<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K
--------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 6, 1997
----------------
DART GROUP CORPORATION
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 0-1946 53-0242973
- -------------------------------- ------------------ -------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
3300 75th Avenue, Landover, Maryland 20785
------------------------------------ -------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (301) 731-1200
---------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report).
The exhibit index appears on page 20.
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
(a) In June 1988, Dart Group Corporation ("Dart") acquired 50% of
Shoppers Food Warehouse Corp., a Delaware corporation ("Shoppers"),
and entered into a Stockholders' Agreement. Pursuant to the terms of
the Stockholders' Agreement, if either party desired to sell its
interest in Shoppers, it was required to make an offer to sell its
interest to the other party together with a simultaneous offer to buy
the other party's interest (the "Buy/Sell Provision"). Under the
terms of the Buy/Sell Provision, both the offer to buy and the offer
to sell had to be at the same price.
On December 16, 1996, Dart submitted offers to either (i) sell
all of Dart's 50% equity interest in Shoppers or (ii) buy the other
50% equity interest in Shoppers, in either case for a cash price of
$210 million. On December 18, 1996, the other stockholders (Kenneth
M. Herman, the founder of Shoppers, and certain of his family members
and family trusts) accepted Dart's offer to purchase all of their
shares of capital stock of Shoppers.
On February 6, 1997, Dart acquired the other 50% interest in
Shoppers for $210 million (the "Acquisition"). A press release
announcing the Acquisition is incorporated herein by reference and
attached hereto as Exhibit 99.1. Dart financed the Acquisition
through the application of $137.2 million in net proceeds raised from
an offering of Increasing Rate Senior Notes due 2000 (the "Senior
Notes") of SFW Acquisition Corp., a newly created wholly-owned
subsidiary of Dart, and $72.8 million of bridge financing (the "Bridge
Loan") provided by NationsBank, N.A. Immediately after the
Acquisition, SFW Acquisition Corp. merged into Shoppers (with Shoppers
becoming obligor on the Senior Notes) and Shoppers repaid the Bridge
Loan from its existing cash and the liquidation of certain short-term
investments.
Shoppers operates 34 supermarkets in the greater Washington,
D.C. area.
Dart intends to analyze the options available to it with
regard to Shoppers, which options include, among others, a refinancing
of the Senior Notes or a sale of all or part of Shoppers.
(b) The assets of Shoppers include equipment and other physical
property used in connection with its supermarket business. Dart
intends to continue to use such property in Shoppers' supermarket
business; Dart does not intend to devote such assets to other
purposes.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
2
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Shoppers Food Warehouse Corp.:
We have audited the accompanying consolidated balance sheets of Shoppers
Food Warehouse Corp. (a Delaware corporation) and subsidiaries as of June 29,
1996, and July 1, 1995, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three fiscal
years in the period ended June 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Shoppers Food Warehouse
Corp. and subsidiaries as of June 29, 1996, and July 1, 1995, and the results
of their operations and their cash flows for each of the three fiscal years in
the period ended June 29, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.,
September 26, 1996
3
<PAGE> 4
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED BALANCE SHEETS
AS OF JULY 1, 1995, JUNE 29, 1996 AND DECEMBER 28, 1996
ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
JULY 1, 1995 JUNE 29, 1996 DEC. 28,1996
------------ ------------- ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 38,650 $ 3,560 $ 10,042
Short-term investments . . . . . . . . . . . . . . . 58,353 103,080 97,382
Accounts receivable . . . . . . . . . . . . . . . . 7,633 7,708 8,861
Merchandise inventories . . . . . . . . . . . . . . 27,253 28,342 30,032
Prepaid expenses . . . . . . . . . . . . . . . . . . 956 1,022 1,084
Income tax receivable . . . . . . . . . . . . . . . -- 273 2,100
Due from affiliate . . . . . . . . . . . . . . . . . 522 522 522
-------- -------- --------
Total current assets . . . . . . . . . . . . . 133,367 144,507 150,023
-------- -------- --------
Property and equipment, at cost:
Land and buildings . . . . . . . . . . . . . . . . . 9,120 9,120 9,120
Store and warehouse equipment . . . . . . . . . . . 71,195 75,827 80,118
Office and automotive equipment . . . . . . . . . . 3,655 3,727 3,762
Leasehold improvements . . . . . . . . . . . . . . . 2,477 2,655 2,655
--------- --------- ---------
86,447 91,329 95,655
Accumulated depreciation and amortization . . . . . (63,504) (69,944) (74,081)
--------- --------- ---------
Net property and equipment . . . . . . . . . . 22,943 21,385 21,574
Deferred income taxes . . . . . . . . . . . . . . . . . . 4,577 4,289 4,290
Other assets . . . . . . . . . . . . . . . . . . . . . . 1,116 841 800
--------- --------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . $162,003 $171,022 $176,687
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
4
<PAGE> 5
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED BALANCE SHEETS
AS OF JULY 1, 1995, JUNE 29, 1996 AND DECEMBER 28, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(UNAUDITED)
JULY 1, 1995 JUNE 29, 1996 DEC. 28, 1996
