<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 November 2, 1996
----------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from __________ to
___________
Commission file number 0-12202
-------
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 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 13, 1996, the registrant had 5,908,887 shares of Common Stock, $.01
par value per share, outstanding.
Page 1 of 14 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 annual report on Form 10-K for the fiscal year ended
February 3, 1996.
2
<PAGE> 3
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Thirty-Nine Weeks
Ended Ended
----------------------- -----------------------
November 2, October 28, November 2, October 28,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 87,953 $ 88,226 $ 265,397 $ 254,244
Interest and other income 585 615 1,359 1,780
----------- ----------- ----------- -----------
88,538 88,841 266,756 256,024
----------- ----------- ----------- -----------
Expenses:
Cost of sales, store
occupancy and
warehousing 67,262 65,456 200,812 188,267
Selling and
administrative 18,438 17,430 54,695 51,038
Depreciation and
amortization 1,802 1,540 5,556 4,174
Interest expense 923 935 2,769 2,731
----------- ----------- ----------- -----------
88,425 85,361 263,832 246,210
----------- ----------- ----------- -----------
Income before income taxes 113 3,480 2,924 9,814
Income taxes (benefit) (42) 1,316 915 3,641
----------- ----------- ----------- -----------
Net income $ 155 $ 2,164 $ 2,009 $ 6,173
=========== =========== =========== ===========
Weighted average common
shares and common share
equivalents outstanding 5,955 5,884 5,944 5,926
=========== =========== =========== ===========
Net income per share $ .03 $ .37 $ .34 $ 1.04
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS (Unaudited)
November 2, February 3,
1996 1996
-------- --------
<S> <C> <C>
Current Assets:
Cash $ 5,800 $ 5,411
Short-term instruments 10,308 8,148
Marketable debt securities 2,542 8,654
Accounts receivable, trade 8,336 4,709
Merchandise inventories 107,343 99,471
Deferred income taxes 6,842 6,566
Other current assets 3,339 1,034
-------- --------
Total Current Assets 144,510 133,993
-------- --------
Property and Equipment at cost:
Furniture, fixtures and equipment 61,799 56,982
Leasehold improvements 11,811 10,196
Property under capital leases 22,032 22,032
-------- --------
95,642 89,210
Accumulated Depreciation and Amortization 47,830 42,324
-------- --------
47,812 46,886
-------- --------
Other Assets 1,578 1,787
-------- --------
Deferred Income Taxes 4,941 4,929
-------- --------
Total Assets $198,841 $187,595
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE> 5
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
November 2, February 3,
1996 1996
-------- --------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 57,083 $ 46,431
Income taxes payable 1,425 698
Accrued expenses -
Salary and benefits 12,343 11,463
Taxes other than income 5,974 5,185
Other 9,624 11,399
Current portion of obligations
under capital leases 101 101
Due to affiliate 22 71
-------- --------
Total Current Liabilities 86,572 75,348
-------- --------
Obligations under Capital Leases 26,985 26,802
-------- --------
Reserve for Closed Stores and Restructuring 961 3,167
-------- --------
Other - 95
-------- --------
Total Liabilities 114,518 105,412
-------- --------
Stockholders' Equity:
Common stock, par value $.01 per share;
15,000,000 shares authorized; 6,436,145
and 6,416,058 shares issued, respectively 64 64
Paid-in capital 46,458 46,236
Unrealized gain on short-term
investments 6 97
Retained earnings 46,515 44,506
Treasury stock 528,190 shares of common stock,
at cost (8,720) (8,720)
-------- --------
Total Stockholders' Equity 84,323 82,183
-------- --------
Total Liabilities and Stockholders' Equity $198,841 $187,595
======== ========
</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
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-nine
Weeks Ended
------------------------
November 2, October 28,
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,009 $ 6,173
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,556 4,174
Change in assets and liabilities:
Accounts receivable (3,465) 1,474
Merchandise inventories (7,872) (8,024)
Other current assets (2,305) (248)
Deferred income taxes (373) 730
Accounts payable, trade 10,652 740
Accrued expenses 152 5,880
Due to affiliate (115) 100
Income taxes payable 727 1,894
Other assets 213 26
Reserve for closed facilities (2,138) (2,230)
----------- -----------
Net cash provided by
operating activities $ 3,041 $ 10,689
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures $ (6,583) $ (5,473)
Maturities of United States Treasury Notes 4,370 -
Disposition of United States Treasury Notes - 500
Purchase of United States Treasury Notes - (499)
