<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 July 30, 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
-------
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 September 12, 1994, registrant had 6,069,454 shares of Common Stock
outstanding.
Page 1 of 16
<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 Twenty-Six Weeks Ended
-------------------------- --------------------------
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Sales $ 89,180,000 $ 84,354,000 $177,567,000 $162,237,000
Interest and other
income 452,000 424,000 719,000 823,000
------------ ------------ ------------ ------------
89,632,000 84,778,000 178,286,000 163,060,000
------------ ------------ ------------ ------------
Expenses:
Cost of sales,
store occupancy
and warehousing 63,842,000 64,646,000 128,496,000 122,399,000
Selling and
administrative 17,523,000 16,854,000 35,018,000 34,797,000
Depreciation and
amortization 1,857,000 1,898,000 3,480,000 3,441,000
Interest expense 893,000 883,000 1,774,000 1,787,000
------------ ------------ ------------ ------------
84,115,000 84,281,000 168,768,000 162,424,000
------------ ------------ ------------ ------------
Income before
income taxes 5,517,000 497,000 9,518,000 636,000
Income taxes 2,027,000 162,000 3,498,000 209,000
------------ ------------ ------------ ------------
Net income $ 3,490,000 $ 335,000 $ 6,020,000 $ 427,000
============ ============ ============ ============
Weighted average
common share and
common share
equivalents
outstanding 6,109,000 6,094,000 6,097,000 6,117,000
============ ============ ============ ============
Per share data:
Net income $ .57 $ .05 $ .99 $ .07
============ ============ ============ ============
</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>
July 30, January 29,
1994 1994
------------ -------------
<S> <C> <C>
Current Assets:
Cash $ 5,785,000 $ 4,931,000
Short-term instruments 18,961,000 11,387,000
Marketable debt securities 13,500,000 8,689,000
Accounts receivable, trade 3,841,000 5,570,000
Accounts receivable, other 426,000 764,000
Merchandise inventories 85,640,000 93,462,000
Deferred income taxes 3,637,000 3,992,000
Due from affiliate - 20,000
Other current assets 609,000 990,000
------------ ------------
Total Current Assets 132,399,000 129,805,000
------------ ------------
Property and Equipment at cost:
Furniture, fixtures and equipment 46,232,000 43,435,000
Leasehold improvements 9,620,000 9,269,000
Property under capital leases 23,667,000 23,667,000
------------ ------------
79,519,000 76,371,000
Accumulated Depreciation
and Amortization 35,982,000 32,608,000
------------ ------------
43,537,000 43,763,000
------------ ------------
Other Assets 323,000 239,000
------------ ------------
Deferred Income Taxes 6,348,000 5,342,000
------------ ------------
Total Assets $182,607,000 $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>
July 30, January 29,
1994 1994
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 42,067,000 $ 49,926,000
Income taxes payable 2,408,000 1,155,000
Accrued expenses -
Salary and benefits 9,379,000 8,008,000
Taxes other than income 5,010,000 5,572,000
Other 14,690,000 10,865,000
Current portion of obligations
under capital leases 211,000 211,000
Due to affiliate 161,000 -
------------ ------------
Total Current Liabilities 73,926,000 75,737,000
------------ ------------
Obligations under Capital Leases 26,461,000 26,331,000
------------ ------------
Reserve for Closed Stores
and Restructuring 6,175,000 7,047,000
------------ ------------
Other 293,000 359,000
------------ ------------
Total Liabilities 106,855,000 109,474,000
------------ ------------
Stockholders' Equity:
Common stock, par value $.01 per
share; 15,000,000 shares authorized;
6,285,933 and 6,270,497 shares
issued, respectively 63,000 63,000
Paid-in capital 44,633,000 44,477,000
Unrealized losses on short-term
investments (99,000) -
Retained earnings 32,971,000 26,951,000
Treasury stock 217,812 shares of
common stock at cost (1,816,000) (1,816,000)
------------ ------------
Total Stockholders' Equity 75,752,000 69,675,000
------------ ------------
Total Liabilities and Stockholders'
Equity $182,607,000 $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>
Twenty Six Weeks Ended
----------------------------
July 30, July 31,
1994 1993
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 6,020,000 $ 427,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,480,000 3,441,000
Provision for closed stores including
restructuring charge - (943,000)
Change in assets and liabilities:
Accounts receivable, trade 1,852,000 (1,175,000)
Accounts receivable, other 338,000 3,577,000
Merchandise inventories 7,822,000 (8,627,000)
Prepaid income taxes - 472,000
Due from affiliate 20,000 (28,000)
Other current assets 381,000 397,000
Deferred income taxes (651,000) (700,000)
Accounts payable, trade (7,859,000) 10,025,000
Accrued expenses 1,186,000 2,452,000
Due to affiliate 161,000 (35,000)
Income taxes payable 1,254,000 53,000
Other assets (84,000) 57,000
Reserve for closed facilities (872,000) (624,000)
------------ ------------
Net cash provided by
operating activities $ 13,048,000 $ 8,769,000
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures $ (3,320,000) $ (7,581,000)
Purchase of United States Treasury
Notes (26,498,000) (14,157,000)
Disposition of United States
Treasury Notes 21,545,000 10,913,000
Disposition of marketable debt securities 2,340,000 900,000
Purchase of marketable debt securities (2,297,000) (6,247,000)
Proceeds from reverse repurchase agreements 3,683,000 -
------------- ------------
Net cash used for investing
activities $ (4,547,000) $(16,172,000)
------------- ------------
Cash Flows from Financing Activities:
Principle payments under capital
lease obligations $ (106,000) $ (98,000)
Proceeds from exercise of stock options 33,000 46,000
------------ ------------
Net cash used for financing
activities $ (73,000) $ (52,000)
------------ ------------
</TABLE>
(continued on following page)
6
<PAGE> 7
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONT.