------------ ------------- -------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 38,275 $ 39,865 $ 43,411
Accrued expenses--
Salaries and benefits . . . . . . . . . . . . . . . 4,931 5,220 5,027
Taxes, other than income . . . . . . . . . . . . . 1,934 1,996 1,984
Other 4,623 5,150 7,495
Income taxes payable . . . . . . . . . . . . . . . . . . 2,152 -- --
-------- -------- --------
Total current liabilities . . . . . . . . . . 51,915 52,231 57,917
-------- -------- --------
Capital lease obligation . . . . . . . . . . . . . . . . . . 9,950 10,069 10,019
Deferred income . . . . . . . . . . . . . . . . . . . . . . . 1,218 412 2,595
Deferred rent liability . . . . . . . . . . . . . . . . . . . 3,590 4,277 4,537
-------- -------- --------
Total liabilities . . . . . 66,673 66,989 75,068
-------- -------- --------
Commitments and contingencies (Notes 2 and 6)
Stockholders' equity:
Class A common stock, nonvoting, par value $5 per
share, 25,000 shares authorized, 23,3331/3 shares
issued and outstanding . . . . . . . . . . . . . . 117 117 117
Class B common stock, voting, par value $5 per share,
25,000 shares authorized, 10,000 shares issued and
outstanding . . . . . . . . . . . . . . . . . . . 50 50 50
Retained earnings . . . . . . . . . . . . . . . . . . . 95,163 103,866 101,452
-------- -------- --------
Total stockholders' equity . . . . . . . . . . 95,330 104,033 101,619
-------- -------- --------
Total liabilities and stockholders' equity . . $162,003 $171,022 $176,687
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
5
<PAGE> 6
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED JULY 2, 1994, JULY 1, 1995 AND JUNE 29, 1996
AND THE TWENTY-SIX WEEKS ENDED DECEMBER 30, 1995 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 2, 1994 JULY 1, 1995 JUNE 29, 1996
------------ ------------ -------------
(52 WEEKS) (52 WEEKS) (52 WEEKS)
<S> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . $ 750,340 $ 790,842 $ 835,971
Cost of sales . . . . . . . . . . . . . . . . . . . . . 593,063 616,521 651,986
------- ------- -------
Gross profit . . . . . . . . . . . . . . . . . 157,277 174,321 183,985
Selling and administrative expenses . . . . . . . . . . 127,643 136,798 149,570
Depreciation and amortization . . . . . . . . . . . . . 10,785 8,529 8,913
------ ----- -----
Operating income . . . . . . . . . . . . . . . 18,849 28,994 25,502
Interest income . . . . . . . . . . . . . . . . . . . . 2,189 4,682 5,789
Interest expense . . . . . . . . . . . . . . . . . . . 1,426 1,451 1,771
----- ----- -----
Income before income taxes and extraordinary
item . . . . . . . . . . . . . . . . . . . . 19,612 32,225 29,520
Provision for income taxes . . . . . . . . . . . . . . 7,541 13,938 10,593
----- ------ ------
Income before extraordinary item . . . . . . . 12,071 18,287 18,927
Extraordinary gain (loss)-- Insurance proceeds from
fire, net of income tax (benefit) provision of $502,
$826 and ($131) in 1994, 1995 and 1996, respectively
(see Note 6) . . . . . . . . . . . . . . . . . . . . . 858 1,239 (224)
-------------- -------------- ---------------
Net income . . . . . . . . . . . . . . . . . . $ 12,929 $ 19,526 $ 18,703
============== ============== ===============
Earnings per common share data:
Earnings per share before extraordinary item . . . $ 362.13 $ 548.61 $ 567.81
Extraordinary item, net of income tax (benefit)
provision . . . . . . . . . . . . . . . . . . . 25.74 37.17 (6.72)
----- ----- ------
Earnings per common share . . . . . . . . . . . . . $ 387.87 $ 585.78 $ 561.09
============== ============== ===============
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . . 33,333 1/3 33,333 1/3 33,333 1/3
============== ============== ===============
<CAPTION>
(UNAUDITED)
-----------------------------
DEC. 30, 1995 DEC. 28, 1996
------------- -------------
(26 WEEKS) (26 WEEKS)
<S> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . $414,585 $422,100
Cost of sales . . . . . . . . . . . . . . . . . . . . . 328,717 329,971
------- -------
Gross profit . . . . . . . . . . . . . . . . . 85,868 92,129
Selling and administrative expenses . . . . . . . . . . 75,698 78,629
Depreciation and amortization . . . . . . . . . . . . . 4,298 4,149
----- -----
Operating income . . . . . . . . . . . . . . . 5,872 9,351
Interest income . . . . . . . . . . . . . . . . . . . . 2,871 3,275
Interest expense . . . . . . . . . . . . . . . . . . . 770 585
--- ---
Income before income taxes and extraordinary
item . . . . . . . . . . . . . . . . . . . . 7,973 12,041
Provision for income taxes . . . . . . . . . . . . . . 2,950 4,455
----- -----
Income before extraordinary item . . . . . . . 5,023 7,586
Extraordinary gain (loss)-- Insurance proceeds from
fire, net of income tax (benefit) provision of $502,
$826 and ($131) in 1994, 1995 and 1996, respectively
(see Note 6) . . . . . . . . . . . . . . . . . . . . . -- --
--------------- ---------------
Net income . . . . . . . . . . . . . . . . . . $ 5,023 $ 7,586
=============== ===============
Earnings per common share data:
Earnings per share before extraordinary item . . . $ 150.69 $ 227.58
Extraordinary item, net of income tax (benefit)
provision . . . . . . . . . . . . . . . . . . . -- --
-------- --------
Earnings per common share . . . . . . . . . . . . . $ 150.69 $ 227.58
=============== ===============
Weighted average number of common shares
outstanding . . . . . . . . . . . . . . . . . . . . 33,333 1/3 33,333 1/3
=============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
6
<PAGE> 7
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JULY 2, 1994, JULY 1, 1995 AND JUNE 29, 1996
AND THE TWENTY-SIX WEEKS ENDED DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
CLASS "A" CLASS "B" RETAINED
NONVOTING VOTING EARNINGS TOTAL
