<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 October 29, 1994
/ / 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 0-12202
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TRAK AUTO CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1281465
-------------------------------------------- ---------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
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 December 12, 1994, the registrant had 6,113,646 shares of Common Stock
outstanding.
This Quarterly Report on Form 10-Q contains no Exhibits.
Page 1 of 19
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements included herein have been prepared
by Trak Auto Corporation ("Trak Auto"), 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 Trak Auto 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 Trak Auto's report on Form 10-K for the fiscal year ended January
29, 1994.
2
<PAGE> 3
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------------- --------------------------
October 29, October 30, October 29, October 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 88,848,000 $ 86,352,000 $266,415,000 $248,589,000
Interest and other
income 502,000 384,000 1,221,000 1,207,000
------------ ------------ ------------ ------------
89,350,000 86,736,000 267,636,000 249,796,000
------------ ------------ ------------ ------------
Expenses:
Cost of sales,
store occupancy
and warehousing 66,976,000 66,843,000 195,472,000 189,242,000
Selling and
administrative 17,825,000 16,943,000 52,843,000 51,740,000
Depreciation and
amortization 1,325,000 1,667,000 4,805,000 5,108,000
Interest expense 889,000 887,000 2,663,000 2,674,000
------------ ------------ ------------ ------------
87,015,000 86,340,000 255,783,000 248,764,000
------------ ------------ ------------ ------------
Income before
income taxes 2,335,000 396,000 11,853,000 1,032,000
Income taxes 137,000 129,000 3,635,000 338,000
------------ ------------ ------------ ------------
Net income $ 2,198,000 $ 267,000 $ 8,218,000 $ 694,000
============ ============ ============ ============
Weighted average
common share and
common share
equivalents
outstanding 6,159,000 6,111,000 6,111,000 6,128,000
============ ============ ============ ============
Per share data:
Net income $ .36 $ .04 $ 1.34 $ .11
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
<TABLE>
<CAPTION>
October 29, January 29,
1994 1994
------------ -------------
<S> <C> <C>
Current Assets:
Cash $ 5,952,000 $ 4,931,000
Short-term instruments 25,208,000 11,387,000
Marketable debt securities 14,051,000 8,689,000
Accounts receivable, trade 4,697,000 5,570,000
Accounts receivable, other 426,000 764,000
Merchandise inventories 96,562,000 93,462,000
Deferred income taxes 5,188,000 3,992,000
Due from affiliate - 20,000
Other current assets 1,051,000 990,000
------------ ------------
Total Current Assets 153,135,000 129,805,000
------------ ------------
Property and Equipment at cost:
Furniture, fixtures and equipment 46,477,000 43,435,000
Leasehold improvements 9,125,000 9,269,000
Property under capital leases 23,667,000 23,667,000
------------ ------------
79,269,000 76,371,000
Accumulated Depreciation
and Amortization 36,302,000 32,608,000
------------ ------------
42,967,000 43,763,000
------------ ------------
Other Assets 299,000 239,000
------------ ------------
Deferred Income Taxes 6,169,000 5,342,000
------------ ------------
Total Assets $202,570,000 $179,149,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE> 5
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
October 29, January 29,
1994 1994
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 58,846,000 $ 49,926,000
Income taxes payable 802,000 1,155,000
Accrued expenses -
Salary and benefits 9,775,000 8,008,000
Taxes other than income 4,712,000 5,572,000
Other 16,026,000 10,865,000
Current portion of obligations
under capital leases 211,000 211,000
Due to affiliate 72,000 -
------------ ------------
Total Current Liabilities 90,444,000 75,737,000
------------ ------------
Obligations under Capital Leases 26,525,000 26,331,000
------------ ------------
Reserve for Closed Stores
and Restructuring 6,902,000 7,047,000
------------ ------------
Other 261,000 359,000
------------ ------------
