instruments and U.S. government and other
securities, is the Company's primary source of liquidity. Cash, including
short-term instruments and U.S. government and other marketable debt securities
decreased by $13,994,000 to $73,334,000 at April 30, 1996 from $87,328,000 at
January 31, 1996. This decrease was primarily due to payments for merchandise
inventory and capital expenditures at Crown Books and Trak Auto.
For the quarter ended April 30, 1996, the Company realized a pre-tax yield
of approximately 5.3% on United States Treasury Bills and approximately 6.2% on
the marketable debt securities.
Operating activities used $8,734,000 of the Company's funds for the three
months ended April 30, 1996 compared to $13,638,000 for the same period one
year ago. The primary use of cash for the three months ended April 30, 1996
was for payments for merchandise inventory.
Investing activities used $15,983,000 of the Company's funds for the three
months ended April 30, 1996, compared to providing $5,723,000 to the Company
for the same period last year. The primary use of funds was for Crown Books
and Trak Auto capital expenditures and Dart's purchase of United States
Treasury Bills.
The Company used $154,000 and $466,000 for net financing activities for the
three months ended April 30, 1996 and 1995, respectively. The primary use of
funds during the three months ended April 30, 1996 was for payments under
mortgage and capital lease obligations.
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, including marketable debt securities, decreased by
approximately $104.4 million and $14.0 million in fiscal 1996 and the first
quarter of fiscal 1997, respectively.
14
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
Subsequent to April 30, 1996, the five properties owned by the CMREC
real estate joint ventures were sold pursuant to the terms of the RSH
Settlement. Accordingly, Dart received $2.0 million for its remaining interest
in the joint ventures and $11.6 million for repayment of Ronald S. Haft's loan
from Dart. These funds and existing cash resources will be sufficient to fund
Dart's fiscal 1997 working capital needs and any payment or settlement of a
$32.0 million judgment (plus interest) entered against the Company in favor of
Robert M. Haft (the "RMH Judgment"). See Part II Item 1 - Legal Proceedings.
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 in fiscal 1998
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 additional 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 1998. 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 certain other parties to the litigation pending
before the court.
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 May 4, 1996, the Company
had entered into lease agreements to open 15 new Super Crown Books stores and
one lease amendment for additional space in an existing store. 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 May 4, 1996,
Trak Auto had entered into lease agreements to open 15 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
15
<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
sufficient capital becomes available, may open one or more new stores in fiscal
1997.
Results of Operations
Trak Auto
During the thirteen weeks ended May 4, 1996, Trak Auto opened two new
Super Trak Warehouse stores and closed or converted two Super Trak stores and
four classic Trak stores. At May 4, 1996, Trak Auto had 272 stores, including
111 Super Trak stores and 31 Super Trak Warehouse stores.
Sales of $87,016,000 during the thirteen weeks ended May 4, 1996
increased by $7,405,000 or 9.3% over the thirteen weeks ended April 29, 1996.
The increase was primarily due to the continuing conversion to larger and more
successful Super Trak and Super Trak Warehouse stores. Comparable sales
(stores open more than one year) increased 4.9% for the thirteen weeks ended
May 4, 1996. Sales for comparable Super Trak Stores increased 5.4%, sales for
comparable Super Trak Warehouse stores increased 16.5% and sales for comparable
classic Trak stores increased 3.0%. Sales for Super Trak and Super Trak
Warehouse stores represented 62.8% of total sales during the thirteen weeks
ended May 4, 1996 compared to 52.8% for the thirteen weeks ended April 29,
1995.
Interest and other income decreased by $45,000 when compared to the
prior year, largely due to reduced interest income as a result of less funds
available for short-term investment.
Cost of sales, store occupancy and warehousing expenses as a percentage
of sales were 74.7% for the thirteen weeks ended May 4, 1996 compared to 74.3%
for the same period in the prior year. The increase was primarily due to
increased store occupancy costs and was partially offset by increased
advertising credits.