------------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Balance, July 3, 1993 . . . . . . . . . . . . . . . . . $ 117 $ 50 $ 62,708 $ 62,875
Net income . . . . . . . . . . . . . . . . . . . . -- -- 12,929 12,929
---------- ----------- --------- ---------
Balance, July 2, 1994 . . . . . . . . . . . . . . . . . 117 50 75,637 75,804
Net income . . . . . . . . . . . . . . . . . . . . -- -- 19,526 19,526
---------- ----------- --------- ---------
Balance, July 1, 1995 . . . . . . . . . . . . . . . . . 117 50 95,163 95,330
Net income . . . . . . . . . . . . . . . . . . . . -- -- 18,703 18,703
Shareholder distribution . . . . . . . . . . . . . -- -- (10,000) (10,000)
---------- ----------- -------- --------
Balance, June 29, 1996 . . . . . . . . . . . . . . . . 117 50 103,866 104,033
Net income (unaudited) . . . . . . . . . . . . . . -- -- 7,586 7,586
Shareholder distribution (unaudited) . . . . . . . -- -- (10,000) (10,000)
---------- ----------- -------- --------
Balance, December 28, 1996 (unaudited) . . . . . . . . $ 117 $ 50 $101,452 $101,619
========== =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE> 8
SHOPPERS FOOD WAREHOUSE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JULY 2, 1994, JULY 1, 1995 AND JUNE 29, 1996
AND THE TWENTY-SIX WEEKS ENDED DECEMBER 30, 1995 AND DECEMBER 28, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
--------------------------
JULY 2,1994 JULY 1,1995 JUNE 29,1996 DEC. 30,1995 DEC. 28,1996
----------- ----------- ------------ ------------ ------------
(52 WEEKS) (52 WEEKS) (52 WEEKS) (26 WEEKS) (26 WEEKS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 12,929 $ 19,526 $ 18,703 $ 5,023 $ 7,586
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation and amortization . . . . . . . . . . . . . . 10,785 8,529 8,913 4,298 4,149
Increase in deferred income taxes . . . . . . . . . . . . (594) (1,058) 288 -- --
Loss (gain) on disposition of assets . . . . . . . . . . (15) 34 -- -- --
Effect of insurance receivable on income . . . . . . . . (104) -- -- -- --
Interest expense in excess of capital lease payments . . 240 208 119 156 (50)
Increase in deferred rent liability . . . . . . . . . . . 1,082 553 687 387 260
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable . . . . . . (3,952) 1,028 (75) (866) (1,153)
(Increase) decrease in merchandise inventories . . . . (2,455) 1,810 (1,089) (2,817) (1,690)
Increase in prepaid expenses . . . . . . . . . . . . . (53) (63) (66) (254) (62)
Decrease in due from affiliate . . . . . . . . . . . . -- 490 -- -- --
(Increase) decrease in other assets . . . . . . . . . . (354) (252) 275 16 41
Increase in accounts payable . . . . . . . . . . . . . 1,544 2,009 1,590 20 3,546
Increase (decrease) in accrued expenses . . . . . . . . 241 (1,023) 878 2,324 2,139
Increase (decrease) in income taxes payable . . . . . . 144 1,307 (2,425) (2,768) (1,827)
Increase (decrease) in deferred income . . . . . . . . (1,177) (1,191) (806) (565) 2,183
------- ------- ----- ----- ------
Net cash provided by operating activities . . . . . . 18,261 31,907 26,992 4,954 15,122
------- ------- ------- ------ -------
Cash flows used in investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . (5,112) (4,693) (7,355) (3,037) (4,338)
Proceeds from sale of fixed assets . . . . . . . . . . . . 15 -- -- -- --
Disposition/(purchase) of short-term investments . . . . . (1,962) (55,781) (44,727) (24,807) 5,698
------- -------- -------- -------- ------
Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . . . (7,059) (60,474) (52,082) (27,844) 1,360
------- -------- -------- -------- ------
Cash flows used in financing activities:
Shareholder distribution . . . . . . . . . . . . . . . . . -- -- (10,000) (10,000) (10,000)
------ ------ -------- -------- --------
Net cash used in financing activities . . . . . . . . -- -- (10,000) (10,000) (10,000)
------ ------ ------- ------- -------
Net (decrease) increase in cash and cash equivalents . . . . 11,202 (28,567) (35,090) (32,890) 6,482
Cash and cash equivalents, beginning of fiscal year . . . . 56,015 67,217 38,650 38,650 3,560
------- ------- ------- ------- -----
Cash and cash equivalents, end of fiscal year . . . . . . . . $ 67,217 $ 38,650 $ 3,560 $ 5,760 $ 10,042
============ ============ ============ ============ ============
Supplementary disclosures of cash flow information:
Cash paid during the fiscal year for--
Income taxes . . . . . . . . . . . . . . . . . . . . . . $ 8,525 $ 12,091 $ 12,487 $ 5,586 $ 6,300
Interest . . . . . . . . . . . . . . . . . . . . . . . . 1,456 1,451 1,771 770 585
------------ ------------ ------------ ------------ ------------
Supplemental disclosure of noncash financing activity:
In fiscal year 1994, the Company recorded an insurance
receivable and wrote-off certain assets with a net book
value of $708,000 due to fire damage (See Note 6)
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE> 9
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 1, 1995 AND JUNE 29, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The consolidated financial statements include Shoppers Food Warehouse
Corp. (a Delaware corporation) and its subsidiaries, collectively the
"Company". All significant intercompany accounts and transactions have been
eliminated. As of June 29, 1996, and July 1, 1995, the Company operated 34 and
33 warehouse-style grocery stores, respectively, in Maryland and Virginia.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to June 30,
resulting in a 52- or 53-week year. The fiscal years ended June 29, 1996, July
1, 1995, and July 2, 1994, contained 52 weeks.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary cash investments with
maturities of three months or less when purchased to be cash equivalents. The
majority of these are invested in U.S. Treasury Notes.