Total Liabilities 124,132,000 109,474,000
------------ ------------
Stockholders' Equity:
Common stock, par value $.01 per
share; 15,000,000 shares authorized;
6,330,340 and 6,270,497 shares
issued, respectively 63,000 63,000
Paid-in capital 45,068,000 44,477,000
Unrealized losses on short-term
investments (46,000) -
Retained earnings 35,169,000 26,951,000
Treasury stock, 217,812 shares of
common stock at cost (1,816,000) (1,816,000)
------------ ------------
Total Stockholders' Equity 78,438,000 69,675,000
------------ ------------
Total Liabilities and Stockholders'
Equity $202,570,000 $179,149,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
5
<PAGE> 6
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
----------------------------
October 29, October 30,
1994 1993
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 8,218,000 $ 694,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 4,805,000 5,108,000
Provision for closed stores 2,080,000 (943,000)
Change in assets and liabilities:
Accounts receivable, trade 873,000 (206,000)
Accounts receivable, other 338,000 3,577,000
Merchandise inventories (3,100,000) (31,660,000)
Prepaid income taxes - 472,000
Due from affiliate 20,000 (13,000)
Other current assets (61,000) (17,000)
Deferred income taxes (2,023,000) (1,626,000)
Accounts payable, trade 8,920,000 22,926,000
Accrued expenses 3,270,000 3,209,000
Due to affiliate 72,000 (35,000)
Income taxes payable (353,000) 1,091,000
Other assets (60,000) 21,000
Reserve for closed facilities (1,207,000) (819,000)
------------ ------------
Net cash provided by
operating activities $ 21,792,000 $ 1,779,000
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures $ (5,125,000) $ (9,623,000)
Purchase of United States Treasury
Notes (34,727,000) (17,124,000)
Dispositions of United States
Treasury Notes 28,740,000 14,034,000
Dispositions of marketable debt securities 3,390,000 1,400,000
Purchase of marketable debt securities (2,811,000) (7,726,000)
Proceeds from reverse repurchase
agreements 3,151,000 -
------------ ------------
Net cash used for investing
activities $ (7,382,000) $(19,039,000)
------------ ------------
</TABLE>
(continued on following page)
6
<PAGE> 7
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT.
(Unaudited)
<TABLE>
<S> <C> <C>
Cash Flows from Financing Activities:
Principal payments under capital
lease obligations $ (159,000) $ (159,000)
Proceeds from payments on note
receivable - 124,000
Proceeds from exercise of stock
options 591,000 127,000
------------ ------------
Net cash provided by financing
activities $ 432,000 $ 92,000
------------ ------------
Net Increase (Decrease) in Cash and Cash
Equivalents $ 14,842,000 $(17,168,000)
Cash and Cash Equivalents at Beginning
of Year 16,318,000 32,547,000
------------ ------------
Cash and Cash Equivalents at End of
Period $ 31,160,000 $ 15,379,000
============ ============
Supplemental Disclosures of Cash Flow
Information:
Cash paid during quarter for:
Interest $ 2,663,000 $ 2,674,000
Income taxes 6,318,000 1,952,000
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 29, 1994 and October 30, 1993
(Unaudited)
(1) General:
The accompanying consolidated financial statements reflect the accounts of
Trak Auto Corporation ("Trak Auto") and its wholly-owned subsidiaries. Trak
Auto and its wholly-owned subsidiaries are referred to collectively as the
"Company". All significant intercompany accounts and transactions have been
eliminated. The Company is engaged in the business of operating specialty
retail stores. The unaudited statements as of October 29, 1994 and October 30,
1993 reflect, in the opinion of management, all adjustments (normal and
recurring in nature) necessary to present fairly the consolidated financial
position as of October 29, 1994 and October 30, 1993 and the results of
operations and cash flows for the periods indicated.
(2) Net Income Per Common Share and Common Share Equivalents:
Net income per common share has been computed using the weighted average
number of shares of common stock and common stock equivalents (certain stock
options) outstanding during the periods. The difference between primary net
income per common share and fully diluted net income per common share is not
significant for the periods presented.