(Unaudited)
<TABLE>
<S> <C> <C>
Net Increase (Decrease) in Cash and Cash
Equivalents $ 8,428,000 $ (7,455,000)
Cash and Cash Equivalents at Beginning
of Year 16,318,000 32,547,000
------------ ------------
Cash and Cash Equivalents at End of
Period $ 24,746,000 $ 25,092,000
============ ============
Supplemental Disclosures of Cash Flow
Information:
Cash paid during quarter for:
Interest $ 1,774,000 $ 1,787,000
Income taxes 3,019,000 423,000
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 30, 1994 and July 31, 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 July 30, 1994 and July 31, 1993
reflect, in the opinion of management, all adjustments (normal and recurring in
nature) necessary to present fairly the consolidated financial position as of
July 30, 1994 and July 31, 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 in
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 July 30, 1994 under the new method was not material to the financial
statements when compared to the LIFO inventory under the prior method. At July
30, 1994 and January 29, 1994, inventories determined on a first-in, first-out
basis would have been greater by $5,820,000 and $5,520,000, respectively.
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 for all stores and
two warehouses were taken for the quarter ended July 30, 1994.
8
<PAGE> 9
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 30, 1994 and July 31, 1993
(Unaudited)
(4) Short-term Instruments and Marketable Debt Securities:
At July 30, 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,
$3,700,000 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 July 30, 1994, market value was $99,000 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 July 30, 1994, there had been no borrowings under the credit agreement.
This line of credit expires May 1, 1995.
9
<PAGE> 10
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 $8,428,000 to
$24,746,000 at July 30, 1994 from $16,318,000 at January 29, 1994. This
increase primarily resulted from current period operating results.
Operating activities provided $13,048,000 in funds to the Company for the
twenty-six weeks ended July 30, 1994 compared to $8,769,000 for the same period
one year ago. The primary source of funds during the twenty-six weeks ended
July 30, 1994 was current period operating results. During the twenty-six
weeks ended July 30, 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 $4,547,000 of the Company's funds during the
twenty-six weeks ended July 30, 1994 compared to $16,172,000 for the twenty-six
weeks July 30, 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 a large as last year, which was the Company's initial
purchase of such securities.
Financing activities used $73,000 of the Company's funds for principal
payments under capital lease obligations and was partially offset by $33,000
from the exercise of stock options.
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 45 Super
Trak stores will be opened or converted from classic stores in fiscal 1995 and
anticipates closing approximately 50 classic stores. At July 30, 1994, the
Company had 92 Super Trak stores and one Super Trak Warehouse store and 13
signed leases for new Super Trak stores and seven signed amendments to existing
leases for expansion to Super Trak or Super Trak Warehouse.
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.
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.
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
Results of Operations
Sales of $177,567,00 for the twenty-six weeks ended July 30, 1994 increased
by $15,330,000 or 9.4% compared to the twenty-six weeks ended July 31, 1993 and
sales of $89,180,00 for the thirteen weeks ended July 30, 1994 increased by
$4,826,000 or 5.7% compared to the thirteen weeks ended July 31, 1993. The
increases were primarily attributable to increased sales for Super Trak stores
converted from classic Trak stores and to increases of 5.6% and 3.8% in sales
for all stores open more than one year for the twenty-six and thirteen weeks
ended July 30, 1994, respectively. Sales for comparable Super Trak stores open
more than one year increased 4.2% and 2.5%, respectively, for the twenty -six
and thirteen weeks ended July 30, 1994. Sales for comparable classic Trak
stores open more than one year increased 6.0% and 4.2%, respectively, for the
twenty-six and thirteen weeks ended July 30, 1994. Sales for Super Trak stores
represented 38.4% and 40.6% of total sales during the twenty-six and thirteen
weeks ended July 30, 1994 compared to 31.6% and 33.4% for the twenty-six and
thirteen weeks ended July 31, 1993.