SHORT-TERM INVESTMENTS
Effective July 1994, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The Company carries debt securities at amortized cost as
it has both the positive intent and ability to hold these investments to
maturity. The effect of adopting SFAS No. 115 did not materially impact the
Company's financial position or results of its operations. At June 29, 1996,
and July 1, 1995, short-term investments consisted of U.S. Government Treasury
Notes with original maturities of more than three months that were intended by
management to be held to maturity. These investments mature at various dates
from July 1996 to February 1997.
MERCHANDISE INVENTORIES
The Company's inventories are priced at the lower of cost or market. Cost
is determined using the last-in, first-out method. If replacement cost (which
approximates the first-in, first-out method) had been used, inventories would
have been greater by approximately $3,845,000 and $2,940,000 as of June 29,
1996, and July 1, 1995, respectively. Net income would have been higher by
approximately $905,000 in 1996, $877,000 in 1995, and $364,000 in 1994.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company depreciates
property and equipment using accelerated methods over the estimated useful
lives of the asset, generally five to seven years.
9
<PAGE> 10
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ACCRUED INSURANCE CLAIMS
The Company maintains self-funded coverage with respect to general,
workers' compensation, and health insurance liabilities. Claims for general
and workers' compensation are administered through insurance companies, which
estimate the obligation of reported claims. An estimate of the obligation for
health insurance claims is accrued at year-end and is based on historical data.
Expenses arising from claims are accrued as claims become subject to
estimation. Self-insurance liabilities are based on claims filed. These
liabilities are not discounted.
INCOME TAXES
The Company provides a deferred tax expense or benefit equal to the change
in the net deferred tax asset during the year in accordance with SFAS No. 109,
"Accounting for Income Taxes." Deferred income taxes represent tax credit
carry forwards and future net tax effects resulting from temporary differences
between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
STORE OPENING AND CLOSING COSTS
All costs of a non-capital nature incurred in opening a new store are
charged to expense as incurred. The Company opened one new store during each
of the fiscal years ended June 29, 1996, and July 2, 1994. No stores were
opened during the year ended July 1, 1995.
The costs associated with store closings are charged to selling and
administrative expense when management makes the decision to close a store.
Such costs consist primarily of lease payments and other costs of holding the
facility, net of estimated sublease income.
DEFERRED INCOME
During the fiscal year ended June 27, 1992, the Company entered into an
agreement with Super Rite Foods, Inc. ("Super Rite") which, as modified,
provided for the Company to acquire two Basics supermarkets in the greater
Washington, D.C., metropolitan area. In connection with the purchase of the
Basics supermarkets, the Company entered into a separate multi-year wholesale
grocery supply agreement with Super Rite and received cash and other
considerations valued at approximately $4,400,000. This amount was amortized
over the 51-month term of the supply agreement. Deferred income also includes
promotional amounts received from other vendors for future periods.
EARNINGS PER SHARE
Earnings per share of common stock were computed based on the weighted
average number of common shares outstanding during each period.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," effective for fiscal years that begin after December 15,
1995. SFAS No. 121 will be implemented in fiscal year 1997. The Company does
not expect the implementation of SFAS No. 121 to have a material effect on
fiscal year 1997 earnings.
10
<PAGE> 11
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONCENTRATION OF CREDIT RISK
The Company's assets that are exposed to credit risk consist primarily of
cash and cash equivalents, short-term investments, and accounts receivable.
The Company maintains cash and cash equivalents with major banks in its
marketplaces. The Company performs periodic evaluations of the relative credit
standing of the financial institutions. The Company's short-term investments
are invested in U.S. Government Treasury Notes. The Company's accounts
receivable balance results primarily from amounts due from its vendors for
various promotional programs. The Company periodically reviews its accounts
receivable balance and allowances are made for uncollectible accounts.
