<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 28, 1995
----------------
/ / 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 office)
(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 11, 1995, the registrant had 5,887,444 shares of Common Stock, $.01
par value per share, outstanding.
Page 1 of 22 pages
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Certain 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
28, 1995.
2
<PAGE> 3
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------------- --------------------------
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 88,226,000 $ 88,848,000 $254,244,000 $266,415,000
Interest and other
income 615,000 502,000 1,780,000 1,221,000
------------ ------------ ------------ ------------
88,841,000 89,350,000 256,024,000 267,636,000
------------ ------------ ------------ ------------
Expenses:
Cost of sales,
store occupancy
and warehousing 65,456,000 66,976,000 188,267,000 195,472,000
Selling and
administrative 17,430,000 17,825,000 51,038,000 52,843,000
Depreciation and
amortization 1,540,000 1,325,000 4,174,000 4,805,000
Interest expense 935,000 889,000 2,731,000 2,663,000
------------ ------------ ------------ ------------
85,361,000 87,015,000 246,210,000 255,783,000
------------ ------------ ------------ ------------
Income before
income taxes 3,480,000 2,335,000 9,814,000 11,853,000
Income taxes 1,316,000 137,000 3,641,000 3,635,000
------------ ------------ ------------ ------------
Net income $ 2,164,000 $ 2,198,000 $ 6,173,000 $ 8,218,000
============ ============ ============ ============
Weighted average
common share and
common share
equivalents
outstanding 5,884,000 6,159,000 5,926,000 6,111,000
============ ============ ============ ============
Per share data:
Net income $ .37 $ .36 $ 1.04 $ 1.34
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
October 28, January 28,
1995 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 5,813,000 $ 5,196,000
Short-term instruments 17,350,000 18,938,000
Marketable debt securities 10,289,000 10,133,000
Accounts receivable, trade 3,820,000 5,330,000
Merchandise inventories 97,346,000 89,797,000
Deferred income taxes 6,305,000 6,842,000
Other current assets 1,318,000 1,070,000
------------ ------------
Total Current Assets 142,241,000 137,306,000
------------ ------------
Property and Equipment at cost:
Furniture, fixtures and equipment 52,804,000 49,008,000
Leasehold improvements 9,853,000 9,185,000
Property under capital leases 23,667,000 23,667,000
------------ ------------
86,324,000 81,860,000
Accumulated Depreciation
and Amortization 40,627,000 37,638,000
------------ ------------
45,697,000 44,222,000
------------ ------------
Other Assets 221,000 247,000
------------ ------------
Deferred Income Taxes 5,704,000 5,874,000
------------ ------------
Total Assets $193,863,000 $187,649,000
============ ============
</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
<TABLE>
<CAPTION>
(Unaudited) (Audited)
October 28, January 28,
1995 1995
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 51,143,000 $ 50,403,000
Income taxes payable 2,287,000 393,000
Accrued expenses -
Salary and benefits 10,418,000 10,054,000
Taxes other than income 6,177,000 5,053,000
Other 13,043,000 8,944,000
Current portion of obligations
under capital leases 91,000 261,000
Due to affiliate 302,000 185,000
------------ ------------
Total Current Liabilities 83,461,000 75,293,000
------------ ------------
Obligations under Capital Leases 26,767,000 26,541,000
------------ ------------
Reserve for Closed Stores
and Restructuring 2,582,000 5,029,000
------------ ------------
Other 128,000 227,000
------------ ------------
Total Liabilities 112,938,000 107,090,000
------------ ------------
Stockholders' Equity:
Common stock, par value $.01 per
share; 15,000,000 shares authorized;
, , and 6,331,458 shares
issued, respectively 64,000 63,000
Paid-in capital 46,108,000 45,206,000
Unrealized gain (loss) on short-term
investments 84,000 (110,000)
Retained earnings 43,389,000 37,216,000