During the twenty-six weeks ended July 30, 1994, the Company opened 13 new
Super Trak stores, and closed 32 classic Trak stores. At July 30, 1994, the
Company had 295 stores, including 92 Super Trak stores and one Super Trak
Warehouse store.
Interest and other income decreased by $104,000 for the twenty-six weeks
ended July 30, 1994 and increased $28,000 for the thirteen weeks ended July 30,
1994 when compared to the same periods last year. The decrease for the
twenty-six weeks ended July 30, 1994 was primarily due to a decrease in the
average daily balance in funds available for short term investments during the
thirteen weeks ended April 30, 1994. During the thirteen weeks ended July 30,
1994, such balances increased as a result of funds generated by current
operating results.
Cost of sales, store occupancy and warehousing expenses as a percentage of
sales were 72.4% and 71.6% for the twenty-six weeks and thirteen weeks ended
July 30, 1994, respectively, compared to 75.4% and 76.6% for the twenty-six
weeks and thirteen weeks ended July 31, 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 19.7% and
19.6% for the twenty-six weeks and thirteen weeks ended July 30, 1994 compared
to 21.4% and 20.0% for the twenty-six and thirteen weeks ended July 31, 1993.
The decreases were 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.
Depreciation and amortization expenses increased $39,000 for the twenty-six
weeks ended July 30, 1994 and decreased $41,000 for the thirteen weeks ended
July 30, 1994 when compared to the same periods last year. The increase for the
twenty-six weeks was due to the increase in fixed assets for new and converted
Super Trak stores. The decrease for the thirteen weeks was due to a lower
depreciation adjustment this year, for fixed assets acquired in the first half
of the fiscal year, compared to last year.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
The effective income tax rate was 36.8% for the twenty-six weeks ended
July 30, 1994 compared to 32.9% for the twenty-six weeks ended July 31, 1993.
The increase is primarily due to anticipated income before income taxes for
fiscal 1995 at a higher federal statutory rate and a lower portion of income
before taxes that is exempt.
The Company does not offer any of the benefits covered under Statement of
Financial Accounting Standards ("SFAS") 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 ("SFAS No. 112"), Employer's Accounting for Postemployment Benefits.
Implementation of the standard has not had a significant impact on the
financial statements.
12
<PAGE> 13
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.
On August 17, 1994, the District Court in Robert M. Haft v. Dart Group
Corporation, et al. denied plaintiff's and defendants' motions for summary
judgment. Trial in this case commenced on September 6, 1994.
Item 5. Other Events
On September 6, 1994, Ronald S. Haft tendered to Dart a letter purporting:
(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 $197,048.00 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 neither accepted nor rejected the validity of Ronald S. Haft's
purported exercise of the Options or the adequacy of the promissory note
tendered in connection therewith. Issuance of the Option Shares has not been
recorded in the stock records of Dart, and Dart has not issued any stock
certificate to Ronald S. Haft for the Option Shares.
A pending shareholders' derivative lawsuit (Alan R. Kahn, et al. v.
Herbert H. Haft, et al.), Del. Ch. No. 13154 (filed September 29, 1993), seeks
a judgment that would, inter alia, declare the Options to be null and void and
rescind their issuance. A special litigation committee of the Board of
Directors of Dart is currently reviewing the allegations in the complaint filed
in the lawsuit.
Dart's proper course with respect to the Options is being evaluated in
light of facts and circumstances that include the pending shareholders'
derivative lawsuit and the anticipated report of the special litigation
committee of the Board.
13
<PAGE> 14
PART II - OTHER INFORMATION (continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
18(a) Letter from the Company's independent
accountants regarding a change in accounting
principle or practice.
27 Financial Data Schedule
99(a) Letter dated September 6, 1994 from Ronald S. Haft
to Herbert H. Haft relating to the exercise of
options for Class B common stock of Dart Group
Corporation.