(3) Inventory:
The Company's inventories are priced at the lower of last-in, first-out
(LIFO) cost or market. Effective January 30, 1994, the Company 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, the Company uses an index published by United States Bureau of Labor
Statistics. Previously an index determined by the Company, based upon
inventory cost changes between financial reporting periods, was utilized. This
change has been accounted for as a change in accounting principle in the
accompanying financial statements. Due to limitations in the availability of
historical information, it is not possible to determine the effect, if any, of
the corresponding cumulative catch-up adjustment required under Accounting
Principle Bulletin 20. Accordingly, the change in method is being accounted
for on a prospective basis from January 30, 1994. The change in LIFO inventory
as of October 29, 1994 under the new method was not material to the financial
statements when compared to the LIFO inventory under the prior method.
The Company takes a physical count of its store and warehouse inventories
semiannually (except for one warehouse for which the count is taken annually)
and the Company uses a gross profit method combined with available perpetual
inventory information to determine inventories for quarters when complete
physical counts are not taken. Physical inventory counts were not taken for
the quarters ended October 29, 1994 and October 30, 1993.
8
<PAGE> 9
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 29, 1994 and October 30, 1993
(Unaudited)
(4) Short-term Instruments and Marketable Debt Securities:
At October 29, 1994, the Company's short-term instruments included United
States Treasury Bills, and marketable debt securities included United States
Treasury Notes, corporate notes and municipal securities. Additionally,
$3,151,000 of United States Treasury Notes serve as a security for a reverse
repurchase agreement, the liability for which has been included in other
accrued liabilities in the accompanying balance sheets. The Company adopted
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities, effective January 30, 1994 and
accordingly these short-term instruments and marketable debt securities are
considered as available for sale securities and are recorded at fair value,
with unrealized gains and losses recorded as a separate component of
stockholders' equity. At October 29, 1994, market value was $46,000 less than
cost, net of income taxes.
(5) Credit Agreement:
The Company is party to a revolving credit agreement, together with Dart
Group Corporation ("Dart"), which owns 65.5% of the Company's outstanding
common stock, and Crown Books Corporation (Crown Books"), an affiliate of Dart,
for a $6,000,000 revolving line of credit. The $6,000,000 is an aggregate
amount and not specifically allocated to any of the parties. The line is
intended to be used for the issuance of standby and trade letters of credit.
At October 29, 1994, there had been no borrowings under the credit agreement.
This line of credit expires May 1, 1995.
(6) Board of Directors:
The Board of Directors of Dart established an Executive Committee of the
Dart Board of Directors (the "Executive Committee") 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 the dispute between Dart's present
Chairman of the Board, Mr. Herbert H. Haft, and Dart's present President, Mr.
Ronald S. Haft. The Directors appointed to the Executive Committee are Douglas
Bregman, H. Ridgely Bullock, Larry G. Schafran and Bonita Wilson, with Mr.
Bullock serving 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 the Company, Crown Books,
and Total Beverage Corporation ("Total Beverage"), a wholly-owned subsidiary of
Dart 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 salary 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 salary rate of $250 per hour plus
reimbursement of expenses. Through October 29, 1994, the compensation paid by
Dart and its subsidiaries, including the Company, to members of the respective
Executive Committees for their services on those committees totalled $263,000
($32,000 paid by the Company), and the compensation paid by Dart and its
subsidiaries, including the Company, to members of the Special Litigation
Committee for their
9
<PAGE> 10
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 29, 1994 and October 30, 1993
(Unaudited)
(6) Board of Directors (continued):
service on that committee totalled $300,000 ($30,000 paid by the Company), in
each case exclusive of expense reimbursement.
(7) Restructuring and Closed Store Charges:
Restructuring Charges
During the year ended January 30, 1993, the Company recorded a
restructuring charge of $7,400,000, before income taxes. The restructuring
charge was divided into two categories consisting of the estimated cost of
relocating or expanding and remodeling an estimated 126 existing Classic Trak
stores and discontinuing the operations of an estimated 38 stores. The
restructuring charge for the two components consisted of unrecoverable lease
obligations (rent, real estate taxes, and common area charges) after the
projected closing date of the store or upon remodel or expansion, the write-off
of leasehold improvements and net book values of fixed assets, and costs
associated with inventory conversion. During the year ended January 29, 1994,
the Company charged approximately $600,000 against the restructure reserve.