CURRENT ASSETS AND CURRENT LIABILITIES
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires the disclosure of the fair value of a financial instrument for which
it is practicable to estimate the value and the methods and significant
assumptions used to estimate that value. At June 29, 1996, the carrying amount
of current assets and current liabilities approximates fair value due to the
short maturity of those instruments.
INTERIM FINANCIAL STATEMENTS
The accompanying interim consolidated financial statements as of December
28, 1996, and for the twenty-six weeks ended December 28, 1996, and December
30, 1995, of the Company have been prepared by the Company without an audit.
Certain information and footnote disclosures normally included in the financial
statements in accordance with generally accepted accounting principles have
been omitted from the accompanying interim statements. The Company believes
the disclosures made are adequate to make the information presented not
misleading.
In the opinion of the Company, the accompanying unaudited interim
consolidated financial statements reflect all adjustments (which include normal
recurring adjustments) necessary to present fairly the financial position of
the Company as of December 28, 1996, and the results of its operations for the
twenty-six weeks ended December 28, 1996, and December 30, 1995.
Interim results are not necessarily indicative of annual performance
because of the impact of seasonal variations.
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 Dart Group Corporation
("Dart").
As proceeds from the sale, the Company received approximately $1,493,000
in a note receivable (the "Note"). Under the terms of the Agreement, the
Company is required to reimburse the Buyer for 25 percent of future operating
losses of Total Beverage, as defined in the Agreement, over a three-year
period. To the extent of such losses, the Company will remit funds first by
reducing amounts due under the Note and then by remitting payment to the Buyer.
The Note and accrued interest was due in February 1995. Additionally, the
Buyer claims it is due amounts for back rent and plans to offset the Note for
amounts that it claims are due. The Company has reflected the Note, net of a
$1,000,000 reserve, in the accompanying balance sheets as of June 29, 1996 and
July 1, 1995, respectively. Management believes the reserve is adequate to
provide for any reductions in the Note, including the Buyer's claim for
additional rent. The Note has been turned over to the Company's legal counsel
for collection.
11
<PAGE> 12
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. OTHER ACCRUED EXPENSES:
Other accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 29, JULY 1,
1996 1995
-------- -------
<S> <C> <C>
Accrued insurance . . . . . . . . . . $2,719 $2,262
Reserve for store closings and other . 853 853
Gift certificates outstanding . . . . 928 815
Other . . . . . . . . . . . . . . . . 650 693
------ ------
Total . . . . . . . . . . . . . . $5,150 $4,623
====== ======
</TABLE>
4. ACCOUNTS RECEIVABLE:
Accounts receivable include amounts due from vendors for coupons remitted,
cooperative advertising, and merchandise rebates. Approximately $675,000 is
included in accounts receivable as of July 1, 1995, for insurance proceeds
related to fire damage incurred at one of the Company's stores (see Note 6).
5. INCOME TAXES:
The Company files consolidated Federal income tax returns. The provision
for income taxes is comprised of the following (in thousands).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
JUNE 29, 1996 JULY 1, 1995 JULY 2, 1994
------------- ------------ ------------
<S> <C> <C> <C>
Current income tax provision:
Federal . . . . . . . . . . . . . . . $ 9,624 $ 13,422 $ 7,582
State . . . . . . . . . . . . . . . . 681 1,574 1,088
Deferred income tax provision (benefit) . 288 (1,058) (1,129)
----------- ---------- ----------
$ 10,593 $ 13,938 $ 7,541
=========== =========== ===========
</TABLE>
The components of the deferred income tax provision are as follows (in
thousands).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
JUNE 29, 1996 JULY 1, 1995 JULY 2, 1994
------------- ------------ ------------
<S> <C> <C> <C>
Difference between income tax
and financial reporting of:
Depreciation . . . . . . . . . . . . . . . . . $ (81) $ (43) $ 691
Loss on disposition of Total Beverage . . . . . (7) 145 (24)
Reserve for store closings and remodeling . . . (6) (291) --
Deferred rent . . . . . . . . . . . . . . . . . 167 306 409
Capital lease . . . . . . . . . . . . . . . . . (429) 74 91
Employee benefits and other . . . . . . . . . . 471 1,149 184
Deferred income . . . . . . . . . . . . . . . . (403) (282) (222)
------------ ---------- ----------
Deferred income tax provision (benefit) . $ (288) $ 1,058 $ 1,129
============ =========== ===========
</TABLE>
12
<PAGE> 13
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The effective income tax rate is reconciled to the Federal statutory rate as
follows.
<TABLE>
<CAPTION>
JUNE 29, 1996 JULY 1, 1995 JULY 2, 1994
------------- ------------ ------------
<S> <C> <C> <C>
Federal statutory rate . . . . . . . . . . . . . . . 35.0% 35.0% 35.0%
Increase in taxes resulting from:
State income taxes, net of Federal income tax
benefit . . . . . . . . . . . . . . . . . . . 2.0 3.1 3.0
Revision of estimate for tax accruals . . . . . -- 3.7 --
Other . . . . . . . . . . . . . . . . . . . . . (1.1) 1.5 0.4
------------ ---------- ----------
Effective tax rate . . . . . . . . . . . . . . . . . 35.9% 43.3% 38.4%
============= ========== ==========
</TABLE>
Temporary differences which give rise to the deferred tax assets and
liabilities on a consolidated basis are as follows (in thousands).