Maturities of marketable debt securities 1,574 -
Disposition of marketable debt securities - 50
----------- -----------
Net cash used for investing
activities $ (639) $ (5,422)
----------- -----------
Cash Flows from Financing Activities:
Principal payments under capital
lease obligations $ (75) $ (237)
Acquisition of treasury shares - (6,904)
Proceeds from exercise of stock
options 222 903
----------- -----------
Net cash provided by (used for)
financing activities $ 147 $ (6,238)
----------- -----------
</TABLE>
6
<PAGE> 7
TRAK AUTO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-nine
Weeks Ended
------------------------
November 2, October 28,
1996 1995
----------- -----------
<S> <C> <C>
Net Increase (Decrease) in Cash and Equivalents $ 2,549 $ (971)
Cash and Equivalents at Beginning of Year 13,559 24,134
------------ ----------
Cash and Equivalents at End of Period $ 16,108 $ 23,163
============ ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid during quarter for:
Interest $ 2,769 $ 2,731
Income taxes 673 1,347
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 2, 1996 and October 28, 1995
(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 November 2, 1996 and October 28,
1995 reflect, in the opinion of management, all adjustments (normal and
recurring in nature) necessary to present fairly the consolidated financial
position as of November 2, 1996 and October 28, 1995 and the results of
operations and cash flows for the periods indicated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Accordingly, actual results could differ from
those estimates.
The results of operations for the quarter ended November 2, 1996 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 November 2, 1996 and February 3, 1996, inventories
determined on a first-in, first-out basis would have been greater by $6,657,000
and $6,579,000, respectively.
8
<PAGE> 9
TRAK AUTO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 2, 1996 and October 28, 1995
(Unaudited)
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 November 2, 1996.
(4) Short-term Instruments and Marketable Debt Securities:
The Company's short-term instruments include United States Treasury
Bills and money market funds. The Company considers short-term instruments,
consisting of United States Treasury Bills, purchased with a maturity of less
than one year to be cash equivalents. The Company's United States Treasury
Bills primarily consist of instruments with a maturity of less than four
months. Marketable debt securities included United States Treasury Notes,
United States Agency Securities Acceptances 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 November 2, 1996, market value was $6,000 greater
than cost, net of income taxes. At November 2, 1996, the Company had no
investments that qualified as trading or held to maturity.
The amortized cost of debt securities classified as available for sale
is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization and interest are included in interest income.
Realized gains and losses are included in interest and other income. The cost
of securities sold is based on the specific identification method.
(5) Credit Agreement:
On December 11, 1996, the Company's Board of Directors approved a
resolution authorizing the Company to enter into a revolving credit facility
under which the Company could borrow up to $25.0 million.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Outlook
Except for historical information, statements in this Management's
Discussion and Analysis of Financial Condition and Results of Operations are
forward-looking. Actual results may differ materially due to a variety of
factors, including the results of ongoing litigation affecting the Company, the
Company's ability to open new stores and close other stores, the effect of
national and regional economic conditions, and the availability of capital to
fund operations. The Company undertakes no obligation and does not intend to
update, revise or otherwise publicly release the result of any revisions to
these forward-looking statements that may be made to reflect future events or
circumstances.
The Company believes that its superstore concept presents significant
growth opportunities and intends to open new Super Trak and Super Trak
Warehouse stores in existing and possibly new markets. In the past, these
superstores have generated higher sales at locations converted from Classic
Trak stores as well as higher gross margins as a result of a change in product
mix (increased hard parts). The Company believes that as superstores mature,
operating expenses as a percentage of sales will decrease. In addition, the
Company may from time to time expand its retail operations through acquisitions
of existing stores from third parties in existing and possibly new markets.