Treasury stock 528,190 and 217,812
shares of common stock, at cost,
respectively (8,720,000) (1,816,000)
------------ ------------
Total Stockholders' Equity 80,925,000 80,559,000
------------ ------------
Total Liabilities and Stockholders'
Equity $193,863,000 $187,649,000
============ ============
</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 28, October 29,
1995 1994
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 6,173,000 $ 8,218,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 4,174,000 4,805,000
Provision for closed stores - 2,080,000
Change in assets and liabilities:
Accounts receivable 1,474,000 1,211,000
Merchandise inventories (8,024,000) (3,100,000)
Due from affiliate - 20,000
Other current assets (248,000) (61,000)
Deferred income taxes 730,000 (2,023,000)
Accounts payable, trade 740,000 8,920,000
Accrued expenses 5,880,000 3,270,000
Due to affiliate 100,000 72,000
Income taxes payable 1,894,000 (353,000)
Other assets 26,000 (60,000)
Reserve for closed facilities (2,230,000) (1,207,000)
------------ ------------
Net cash provided by
operating activities $ 10,689,000 $ 21,792,000
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures $ (5,473,000) $ (5,125,000)
Purchase of United States Treasury
Notes (499,000) (34,727,000)
Disposition of United States
Treasury Notes 500,000 28,740,000
Disposition of marketable debt securities 50,000 3,390,000
Purchase of marketable debt securities - (2,811,000)
Proceeds from reverse repurchase agreements - 3,151,000
------------ ------------
Net cash used for investing
activities $ (5,422,000) $ (7,382,000)
------------ ------------
Cash Flows from Financing Activities:
Principal payments under capital
lease obligations $ (237,000) $ (159,000)
Acquisition of treasury shares (6,904,000) -
Proceeds from exercise of stock
options 903,000 591,000
------------ ------------
</TABLE>
6
<PAGE> 7
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
---------------------------
October 28, October 29,
1995 1994
------------ ------------
<S> <C> <C>
Net cash provided by (used for)
financing activities $ (6,238,000) $ 432,000
------------ ------------
Net Increase (Decrease) in Cash and
Equivalents (971,000) 14,842,000
Cash and Equivalents at Beginning
of Year 24,134,000 16,318,000
------------ ------------
Cash and Equivalents at End of
Period $ 23,163,000 $ 31,160,000
============ ============
Supplemental Disclosures of
Cash Flow Information:
Cash paid (received) during quarter for:
Interest $ 2,731,000 $ 2,663,000
Income taxes 1,347,000 6,318,000
</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 28, 1995 and October 29, 1994
(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 28, 1995 and October 29,
1994 reflect, in the opinion of management, all adjustments (normal and
recurring in nature) necessary to present fairly the consolidated financial
position as of October 28, 1995 and October 29, 1994 and the results of
operations and cash flows for the periods indicated.
The results of operations for the quarter ended October 28, 1995 are not
necessarily indicative of the results to be achieved for the full fiscal year.
(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) Interim Inventory Estimates:
The Company's inventories are priced at the lower of last-in, first-out
("LIFO") cost or market. At October 28, 1995 and January 28, 1995, inventories
determined on a first-in, first-out basis would have been greater by $6,216,000
and $5,870,000, respectively.
The Company takes a physical count of its store inventories semiannually
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. The Company did not take a physical inventory
for the quarter ended October 28, 1995.
8
<PAGE> 9
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 28, 1995 and October 29, 1994
(Unaudited)
(4) Short-term Instruments and Marketable Debt Securities:
The Company's short-term instruments included United States Treasury
Bills and money market funds. Marketable debt securities included United
States Treasury Notes, corporate notes and municipal securities.