<TABLE>
<CAPTION>
JUNE 29, 1996 JULY 1, 1995
-------------- -------------
<S> <C> <C>
Deferred tax assets:
Loss on disposition of Total Beverage . $ 374 $ 381
Reserves for store closings and other . 319 325
Deferred rent . . . . . . . . . . . . . 1,600 1,433
Capital lease . . . . . . . . . . . . . 517 946
Employee benefits . . . . . . . . . . . 1,843 1,472
Deferred income . . . . . . . . . . . . 154 557
Other . . . . . . . . . . . . . . . . . 89 --
------------- -----------
4,896 5,114
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . (607) (526)
Other . . . . . . . . . . . . . . . . . -- (11)
------------- ----------
(607) (537)
------------ ----------
Net deferred tax asset . . . . . . $ 4,289 $ 4,577
============= ===========
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The
Company believes that no valuation allowance is necessary as of June 29, 1996,
and July 1, 1995 due to its history of profitable operations.
6. COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' AGREEMENT
The Company's stockholders are party to an agreement dated June 28, 1988,
(the "Stockholders' Agreement") that specifies how a stockholder can transfer
ownership of its interest in the Company's stock (see Note 8).
13
<PAGE> 14
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PROFIT SHARING PLAN
The Company maintains a noncontributory profit sharing plan (the "Plan")
for all employees with one year of full-time continuous service. Discretionary
contributions are made by the Company in trust for the exclusive benefit of
employees who qualify under the Plan. The Board of Directors authorized
contributions of $300,000 to the Plan for the fiscal year ended July 2, 1994.
During fiscal 1995, the Company replaced the Plan with a defined
contribution 401(k) plan (the "New Plan"). The New Plan is available to
substantially all employees over the age of 21 who have completed one year of
continuous service. Discretionary contributions are made by the Company in
trust for the exclusive benefit of employees who participate in the New Plan.
The Board of Directors authorized a contribution of $400,000 to the New Plan
for the fiscal year ended July 1, 1995. The Company estimates its contribution
for the fiscal year ended June 29, 1996, will be approximately $400,000. This
contribution has not been made as of June 29, 1996. All amounts contributed to
the Plan and the New Plan are included in accrued salaries and benefits on the
accompanying financial statements.
MULTI EMPLOYER PLANS
The Company makes contributions to multiemployer plans for its union
employees. Such contributions totaled approximately $838,000, $10,373,000 and
$466,000 for the pension, health and welfare and legal benefit plans,
respectively, for the year ended June 29, 1996. Contributions to the pension,
health and welfare and legal benefit plans totaled approximately $787,000,
$8,701,000 and $408,000, respectively, for the year ended July 1, 1995 and
$745,000, $7,437,000, and $382,000, respectively, for the year ended July 2,
1994.
LEASE COMMITMENTS
The Company leases warehouse and retail store facilities under
noncancelable lease agreements ranging from 1 to 20 years. Renewal options are
available on the majority of the leases for one or more periods of five years
each. Most leases require the payment of taxes and maintenance costs, and some
leases provide for additional rentals based on sales in excess of specified
minimums. Several store leases have stated annual rental increases. These
increases are amortized over the lives of the leases. Rent expense includes
approximately $687,000, $802,000 and $832,000 of amortized rental increases for
the fiscal years ended June 29, 1996, July 1, 1995, and July 2, 1994,
respectively.
Following is a schedule of annual future minimum payments under the
capital lease for office space, assuming future annual increases of 6 percent,
and noncancelable operating leases, which have initial or remaining terms in
excess of one year at June 29, 1996 (in thousands).
14
<PAGE> 15
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASE LEASES
-------- ----------
<S> <C> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . $ 1,303 $ 12,446
1998 . . . . . . . . . . . . . . . . . . . . . . 1,380 12,315
1999 . . . . . . . . . . . . . . . . . . . . . . 1,464 12,258
2000 . . . . . . . . . . . . . . . . . . . . . . 1,552 11,816
2001 . . . . . . . . . . . . . . . . . . . . . . 1,644 11,561
Thereafter . . . . . . . . . . . . . . . . . . . 21,463 104,907
------- --------
Total . . . . . . . . . . . . . . . . . . . 28,806 $165,303
========
Less--Imputed interest . . . . . . . . . . . . . 18,737
-------
Present value of net minimum lease payments . . 10,069
Less--Current maturities . . . . . . . . . . . . --
-------
Long-term capital lease obligations . . . . . . $10,069
=======
</TABLE>
Rent expense for operating leases charged to operations is as follows (in
thousands).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------
JUNE 29, 1996 JULY 1, 1995 JULY 2, 1994
------------- ------------ ------------
<S> <C> <C> <C>
Minimum rentals . . . . . $ 12,021 $ 10,925 $ 11,034
Contingent rentals . . . . 3,748 4,524 4,052
----------- ---------- ----------
Total . . . . . . . . $ 15,769 $ 15,449 $ 15,086
=========== ========== ==========
</TABLE>
RELATED-PARTY LEASES
In July 1990, the Company entered into an agreement to lease an 86,000
square foot office building in Lanham, Maryland, from a private partnership
(the "Partnership") which is owned by stockholders of the Company. The lease
is for 20 years and commenced December 10, 1990. The lease provides for yearly
increasing rental payments, based upon the Consumer Price Index for the
Washington, D.C., metropolitan statistical area; however, the annual increases
will not be more than 6 percent or less than 3 percent. Rental payments for
the fiscal years ended June 29, 1996, July 1, 1995, and July 2, 1994, were
approximately $1,246,000, $1,210,000, and $1,175,000, respectively, and total
payments over the life of the lease total approximately $35,000,000. The
Company is accounting for the lease as a capital lease. Due to fixed rental
increases during the term of the lease, interest expense exceeded lease
payments by approximately $254,000, $292,000, and $321,000 for the fiscal years
ended June 29, 1996, July 1, 1995, and July 2, 1994, respectively. Assuming
future annual rental increases of 6 percent, the capital lease obligation will
continue to increase through December 2001, at which time accumulated interest
expense recognized for financial reporting purposes will exceed lease payments
by approximately $2,015,000. The lease requires the Company to pay for
maintenance, utilities, insurance, and taxes. The Partnership purchased the
office building for approximately $8,663,000 in July 1990.