The Company intends to continue its practice of reviewing the
profitability trends and prospects of existing stores. The Company may from
time to time close, relocate or sell stores (or groups of stores) that are not
satisfying certain performance objectives.
Liquidity and Capital Resources
Cash, including short-term instruments, is the Company's primary source
of liquidity. Cash, including short-term instruments, increased by $2,549,000
to $16,108,000 at November 2, 1996 from $13,559,000 at February 3, 1996. This
increase was due primarily to the maturity of United States Treasury Notes and
marketable debt securities and by current operations, and was partially offset
by capital expenditures and current payments against the closed store reserve.
Operating activities provided $3,041,000 to the Company during the
thirty-nine weeks ended November 2, 1996 compared to $10,689,000 for the
thirty-nine weeks ended October 28, 1995. Current period operating results
were the primary source of funds during the thirty-nine weeks ended November 2,
1996 and partially offset by payments against the closed store reserve.
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Investing activities used $639,000 of the Company's funds during the
thirty-nine weeks ended November 2, 1996 compared to $5,422,000 for the
thirty-nine weeks October 28, 1995. The decrease was due to the disposition of
United States Treasury Notes and marketable debt securities in the current
year. Capital expenditures were $6,583,000 during the thirty-nine weeks ended
November 2, 1996 compared to $5,473,000 during the same period one year ago.
Financing activities provided $147,000 to the Company during the
thirty-nine weeks ended November 2, 1996 from the proceeds from the exercise of
stock options and was partially offset by payments for capital lease
obligations. During the thirty-nine weeks ended October 28, 1995, the Company
used $6,238,000 primarily for the repurchase of outstanding shares of its
common stock.
The Company funds its requirements for working capital and capital
expenditures with net cash generated from operations and existing cash
resources. The Company's primary capital requirements relate to remodelings,
new store openings (including purchases of inventory and the costs of store
fixtures and leasehold improvements), and acquisitions. As of November 2,
1996, the Company had entered into lease agreements to open 13 new stores.
Results of Operations
During the thirty-nine weeks ended November 2, 1996, the Company opened
11 new Super Trak or Super Trak Warehouse stores and closed or converted four
Super Trak stores and eight classic Trak stores. At November 2, 1996, the
Company had 275 stores, including 116 Super Trak stores and 34 Super Trak
Warehouse stores.
Sales of $265,397,000 during the thirty-nine weeks ended November 2,
1996 increased by $11,153,000 or 4.4% over the thirty-nine weeks ended October
28, 1995. Sales of $87,953,000 during the thirteen weeks ended November 2, 1996
decreased $273,000 or 0.3% compared to the same period one year ago. The sales
increase for the thirty-nine week period was primarily due to the Company's
continuing conversion to Super Trak and Super Trak Warehouse stores and to the
entry into the Pittsburgh market in January 1996. The decrease for the
thirteen weeks was primarily due to increased competition, particularly in the
Los Angeles market. Comparable sales (stores open more than one year) remained
unchanged for the thirty-nine weeks and decreased 5.1% for the thirteen weeks
ended November 2, 1996, respectively. Sales for comparable Super Trak and Super
Trak Warehouse stores increased 1.0% for the thirty-nine weeks ended November
2, 1996 and decreased 4.3% during the thirteen weeks ended November 2, 1996.
Sales for comparable classic Trak stores decreased .4% and 6.2% for the
thirty-nine and thirteen weeks ended
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)
November 2, 1996, respectively. Sales for Super Trak and Super Trak Warehouse
stores represented 58.3% and 60.0% of total sales during the thirty-nine and
thirteen weeks ended November 2, 1996 compared to 55.3% and 57.5% for the
thirty-nine and thirteen weeks ended October 28, 1995, respectively.
Interest and other income decreased by $421,000 and $30,000 for the
thirty-nine and thirteen weeks ended November 2, 1996, respectively, when
compared to the prior year, largely due to reduced interest income as a result
of a decrease in funds available for short-term investment.