Management determines the appropriate classification of its investments
in debt securities at the time of purchase and reevaluates such determination
at each balance sheet date. Debt securities for which the Company does not
have the intent or ability to hold to maturity are classified as available for
sale. Securities available for sale are carried at fair value, with the
unrealized gains and losses, net of tax, reported as a separate component of
stockholders' equity. At October 28, 1995, market value was $84,000 greater
than cost, net of income taxes. At October 28, 1995, the Company had no
investments that qualified as trading or held to maturity.
The amortized cost of debt securities classified as available for sale
is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization and interest are included in interest income.
Realized gains and losses are included in interest and other income. The cost
of securities sold is based on the specific identification method.
(5) Credit Agreement:
The Company has entered into a $10 million revolving credit facility
with Dart Group Corporation ("Dart"), which owns 67.3% of Trak Auto's
outstanding common stock. The credit facility is intended to be used for the
Company's short-term working capital purposes. Any advance under this credit
facility bears interest at an annual rate equal to the prime rate as set forth
in the "Money Rates" column of the Wall Street Journal, as such rate may change
from time to time, plus one percent (1%). Interest must be paid monthly in
arrears and the agreement expires May 1, 1996.
At October 28, 1995, there were no borrowings under this credit agreement.
9
<PAGE> 10
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 28, 1995 and October 29, 1994
(Unaudited)
(6) Tender Offer:
On December 21, 1994, Trak Auto offered to buy back from its
shareholders approximately 24% of its outstanding Common Stock, or 1,500,000
shares, at a price of $17.50 per share. On February 6, 1995, Trak Auto amended
the offer by increasing the purchase price to $20.50 per share, and made
certain other changes. When the offer expired on February 28, 1995, Trak Auto
had repurchased approximately 310,000 shares for a total consideration of
$6,363,000 plus expenses of approximately $541,000.
(7) Other Events:
On October 6, 1995, the Executive Committee and the Special Litigation
Committee of the Board of Directors of Dart approved a settlement of certain
litigation between Dart and Ronald S. Haft and other related transactions
between Dart and Ronald S. Haft (collectively, the "Settlement"). Immediately
thereafter, Dart and Ronald S. Haft entered into a Settlement Agreement and
various related agreements. The Settlement transactions are subject to legal
challenge. See Item 1 of Part II (Legal Proceedings). If sustained, the
Settlement transactions are intended to have the effect, by their terms, of
transferring majority control of Dart's voting stock to voting trustees (the
"Voting Trustees") under a Voting Trust Agreement, by and among Ronald S. Haft,
Dart and Larry G. Schafran and Sidney B. Silverman, as initial Voting Trustees.
On October 8, 1995, the Board of Directors of Dart ratified and approved the
Settlement.
As part of the Settlement, Ronald S. Haft consented to termination of
all of his outstanding stock options to purchase up to 10,000 shares of Trak
Auto's common stock.
10
<PAGE> 11
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, decreased $971,000 to
$23,163,000 at October 28, 1995 from $24,134,000 at January 28, 1995. The
decrease was primarily due to the repurchase of outstanding Common Stock of
Trak Auto and capital expenditures and was partially offset by operating
results.
Operating activities provided $10,689,000 to the Company during the
thirty-nine weeks ended October 28, 1995 compared to $21,792,000 for the same
period one year ago. The decrease is primarily due to increased purchases of
inventory and to lower operating results that largely resulted from a decrease
in sales.
Investing activities used $5,422,000 of the Company's funds during the
thirty-nine weeks ended October 28, 1995 compared to $7,382,000 for the
thirty-nine weeks October 29, 1994. The Company used $5,473,000 for capital
expenditures during the thirty-nine weeks ended October 28, 1995 primarily for
new Super Trak Warehouse stores. The Company's position in marketable debt
securities remained nearly the same during the thirty-nine weeks ended October
28, 1995.
Financing activities used $6,238,000 of the Company's funds primarily for
the repurchase of outstanding shares of its Common Stock (see note 6 to the
Consolidated Financial Statements).