Store Closing Costs
The Company has also historically recorded charges when the decision is
made to close a store due to poor operating performance. Such costs consist
primarily of future lease obligations after the closing date, net of estimated
sublease income. The Company's closed store reserve was approximately $997,000
as of January 29, 1994.
Restructuring and Store Closing Costs - Current Period Activity
During the nine months ended October 29, 1994, the Company charged
approximately $2,225,000 against the restructuring and closed store reserves,
primarily for the charge-off of unrecoverable lease obligations and the net
book value of fixed asset and leasehold improvements in stores that were
converted to Super Trak stores.
As of the end of the nine months ended October 29, 1994, the Company has
re-evaluated its needs for reserves for restructuring and closing stores. The
essence of the restructuring of the Company has been accomplished, with a
reduced need for the reserve in the future. At the same time, the Company
continues to review store operations and reserve for projected costs to be
incurred beyond the estimated closing dates. It is the Company's current
estimate that approximately sixteen additional stores will be closed in
conjunction with the Company's restructuring efforts with an estimated future
lease obligation beyond the closing dates of approximately $1,360,000.
Additionally, the Company continues to make payments on stores already closed,
and has future lease obligations on those stores of approximately $1,190,000.
Finally, the Company estimates that it will close 38 stores that are not
currently providing satisfactory performance. The future lease obligations
beyond the estimated closing dates for these stores are approximately
$5,100,000.
10
<PAGE> 11
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 29, 1994 and October 30, 1993
(Unaudited)
(7) Restructuring and Closed Store Charges (continued):
A charge of $2,080,000 for additional store closings net of the reduction
in the restructuring reserve is included in cost of sales, store occupancy and
warehousing expenses in the accompanying financial statements for the period
ending October 28, 1994. The Company continues to review store operations and
may close additional stores in the future.
(8) Dart Group Corporation Stock Options:
On September 6, 1994, Ronald S. Haft tendered Dart a letter:
(1) to exercise, effective immediately, options (the "Options") to
purchase, at an exercise price of $89.65 per share, 197,048 shares
(the "Option Shares") of Dart's Class B Common Stock pursuant to
Article 4(a) of the Employment Agreement (the "Employment
Agreement") dated August 1, 1993 between Ronald S. Haft and Dart;
and
(2) to exercise his right under the Employment Agreement, effective
immediately, to obtain a loan from Dart in the amount of
$17,665,353.20, for part of the exercise price of the Options.
Together with that letter, Ronald S. Haft tendered to Dart: a check
payable to Dart in the amount of $197,048 as payment of the par value of the
Option Shares; and an executed unsecured promissory note of Ronald S. Haft
payable to the order of Dart in the amount of $17,665,353.20, the balance of
the exercise price for the Option Shares under the Options.
Dart has rejected the validity of Ronald S. Haft's purported exercise of
the Options and the promissory note tendered in connection therewith. Issuance
of the Option Shares has not been recorded in the stock records of Dart, Dart
returned his $197,048 check, and Dart has not issued any stock certificate to
Ronald S. Haft for the Options. Dart delivered to Ronald S. Haft a check in
the amount of the $985,000 price (plus interest) previously paid by him for the
Options, but he returned the check to Dart. These funds are now in an interest
bearing escrow account.
Ronald S. Haft has taken this issue to litigation. See Note 9 to the
Consolidated Financial Statements.
11
<PAGE> 12
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 29, 1994 and October 30, 1993
(Unaudited)
(9) Litigation:
Robert M. Haft Employment
On September 20, 1994, a federal district court jury in the employment
litigation brought by Robert M. Haft, the former president of Dart and Crown
Books (Robert M. Haft v. Dart Group Corporation, et al. (D. Del. Civ. Action
No. 93-384-SLR)), found that Dart had breached an employment agreement with him
and awarded him damages (equivalent to the compensation projected to be due
under that employment contract) against Dart in the amount of $18,856,964. The
jury also found that Crown Books had breached its employment contract with
Robert M. Haft and awarded him damages against Crown Books (equivalent to the
compensation projected to be due under the remaining term of the employment
contract) 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 with Crown Books, and therefore Crown Books does not
have the right to repurchase 100,000 shares of incentive stock at their
original issue price.