Cost of sales, store occupancy and warehousing expenses as a percentage
of sales were 75.7% and 76.5% for the thirty-nine and thirteen weeks ended
November 2, 1996, respectively, compared to 74.1% and 74.2% for the same
periods in the prior year. The increases were primarily due to increased store
occupancy costs and to a decrease in store margins largely as a result of grand
openings in the Pittsburgh market.
Selling and administrative expenses were 20.7% and 21.0% as a
percentage of sales for the thirty-nine and thirteen weeks ended November 2,
1996, respectively, compared to 20.1% and 19.8% for the thirty-nine and
thirteen weeks ended October 28, 1995. The increases were due primarily to
increased payroll costs.
Depreciation and amortization expenses increased $1,382,000 and $262,000
for the thirty-nine and thirteen weeks ended November 2, 1996, respectively,
compared to the same periods one year ago. The increases were due to increases
in store fixed assets as a result of conversion to the Super Trak and Super
Trak Warehouse stores and the opening of new stores in Pennsylvania.
The effective income tax rate was 31.3% for the thirty-nine weeks ended
November 2, 1996 compared to 37.1% for the thirty-nine weeks ended October 28,
1995. The decrease in the effective rate was primarily due to reduced taxable
income as a result of certain permanent book/tax differences relating to the
net operating loss of a former subsidiary.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for Long-Lived Assets and Long-Lived Assets to be
Disposed of. Adoption of the standard has not had a material impact on the
consolidated financial statements.
The Company has adopted SFAS No. 123, Accounting for Stock Based
Compensation. The Company expects to disclose the fair values of options
granted in a footnote to its annual consolidated financial statements.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Material legal proceedings pending against Trak Auto are described in
its Annual Report on Form 10-K for the year ended February 3, 1995 (the "Annual
Report"). Except as disclosed in Trak Auto's Quarterly Report on Form 10-Q for
the quarter ended August 3, 1996, there have been no material developments in
any legal proceeding reported in the Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders
Trak Auto's 1996 Annual Meeting of Stockholders (the "Meeting") was held
on October 10, 1996. At the Meeting, Trak Auto's stockholders re-elected all
of the directors of Trak Auto.
The results of voting for the election of directors at the Meeting are
set forth below.
<TABLE>
<CAPTION>
Votes
------ Number of shares
Name of Nominee For withheld
- --------------- --- ----------------
<S> <C> <C>
Herbert H. Haft 5,211,941 584,472
R. Keith Green 5,793,141 3,272
Larry G. Schafran 5,793,041 3,372
Bonita A. Wilson 5,793,141 3,272
Douglas M. Bregman 5,792,441 3,972
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Document
27 Financial Data Schedule
(b) Reports on Form 8-K
None
13
<PAGE> 14
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 16, 1996 By R. Keith Green
---------------------- -----------------------------
R. KEITH GREEN
President
Date December 16, 1996 David B. MacGlashan
---------------------- -----------------------------
DAVID B. MACGLASHAN
Chief Financial Officer
14
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> NOV-02-1996
<CASH> 16,108
<SECURITIES> 2,542
<RECEIVABLES> 8,336
<ALLOWANCES> 0
<INVENTORY> 107,343
<CURRENT-ASSETS> 144,510
<PP&E> 95,642
<DEPRECIATION> 47,830
<TOTAL-ASSETS> 198,841
<CURRENT-LIABILITIES> 86,572
<BONDS> 26,985
0
0
<COMMON> 64
<OTHER-SE> 84,259
<TOTAL-LIABILITY-AND-EQUITY> 198,841
<SALES> 265,397
<TOTAL-REVENUES> 266,756
<CGS> 200,812
<TOTAL-COSTS> 200,812
<OTHER-EXPENSES> 60,251
<LOSS-PROVISION> [BLANK]
<INTEREST-EXPENSE> 2,769
<INCOME-PRETAX> 2,924
<INCOME-TAX> 915
<INCOME-CONTINUING> 2,009
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,009
<EPS-PRIMARY> .34
<EPS-DILUTED> .34
</TABLE>