The Company anticipates that the funds necessary for capital
expenditures for new store openings and remodelings, inventory purchases for
new stores, and payment of 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 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 25 Super Trak or Super
Trak Warehouse stores will be opened or converted from existing stores in
fiscal 1996 and anticipates closing or converting approximately 40 stores. At
October 28, 1995, the Company had 124 Super Trak and Super Trak Warehouse
stores and eight signed leases for new Super Trak or Super Trak Warehouse
stores and three signed amendments to existing leases for expansion to Super
Trak stores.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
Liquidity and Capital Resources, Continued
The Company has an agreement with Dart for a $10,000,000 revolving line of
credit. This line is intended to be used for the Company's short-term working
capital needs. The Company has not borrowed any funds against this line of
credit.
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 or Super Trak Warehouse
stores, and opening additional stores in existing markets, and to fund other
corporate activities.
Results of Operations
During the thirty-nine weeks ended October 28, 1995, the Company opened or
converted five Super Trak stores and 13 Super Trak Warehouse stores, and closed
or converted eight Super Trak stores and 25 classic Trak stores. At October
28, 1995, the Company had 267 stores, including 103 Super Trak stores and 20
Super Trak Warehouse stores.
Sales of $254,244,000 during the thirty-nine weeks ended October 28, 1995
decreased by $12,171,000 or 4.6% compared to the same period one year ago while
sales of $88,226,000 during the thirteen weeks ended October 28, 1995 decreased
$622,000 or .7% compared to the same period one year ago. The decreases were
primarily attributable to a net decrease in the number of stores and, during
the thirteen weeks ended April 29, 1995, to the overall mild winter conditions
in Chicago and Washington, D.C. and the rains and flooding in Los Angeles.
Comparable sales (stores open more than one year) decreased 3.9% and 0.7%,
respectively, for the thirty-nine weeks and thirteen weeks ended October 28,
1995. Sales for comparable Super Trak Stores decreased 2.6% for the thirty-nine
weeks and remained unchanged for the thirteen weeks ended October 28, 1995.
Sales for comparable classic Trak stores decreased 5.0% and 1.5% for the
thirty-nine weeks and thirteen weeks ended October 28, 1995. Sales for Super
Trak and Super Trak Warehouse stores represented 55.3% and 57.5% of total sales
during the thirty-nine weeks and thirteen weeks ended October 28, 1995 compared
to 40.7% and 45.2 % for the thirty-nine weeks and thirteen weeks ended October
29, 1994.
Interest and other income increased by $559,000 and $113,000 during the
thirty-nine weeks and thirteen weeks ended October 28, 1995, respectively when
compared to the prior year, largely due to higher interest rates on the
Company's short-term investments.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, (Continued)
Results of Operations, Continued
Cost of sales, store occupancy and warehousing expenses as a percentage
of sales were 74.1% and 74.2% for the thirty-nine weeks and thirteen weeks
ended October 28, 1995 compared to 72.6 % and 73.0% (excluding the $2,080,000
closed store reserve) for the same periods in the prior year. The increases
were due primarily to higher occupancy costs for Super Trak and Super Trak
Warehouse stores and were partially offset by increased store margins.
Selling and administrative expenses were 20.1% and 19.8% as a percentage of
sales for the thirty-nine weeks and thirteen weeks ended October 28, 1995
compared to 19.8% and 20.0% for the thirty-nine weeks and thirteen weeks ended
October 29, 1994. The increase for the thirty-nine weeks was due primarily to
increased payroll costs as a percentage of sales (actual payroll dollars
decreased) and to increased health benefit costs. The decrease for the
thirteen weeks was due primarily to improved payroll leveraging against sales.
Depreciation and amortization expenses decreased $631,000 for the
thirty-nine weeks ended October 28, 1995 compared to the same period one year
ago. The decrease was due to the store point-of-sale register system being
fully depreciated.