The Company is a defendant in this litigation. However, none of the
verdicts related to any claims against the Company. Robert M. Haft has
requested a declaratory judgment on his claims against the Company, Dart, and
Crown Books arising from stock options granted to him by the Company. The
Company has opposed this request. The court has not ruled on the request and
has not entered a judgment in the case. The defendants intend to file a motion
for a new trial after judgment is entered.
Derivative Litigation
In September 1993, the Special Litigation Committee appointed by the Board
of Directors of Dart, the Company and Crown Books to assess two previously
reported lawsuits filed derivatively in the Delaware Court of Chancery for New
Castle County, one filed by Alan R. Kahn and the Tudor Trust in September 1993
and the other filed by Robert M. Haft in November 1993, moved for dismissal of
certain claims in those derivative lawsuits and for realignment of the parties
to permit Dart, the Company and Crown Books, to prosecute other claims in those
derivative lawsuits.
Given that these derivative lawsuits are brought in the name of
Dart and its subsidiaries, including the Company, recovery in them would inure
to the benefit of Dart and its subsidiaries, including the Company, if the
claims in them are successfully litigated or settled. It is therefore the
opinion of management that the resolution of these actions will not have a
material adverse effect on the consolidated financial condition or annual
results of operations of Dart and its subsidiaries, including the Company.
12
<PAGE> 13
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 29, 1994 and October 30, 1993
(Unaudited)
(9) Litigation (continued):
Legal Costs
During the three months ended October 29, 1994, the Company recorded an
additional reserve of approximately $500,000 for estimated future legal costs
considered necessary for the litigation discussed above.
Ronald S. Haft Stock Options
Ronald S. Haft has filed a lawsuit against Dart (Ronald S. Haft v. Dart
Group Corporation, Del. Ch. 13736 (filed September 12, 1994)) seeking a court
order that Dart issue the Option Shares to him and grant him a loan of
$17,665,353.30 to be used as part of the payment for the Option Shares. Dart
has denied the validity of the Options and is contesting this lawsuit. On
September 14, 1994, a Standstill Agreement agreed to on behalf of Dart and
Ronald S. Haft was ordered by the Delaware Court of Chancery in this matter.
This Standstill Agreement restricts certain actions by Dart, its subsidiaries,
including the Company, and its stockholders until further order of the Court.
On November 14, 1994, the Court of Chancery of the State of Delaware
entered a Memorandum Opinion denying plaintiff Ronald S. Haft's motion for
summary judgement. Separately, the Court scheduled a trial of this case in
March 1995.
13
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
Cash, including short-term instruments, is the Company's primary source of
liquidity. Cash, including short-term instruments, increased by $14,842,000 to
$31,160,000 at October 29, 1994 from $16,318,000 at January 29, 1994. This
increase primarily resulted from current period operating results.
Operating activities provided $21,792,000 in funds to the Company for the
thirty-nine weeks ended October 29, 1994 compared to $1,779,000 for the same
period one year ago. The primary source of funds during the thirty-nine weeks
ended October 29, 1994 was current period operating results. During the
thirty-nine weeks ended October 29, 1993, the Company received $3,478,000 from
insurance carriers as a result of the settlement of the Company's claims
arising from the Los Angeles civil disturbances of May 1992.
Investing activities used $7,382,000 of the Company's funds during the
thirty-nine weeks ended October 29, 1994 compared to $19,039,000 for the
thirty-nine weeks October 29, 1993. The primary use of funds was for capital
expenditures and the net purchase of United States Treasury Notes. Compared to
the prior period, capital expenditures were lower due to fewer conversions to
Super Trak stores. In addition, the purchase of marketable debt securities
during the period was not as large as last year, which was the Company's
initial purchase of such securities.