During the fiscal years ended June 29, 1996, July 1, 1995, and July 2,
1994, the Company made rental payments of approximately $5,384,000, $5,985,000,
and $5,327,000, respectively on leases to partnerships related to stockholders
of the Company. As of June 29, 1996, and July 1, 1995, the Company had ten
operating leases to partnerships related to stockholders of the Company. The
remaining future minimum payments under these leases exclusive of option
periods are approximately $73,835,000 and expire through 2014.
15
<PAGE> 16
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company made payments of approximately $278,000, $246,000, and
$246,000 during each of the fiscal years ended June 29, 1996, July 1, 1995, and
July 2, 1994, for warehouse operating leases to a partnership owned by
stockholders of the Company and to a corporation related to stockholders of the
Company. As of June 29, 1996, the remaining future minimum annual payments
under these leases are approximately $1,232,000 and expire in 2002.
SUBLEASING ARRANGEMENTS
The Company subleases space within one store for the sale of beer and wine
to an entity affiliated with its officers. The Company received rental income
of approximately $155,000, $155,000 and $123,000 in the fiscal year ended June
29, 1996, July 1, 1995, and July 2, 1994, respectively, from this entity, which
is included in selling and administrative expenses.
As of June 29, 1996, there are currently two unaffiliated subtenants in
the office building. The subtenants are leasing approximately 30,000 square
feet at a current minimum annual rent of approximately $533,000. The subleases
expire between January and December 1998. The Company received rental income
of approximately $551,000 and $530,000 in the fiscal years ended June 29, 1996
and July 1, 1995, respectively, from its subtenants.
During the fiscal year ended June 29, 1996, the Company began leasing
space to a corporation related to stockholders of the Company. The Company
received rental income of approximately $140,000 during fiscal year ended June
29, 1996.
LINE-OF-CREDIT AGREEMENT/LETTERS OF CREDIT
The Company has a $35,000,000 line-of-credit agreement with a local bank,
(the "Credit Facility") with interest payable at the prime rate. The Company
has authorized a local bank to issue letters of credit in connection with the
Company's workers' compensation insurance. As of June 29, 1996, and
July 1, 1995, the Company's line of credit was reduced by outstanding letters
of credits of approximately $6,424,000 and $6,135,000, respectively. These
letters of credit will remain outstanding for as long as the Company has
outstanding workers' compensation claims. The line of credit expires
March 31, 1997.
LEGAL PROCEEDINGS
The Company is involved in routine litigation incidental to operations.
In the opinion of management, it is unlikely that any exposure from these
actions will have a material impact on the Company's financial position.
OTHER
In June 1994, the Company had one store which incurred significant fire
damage. The Company recorded the insurance settlement on the store's
inventory, fixed assets, reimbursable payroll costs and other business
interruption costs. This resulted in the recognition of an extraordinary gain,
net of taxes, in the accompanying financial statements of $1,239,000 and
$858,000, during the fiscal years ended July 1, 1995 and July 2, 1994,
respectively. The extraordinary gain recorded in fiscal year 1994 was net of
associated costs to write-off assets with a net book value of $708,000. During
fiscal year ended June 29, 1996, the insurance claim was settled in full and
the Company recorded an extraordinary loss, net of taxes, of $224,000 to
reflect the remaining amount received for insurance proceeds, net of associated
costs.
16
<PAGE> 17
SHOPPERS FOOD WAREHOUSE CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. SUBSEQUENT EVENT:
Effective September 15, 1996, the Company declared a $10,000,000 cash
dividend payable to its shareholders.
8. SUBSEQUENT EVENT (UNAUDITED):
On December 16, 1996, Dart submitted offers, pursuant to the Stockholder's
Agreement governing Dart's investment in the Company, to either (i) sell all of
Dart's 50% equity interest in the Company or (ii) buy the 50% equity interest
in the Company that it did not own, in either case for a cash price of $210
million. On December 18, 1996, the other stockholders accepted Dart's offer to
purchase all of their shares (the "Shares") of capital stock of the Company.