The effective income tax rate was 37.1% for the thirty-nine weeks ended
October 28, 1995 compared to 30.7% for the thirty-nine weeks ended October 29,
1994. The increase was attributable to a reversal of Deferred Tax Valuation
allowance during the thirty nine week period ending October 29, 1994. As of
October 29, 1995, the Company has a capital loss carryforward of $180,000,
which will expire in the year 2010.
The Company is required to adopt the Statement of Financial Accounting
Standards No. 114 ("SFAS No. 114"), Accounting by Creditors for Impairment of a
Loan. Implementation of the standard is not expected to have a significant
impact on the financial statements.
The Company is required to adopt SFAS No. 121, Accounting for Long Lived
Assets, no later than its fiscal year ending February 1, 1997. The Company has
not determined the impact of this recently issued accounting standard on the
Company's consolidated financial statements.
The Company is required to adopt SFAS No. 123, Accounting for Stock
Based Compensation, no later than its fiscal year ending February 1, 1997. The
Company does not expect implementation of the standard to have a significant
impact on the financial statements.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Material legal proceedings pending against Trak Auto, its parent, or its
subsidiaries are described (i) in Trak Auto's Annual Report on Form 10-K for
the year ended January 28, 1995 (the "Annual Report"), (ii) in Trak Auto's
Quarterly Report on Form 10-Q for the quarter ended July 29, 1995 (the "Second
Quarter 10-Q"), and (iii) with respect to material developments in such earlier
reported legal proceedings and any new material legal proceedings, below.
Robert M. Haft Employment Litigation
As discussed in more detail in the Annual Report, on September 20, 1994,
a jury in the case captioned Robert M. Haft v. Dart Group Corporation, et al.
(D. Del., Civ. A. No. 93-384-SLR) found that Dart and Crown Books had breached
their respective employment contracts with Robert M. Haft and awarded him
damages against Dart and Crown Books.
In October 1995, the U.S. District Court for the District of Delaware
denied the motion of Dart and Crown Books for a new trial and/or reduction of
damages. On October 16, 1995, Dart, Crown Books and Trak Auto filed a notice
of appeal with the U.S. Court of Appeals for the Third Circuit.
Derivative Litigation
As discussed in more detail in the Annual Report, in September 1993,
Alan R. Kahn and the Tudor Trust, shareholders of Dart, filed a lawsuit in the
case captioned Alan R. Kahn, et al. v. Herbert Haft, et al. (Del. Ch., Civ. A.
No. 13154), naming as defendants Herbert H. Haft, Ronald S. Haft, Douglas M.
Bregman, Bonita A. Wilson, Combined Properties, Inc., Combined Properties
Limited Partnership and Capital Resources Limited Partnership. This suit was
brought derivatively and names as nominal defendants Dart, Trak Auto, Crown
Books and certain other subsidiaries of Dart. The complaint, as amended,
alleges waste, breach of fiduciary duty, violation of securities laws and
entrenchment.
In connection with a settlement of certain litigation reached between
Dart and Ronald S. Haft, on October 11, 1995, the plaintiff shareholders,
Ronald S. Haft, Combined Properties, Inc., Dart, Trak Auto and Crown Books
entered into a Stipulation and Agreement of Compromise, Settlement and Release
(the "Stipulation"). Pursuant to the Stipulation, the claims against Ronald S.
Haft and Combined Properties, Inc. will be dismissed on the merits and with
prejudice as against the shareholder plaintiffs and Dart and its subsidiaries,
provided, however, that the Settlement and dismissal of these claims are
approved by the Delaware Court of Chancery.