(b) Reports on Form 8-K
None
14
<PAGE> 15
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
September 13, 1994 By R. Keith Green
- - ------------------------- ---------------------------------
Date R. KEITH GREEN
President
September 13, 1994 Ron Marshall
- - ------------------------- ---------------------------------
Date RON MARSHALL
Principal Financial Officer
Accounting Officer
September 13, 1994 David B. MacGlashan
- - ------------------------- ---------------------------------
Date DAVID B. MACGLASHAN
Principal Accounting Officer
15
<PAGE> 1
EXHIBIT 18(a)
Trak Auto Corporation
3300 75th Avenue
Landover, MD 20875
Re: 10-Q Report for the quarter ended July 30, 1994
Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling
for a letter from a registrant's independent accountants whenever there has
been a change in accounting principle or practice.
We have been informed that, as of January 30, 1994, the Company changed
from the Link Chain method of accounting for Dollar Value LIFO to the Price
Index method. In addition, the Company has segregated its inventory into LIFO
pools which are different than the LIFO pools previously used. The Company has
applied to the Internal Revenue Service to allow this change for income tax
reporting as well. According to the Management of the Company, the opening of
the Company's new prototype warehouse store will require the addition to
inventory of approximately 20,000 new SKUs. The continued use of the Link
Chain method would create numerous complications in establishing a base year
cost for these new items entering the LIFO inventory pool. As a result the use
of an external index would be less cumbersome than developing an internal index
and the segregation of inventory into additional pools should further refine
the LIFO computation. Management believes that these changes will enhance the
Company's financial and income tax reporting. It is not possible for
management to record a retroactive accounting adjustment, because prior
physical count categories do not facilitate the LIFO computation under the new
method.
A complete coordinated set of financial and reporting standards for
determining the preferability of accounting principles among acceptable
alternative principles has not been established by the accounting profession.
Thus, we cannot make an objective determination of whether the change in
accounting described in the preceding paragraph is to a preferable method.
However, we have reviewed the pertinent factors, including those related to
financial reporting, in this particular case on a subjective basis, and our
opinion stated below is based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is
to an acceptable alternative method of accounting, which, based upon the
reasons stated for the change and our discussions with you, is also preferable
under the circumstances in this particular case. In arriving at this opinion,
we have relied on the business judgment and business planning of your
management.
We have not audited the application of this change to the financial
statements of any period subsequent to January 29, 1994. Further, we have not
examined and do not express any opinion with respect to your financial
statements for the six months ended July 30, 1994.
Very truly yours,
Arthur Andersen LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
TRAK AUTO CORPORATION
EXHIBIT 27
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-START> JAN-30-1994
<PERIOD-END> JUL-30-1994
<CASH> 24,746
<SECURITIES> 13,500
<RECEIVABLES> 4,291
<ALLOWANCES> 24
<INVENTORY> 85,640
<CURRENT-ASSETS> 132,399
<PP&E> 79,519
<DEPRECIATION> 35,982
<TOTAL-ASSETS> 182,607
<CURRENT-LIABILITIES> 73,926
<BONDS> 26,461
<COMMON> 63
0
0
<OTHER-SE> 75,689
<TOTAL-LIABILITY-AND-EQUITY> 182,607
<SALES> 177,567
<TOTAL-REVENUES> 178,286
<CGS> 128,496
<TOTAL-COSTS> 128,496
<OTHER-EXPENSES> 38,498
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,774
<INCOME-PRETAX> 9,518
<INCOME-TAX> 3,498
<INCOME-CONTINUING> 6,020
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,020
<EPS-PRIMARY> .99
<EPS-DILUTED> .99
</TABLE>
<PAGE> 1
Exhibit 99(a)
September 6, 1994
BY HAND AND BY REGISTERED MAIL
(RETURN RECEIPT REQUESTED)
Mr. Herbert H. Haft
Dart Group Corporation
3300 75th Avenue
Landover, Maryland 20785
Dear Mr. Haft:
Pursuant to Article 4(a) of my Employment Agreement with Dart Group
Corporation ("Dart"), I hereby exercise, effective immediately, in whole, the
options to purchase 197,048 shares of Class B common stock of Dart.
Pursuant to Article 4(b) of my Employment Agreement with Dart, I hereby
exercise my right, effective immediately, to obtain a loan from Dart for the
exercise price of the options to purchase the 197,048 shares of Class B common
stock of Dart. Enclosed is a check for $197,048, representing the par value of
the stock, and an executed term note for $17,665,353.20, representing the full
exercise price of the stock. The form of the note is the same as that used most
recently by Dart in connection with the exercise of options.
I demand delivery of the shares and the appropriate recording of this
transaction on Dart's books and records, including in Dart's stock ledger, by
the close of business today, September 6, 1994.
Very truly yours,
/s/ Ronald S. Haft
------------------
Ronald S. Haft
Enclosures: check for $197,048
term note for $17,665,353.20
cc (without enclosures):
Mr. Elliot Arditti
Mr. Ronald Marshall