On February 6, 1997, Dart acquired the other 50% interest in Shoppers for
$210 million (the "Acquisition"). Dart financed the Acquisition through the
application of $137.2 million in net proceeds raised from an offering of
Increasing Rate Senior Notes due 2000 (the "Senior Notes") of SFW Acquisition
Corp., a newly created wholly-owned subsidiary of Dart, and $72.8 million of
bridge financing (the "Bridge Loan"). Immediately after the Acquisition, SFW
Acquisition Corp. merged into Shoppers (with Shoppers's becoming obligor on the
Senior Notes) and Shoppers repaid the Bridge Loan from its existing cash and
the liquidation of certain short-term investments.
Following the offering of the Senior Notes, the Company has
significant indebtedness and has certain restrictions on its operations.
The Company believes that cash flow from operations, borrowings available
under the Credit Facility and lease financing will be sufficient to enable the
Company to satisfy its anticipated requirements for operating expenses, capital
expenditures and debt service obligations. If the Company is unable to
satisfy such requirements from these sources, the Company would be required to
adopt one or more alternatives, such as reducing or delaying capital
expenditures, selling material assets or seeking additional capital investment.
No assurance can be given that any such alternative could be effected on
satisfactory terms.
Effective February 6, 1997, the Company declared a $10,000,000 million
cash dividend payable to its shareholder.
17
<PAGE> 18
(b) Pro Forma Financial Information.
It is impracticable to provide any pro forma financial statements that
give effect to the Acquisition within 15 days after consummation of the
Acquisition. Dart expects to file with the Securities and Exchange
Commission pro forma financial statements (required by its rules) in
mid-April 1997, but in no event later than April 21, 1997.
(c) Exhibits.
Exhibit 23.1 Convert of Arthur Andersen LLP
Exhibit 99.1 Press Release, dated February 6, 1997, of Dart Group
Corporation
18
<PAGE> 19
SIGNATURE
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 hereunto duly authorized.
DART GROUP CORPORATION
By: MARK A. FLINT
--------------------------
Mark A. Flint
Senior Vice President and
Chief Financial Officer
Date: February 20, 1997
19
<PAGE> 20
DART GROUP CORPORATION
Form 8-K
Exhibit Index
Exhibit 23.1 Consent of Arthur Andersen LLP
Exhibit 99.1 Press Release, dated February 6, 1997, of Dart Group
Corporation
20
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
use of our report dated September 26, 1996 included in the Dart Group
Corporation Form 8-K, dated February 20, 1997. It should be noted that we have
not audited any financial statements of Shoppers Food Warehouse Corp.
subsequent to June 29, 1996 or performed any audit procedures subsequent to
the date of our report.
Arthur Andersen LLP
Washington, DC
February 20, 1997
<PAGE> 1
Exhibit 99.1
FOR IMMEDIATE RELEASE FINANCIAL CONTACT: MARK FLINT
(301) 731-1402
MEDIA CONTACT: MARINA EIN
(202) 223-2922
DART GROUP ANNOUNCES ACQUISITION OF
SHOPPERS FOOD WAREHOUSE
LANDOVER, MD...(FEBRUARY 6, 1997)...Dart Group Corporation (NASDAQ: DARTA)
today announced the successful acquisition of the remaining 50% interest in
Shoppers Food Warehouse Corp. for $210 million, financed through cash in
Shoppers and a private placement of $140 million of senior notes. Shoppers
operates thirty-four supermarkets in the greater Washington, D.C. area.
Larry G. Schafran, Chairman of the Executive Committee of Dart's Board of
Directors and Co-Chairman of Shoppers, said, "We are delighted to welcome the
employees and operations of Shoppers Food Warehouse into the Dart family. This
transaction furthers Dart's corporate goal of pursuing prudent opportunities
for growth. Now entirely owned by Dart, Shoppers can focus its resources on
strengthening its position as a leading supermarket operator in the Washington,
D.C. metropolitan area."
Mr. Schafran also announced the appointment of Mark A. Flint, Dart's Senior
Vice President and Chief Financial Officer, as a Director and Chief Executive
Officer for Shoppers Food Warehouse. Mr. Flint, who joined Dart in 1996, has
spent the past fifteen years in management, corporate development, mergers and
acquisitions, finance and information technology -- the bulk of this experience
with major food retailers and distributors.
Keith E. Alessi is also joining the Shoppers Food Warehouse team as a member of
the Shoppers' Board of Directors. Mr. Alessi, a long-time officer of Farm
Fresh, is currently Chairman, President, and Chief Executive Officer of Jackson
Hewitt Inc., the nation's second largest electronic tax preparations service.
He joined Jackson Hewitt in 1996 after nearly a decade with Farm Fresh, Inc., a
regional supermarket chain based in Norfolk, Virginia, where he served in
various capacities as Chief Financial Officer, Chief Operating Officer and
President.
The Board of Directors of Shoppers will now consist of Larry G. Schafran and
Herbert H. Haft as Co-Chairman, Douglas M. Bregman, Bonita A. Wilson, Mark A.
Flint and Keith E. Alessi.
Dart, a Delaware corporation, operates retail discount auto parts stores though
Trak Auto Corporation, retail discount bookstores through Crown Books
Corporation and retail discount beverage stores through Total Beverage
Corporation. Dart has been engaged in the retail discount grocery business
since 1988, when it initially acquired a 50% interest in Shoppers.
Wasserstein Perella advised Dart in this transaction and served as placement
agent of the senior notes.