14
<PAGE> 15
PART II - OTHER INFORMATION, (Continued)
Item 1. Legal Proceedings, (Continued)
Ronald S. Haft Stock Options
As discussed in more detail in the Annual Report, on September 12, 1994,
Ronald S. Haft filed a lawsuit against Dart (Ronald S. Haft v. Dart Group
Corporation, Del. Ch., Civ. A. No. 13736) in the Delaware Court of Chancery for
New Castle County seeking a court order that Dart issue certain shares of Dart
Class B Common Stock to him and grant him a loan in connection with his
exercise of a stock option. In connection with this proceeding, on September
14, 1994, a Standstill Agreement (the "Standstill Agreement") agreed to on
behalf of Dart and Ronald S. Haft was ordered by the Delaware Court of
Chancery. The Standstill Agreement restricted certain actions of Dart until
further order of the court.
In connection with the Settlement, on October 6, 1995, Ronald S. Haft,
Dart and the Kahn derivative plaintiffs stipulated to the dismissal without
prejudice of this lawsuit. In filing such stipulation with the court, the
parties recognized that the dismissal of this lawsuit would result in the
termination of the Standstill Agreement.
Herbert H. Haft's Proxy
As discussed in more detail in the Second Quarter 10-Q, on July 18,
1995, Ronald S. Haft filed a lawsuit against Herbert H. Haft and, nominally,
Dart, in the Delaware Court of Chancery for New Castle County (Ronald S. Haft
v. Herbert H. Haft, et al., Del. Ch., Civ. A. No. 14425) seeking, among other
things, a declaration that a proxy granted in July 1993 to Herbert H. Haft by
Ronald S. Haft to vote 172,730 shares of Dart Class B Common Stock is
revocable.
On November 14, 1995, the court denied a motion filed by Ronald S. Haft
for summary judgment in this lawsuit.
Challenge to Settlement by Robert, Gloria and Linda Haft
On October 17, 1995, Robert M. Haft, Gloria G. Haft and Linda G. Haft
(collectively, "RGL") filed a lawsuit captioned Gloria G. Haft, et al. v. Larry
G. Schafran, et al., Del. Ch., Civ. A. No. 14620, in the Delaware Court of
Chancery for New Castle County naming as defendants Dart and all of its
directors. RGL seek (i) to remove all of the directors of Dart and replace
them with three individuals (John L. Mason, Ellen V. Sigal and Michael Ryan),
whom RGL purport to have elected and (ii) a ruling by the court that the shares
of Dart Class B Common Stock placed in a voting trust (the "Trust Shares") by
Ronald S. Haft pursuant to the Settlement are
15
<PAGE> 16
PART II - OTHER INFORMATION (Continued)
Item 1. Legal Proceedings, (Continued)
"treasury shares" owned by Dart and, consequently, are not entitled to vote
under Delaware corporate law.
Dart's position is that this lawsuit is without merit and that the
purported action by RGL to reconstitute the Board of Directors is invalid.
Challenge to Settlement by Herbert H. Haft
On November 6, 1995, Herbert H. Haft filed a lawsuit captioned Herbert
H. Haft v. Dart Group Corporation, et al., Del. Ch., Civ. A. No. 14685, in the
Delaware Court of Chancery for New Castle County naming as defendants Dart, all
of its directors except Herbert H. Haft, RGL, John L. Mason, Ellen V. Sigal and
Michael Ryan. Herbert H. Haft seeks a judgment (i) declaring the Settlement
unlawful, hence null and void; (ii) declaring either that 172,730 shares of
Dart Class B Common Stock belong to him, were wrongfully sold by Ronald S. Haft
to Dart, and that Herbert H. Haft is entitled to restitution of such shares or,
alternatively, that his purportedly irrevocable proxy on the 172,730 shares
continues to be valid; (iii) declaring that Herbert H. Haft retains voting
control of Dart or, at a minimum, 34.55% of Dart's voting power; (iv) declaring
that the Trust Shares may not be lawfully voted; and (v) declaring that
defendants John L. Mason, Ellen V. Sigal and Michael Ryan are not duly elected
directors of Dart.
Dart's position is that this lawsuit, except for the declaration sought
that defendants John L. Mason, Ellen V. Sigal and Michael Ryan are not duly
elected directors of Dart, is without merit.