Financing activities provided $432,000 to the Company primarily from the
exercise of stock options and was partially offset by principal payments under
capital lease obligations.
The Company intends to open new stores as Super Trak or Super Trak
Warehouse stores and to convert or expand existing stores to Super Trak or
Super Trak Warehouse stores. The Company anticipates approximately 28 Super
Trak and Super Trak Warehouse stores will be opened or converted from classic
stores in fiscal 1995 and anticipates closing approximately 50 classic stores.
At October 29, 1994, the Company had 101 Super Trak stores and four Super Trak
Warehouse stores and nine signed leases for new Super Trak stores and four
signed amendments to existing leases for expansion to Super Trak or Super Trak
Warehouse.
The Company has recorded an additional reserve of $2,080,000 for store
closings net of a reduction in the restructuring reserve, representing
primarily unrecoverable lease obligations. This reserve is for stores that are
not providing a sufficient return on investment to justify keeping them open
and stores, although providing a sufficient return, that require a larger space
to remain competitive. The charge has been classified with cost of sales,
store occupancy and warehousing.
The Company has a $6,000,000 revolving line of credit available that it
shares with Dart and Crown Books. The Company has not borrowed any funds
against this line of credit.
The Company anticipates that the funds necessary for capital expenditures
for new store openings and remodelings, inventory purchases for new stores, and
to meet the Company's long-term lease obligations and current liabilities
(including current and long-term closed store reserves and restructuring
reserves) will come from operations and existing current assets.
14
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
The liquid assets maintained by the Company are intended to fund the
expansion of the Company's retail business through opening stores in new
markets, converting classic stores to Super Trak stores, and opening additional
stores in existing markets, and to fund other corporate activities.
Results of Operations
Sales of $266,415,000 for the thirty-nine weeks ended October 29, 1994
increased by $17,826,000 or 7.2% compared to the thirty-nine weeks ended
October 30, 1993 and sales of $88,848,000 for the thirteen weeks ended October
29, 1994 increased by $2,496,000 or 2.9% compared to the thirteen weeks ended
October 30, 1993. The increases were primarily attributable to increased sales
for Super Trak stores converted from classic Trak stores as well as a 4.3% and
2.0% increase in sales for all stores open more than one year for the
thirty-nine weeks and thirteen weeks ended October 29, 1994, respectively.
Sales for comparable Super Trak stores open more than one year increased 3.7%
and 3.0%, respectively, for the thirty-nine and thirteen weeks ended October
29, 1994. Sales for comparable classic Trak stores open more than one year
increased 4.6% and 1.5%, respectively, for the thirty-nine and thirteen weeks
ended October 29, 1994. Sales for Super Trak and Super Trak Warehouse stores
represented 40.7% and 45.2% of total sales during the thirty-nine and thirteen
weeks ended October 29, 1994 compared to 32.9% and 35.3% for the thirty-nine
and thirteen weeks ended October 30, 1993.
During the thirty-nine weeks ended October 29, 1994, the Company opened
or converted 32 new Super Trak and Super Trak Warehouse stores, and closed or
converted 55 classic Trak stores. At October 29, 1994, the Company had 292
stores, including 101 Super Trak stores and four Super Trak Warehouse stores.
Interest and other income increased by $14,000 and $118,000 for the
thirty-nine weeks and thirteen weeks ended October 29, 1994 when compared to
the same periods last year. The increases were primarily due to rental income
resulting from a temporary sublease for a portion of the Ontario, California
distribution center. In addition, interest income increased during the
thirteen weeks ended October 29, 1994 compared to the same period last year as
a result of increased funds available for short-term investment, while interest
income for the thirty-nine weeks ended October 29, 1994 remains less than last
year.