Selling and administrative expenses were 20.4% and 21.3% as a percentage
of sales for the thirteen weeks ended May 4, 1996 and April 29, 1995,
respectively. The decrease was due primarily to decreased insurance costs.
Payroll costs as a percentage of sales remained unchanged.
Depreciation and amortization expenses increased $553,000 for the
thirteen weeks ended May 4, 1996 compared to the same period one year ago. The
increase was due to an increase in store fixed assets resulting from the
opening of Super Trak and Super Trak Warehouse stores.
16
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
The effective income tax rate was 36.3% for the thirteen weeks ended May
4, 1996 compared to 36.9% for the thirteen weeks ended April 29, 1995. The
decrease in the effective rate was primarily due to a reduction in state income
taxes as a result of an increase in the apportionment of state taxable income
to states with lower statutory rates.
Crown Books
During the thirteen weeks ended May 4, 1996, Crown Books opened three Super
Crown Books stores and closed seven classic Crown Books stores and one Super
Crown Books store. At May 4, 1996, Crown Books had 167 stores, including 86
Super Crown Books stores.
Sales of $62,492,000 for the thirteen weeks ended May 4, 1996 increased by
$1,454,000 or 2.4% compared to the thirteen weeks ended April 29, 1995.
Comparable sales (sales for stores open for thirteen months) increased 0.8%
during the thirteen weeks. Sales for Super Crown Books stores represented
73.4% and 62.0% of total sales for the thirteen weeks ended May 4, 1996 and
April 29, 1995, respectively. Super Crown Books stores sales of $45,884,000
increased 22.3% over the prior year and sales for all comparable Super Crown
Books stores increased 1.5%. Comparable sales for the new superstore prototype
increased 15%. Crown Books' superstores consist of the original superstores of
6,000 to 10,000 square feet and the new superstore prototype targeted to occupy
15,000 square feet.
Interest and other income decreased by $349,000 during the thirteen weeks
ended May 4, 1996 when compared to the same period one year ago. The decrease
was primarily due to reduced interest income as a result of decreased funds
available for short-term investment.
Cost of sales, store occupancy and warehousing as a percentage of sales
were 81.8% for the thirteen weeks ended May 4, 1996 compared to 81.9% for the
same period one year ago. The decrease was primarily due to increased store
margins and was partially offset by increased store occupancy costs.
Selling and administrative expenses as a percentage of sales were 20.7% for
the thirteen weeks ended May 4, 1996 compared to 17.7% for the same period one
year ago. The increase was due primarily to increased payroll costs.
Depreciation expense increased $11,000 for the thirteen weeks ended May 4,
1996 compared to the same period one year ago.
Interest expense was $357,000 during the thirteen weeks ended May 4, 1996
primarily due to interest accrued for the Robert M. Haft judgment.
17
<PAGE> 18
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
Crown Books recorded a tax benefit of $1,017,000 for the thirteen weeks
ended May 4, 1996.
Total Beverage
During the three months ended April 30, 1996, Total Beverage closed one
store due to disappointing sales volume.
Total Beverage sales were $7,020,000 during the thirteen weeks ended May
4, 1996 compared to $4,732,000 for the thirteen weeks ended April 28, 1995. The
increase was due to three stores open the entire thirteen weeks ended May 4,
1996 compared to two stores for the same period last year. Comparable store
sales (stores open twelve months) decreased 3.8%.
Cost of sales and store occupancy as a percentage of sales were 81.4%
during the thirteen weeks ended May 4, 1996 compared to 79.8% for the same
period one year ago. The increase was primarily due to increased store
occupancy costs as a percentage of sales. Store margins remained unchanged
compared to last year.
Selling and administrative expenses as a percentage of sales were
decreased to 25.6% during the thirteen weeks ended May 4, 1996 compared to
27.1% for the thirteen weeks ended April 28, 1995. The decrease is primarily
due to increased sales. Actual selling and administrative expenses remained
relatively unchanged from the prior year, except for consulting fees discussed
below.