Standstill Order
In connection with the Kahn lawsuit and the legal challenges to the
Settlement raised by RGL and Herbert H. Haft, on December 6, 1995, the Delaware
Court of Chancery entered a Standstill Order (the "Standstill Order"), which
restricts certain actions by Dart until further order of the court. The
Standstill Order is incorporated herein by reference and attached hereto as
Exhibit 99.1.
16
<PAGE> 17
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Document
------ --------
27 Financial Data Schedule
99.1 Standstill Order, dated December 6, 1995
(b) Reports on Form 8-K
Trak Auto has filed one Current Report on Form 8-K during the quarter
ended October 28, 1995.
1. Trak Auto filed a Current Report on Form 8-K on October 10,
1995, reporting under Item 1 (Changes in Control of
Registrant) and Item 5 (Other Events) a settlement with Ronald
S. Haft.
Trak Auto has filed one form 8-K subsequent to the quarter
ended October 28, 1995.
1. On November 1, 1995, Trak Auto filed a Current Report on Form
8-K reporting under Item 1 (Changes in Control of Registrant)
and Item 5 (Other Events) a lawsuit filed on October 17, 1995
against Dart and its directors by Gloria G. Haft, Robert M.
Haft and Linda G. Haft.
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
Date December 12, 1995 By R. Keith Green
--------------------- -------------------------------
R. KEITH GREEN
President
Date December 12,1995 David B. MacGlashan
--------------------- -------------------------------
DAVID B. MACGLASHAN
Principal Accounting Officer
Date December 12,1995 Robert A. Marmon
--------------------- -------------------------------
ROBERT A. MARMON
Principal Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> OCT-28-1995
<CASH> 23,163
<SECURITIES> 10,289
<RECEIVABLES> 3,820
<ALLOWANCES> 0
<INVENTORY> 97,346
<CURRENT-ASSETS> 142,241
<PP&E> 86,324
<DEPRECIATION> 40,627
<TOTAL-ASSETS> 193,863
<CURRENT-LIABILITIES> 83,461
<BONDS> 26,767
<COMMON> 64
0
0
<OTHER-SE> 80,861
<TOTAL-LIABILITY-AND-EQUITY> 193,863
<SALES> 254,244
<TOTAL-REVENUES> 256,024
<CGS> 188,267
<TOTAL-COSTS> 188,267
<OTHER-EXPENSES> 55,212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,731
<INCOME-PRETAX> 9,814
<INCOME-TAX> 3,641
<INCOME-CONTINUING> 6,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,173
<EPS-PRIMARY> 1.04
<EPS-DILUTED> 1.04
</TABLE>
<PAGE> 1
Exhibit 99.1
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
GLORIA G. HAFT, ROBERT M. HAFT, )
AND LINDA G. HAFT, )
)
Petitioners, )
)
v. ) Civil Action No. 14620
)
LARRY G. SCHAFRAN, BONITA WILSON, )
DOUGLAS BREGMAN, RONALD S. HAFT, )
HERBERT H. HAFT, and DART GROUP )
CORPORATION, )
)
Respondents. )
_________________________________)
HERBERT H. HAFT, )
)
Plaintiff, )
)
v. ) Civil Action No. 14685
)
DART GROUP CORPORATION, )
RONALD S. HAFT, LARRY G. )
SCHAFRAN, DOUGLAS M. )
BREGMAN, BONITA A. WILSON, )
ROBERT M. HAFT, GLORIA G. HAFT, )
LINDA G. HAFT, JOHN L. MASON )
ELLEN V. SIGAL, and MICHAEL RYAN. )
)
Defendants. )
STANDSTILL ORDER
Upon consideration of the application by the parties to the
above-captioned cases.