Cost of sales, store occupancy and warehousing expenses as a percentage
of sales were 72.6% and 73.0% for the thirty-nine weeks and thirteen weeks ended
October 29, 1994, respectively, (excluding the $2,080,000 closed store reserve)
(see Note 7 to the Consolidated Financial Statements) compared to 76.1% and
77.4% for the thirty-nine weeks and thirteen weeks ended October 30, 1993,
respectively. The decreases were primarily due to increased store margins as a
result of higher merchandise margins and a favorable change in sales mix
(increased hard parts and decreased motor oils).
Selling and administrative expenses as a percentage of sales were 19.8%
and 20.0% for the thirty-nine weeks and thirteen weeks ended October 29, 1994
compared to 20.8% and 19.6% for the thirty-nine and thirteen weeks ended
October 30, 1993. During the thirty-nine and thirteen weeks such expenses,
excluding the $500,000 legal accrual (see Note 9 to the Consolidated Financial
Statements) decreased to 19.6% and 19.5%, respectively, primarily due to lower
payroll costs as a result of the Company's efforts to control store hours and
administrative overhead and to Super Trak store maturity.
15
<PAGE> 16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
Depreciation and amortization expenses decreased $303,000 and $342,000 for
the thirty-nine weeks and thirteen weeks ended October 29, 1994 when compared
to the same periods last year. The decreases were primarily the result of store
closings and to the point-of-sale registers system being fully depreciated.
The effective income tax rate was 30.7% for the thirty-nine weeks ended
October 29, 1994 compared to 32.8% for the thirty-nine weeks ended October 30,
1993. The decrease was primarily due to the reversal of the $728,000 deferred
tax valuation allowance. Management has concluded that based on the weight of
currently available evidence, it is more likely than not, that the entire
deferred tax asset is realizable. Management will continue to evaluate the
need for a valuation analysis.
The Company does not offer any of the benefits covered under Statement of
Financial Accounting Standards No. 106, Employer's Accounting for
Postretirement Benefits Other than Pensions, and as such the standard will have
no impact to the Company.
The Company has adopted the Statement of Financial Accounting Standards
No. 112, Employer's Accounting for Postemployment Benefits. Implementation of
the standard has not had a significant impact on the financial statements.
16
<PAGE> 17
PART II - OTHER INFORMATION
Item 7. Legal Proceedings
See the Company's Annual Report on Form 10-K for the fiscal year ended
January 29, 1994, at pages 50-51, and the Company's Quarterly Report on Form
10-Q for the quarter ended April 30, 1994, at page 13 for a description of
certain litigation.
See Note 9 to the Consolidated Financial Statements for a description of
current matters under litigation.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on
September 8, 1994 reporting the resignation of Ron
Marshall, the Company's Principal Financial Officer
and the establishment of the Executive Committee of
the Board of Directors of Dart.
The Company filed a Current Report on Form 8-K on
September 16, 1994 reporting Ronald S. Haft's request
to exercise his options to purchase Dart Class B
common Stock (the "Options"), his subsequent lawsuit
against Dart and a court ordered Standstill
Agreement.
The Company filed a Current Report on Form 8-K on
September 26, 1994 reporting the federal district
court jury verdict in the Robert M. Haft employment
litigation.
The Company filed a Current Report on Form 8-K on
October 12, 1994 reporting the appointment of Robert
A. Marmon as Principal Financial Officer, Dart's
filing an answer in the lawsuit by Ronald S. Haft to
enforce Dart stock options and the establishment of
the Company's Executive Committee.
17
<PAGE> 18
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.
TRAK AUTO CORPORATION
<TABLE>
<S> <C>
December 13, 1994 By /s/ R. KEITH GREEN
- - --------------------------- --------------------------------
Date R. KEITH GREEN
President
December 13, 1994 /s/ ROBERT A. MARMON
- - --------------------------- --------------------------------
Date ROBERT A. MARMON
Principal Financial Officer
December 13, 1994 /s/ DAVID B. MACGLASHAN
- - --------------------------- --------------------------------
Date DAVID B. MACGLASHAN
Principal Accounting Officer
</TABLE>
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-START> JAN-30-1994
<PERIOD-END> OCT-29-1994
<CASH> 31,160
<SECURITIES> 14,051
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<INVENTORY> 96,562
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0
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