Total Beverage recorded a net operating loss of $579,000 during the
thirteen weeks ended May 4, 1996 compared to a net operating loss of $372,000
during the thirteen weeks ended April 28, 1995. The net operating loss for the
thirteen weeks ended May 4, 1996 included $340,000 paid to outside consultants
who have been retained to assist in the development and implementation of a
strategic business plan.
Dart Group and Other Corporate
Interest and other income decreased $801,000 during the quarter ended
April 30, 1996 when compared to the same period in the prior year. The
decrease was primarily due to reduced funds available for short-term investment
as a result of funds disbursed pursuant to the RSH Settlement.
18
<PAGE> 19
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations, (Continued)
Administrative expenses decreased $252,000 during the quarter ended
April 30, 1996, primarily due to lower payroll costs. Dart's Chief Financial
Officer, Robert A. Marmon, resigned effective February 29, 1996 and has not yet
been replaced.
Interest expense increased by $63,000 during the quarter ended April 30,
1996 when compared to the same period in the prior year. The increase was
primarily due to interest accrued for the RMH Judgment.
Trak Auto, Crown Books and Shoppers Food file separate income tax
returns. CMREC and Total Beverage are included in Dart's income tax returns.
Dart's current net operating loss was not tax benefitted as a result of the
complete utilization of all available carrybacks.
As a result of Dart's operating loss for the three months ended April
30, 1996, a net tax operating loss carryforward of $1,960,000 was created.
Dart's cumulative total net tax operating loss carryforward is $46,435,000. All
net operating loss carryforwards will expire by fiscal 2012. In addition, Dart
has an Alternative Minimum Tax credit carryforward of approximately $1,010,000.
Dart has a deferred tax valuation allowance of $30,574,000 as of April 30,
1996. Management will continue to evaluate the need for a valuation allowance
on a periodic basis.
Effect of New Financial Accounting Standard
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, Accounting for Long Lived Assets and Long-Lived Assets to be Disposed
of. Adoption of the standard has not had a material impact on the Company's
consolidated financial statements.
The Company adopted SFAS No. 123, Accounting for Stock Based
Compensation. The Company expects to disclose the fair value of options
granted in a footnote to its annual consolidated statements.
19
<PAGE> 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Material legal proceedings pending against Dart of its subsidiaries are
described in Dart's Annual Report on Form 10-K for the year ended January 31,
1996 (the "Annual Report") and, with respect to material developments in such
earlier reported legal proceedings, see below.
Robert M. Haft Employment Litigation
As reported in the Annual Report, in October 1995, Dart, Crown Books and
Trak Auto filed a notice of appeal with the U.S. Court of Appeals for the
Third Circuit with respect to a final judgment that the U.S. District Court for
the District of Delaware had entered in a lawsuit brought by Robert M. Haft for
breach of employment contract. Among other things, the district court had
awarded Robert M. Haft damages against Dart and Crown Books in the amount of
$18,856,964 and $12,800,910, respectively.
On May 30, 1996, the U.S. Court of Appeals for the Third Circuit
affirmed the judgment of the district court.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Document
------ --------
27 Financial Data Schedule
(b) Reports on Form 8-K
None
20
<PAGE> 21
Item 1. Legal Proceedings, Continued
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DART GROUP CORPORATION
Date June 14, 1996 By Herbert H. Haft
-------------------- ----------------------------
HERBERT H. HAFT
Chief Executive Officer
Date June 14, 1996 Ronald T. Rice
-------------------- ----------------------------
RONALD T. RICE
Assistant Vice President
and Controller
Dart June 14, 1996 Kenneth M. Sobien
--------------------- -----------------------------
KENNETH M. SOBIEN
Assistant Treasurer
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
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<COMMON> 2,449
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