It is this 6th day of December 1995, hereby ORDERED as follows:
1. Until further order of the Delaware Court of Chancery, Dart Group
Corporation ("Dart") will not recognize any stockholder action seeking to
19
<PAGE> 2
change its Certificate of Incorporation or By-Laws;
2. Until further order of the Delaware Court of Chancery, Dart will
not recognize any stockholder action seeking to change the composition of the
incumbent Board of Directors of Dart, consisting of Herbert H. Haft, Ronald S.
Haft, Larry G. Schafran, Bonita A. Wilson and Douglas Bregman, or any of its
subsidiaries;
3. Until further order of the Delaware Court of Chancery, Dart will
not recognize any stockholder action seeking to change the current Haft family
officers of Dart or any of its subsidiaries;
4. Until further order of the Delaware Court of Chancery, Dart will
not change its Certificate of Incorporation or By-Laws;
5. Until further order of the Delaware court of Chancery, Dart will
not change the composition of the incumbent Board of Directors of Dart, as
defined above, or any of its subsidiaries;
6. Until further order of the Delaware Court of Chancery, Dart will
not change the current Haft family officers of Dart or any of its subsidiaries;
7. Until further order of the Delaware Court of Chancery, or the
United States District Court for the District of Delaware in the litigation
pending in that Court for the District of Delaware in the litigation pending in
that Court instituted by Robert M. Haft against Dart and its subsidiaries
arising out of alleged stock options granted to Robert Haft, Dart will not
issue any additional securities in Dart or any of its subsidiaries, except
employee stock options issued or to be issued in the ordinary course of
business (including stock options issued to new employees) and securities
issued pursuant to the exercise of stock options issued to officers and other
employees;
8. Until further order of the Delaware Court of Chancery, Dart,
without first giving the other parties hereto not less than seven (7) days
written notice, will not take any extraordinary actions, including but not
limited to actions that will: (a) liquidate Dart or any of its subsidiaries;
(b) sell any major subsidiary of Dart; or (c) through any debt transaction
disadvantage any Class B stockholder. This paragraph shall not be construed to
affect Dart's ability to take any legal position its (sic) chooses in the
above-captioned cases; to run the businesses of Dart's subsidiaries on a
day-to-day basis in the ordinary course of business consistent with past
practice; or further implement the Settlement Agreement identified below except
as provided in paragraph 9 hereof. For purposes of this Order, "extraordinary
actions" shall mean any transaction, contract or agreement, the value of which
exceeds $3 million;
9. Paragraph 8 shall not preclude Dart or Ronald S. Haft from
implementing the Settlement Agreement dated October 6, 1995 between Dart and
20
<PAGE> 3
Ronald S. Haft (the "Settlement Agreement"), provided however, that nothing
contained in this Order shall be construed to limit the ability of any party to
object or otherwise challenge judicial approval of the Settlement Agreement or
to limit the rights of any party to bring an action for liabilities arising out
of the Settlement Agreement or its implementation;
10. Until further order of the Delaware Court of Chancery, Dart and
Ronald S. Haft shall not transfer the Eleven Million, Six Hundred Twenty-One
Thousand, Two Hundred Seventy-Six Dollars ($11,621,276) that has been deposited
into a separate account of Settlementcorp at Riggs National Bank and which is
subject to a certain Escrow Agreement pursuant to Article 1.1(i) of Settlement
Agreement dated October 6, 1995, between Dart and Ronald S. Haft. Consent to
the entry of this Order does not constitute the entry of an appearance by any
party in any action in which such party has not previously appeared, and is not
a basis for the assertion of in personam jurisdiction with respect to any party
otherwise subject to in personam jurisdiction;
11. This Standstill Order shall continue in effect until further order
of the Delaware Court of Chancery; and
12. The Delaware Court of Chancery shall retain jurisdiction to make
such modifications, amendments, or additions to this Standstill Order as may be
necessary or appropriate upon application of any interest party and for good
cause shown.
SO ORDERED this 6th day of December 1995.
/s/ WILLIAM T. ALLEN
--------------------
Chancellor
21
